A guide to couples’ finances (and why you need a cohabitation agreement)

Legal

Do you live with a partner or friend? Find out where you stand legally, and why you may need a cohabitation agreement.

A new survey by Barratt London has exposed a concerning lack of awareness about the reduced legal rights of unmarried homeowners. Barratt London have collaborated with family lawyer from Parfitt Cresswell, Elizabeth Jones, to produce a guide to couples’ finances and cohabitation agreements.

Buying your first home together means dreaming of happy times ahead. But it’s also the time to be serious. What would happen to that home and everything you own, should you decide to go your separate ways?

In England and Wales opposite and same-sex couples who live together – or ‘cohabit’ in legal language – do not automatically have the same legal rights as married couples. 

This is concerning because more unmarried couples are buying homes than ever before. Marriage rates are at their lowest since records began and ONS census data found that the number of cohabiting adults in the UK rose by more than 800,000 between 2010 and 2020.

Barratt London conducted a survey of 500 British adults and found that: 

• More than half (61%) had never heard of a cohabitation agreement before. 
• One in four (25%) were unaware that unmarried couples do not have as many rights around property and finance as married couples. 
• One in three people who were in a relationship but not married (32%) did not know that they had less rights around property and finance as a married couple. 

When do you need a cohabitation agreement?

We asked family lawyer, Elizabeth Jones from Parfitt Cresswell, for her advice about cohabitation agreements. She recommends a cohabitation agreement to anyone who is planning to live with someone, whether on a relationship basis, on a financial basis sharing living expenses, or on the basis of familial and/or friendship bonds.

The dangers of not using a cohabitation agreement are uncertainty over ownership of property, furniture and effects, which can be very stressful and expensive to resolve via the courts.

What should a cohabitation agreement include?

Elizabeth Jones says that a strong cohabitation agreement should include: 

• Detailed personal information and evidence of personal finances to avoid any accusation of misleading the other parties. 
• Whether the property will be held in fixed shares or is a more adaptable approach  referred. 
• How household expenses will be shared. 
• How furniture and effects are to be owned and maintained. 
• Whether a buy-out clause is available to all parties or not. 
• What if any provision will be in place for a survivor should a party die. 
• An agreed process for valuing and selling the property upon relationship breakdown. 

What are the pros and cons of a cohabitation agreement?

What are the pros and cons of a cohabitation agreement? The pros are that an agreement gives clarity and peace of mind. It can avoid the need for very costly and unpredictable court proceedings by declaring how the property, furniture and effects will be owned and maintained. Third party investors such as ‘the bank of mum and dad’ can have the terms of their investment in a property agreed and protected.

The cons are that cohabitation agreements are a recent phenomenon and the courts have processed few cases so practitioners can’t give certain advice upon enforceability yet. That will change with time.

Soon, the cohab agreement will be as ubiquitous as the pre-nup but we’re not quite there yet, though demand is growing.

When might you consider a cohabitation agreement?

Barratt London’s survey found that only 10% of people would not consider using a cohabitation agreement. They also asked what situations people would consider a cohabitation agreement for:

Who can help you with a cohabitation agreement?

Elizabeth Jones recommends that you first speak to who you are planning to live with to see if they are willing to enter into a cohabitation agreement. If so, then consider approaching an experienced family lawyer.

Most family lawyers will charge on a time basis, thus, the more complex the agreement the more expensive it will be. Further preparation of such an agreement is likely to coincide with an expensive property purchase, that said, it is a worthwhile investment to ensure clarity and security.

When to refresh your cohabitation agreement

You will need to revisit and refresh your cohabitation agreement if either of you:

• Becomes seriously ill or disabled
• Loses their job or faces a drop in income
• Receives a large inheritance

You will also need to refresh your cohabitation agreement if:

• You have a child together
• You decide to get married

Saving for a deposit together

Saving for a deposit is a challenge, but think how proud you will feel when you’ve achieved it. Even if you choose to keep separate bank accounts, it’s important to get into the habit of saving together. 

First work out the amount of deposit you need. Agree how much you can both afford to put away each month. Iron out any issues, especially if one of you earns more than the other. Then take time to research the best savings accounts and schemes for you, not forgetting Government-backed incentives such as London Help to Buy and Help to Buy ISA. 

Ideas to help your savings pot grow

Want to save up towards a home of your own? Here are three ideas to help your savings pot grow:

1. Payroll-deducted saving schemes: Find out if your employer offers a savings scheme which deducts a set amount out of your salary every month. You won’t miss the money because it never even hits your bank account.
2. Alternative bank account options: Switch to current accounts which offer cashback or rewards on utility bills and shopping. It’s free cash, so direct it straight towards your savings account.
3. Save money after bills: Practise ‘skimming’. When you’ve met your expenses every month, transfer the remaining balance of your current accounts to savings.