Cohabitation agreements

Divorcing couples have been dubbed the latest victims of the credit crunch. With house prices on the slide and houses failing to sell, would-be divorcees are finding themselves forced into extending their time under the same roof together.


Cohabitation agreementsUnder the same Roof, with the same agenda

Divorcing couples have been dubbed the latest victims of the credit crunch. With house prices on the slide and houses failing to sell, would-be divorcees are finding themselves forced into extending their time under the same roof together. The vexed issue of division of property on relationship breakdown is not one that is reserved for married couples. There has long been a common misconception in the general public that English law recognises ‘common law spouses’ with financial rights on relationship breakdown. It is often only when cohabitees part and consult their lawyers that they are disabused of this notion, and realise that their rights and remedies fall far shy of those they believed they enjoyed.

The recent case of Fowler v Barron [2008] is a classic example of the dangers of cohabiting without formally regulating the finances. Ex-fireman Mr Barron had his financial fingers burnt when his ex-girlfriend was awarded a 50 per cent share in the house. Mr Barron had paid the deposit, mortgage and household bills throughout 17 years of cohabitation and on this basis, was under the impression that he could claim the house as his own. “Not so” said the Court of Appeal.

Ministers watching Scotland

No specific legislation exists in England with respect to property and maintenance on the breakdown of cohabitation. Reforms recommended by the Law Commission were shelved by the government on 8 March 2008 whilst ministers watch Scotland, to see how similar proposals are implemented there in the form of The Family Law (Scotland) Act 2006. For the time being, therefore, the law on cohabitation in England is a cocktail of contract, trust and property law.

Joint name ownership

In the case of Stack v Dowden [2007] UKHL 17 the court divided the proceeds of the sale 65/35, despite joint legal ownership. The House of Lords held that a 50/50 split did not reflect Ms Dowden’s greater financial contribution to the equity in the property. The discrepancy in outcome between this case and the recent ‘fireman’ case demonstrates that the law in this area is contradictory. Legal ownership provides only a starting presumption as to ownership of the equity. Arguments that legal ownership does not paint a true picture of equitable ownership can be run on the basis of complex equitable doctrines including resulting or constructive trusts and equitable estoppel. This lack of clarity is great for lawyers, but disastrous for the general public.

What can be done?

In a climate such as this the merits of a cohabitation agreement are patent. The principal requirements are that there be an intention to create legal relations, sufficiently precise terms, compliance with the Law of Property (Misc Provisions) Act 1989 and not contrary to public policy. The contract will be invalid if there is any element of duress or fraud.

Although there is no legal obligation to maintain, a cohabitation agreement could provide for short term maintenance whilst the lesser earner adjusts to the termination of financial dependence. The agreement can also deal with ownership of items bought on credit, payment of credit cards, payment of outgoings and division of house contents. A Deed of Trust can expressly record the respective shares in the home. The advantages of fixed ownership shares are certainty and no need to keep receipts, but there are disadvantages. Circumstances may change and over time one partner may end up paying far more than the other. A more flexible option is floating shares.

Over the last 15 years the issue of law reform for cohabiting couples has been largely ignored by the government. The Family Law (Scotland) Act 2006 in Scotland attempts to deal with the real injustices that face cohabitants on separation and death. Certainly, it provides far more protection for cohabitants than is afforded under English law. One in six heterosexual cohabiting couples are unmarried and 40 per cent of all children in England and Wales are born to unmarried parents. Despite this, the government has shelved comprehensive Law Commission recommendations for legal reforms. In the interim, a binding cohabitation agreement remains the most prudent option for cohabiting couples.

Caroline Gordon-Smith is a partner and Georgina Vallance-Webb an associate at Stevens & Bolton