Cohabitation: The Financial Consequences of Relationship Breakdown

By R. J. Probert

In July 2007 the Law Commission for England and Wales published its final report on the legal principles that should be applied when a cohabitating relationship comes to an end. The basic elements of the Law Commission’s recommended scheme can be stated simply. Eligible cohabitants would be able to apply to a court for financial relief upon separation. The needs of the applicant, or the mere fact that the couple had cohabited for a certain period, would not, however, be a sufficient basis for the court to grant relief; a claim would only succeed if the applicant had suffered an economic disadvantage or if the other party had retained a benefit as a result of contributions made by the applicant. The court would then have the power to make an order reversing the retained benefit and distributing the loss attributable to any remaining economic disadvantage between the parties, having regard to a number of discretionary factors. The rights cohabitants currently have on the death of a partner also would be enhanced. These elements of the scheme will now be considered in more detail.

At present, English law has no single definition of “cohabitant” but rather a variety of different definitions depending on the context and particular statutory provision applicable. The Law Commission proposes that, for the purposes of its project, cohabitants should be defined as those who are “living together as a couple in a joint household” without being parties to a legally recognized marriage or civil partnership. This avoids the analogy with marriage—and now civil partnership—adopted in many statutes.

Definition is, however, a different matter to eligibility. The Law Commission proposes that cohabitants who have had a child together should automatically be able to apply for financial relief; others would be required to satisfy a minimum duration requirement of between two and five years. The precise duration is left to the government to decide, but it is suggested that if a period longer than two years were to be chosen, it would be appropriate to confer discretion on the courts to dispense with the requirement.

The first ground for relief under the proposed scheme is that the respondent “has a retained benefit . . . as a result of qualifying contributions the applicant has made.” This is a revised version of the concept of “economic advantage” discussed in the earlier Consultation Paper. The types of contribution that will be linked to a “retained benefit” are narrow in scope. Physical improvements to the property would give rise to a claim, as long as their effect was to increase the value of the property; routine maintenance work would not. The payment of bills and other household expenses would not give rise to a claim unless the other party could not otherwise have afforded to pay the mortgage.

Although the “retained benefit” must be shown to exist at the end of the relationship, the concept of “economic disadvantage” requires the court to look into the future and assess the loss that the claimant will suffer as a result of contributions made during the relationship. The Law Commission gives a number of examples of losses that could be encompassed within the principles of economic disadvantage: “(1) loss of future earnings and earning capacity, . . . (2) failure to secure future pension provision, . . . and (3) failure to make other savings and investments.” These examples reinforce the message that the principle is designed to deal with the ongoing
impact of the relationship after separation, rather than the value of wages foregone or contributions made.

The fact that the respondent has retained a benefit, or that the claimant has suffered an economic disadvantage, does not itself determine the extent of any award. The process to be adopted by the court differs depending on the nature of the claim: Basically, a retained benefit is to be reversed whereas economic disadvantage is to be shared. The distinction is logical, in that the retained benefit is directly attributable to the applicant’s contributions, whereas an economic disadvantage “encompasses losses which have been borne exclusively by one party when they should be shared.”

Where the court is considering whether to reverse a benefit or to order the sharing of economic disadvantage, it is directed that it should do so only “in so far as that is reasonable and practicable” having regard to a list of discretionary factors, and, in the case of claims based on economic disadvantage, “an economic equality ceiling.” The primary consideration, where any child of both parties is under the age of 18, is to be the welfare of the child. The financial needs, obligations, and resources of both parties are also to be taken into account. So, too, is their conduct, but this concept is to bear the same restrictive definition that is currently employed by the courts when deciding how to allocate assets on divorce—with the proviso that the fact that contribution is made against the express wishes of the other party may be taken into account.

It is central to the Law Commission’s scheme that couples who are aware of the legal consequences of their actions should be able to make a joint decision to opt out of the proposed scheme if they so wish. This possibility marks another difference between married and cohabiting couples: A prenuptial agreement is merely a factor to be taken into account by the courts on divorce and does not dictate the final result, whereas an opt-out agreement entered into by cohabitants is to be challengeable only on tightly defined grounds. The Law Commission did consider giving cohabitants the option of a “cast-iron” opt-out that would be unchallengeable in any circumstances but decided that the conditions necessary for such a contract would have to be so demanding that their use would be limited.

The Law Commission suggests that any opt-out agreement would have to be in writing and signed by both parties and recommends that it should be assumed that adequate consideration has been given. The main hurdle for cohabitants wishing to opt out would be the requirement that it be clear that they are declining to apply the statutory scheme.

Even if the opt-out agreement entered into by the parties were to fulfill these conditions, it is suggested that there still might be grounds for setting it aside “if its enforcement would cause manifest unfairness having regard to: (1) the circumstances at the time when the agreement was made; or (2) circumstances at the time the agreement comes to be enforced which were unforeseen when the agreement was made.” Although independent legal advice and full mutual disclosure of assets are not prerequisites for the validity of an opt-out agreement, the Law Commission suggests that these are relevant factors to take into account in deciding whether an agreement should be set aside.

The Law Commission also proposes to enhance the rights of cohabitants where the relationship is terminated by the death of one of the parties. It recommends that this should be achieved not by allowing cohabitants to take under the intestacy rules but by making the conditions of the current scheme of discretionary provision more generous.

For More Information About the Section Of Family Law

- This article is an abridged and edited version of one that originally appeared on page 521 of Family Law Quarterly, Fall 2007 (41:3).

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R. J. Probert is an associate professor at the School of Law, University of Warwick, and may be reached at .

Copyright 2008

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