Cohabiting couples need a legal ’Pre-hab’ even if not married

Unclear law means 'Pre-hab' agreements are essential for HNWs says Rosie Schumm, even if they're not married and don't have children

Patterns of relationships have altered dramatically in the last twenty years. Cohabiting couples in the UK have doubled in number, as have the numbers of children living with unmarried parents. By 2030, it is predicted that one in four couples will be cohabiting.

Against this climate of social change, the legal recognition of different types of relationship is also in a period of flux. Same-sex couples can now marry in England and Wales. Last month's referendum in Ireland paved the way for similar legislative changes there.

Only last week a public consultation was launched in Guernsey to debate whether a 'Union Civile' law should be introduced which would mean that couples (same-sex or otherwise) could enter into legally recognised state unions which would remove links to religion. It went so far as to say that the term 'marriage' could be supplanted in favour of such a union. It is clear that we have been propelled into a new and transformative era.

Despite these seismic social, cultural and legal shifts, the law for cohabiting couples remains deficient. A quarter of us still think that unmarried couples have the same legal protection to those who are married, which is simply not the case. The 'common law marriage' myth must be dispelled.

The reality is that cohabitees have far fewer rights and obligations in England and Wales than couples who are married. The number of years they have been together is irrelevant.

The two types of relationship can be seen in stark contrast. When marriage ends, the division of assets is governed by matrimonial law, so that both parties can open claims for maintenance and a share of the assets, including property and inherited property. In this situation a pre- or post-nuptial agreement would be an essential wealth protection step.

If unmarried couples separate, unless they have a cohabitation agreement (a 'pre-hab'), there will be no clear legal apparatus to determine what will happen, rather a patchwork quilt of speculative, complex and costly claims.

The differences do not end there. Transfers of assets between husband and wife are exempt from capital gains and inheritance tax. In comparison, there is no such exemption for transfers between unmarried couples. If one partner in marriage dies without a will, part of the deceased's assets go to the surviving spouse. If a cohabiting partner dies without a will, the surviving partner has no automatic right to the deceased's assets.

However, if the parties have a pre-hab agreement, drafted before or during their time living together, then in general their assets should be divided in accordance with their agreement. This will promote certainty and personal autonomy.

Many countries already provide further safeguards for cohabiting couples. In Australia, unmarried couples have similar property rights to those who are married if they have lived together for more than two years or have a child together. Cohabitation agreements are commonplace, as is the registration of cohabitation.

In France, 'Pacte Civil' (PACs) are contracts between couples embarking on cohabitation to set out their rights and responsibilities at the outset. Scottish law gives couples who live together and separate the ability to ask the court to order lump sum payments as compensation for financial disadvantages suffered or advantages retained following a split.

So beware. If you are about to move in together with your partner or you have children who are about to take this step, you should consider preparing a pre-hab with legal advice. You can set out who owns what and in what proportion. Also, how the property, its contents, personal belongings, savings and other assets should be split if the relationship breaks down.

Despite fervent calls for reform in England and Wales on the law for cohabitees, it is doubtful that changes will be made in this parliament. This is even more of a reason to think seriously about a pre-hab now as it will save considerable financial heartache in the future.

Rosie Schumm is a partner at Wedlake Bell LLP