Stuart Barton (Head of Department) and Paula Fraser
Cohabitation means living with a partner whilst not being married to them or being in a Civil Partnership with them. In 1996, just 2.9 million people in the UK were recorded as cohabiting. Fast-forward to 2012 and that figure had risen to 5.9 million. This dramatic increase makes cohabitation the quickest growing family type in the UK.
However, many people are shocked that the legal system in England and Wales offers very little protection to cohabiting couples when their relationship breaks down. Disputes over ownership of property, whether jointly owned or not, must be settled using principles of property and trust law. These principles are complex and it must be said, often provide for results that seem unfair or hard to comprehend.
Organisations such as Resolution have been actively campaigning for reform in this area for many years. In 2007 the Law Commission published a report that clearly recommended the introduction of new laws to assist cohabiting couples after relationship breakdown. However, nothing has been done. This failure to act seems even more bizarre when one considers that countries such as Canada, Australia and Scotland have all introduced reforms for cohabiting couples.
The coalition government have shown a willingness to undertake significant change in the area of family law. The introduction of same-sex marriage has been widely welcomed. Conversely, dramatic changes to legal aid have been widely criticised and condemned. Shared parenting legislation remains a possibility. However, there is no current sign that cohabitation is on the agenda in any shape or form.
One argument raised by successive governments over why reforms to cohabitation are not required is simple. If cohabiting couples want to regulate their financial affairs, either during or after their relationship, they can enter into a cohabitation contract. This is exactly what it sounds like. It is an agreement between the couple setting out their specific financial responsibilities towards one another during their relationship. It can also specify what is to happen in the event of their relationship breaking down.
The idea of a cohabitation contract sounds very sensible but it is fair to say that very few couples actually decide to enter into one. Some couples, understandably, feel that entering into a cohabitation contract is a sign that the relationship is doomed to fail from the outset. For others, the whole attraction of cohabiting is that it avoids the emotional, practical and financial implications of marriage. If a couple hold that view, it is hardly surprising that they don’t want to ‘tie themselves down’ with formal paperwork. ‘Signing on the dotted line’ simply does not seem to appeal to the overwhelming majority of cohabiting couples.
The family home
For most cohabiting couples, the main financial asset that they have is the family home. It may be owned jointly or perhaps in the sole name of one of them. If the relationship breaks down, a decision must be taken as to the future of that home. Should it be sold? Should it be transferred to one of the parties? If it is to be transferred, what should the other party receive by way of a lump sum? All of these questions can be answered and clarified by the signing of a declaration of trust.
If you happen to own the family home jointly with your partner, a trust already exists between you. This was created when the home was purchased, or it may have been created if you decided to transfer the home into your joint names. However it was created, the trust has implications both in relation to inheritance, and how the equity in the home should be divided between the two of you in the event of relationship breakdown.
The importance of a declaration of trust cannot be underestimated. In the event of relationship breakdown and a dispute over the future of the family home, the terms of a declaration of trust provide a clear solution to the parties. If the court is asked to make a decision as to the future of the family home, the terms of a declaration of trust will invariably be followed unless there are exceptional reasons not to do so.
A declaration is of particular importance though for couples where one party is the sole owner of the home and the other party is not. If such a relationship should break down, the non-owning party can often face a difficult and expensive task of proving that whilst nothing was signed on paper, a trust still existed in relation to the family home. Whether they are successful or not though, it is often the case that both parties may end up spending a disproportional amount on legal costs to resolve that dispute.
A properly drafted declaration of trust can avoid much of the stress and expense of resolving a dispute in the above circumstances. Signing a declaration does not mean that the relationship is more likely to fail. Spending a little bit of money on contemplating the ‘what if ‘ scenario can avoid a huge amount of distress and expense if that scenario should actually occur. A declaration can be viewed in the same light as insurance cover. You might not ever need it and may grumble about paying for it at the time. However, if you find your relationship in difficulties, it will be a wise investment.