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Purchasing a house with your partner? Consider a Cohabitation Agreement

It’s never pleasant to consider separation when you are in a committed relationship. However, if you and your partner are cohabiting (i.e. not married or in a civil partnership) and looking to purchase a property together, you should strongly contemplate formally recording what you would like to happen to any jointly owned property in the event of your separation.

We know it isn’t the most romantic of conversations but the purchase of a property is a significant financial commitment, and planning for the future is especially prudent where one party is contributing more to the deposit or purchase price than the other. Entering into a Cohabitation Agreement can help protect your finances in these circumstances.

What is a Cohabitation Agreement?

A Cohabitation Agreement is a binding, enforceable legal document that sets out what is to happen to a couple’s finances should they decide to separate. It is sometimes called a Minute of Agreement, or even a Deposit Agreement where it solely deals with a couple’s jointly owned property.

Cohabitation Agreements can be tailored to your individual circumstances, but where the purchase of a joint property is concerned, they will commonly stipulate that, on separation, the couple’s jointly owned home should be sold. The parties should then “get back what they put in” to the purchase before the remainder of the sales proceeds are split equally between them. This means that, if one party has paid more towards the purchase or in terms of the deposit, they will receive a share of the net free proceeds that is proportional to their investment.

Why is it useful to have one?

When a couple buy a house in joint names, they automatically become joint owners of the home, regardless of any difference in their respective financial contributions towards the purchase. Ultimately, this means that both parties will be entitled to receive a half share of the net free proceeds of any sale. Depending on how the house purchase was funded, that could result in an economic windfall for one party at the expense of the other. If one party refuses to sell on separation, the other would have to resort to seeking a court action for Division and Sale to force the issue.

If the property was sold, and it was felt by one party that a 50-50 distribution of the net free proceeds of sale was unfair (and if their partner would not agree to a different share), a former cohabitant would have no remedy other than to raise a court action under section 28 of the Family Law (Scotland Act) 2006.

Section 28

Under s.28, one former cohabitant can make a claim against their partner where they have suffered an economic disadvantage as a result of their contributions to the relationship, whether those contributions are financial (such as paying a larger share of a deposit) or non-financial (such as devoting time to the care of any children of the relationship and allowing the other partner to progress in their career). It is important to note that the court has a large degree of discretion as to whether or not an award is appropriate under s.28 cases, and as to what the extent of the award should be. In making a decision, the court has to balance any economic disadvantage suffered by one party against any economic advantages they may have received as a result of the other partner’s contributions.

Crucially, the court is only able to award a capital sum, and cannot, for example, order a jointly owned property to be sold and for the proceeds of sale to be split in a certain manner. There is no guarantee that, in raising a claim, you will be able to recover the money that you put in to the former family home.

There has been no real consistency in the way courts have dealt with claims under Section 28 since the legislation came into force, and these actions often end up being complex, unpredictable and costly. By contrast, a Cohabitation Agreement can ensure certainty, be put in place fairly quickly, and be drafted and registered for a reasonable fee.

Final thoughts

Although it can feel uncomfortable to talk about separation with your partner, having a frank discussion about your finances and what you would like to happen should you separate can ensure that future litigation, stress and expense can be avoided.

Whilst this blog has dealt mainly with property, it is important to remember that Cohabitation Agreements can be used to protect other personal assets on separation. They can also be revisited should a couple decide to marry, and even be used to form the basis of a pre-nuptial agreement.

If you are looking to purchase a property with your partner and would like to speak to a solicitor about putting a Cohabitation Agreement in place, please do not hesitate to contact us. The Family Team are more than happy to help.