Cohabitation agreements and declarations of trust
It is a common misapprehension that if you live with someone long enough, your relationship transforms into a ‘common law marriage’ and you acquire the same legal rights over each other’s property and assets as a married couple. However, under UK law, you can only acquire such rights if you marry or enter into a civil partnership.
‘Unmarried couples have far fewer legal protections and rights than married couples,’
says Akash Soni, a Solicitor & Mediator ‘So, it is sensible for any couple moving in together to enter a legal agreement that will clarify
the rights and responsibilities each person has regarding their property and finances
while they cohabit, and which will dictate what should happen if a dispute arises or
one party moves out.’
There are two main types of legal agreement that can be used to clarify the
intentions of cohabitants, to protect their individual assets, and prevent costly legal
disputes:
a declaration of trust specifically addresses ownership and division of a
property or properties (a single document outlines the ownership interests and
responsibilities for each property in the portfolio); while
a cohabitation agreement covers broader financial and personal rights and
commitments, such as responsibility for paying bills and for maintenance and
repairs, and ownership of shared belongings.
Both of these types of agreement can be used in conjunction with each other and
should be drawn up by a solicitor to ensure the agreements are accurate, legally
binding, do not contradict each other or any existing will, and reflect the wishes of
both parties. In the absence of such agreements, disputes over property and
finances can become lengthy, costly, and emotionally draining.
Declaration of trust
A declaration of trust is a legally binding document which clearly states the
proportion in which a property is owned and how sale proceeds will be divided. It
outlines each cohabitee’s share of the property, including their contributions to the deposit and mortgage, and outlines what happens in different situations such as if
one wants to sell their share or if one dies.
A declaration of trust will typically include provisions which outline:
each party’s initial financial contribution to the deposit;
how mortgage payments and other outgoings will be shared;
what occurs when the property is sold, including how the proceeds will be
split;
the procedure for one owner to buy out another’s share of the property; and
any agreements regarding occupancy rights of the property.
The document must be in writing and signed by all parties involved, with a solicitor
drafting or reviewing it to ensure it is a formal deed, includes specific property
details, and that all parties signed willingly with full understanding of its implications.
It is a vital tool for any jointly owned property, particularly if one person contributes
more financially than another, or if the bank of mum and dad helps you get on the
property ladder and they want to ensure the property stays in the family.
A declaration of trust can also be useful if you buy a property alone but wish to grant
your partner an interest over time even if their name is not on the title. The trust
document can outline that while you are the legal owner, you hold the property on
trust for the benefit of your partner, who becomes a ‘beneficiary’. It legally protects
their financial contribution, ensuring they receive their entitled share of the property’s
value when it is sold, or if the relationship ends.
Conversely, if the property is in your sole name (making you the legal owner) and
you want to keep it that way, a declaration of trust can prevent your cohabitee
claiming a beneficial ownership in the property and acquiring possible rights to
occupy the property or take a share of any rental income or sale proceeds.
This may arise if they claim they contributed towards the mortgage, rather than just
paying rent; the declaration of trust will explicitly state that beneficial ownership rests
solely with you and the only valid reasons your cohabitee can use to challenge the
declaration of trust is if fraud or misrepresentation was involved during its creation.
Cohabitation agreement
A cohabitation agreement can serve as a clear outline for a cohabiting couple’s
relationship and is documentation that can be used as evidence if a dispute goes to
court after relationship breakdown. It allows each cohabitant to protect their
individual financial interests and assets when they move in together, while also
clarifying who is responsible for what in the shared property.
As well as the issues covered in a declaration of trust, which generally only relate to
property, a cohabitation agreement can cover a wide range of financial and personal
arrangements, such as the ownership of assets and savings, management of
finances, insurance and pensions, payment of debts and bills, responsibilities for
repairs and maintenance, provisions for children and pets, and next-of-kin
arrangements in case of illness or death.
To ensure a cohabitation agreement is legally binding in the UK, it must be drafted
as a formal deed, signed by both parties, and entered into freely, without pressure or
undue influence. Both partners should obtain independent and separate legal advice
and provide full and frank financial disclosure. It is also vital to ensure the agreement
is regularly reviewed and updated to reflect significant life changes – otherwise it
may be found to be invalid.
How we can help
Cohabitation agreements and declarations of trust are extremely valuable
documents and it is important you consult a specialist solicitor to ensure you have
the right agreements for your circumstances.
Our expert family lawyers will listen to your requirements, talk you through your
options and draw up a document that is accurate, reflects the needs and wishes of
both you and your partner and is legally binding.
For further information, please contact our the family law team on
01494 776696 or email [email protected]. Breakthrough Solicitors has offices in Harrow, Milton Keynes & London.
This article is for general information only and does not constitute legal or professional
advice. Please note that the law may have changed since this article was published.