Legal rights in common law marriages

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September 1, 2009

We often hear clients say things like “We have lived together for over 20 years, surely I must have the same rights as I would if we were married?” or “my boyfriend and I own the house together but I paid the deposit, so I must be entitled to more of the equity?” The answer to both of these questions is very often “no”. There is no such thing as the common law spouse.

When relationships between co-habiting couples breakdown, resolving financial issues, and in particular, interests in property, can be very difficult. The relevant law consists of complicated trust principles, and the whole history of the couple’s relationship may need to be picked over in minute detail. Often, the legal proceedings will be longer and costlier than a divorce, and the results can frequently be less fair.

Despite recent recommendations to change the law in order to put co-habitants on a more equal footing to married couples, the government has shied away from implementing these changes.

What to do

It sounds unromantic, but if you want to avoid the pain and legal costs if it goes wrong, treat your cohabitation like a business transaction! In the beginning, talk to each other about exactly who is going to put what in to the property (deposit, mortgage payments, manual work around the house), agree who is going to get what out of it, and then have that ‘cohabitation agreement’ committed to writing. For the agreement to be worth anything, it needs to be drawn up by solicitors after you have each had independent legal advice. The agreement can deal with all financial aspect of the relationship, and not just ownership of the property.

You can get further certainty regarding any house which you buy, by the conveyancing lawyer drawing up a document saying what shares in the property you each own.

Financial help from parents

In recent years there has been a growing trend of parents helping their children to get onto the property ladder.

Often, this takes the form of the parents simply giving their son or daughter money for the deposit on a house. Unless this contribution is clearly noted by the conveyancer and in a cohabitation agreement, it can often result in the cohabitee walking away with some of the parents’ money.

One of the safest ways of keeping money ‘in the family’ is simply for the parents to buy the house in their own names, and let the couple live in it. However, it means that the parents will face a significant capital gains tax bill if the property increases in value. The property also forms part of their estate on death. Also, very few couples are happy to live in a property owned by one person’s parents!

A better solution can be for the parents to set up a trust, and for the trust to buy the property, or a share in it. This avoids inheritance tax and capital gains tax problems. The parents could be the trustees and therefore still have an element of control over the money.

A final word

Don’t forget: If the couple marry, then completely different rules apply as to division of finances. However, you may still be able to make your own rules with a pre marriage or post marriage contract.

 

Stowe Family Law The Camellia Building 38 Oxford Road Hale, Altrincham WA14 2EB 0161 926 1410

www.stowefamilylaw.co.uk

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