Do I need a cohabitation agreement in Scotland?

Picture the scene — you are in a happy relationship and have decided to take the next step to move in together. You are very excited at this new stage in your relationship and then someone mentions you might want to get a cohabitation agreement — but do you need one?

As can be seen from previous articles, the existing law on cohabitation in Scotland is found within the Family Law (Scotland) Act 2006.

There are proposed changes to this legislation, however, for the purposes of this article, we will consider the law as it currently stands.

In terms of the Family Law (Scotland) Act 2006, when a couple stop cohabitating together either party can make a claim seeking a capital sum payment against the other party if they feel that they have suffered an economic disadvantage and the other party has been economically advantaged as a result of the cohabitation.

Therefore, whilst it may not feel like the most romantic of conversations, it is better to consider entering into a cohabitation agreement before you start cohabitating to avoid either of you having to consider raising a claim if the relationship does not work out. The end of a relationship can be difficult enough without having to consider raising a court action.

What is a cohabitation agreement?

A cohabitation agreement is a contract between both parties that can stipulate what will happen financially should the relationship breakdown. A cohabitation agreement can provide certainty for both parties from the outset, and generally enables parties to consider matters with the rose tinted glasses removed.

If you are buying a property in joint names, a cohabitation agreement can stipulate what was paid at purchase and how the parties intend for that to be divided should the relationship end. A cohabitation agreement can also ringfence assets and regulate future arrangements to avoid any uncertainty.

Do I need a cohabitation agreement?

There are certain circumstances where a cohabitation agreement is usually a good idea. One such scenario is where one party is putting down a considerably larger deposit for the purchase of a property than the other party, (or one party is contributing the full deposit). Where the property is purchased in joint names, if you subsequently separate, property law states that you are both entitled to an equal share of the net free proceeds of sale. This may not always be fair.

A cohabitation agreement can state how the net free proceeds of sale are to be divided in the event of separation. For example, it could state that each party will recover their deposits from the sale proceeds before they are divided, or that the sale proceeds will be divided in appropriate percentages.

Consideration must also be given to how the parties intend to divide the finances of living together and whether that also requires to be stated within the agreement.

Will the property have to be sold if we separate?

As the law currently stands, if there is a disagreement between the parties as to what should happen to any jointly owned property, the property will require to be sold as there is no provision within the 2006 Act to seek a transfer of title to either party’s sole name.

A cohabitation agreement can include provision for one or both parties to have the opportunity to purchase the other party’s share of the property in the event of a separation. The agreement can state how any balancing payment to the other party would be calculated. This can take into account any unequal deposits or contributions paid. Without such an agreement, if the other party is not in agreement, there is no provision to seek the transfer of the property and it would require to be sold on separation. If one party does not agree to the sale of the property, a court action would require to be raised seeking that the property be sold. A court action is usually both costly and typically lengthy. A clause in the agreement about the sale of the property may therefore be desirable.

What if our circumstances change?

If, after entering into a cohabitation agreement, your circumstances change, you should review the agreement that you have entered into to ensure that it still meets your requirements.

You could be in a cohabiting relationship for many, many years, and the agreement that you entered into at the start may no longer suit either party. For example, if you have had children together or your financial arrangements have changed, or you purchase a new property, you should consider whether a further agreement should be entered into to cover the new circumstances and stage of your relationship.

Do I need a lawyer?

Given the variables stated above, it can be seen that a cohabitation agreement can be a complicated document, and generally each case is unique as it turns on each person’s individual circumstances and priorities.

A cohabitation agreement is a contract that will be legally binding upon you in the event of separation. Whilst you may consider that separation is unlikely, and we hope that is the case, you do not want to be detrimentally affected on separation by something that you entered into without proper consideration.

Do we each need our own lawyer?

One lawyer cannot give advice to both parties in the preparation of a cohabitation agreement as each party is likely to have competing interests. A solicitor needs to provide the advice to their own client that is in their best interests. It can often be said by one party that they don’t have to instruct a solicitor as their partner has instructed a solicitor and they trust their partner. The advice that their partner will be receiving is not necessarily the advice that solicitor would give to them, and each party should always obtain their own independent legal advice to ensure that the agreement also operates in their best interests.