These agreements are hot topics within the family office. Over the summer, I explored the impact these have on clients with Claire Gordon, a partner in Farrer & Co’s family and divorce team. We thought it would be interesting to share Claire’s thoughts.
Download PDF VersionCohabitation is when people live together without being married.
The simple answer is that, unlike marriage, cohabitation does not give either party to a relationship any legal rights, regardless of how long they lived together. So, if the relationship ends, neither party can make a financial claim against the other as a result of the relationship. Despite a consistent belief to the contrary among the general public, "common-law marriage" does not exist.
This means that a cohabitant is limited to two different types of financial claim. Neither arise from the relationship itself.
The first is a claim under trust law principles to a share of a specific property because the cohabiting couple have agreed that it should be shared between them, or they have acted in such a way that it would be inequitable to share it. The law is complex and can result in an unfair outcome.
The second applies if the couple have children (see below).
Having children together creates legal and financial obligations.
Under Schedule 1 of the Children Act, a parent with primary care of a child has the right to claim financial support from the other parent. This claim is only for the benefit of the child and to meet his or her needs: it is explicitly not for the parent's own needs.
This financial support may be made up of the following:
1. Child maintenance
Primary responsibility for calculating maintenance for the benefit of a child lies with the Child Maintenance Service (referred to as the CMS). The CMS determines the sum that the “Non-Resident Parent” (NRP) must pay to the “Parent With Care”(PRC). I should have said, this answer comes with an acronym warning! The CMS calculate the sum due by applying a formula to the NRP’s gross income, taking into account factors such as how many other children the NRP has, and the number of nights the child spends with theNRP.
The CMS calculation applies to a maximum gross income of £156,000 a year. If the NRP earns more than this, the Family Court can make an order “topping up” the child maintenance. Equally, if the child or one of the parents is living outside ofthe UK, the court can make an order in place of the CMS assessment.
A child maintenance order meets recurring items of expenditure for the child that areusually paid from income, such as, food, clothing and footwear, routine dental and eye care check-ups and treatment, leisure classes, including sports and music lessons etc. It can also include childcare and nursery fees.
2. Lump sums
It is possible to claim lump sums on behalf of a child, which can include capital:
• To refurbish or decorate a property where the child is or will be living
• To purchase furniture for the home where the child is or will be living
• To purchase a car that will be used for the child's benefit
• To meet private medical costs associated with the child's birth
• To purchase one off items of furniture or equipment related to the child's birth, such as a cot, car seat, pram, baby bath and so on
This list is not exhaustive but provides a guide to the most common items of capital expenditure for which a lump sum order is sought.
It is possible to apply for more than one lump sum order providing that the child has not attained the age of 18.
3. Settlement of property
A settlement of property order requires the non-resident parent to either:
• Provide funds to purchase a property that will be owned by trustees for the benefit of the child
• Transfer ownership of a property that they own to trustees for the benefit of the child
The child will then live in the property with the parent with care, during their minority. Ownership of the property reverts to the non-resident parent, usually when the child attains the age of 18 or completes full-time tertiary education.
A settlement of property order will only be made if the non-resident parent has the means to do so.
If you intend to move in with your partner, and you are not married, then you may wish to consider entering into a cohabitation agreement. This is particularly important if you buy property together or you intend to have children.
A cohabitation agreement records the arrangements between two or more people who have agreed to live together, as a couple or otherwise. It records each party's rights and responsibilities in relation to the property where they live or intend to live together, financial arrangements between them, both during and following cohabitation, and the arrangements to be made if they decide that they no longer want to live together.
A cohabitation agreement can also be used to record ownership of personal property (including items such as cars, furniture, or art) which may be used or enjoyed by both cohabitees when they live together but are to be retained by the owner if cohabitation ends.
A pre-nuptial agreement is an agreement entered into before marriage which sets out the division of assets and property in the event of the marriage ending, and any ongoing financial support to be paid by one party to the other.
If the marriage breaks down, the court will consider the pre-nuptial agreement when determining how to distribute the assets. Although pre-nuptial agreements are not strictly enforceable in England and Wales, the courts will hold a party to a pre-nuptial agreement that was freely entered into by the parties, where those parties had all the information that was material to their decision to enter into it, and where it is fair at the time of the divorce to hold the parties to it.
Where they have been entered into with proper advice, they can therefore be invaluable.
If you are in a relationship and are considering either cohabiting or getting married it is sensible to take advice on the ramifications and to discuss putting into place either a cohabitation agreement or a pre-nuptial agreement. If you are getting married, it is important not to leave this until the last minute; a pre-nuptial agreement should be concluded more than 28 days before the wedding to ensure that there can later be no suggestion of pressure in the lead up to the wedding itself, so the sooner you start the better.
It is also worth pointing out that a cohabitation agreement can be entered into at any time – so even if you are already living together. Similarly, it is possible to enter into a post-nuptial agreement if you are already married which operates in exactly the same way as a pre-nuptial agreement.
As can be seen from all of the information above, the law in this area is complicated. If you would like any more information on any of the issues it contains, please do contact us or Claire direct.
CEO at Cavendish Family Office
