18 Essential Tips To Consider When Setting Up Home With Your Partner
Moving in with a partner is a big step. It’s an exciting time and there are lots of things to think about. Understandably you won’t want to dwell on what might happen if you split up. Whilst you may not need a piece of paper to prove your commitment to the relationship, it is essential to have financial security, whatever your relationship situation.
We have put together this guide in the hope that it helps you to better understand your position before living together and prompts you to have frank discussions about financial and other arrangements from the outset which will hopefully provide clarity and a solid framework for the future.
The Common Law Myth
Despite more and more couples choosing to live together over marriage, the level of public ignorance in this area is astounding. Many people mistakenly believe that couples living together have the same rights as married couples and that ‘common law marriage’ is a recognised legal status.
The Vital Statistics
Cohabiting relationships are fragile. Statistically they are more likely to break up than marriages entered into at the same time, regardless of age or income. On average, cohabiting relationships last less than two years before breaking up or converting to marriage. Less than four per cent last for ten years or more.
Breaking Up Is Hard To Do
So the song goes, but far more so for unmarried couples. The law affords married couples much more security on the break-up of their relationship than it does for unmarried couples. When a married couple divorces, a court decides how to divide their property based upon the needs of both spouses and any children they have. However when a cohabiting couple break up, each person retains ownership of their own property, regardless of need.
Time To Put Your Cards On The Table
Before moving in with your partner, have an honest upfront discussion about your personal and financial circumstances. Talk to one another about what you each earn, what savings and other resources you have, any debts or other commitments that you are paying. Not only will it help you work out what you can each sensibly afford to pay each month toward your accommodation but it will also ensure that you enter the relationship with your eyes open. If you do decide that are going to have a formal written agreement in place, it is necessary to disclose your financial circumstances in the contract in order for it to have a reasonable prospect of being upheld.
Make A Budget Together
Set out all your future home running expenses and personal expenses and decide what you can each afford to contribute towards your accommodation costs, make sure that you calculate monthly expenditure as well as bi-monthly, twice yearly and annual costs.
Renting A Property
Decide whose name will be on the tenancy agreement and how much rent you will each contribute. If you move into your partner’s rented property and your name isn’t on the tenancy agreement, you won’t have any right to remain in the property if you separate, even if you contributed to the rent. If the tenancy is in joint names and the rent falls into arrears, you will be jointly liable.
Property Ownership – Co-owning
If you are buying a property together, there are two different ways to co-own it; as joint tenants or tenants in common. Whilst most conveyancing solicitors will send out standard documentation to home buyers explaining the difference, with the raft of documents that have to be filled in during a conveyancing transaction this can often be overlooked. All too often we see clients at the end of their relationship shocked to discover that they have paid the bulk of capital toward a property, only to find that they have no greater claim on the equity, or that no election was made as to the shares that they hold in the property.
With a joint tenancy, neither owns a distinct share in the property. Each owner will have a potential share equal in size to that of the other joint tenants. With a joint tenancy, each person will have a prospective 50% share of the property, irrespective of any difference in the level of contributions to the purchase price, prior to the breakdown of a relationship. If a joint tenant dies, the other joint tenant acquires his interest in the property, regardless of the content of a will. If a co-owner under a joint tenancy spends money improving the property he acquires no increased share in the property.
With tenants in common, at the outset you will each specify the separate identifiable share in the property that you own. This can be equal shares or something different, e.g. 60%/40%. Tenants in common can leave their share in property by will and if they haven’t made a will their share will pass according to the Intestacy Rules.
Whichever route you opt for you should seek independent legal advice to work out what is best for you. Consider how you will contribute to the mortgage and any future home improvements, particularly if you have specified unequal shares in the property and make sure that your intentions are documented by your solicitor.
Property Ownership – Property In One Party’s Sole Name
It may be that you are purchasing a property together but for one reason or another, your name is not being placed on the title deeds. This could be because your name is on another mortgage or your credit history is weak and the mortgage could only be obtained in your partner’s name. It may be that the property being purchased is a right to buy and needs to be in the name of one person alone. If your name is not going on the title but the intention is for you to have a share in the property, get it in writing. Your solicitor can prepare a document known as an express declaration of trust, to record this. Without it, you face an uphill struggle trying to prove that there was an agreement to share the property.
If you have moved into a property in your partner’s sole name and have made direct or indirect financial contributions to the property, this may demonstrate that you are entitled to claim a financial interest in the property. The law in this area can be very complicated and if nothing is written down you can face costly legal proceedings trawling back over financial records trying to demonstrate what each of you intended. There really is no substitute for having upfront discussions before you move in and getting it recorded through an agreement drawn up by your solicitor.
A Joint Account or Not? – That Is The Question
Whether or not you decide to open up a joint account to pay your household expenses will to a large extent depend upon whether the property is being rented or purchased jointly or not. If you both intend the property to be owned or rented by one of you solely and that it should remain that way, you may decide to maintain separate accounts. If you are buying or renting together, a joint account is often a sensible way to meet household expenditure but think about how much you each pay in. If you are buying as joint tenants are you comfortable with the fact that one of you may be earning more and thus contributing more, even though they will not be entitled to an enhanced share. If you have specified unequal shares in the property are you going to pay bills equally, or make contributions that are proportionate to the shares you have specified.
If you do open a joint account, do bear in mind that in the absence of a contrary agreement with the bank, you will both be able to make unlimited withdrawals from the account and even negotiate an overdraft facility without written instructions from the other account holder. Even if unequal funds are paid into a joint account each month, there is a presumption that you are entitled to share the proceeds (or the overdraft liability) equally.
When The Unforeseen Happens
So you’ve bought the property, decided how to own it, agreed what you will each contribute, opened the joint account and all of a sudden life takes over. Consider what would happen in the event of a major change in circumstances such as one of you losing your job, a major illness or the birth of a child. Any of these circumstances will invariably result in one party not being in a position to contribute financially in the same manner as you may have previously agreed. It is very difficult to know how you are going to deal with life’s uncertainties until they arise. Talk it through with your partner. If you did decide to opt for a formal cohabitation agreement often major changes in financial circumstances can prompt a formal review of the arrangements, so that you can redefine your obligations when such major events happen.
Debts and Liabilities
When you live together, you cannot become responsible for your partner’s debts. If you have loans, credit cards or HP agreements in your sole name, you will remain liable for the debt, even if the items purchased with the debt have been used for joint benefit or if your partner agrees to share the monthly repayments. This will not be enforceable against your creditor. Often utilities accounts, (council tax, gas, water etc.) are opened in the name of one person alone. In those circumstances, the supplier can pursue anybody living at that address for unpaid bills. If you or your partner falls into difficulty with any debts, even in the name of one person alone, the creditor can enforce any judgement debt by securing it against a property that is jointly owned. Think carefully before agreeing to take on a debt in your sole name for something that will be of joint benefit.
Cars and Contents
When disputes relating to personal property come before the court it can be extremely difficult to determine the ownership of property brought by couples living together. In many cases, the value of the items is such that the value of the item in dispute will be far outweighed by the cost of the litigation. Consequently the court’s message is that couples should endeavour to sort out division of personal property for themselves, without involving the court.
The general rule is that property belonging to each party at the commencement of the relationship and personal items acquired individually will remain the property of each, as will personal gifts between the parties. With regard to cars, if one party buys the car and lets the party use it, the car will still belong to the person who purchased the vehicle. If, however the car is bought by one party but registered in the name of the other, who then drives it with their own insurance, there will be a strong inference of a gift. Possession of the log book is not conclusive evidence of ownership. Sometimes a situation arises where both parties have an interest in the car, e.g. where one party buys it but the other pays for maintenance and repairs.
With regard to furniture, the mere fact that furniture is intended for joint use does not make it joint property. It will depend on who bought the furniture and where the funds originated from. Where items are bought on HP it may be necessary to who paid the deposit and instalments and whether they came from a joint fund operated by the home sharers.
It is preferable to record from the outset what items you each own at the start of the relationship and a formula for dealing with sole and joint purchases so that there can be no doubt if the relationship doesn’t work out.
Insurances and Pensions
If you are planning to stay shacked up together for some time, it is worth thinking about appropriate life cover for you and your partner. If you have an endowment policy that backs onto the mortgage, think about how the proceeds are to be shared. If it is a policy in the name of one of you alone, should the other benefit in any way from the proceeds? This may depend on who has paid the instalments. It is better to specify how the proceeds are to be dealt with and get this record in a formal agreement.
With regard to pensions, check the terms of your pension scheme. Most schemes will have a death in service benefit and you can choose who you want to receive this sum. You may want to split this for example between your partner and any children that you have. There are many schemes that do not permit you to nominate your partner, if this is the case, and you want your partner to receive this sum, you may be better off not making any nomination at all so that the proceeds can pass to your estate and you can then leave the sum by will to your partner, if you choose to do so.
What happens in the event of a medical emergency? Would the hospital treating your partner recognise you as his or her ‘next of kin’? What about family, might they argue that they should be recognise as ‘next of kin’ in the event of a medical emergency. The term ‘next of kin’ has no strict legal definition. Talk to your partner about how you might deal with this situation should the unfortunate happen. Most hospitals have a nomination form that allows you to indicate who your next of kin is but it may not be possible to complete this in the event of a serious accident. Next of Kin nomination cards can be obtained from the government Advice Now website and can be retained in the event of a medical emergency.
Wills and Inheritance
If you are not married to your partner and you die before making a will, your partner won’t automatically inherit anything from you. Any assets left behind will go to your nearest blood relative. You may also unwittingly leave a substantial inheritance tax debt behind. Whilst our eventual demise is not something any of us want to think about, it is essential to make a will to make sure that our wishes are properly carried into effect in the most tax efficient way.
If we haven’t convinced you already, it is essential to sort out who owns what from the outset and what each person is responsible for. A cohabitation agreement (sometimes called a living together agreement) can help you do this by stating clearly from the outset, who owns what and what financial interest each person is intended to have. Such agreements can also be reviewed in the event of significant changes in circumstances and at specified intervals.
We don’t mean the sort of DIY that will have you sanding the woodwork! We are sure that you have many fun-filled weekends ahead of you searching through the aisles of B&Q and Homebase. There are many internet based companies offering DIY cohabitation or living together agreements but to be legally binding, such agreements need to be entered into freely and fairly. A DIY agreement may fall foul of the duress argument, i.e. “he/she made me sign it” It is sensible and relatively inexpensive to have an agreement drawn up by a solicitor, particularly when compared with the cost of going to court. The other party will also need independent legal advice before entering into the agreement.
Will The Law Change?
If you are living with your partner it’s worth keeping an eye out for news of reform in this area and if in doubt, seek legal advice about how any potential changes may affect your position.