More couples than ever are choosing to live together without getting married.
For those who are not married or in a civil partnership, especially High Net Worth Individuals (HNWIs), this could potentially put your wealth and assets at risk.
If the relationship breaks down, there is no legal protection in place and a cohabitation agreement could be the most effective way to protect your finances.
What is a cohabitation agreement?
A cohabitation agreement is a legally binding document that sets out how finances, property and other assets will be managed during the relationship and if you separate.
It can also clarify both parties’ responsibilities for any household expenses and shared commitments and record any unequal financial contributions to joint purchases.
Couples may assume that they are protected under “common law marriage” if they separate, but this is a complete misnomer as there is no such thing in England and Wales as a common law marriage.
Regardless of how long a couple have lived together, cohabiting partners have no automatic legal rights to each other’s property, income or pensions unless they have reached a formal agreement in that respect.
Why do HNWIs need a cohabitation agreement?
For HNWIs, many enter relationships with significant pre-owned assets, such as property portfolios, business interests, investments or inherited wealth.
A cohabitation agreement allows these assets to be clearly stated and protected.
Without an agreement, disputes following a separation can quickly escalate into a costly litigation, especially when asset structures are complex or contributions to assets are unequal.
Such an agreement can protect a financially weaker partner by recognising non-financial contributions, such as childcare and setting out any agreed financial support after separation.
What should be included?
A cohabitation agreement looks different for many couples, but most will address:
- Property owned before cohabitation and whether it remains separate
- Property acquired during the relationship and how it will be divided
- Responsibility for household bills, mortgage payments and debt
- Ownership of assets such as vehicles and savings
- Financial arrangements if the relationship ends
- How the agreement interacts with Wills and estate planning.
For HNWIs, an agreement should reflect their estate and succession planning and legal advice is crucial to ensure this is drafted accurately.
Why early preparation matters
A cohabitation agreement is not about planning for failure but about protecting your assets and creating a fair agreement.
For a cohabitation agreement to be enforceable, both parties must receive independent legal advice and provide full financial disclosure.
An agreement that is poorly drafted, outdated or entered into without proper legal advice may be open to challenge or set aside by the court.
Cohabitation agreements should be regularly updated when there are major life changes such as an increase in wealth or the birth of children.
For HNWIs, a cohabitation agreement can help reduce the risk of future disputes and allow couples to not be faced with uncertainty if the relationship breaks down.
If you need any further advice, contact our Head of the Family and Relationship Team, Alison Green on 0207 420 4193 or on alison.green@mackrell.com.
