An important New Years’ Resolution to have is to protect yourself financially in your relationship
The New Year always seems to prompt new journeys within relationships. Many people will make the decision to purchase their first home together and take the next stage in their relationship.
Whilst it is easy to get lost in the whirlwind of excitement, it is vital that you remember to protect yourself financially. Whilst it may not be the most romantic thing to do it is really important that you communicate with your partner about the financial arrangements early on. If your partner is not supportive or willing to having those discussions with you, then that can actually be a red flag.
If you are looking to move in with your partner (but are not getting married) you should think about how to protect yourself financially. People who are living together but remain unmarried do not have the same rights as people who are married, so it is essential that you think about how to safeguard your own finances.
First of all, it is important to think about how the property is going to be owned. Whether a property is going to be owned by one party (but, for example, the other party is going to be contributing to outgoings), or if it is going to be jointly owned (but parties want to have certainty as to who is to pay for what/ confirmation as to what would happen if they later separate), one option is that they can enter into what is known as a Cohabitation Agreement.
A Cohabitation Agreement is a written, signed document and would ordinarily be signed as a deed before a witness or a parties’ legal representative. It will generally deal with three principle areas:
- Who owns (and owes) what at the time of the agreement, and, in what proportions the property is owned;
- What other financial arrangements you have decided to make while you are living together; and
- How property, assets and income should be treated if the relationship was to break down (who is to get what from the property).
These sorts of agreements provide clarity as to what rights and interests you have in the property should the relationship breakdown. This is important for cohabiting couples as living with someone for a certain period of time does not mean that you become automatically entitled to some financial support or to an interest in property. This sort of agreement can outline, in detail, the entitlement that you have.
Declaration of Trust
Another option is to enter into what is called a “Declaration of Trust”. If you are purchasing a property jointly but, for example, are making unequal contributions to the purchase price, then, you also have the option to enter into a Declaration of Trust. This document can outline what is to happen to the proceeds of sale in the event of a later relationship breakdown/ sale of the property.
This is particularly important if you and your partner want to own the property jointly but one person is paying the deposit or a significant proportion of it.
The declaration of trust can specify, for example, that upon a later sale, the deposit payment would be returned to the person who has paid it before dividing the remainder of the proceeds equally. The declaration of trust can also deal with what is to happen in a negative equity scenario.
Without this document, the general rule is that “equity follows the law”. This means that the proceeds of sale would be divided in accordance with how you legally own the property (so, if you jointly own the property, this could be 50%) unless you could evidence, under trust law, that the intention was different.
Without a declaration of trust, later legal disputes can therefore arise as to how the equity is to be divided. That can be complicated, costly and can bring delay.
As a family lawyer, I would always encourage somebody to protect their finances. Having just purchased my first house, and having entered into a Declaration of Trust with my partner, it provides both of us with clarity we need and there is the comfort of an additional financial safety net.