When Section 28 of the Family Law (Scotland) Act 2006 came into effect, cohabiting couples had a recognised framework for resolving financial differences on separation.
It is important to understand the legal differences between cohabiting couples and married couples or civil partners, as these differences can significantly impact financial provisions upon separation.
Understanding Cohabitation
Cohabitation refers to a living arrangement where two people, who are not married, live together in a romantic or sexually intimate relationship on a long-term or permanent basis. This type of arrangement has become increasingly common in Western countries since the late 20th century, largely due to changing social views and attitudes towards marriage and relationships. Cohabitation can provide a sense of security and stability, but it’s essential to understand the legal implications and differences between cohabitation and marriage.
Rights and Responsibilities
Cohabiting couples have fewer rights than married couples or civil partners. In the event of a breakup or death, cohabiting couples may not have automatic rights to inherit wealth or property from each other. However, cohabiting couples can create written documents, such as cohabitation agreements, to protect their rights and explicitly state their financial duties and responsibilities. It’s crucial for cohabiting couples to seek legal advice to understand their rights and responsibilities and to create a cohabitation agreement that suits their needs.
How are assets and liabilities built up?
It is likely that cohabiting couples who have lived together for any length of time will have built up assets and liabilities. One of both may be working, they may have bought or sold their homes and they may have children. None of this is unusual or different to what happens in a marriage or civil partnership.
However, every relationship has different dynamics and financial arrangements and disentangling these when the relationship ends can be challenging to sort out.
How are assets and liabilities dealt with on separation?
When a marriage or civil partnership comes to an end, the basic proposition is that the assets and liabilities are dealt with fairly. Cohabiting couples need to deal with the challenges of separation in the same way. However, whilst may people interpret “fair” as “equal”, this is not always the case. It is not unusual for one party to want more than the other not for the other party to want to resist an uneven division.
In some cases, an ex-partner may have ongoing support obligations or rights to property, which can complicate the division of assets and liabilities.
Section 28 allows for a fair division of assets and that fair division does not necessarily mean an equal split between the parties.
Pensions and Benefits
Cohabiting couples are not entitled to the same pension and benefit rights as married couples or civil partners. If a cohabiting partner dies, the surviving partner may not be eligible to receive their partner’s state pension or other benefits. However, cohabiting couples can complete their provider’s expression of wish form to set out who they wish their pension to pass to on their death. It’s essential for cohabiting couples to understand their pension and benefit rights and to plan accordingly.
Tax Implications
Cohabiting couples may face different tax implications than married couples or civil partners. For example, cohabiting couples may not be eligible for the same tax reliefs or exemptions as married couples. Inheritance tax, in particular, can be a significant concern for cohabiting couples. If a cohabiting partner dies, the surviving partner may be liable for inheritance tax on their partner’s estate. It’s crucial for cohabiting couples to understand their tax implications and to seek legal advice to minimize their tax liability.
The one-year rule
One essential element cohabiting couples must be made aware of is the “one-year rule”. That means that if the cohabiting parties cannot reach an agreement on their financial arrangements on separation, they must raise court proceedings within one year of the end of their cohabitation.
Also, if the parties have tried to resolve their financial arrangements through mediation and more than one year has passed before the mediation failed, they have a further eight weeks to resort to court following the collapse of the mediation.
What do the courts take into account?
If one of the cohabitants wishes an uneven division of property and assets, they must satisfy the courts of their entitlement to an uneven division. They must demonstrate to the court that the other party has gained an economic advantage whilst they have been economically disadvantaged.
It is also important to note that there is no legal status known as “common law spouses”, and cohabiting couples do not have automatic rights to property or inheritance.
There are not any hard and fast rules about who should get what or what percentages the splits should be. A sheriff will decide what he or she views as being fair and reasonable given the circumstances and having heard arguments from each of the parties.
To understand the position a court is likely to take, you need to consider cases which have gone before. The leading case in this area is a Supreme Court case of Gow v Grant from 2012. A more recent Sheriff Appeal Court case which considered an uneven division between cohabiting parties is Duthie v Findlay from 2020.
Protecting Your Rights
Cohabiting couples can protect their rights by creating a cohabitation agreement. A cohabitation agreement is a legally binding document that outlines the financial duties and responsibilities of each partner in the relationship. It can also specify what happens to assets and property in the event of a breakup or death.
Cohabitation Agreements
A cohabitation agreement is a vital document for cohabiting couples. It can provide clarity and certainty in the event of a breakup or death. A cohabitation agreement can cover various aspects, including:
- Financial responsibilities
- What to do if the relationship ends
- How to divide assets and property
- Beneficial interest in property
- Financial provision for children
- Separate bank accounts
- Legal agreement for joint tenants
Cohabiting couples should seek legal advice to create a cohabitation agreement that suits their needs and protects their rights.
How are disputes best resolved?
There is no doubt that discussions and negotiations are the best way to resolve the division of property and assets when cohabiting couples separate. Court will be time-consuming and expensive and should only be used as a last resort.
As an alternative to court, mediation might be a route worth following if discussions and negotiations are unsuccessful.
Those who do end up in court, must appreciate in advance that they might not end up with what they are looking for!
Family Law solicitors in Dunfermline, Fife
Gillian Gaffney is an experiences family law solicitor and has years of experience dealing with financial provision on separation and divorce, whether you are married, in a civil partnership or cohabiting. Gillian has dealt with a wide range of family law cases and has appeared in courts across Scotland.
If you have separated or are thinking about separating from your spouse or partner and would like honest, pragmatic advice, get in touch to make an appointment with Gillian or give us a call on 01383 629720.