It may not seem romantic, but cohabiting and finances go hand in hand.
Moving in together has become so common in Britain that it’s now become the norm for a lot of people. Unfortunately though, things can go wrong. Cohabiting couples are Britain’s fastest-growing family type.
So, while you might not need a piece of paper to prove how much you love each other, it’s essential to have financial security whatever your relationship situation. Find out what your rights are as a cohabiting couple.
- What is a cohabitation agreement?
- Cohabitation agreements
- Property ownership
- Pensions and life insurance
- Owning your own home
- What is Joint Ownership?
- Tenants in common explained
- What if things go wrong?
Many people believe that if you live together for long enough you get the same rights as a married couple. This is sometimes called ‘common law marriage’. But cohabiting finances are more complicated than that.
There’s no such thing as a common law marriage in the UK, and there are no rights attached. This poses big risks when you’re pooling your wealth and setting up house together.
No matter how long you’ve been living together, if one of you dies, the other will not automatically inherit their assets. Cohabiting makes finances less clear-cut after a split. If you break up, there isn’t necessarily a right to see your children or receive financial support. Cohabitors don’t count as legal ‘next of kin’.
For all these reasons, you need to get a cohabitation agreement.
COHABITING, FINANCES, and children
If you have children together, know your rights and obligations in case you do split up. When cohabiting, finances are more important than ever where kids are involved.
Unmarried parents are required to pay maintenance for their children, however they do not have the same custodial rights as married or divorced parents would. Guardianship of the child often immediately goes to the mother. In this case, the father has no right to act on the child’s behalf unless in an emergency.
To ensure your rights as a father, you need to get Parental Responsibility. As of December 2003, an unmarried father who jointly signs the birth register with the mother will have Parental Responsibility automatically. This does not apply to children born before this date though.
If you’re not on the birth register, you can get a legally binding Parental Responsibility Agreement (with the mother’s consent) or go through the courts to get a Parental Responsibility Order (if your partner won’t play fair).
Unmarried partners have no right to their partner’s house or property if they break up – no matter how long they’ve been together. However, the children do have rights and as such, a parent can remain in the family home owned by their ex until the last child turns 18.
It’s a good idea to have some sort of cohabitation agreement between you both, and to think carefully about the way you rent or buy property together. If a house is in both your names, you’ll have more rights. Ideally, you should have both names on the property deeds.
A cohabitation agreement is like a pre-nuptial agreement. You might not need the wedding certificate, but you do need a basic contract covering assets, children and property to save a lot of pain if you break up. This is a binding contract between unrelated parties. It solidifies your intentions on finances as a cohabiting couple.
You need to consider:
- The purpose of your agreement – do you intend the agreement to be legally binding or just a statement of your expectations?
- The length of time the agreement will cover.
- Arrangements for children – for example, arrangements for maintenance and agreement on having contact should you separate.
- How will you treat property owned by either of you at the beginning of the relationship? – Will property bought while you live together be shared equally or in proportions set out in the agreement?
- How will you deal with debts you have at the beginning of the relationship? – Make a statement of what each of you owes.
- Inheritance and wills – What, if anything, will you leave to each other?
- Who will get what if you break up?
- How will you resolve disagreements – for example, with advice from professionals or through a mutually agreed person?
Cohabitation agreements can be really useful if one of you is much wealthier than the other.
See the Living Together sections on the Advicenow website for more information and a sample cohabitation agreement.
It may be romantic, but moving in together can quickly lose its gloss if each party has different ideas about responsibility. Plus, if your tenancy is just in your partner’s name, you’ll have no right to stay if your ex asks you to leave or walks out.
- Whose name will be on the tenancy agreement?
- How much rent will each person contribute? This is best paid into a joint account before being paid automatically to the landlord.
- Do you have too much stuff for one flat or home? Which stuff will be sold and how will the profits be used?
- How will bills be split? Consider adding a lump sum each month to your rent to account for irregular, annual or biannual bills. Better to contribute more than you expect to pay originally so there’s no shortfall for the rent.
- If you move into your partner’s rented flat you won’t have any right to stay there if you break up – even if you have contributed to the rent. If you would like to safeguard your position there (perhaps to give yourself time to find somewhere else if it all goes pear-shaped) get yourself on the rental agreement as a joint tenant – if the landlord agrees.
Buying a house together is one of the biggest decisions couples make, and it shouldn’t be taken lightly. There’s huge room for error, which can ultimately put your house and savings at risk.
You need to agree in advance what you can each afford to pay. This may be a certain percentage of each partner’s income. Finances and cohabiting may seem like tricky territory, but it’s better to be upfront from the start.
You should also make a note of ‘must-haves’ for each person. You might be willing to compromise on a garage, but your partner may be adamant. Try to rein in shared enthusiasm for “that perfect period palace” in the country and stick to your budget. But don’t forget to discuss whether the property works for a growing family/having friends to stay/sharing with an elderly relative, if any of those scenarios are likely.
Take your time
Don’t make a decision on the spot. It’s important to have a good look around one or two areas you’re interested in. Compare a handful of properties and talk the decision over with family and friends – preferably as quickly as possible.
It is key that both parties have independent legal advice. This could include whether a cohabitation finance agreement is a good idea in your case.
Take time to shop around for a competitive deal. Learn more about re-mortgaging in our handy article.
Be warned – If your ex owns the home, and there’s no formal agreement in place, you’ll have no automatic right to stay if they ask you to leave.
If you’re planning to stay shacked up for some time, it’s a good idea to make sure your pension and life insurance plans provide good cover for your partner.
Couples who live together, unlike married couples, are not entitled to receive the state pension or bereavement allowance for deceased partners. Also, some occupational and personal pensions will pay out to partners but many won’t. You should check with your provider to find out what they will do. Ask if they’re knowledgeable about finances for cohabiting couples.
Personal pensions can be arranged to cover whoever the pension-holder wants. But, if you want special provisions you often have to pay a lot more. If you’re worried about your partner not having enough money to cope if you shuffle off this mortal coil first, take out a life insurance policy to provide for them.
Thousands of couples are completely unaware that a large number of personal pension plans signed before July 1988 include a clause which will see your partner or spouse get only the contributions you made, rather than the whole pot. Signing away the right was over-looked at the time, because the alternative was a higher overall pension.
Take time to go through yours with a fine-tooth comb. If your pension has the clause, act quickly to switch to a modern plan or take out life insurance to cover the shortfall. Pensions, personal finances and cohabiting all need to be thought of in relation to each other.
Owning a home represents the good life for many British couples. But when cohabiting, finances need planning more than ever.
On the upside
- It’s often impossible for single people to get on the property ladder now. You need at least two incomes to even consider it.
- Monthly mortgage payments are invested in your property rather than your landlord’s, building your nest egg instead of theirs.
- The value of your home is likely to grow each year (although nothing is certain).
- You can brag to friends, and invite as many to stay as you like, for as long as you want.
- Most people have no idea what they’re going to be doing for the next 20 years, so committing to paying £1000s each month is risky.
- If it does all go horribly wrong, you risk years of savings and mortgage payments in a messy split.
If you buy a house or flat, or move into your partner’s place and start contributing to the mortgage or the bills – or for that matter re-decorating or buying furniture; you need to protect your interests.
- Agree in advance what you can each afford to pay.
- Split the mortgage/bills and unexpected costs.
- Both get independent legal advice.
- Each take out income protection insurance if you think you really need it.
- Live within your means. Be realistic about mortgage payments and prioritise them before all other spending.
- Make sure your mortgage remains competitive. Don’t stick with your current provider without shopping around. Learn more about re-mortgaging here.
If you decide to co-own your home then you need to think about how you want to divide it up in legal terms. There are two ways of doing it: either jointly or on the basis of ‘tenants in common’.
- If one of you dies, the surviving partner automatically owns the house, regardless of whether a will has been drawn up.
- This means you can’t ‘gift’ your share of the property to anyone else. Because lots of people don’t bother to make wills, this at least covers the problem of dying intestate (without a will) since there will be no arguments about who subsequently owns the whole house. See our will writing guide here.
- If you split up, though, it’s worth bearing in mind that you might end up feeling short-changed if you have put more money into the house than your partner.
- You might have each paid half of the deposit and then split everything from the mortgage payments down to the decorating bills right down the middle.
- Or, you might have paid most of the deposit and then forked out far more towards the mortgage payments that your partner did.
It doesn’t matter either way – in the eyes of the law you still share the home equally. You could contest this in court, but that would be time-consuming, costly, and might not end up the way you wanted anyway.
You can only sell the house if both of you agree – this may cause problems if one of you wants to sell and the other doesn’t but can’t afford to buy out the remaining share. This is why your cohabiting finances need to be planned out from the very beginning.
Tenants in common
- The difference between this and joint ownership is that there’s a technical division of the property, so each owner can leave their share of the house to anyone they like. This can work well in certain circumstances: it gives each partner an element of control. But it can be tricky if one dies and leaves their share to someone else.
- It’s a good idea for friends or siblings who share ownership of a property: If you and your brother inherit your parents’ house together, you may want to pass your share to your spouse or children rather than to him.
For the majority of people, joint ownership is still the best option though.
- Unless you’ve got such a valuable house that planning for Inheritance Tax through the generations is a necessity, it doesn’t really seem fair to inadvertently shackle, or be shackled by, someone you have loved.
If you divorce, both parties have a right to a share of the former marital home. But, if you’ve just been cohabiting, there’s no automatic right.
You can argue for a share of your home:
- If the home is in both of your names. Or,
- If you can prove you directly helped buy the home or improve it in some way. For example, if you paid the deposit or mortgage instalments, this would constitute a beneficial interest.