First published in FT Adviser on 7 January 2025

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The New Year heralds the idea of organising, streamlining and change. This can mean addressing relationship issues, considering living arrangements and confronting difficulties that may have existed for some time.

Indeed, more couples take steps to end their relationship in January than other months, in part because couples decide not to separate until the festive season has passed.

The financial consequences of divorce differ from family to family as the courts in England and Wales retain wide discretion to make orders reflecting the particular circumstances.

But the difference between what happens when married and unmarried couples separate is much starker. Living in a committed, cohabiting relationship is the family structure chosen by some 5.4mn people – one in five families – in England and Wales.

There is no procedure to follow or legislation that provides for the financial consequences of a cohabiting relationship breaking down.

Many cohabiting couples regard their relationship as having the same obligations as marriage and make important financial decisions as if they are in a committed financial partnership.

However, despite the ‘common law marriage’ myth (which nearly half of British adults believe), there are no legal financial rights or responsibilities derived from living with a partner even if you have a long relationship that dictates your career and financial decisions.

One person could give up a successful career to move for their partner’s job or take care of children but when the cohabiting relationship ends, there are no financial claims or obligations underpinning what happens next.

Individuals can be left in an unexpected and sometimes unintended financial position. Without rights to property, investments and pensions, cohabiting couples keep the assets they have in their own name. In some situations, this means the financially weaker party has to rely on a minimum wage income and benefits, whereas the financially stronger party retains all their wealth.

Current situation

At present, cohabiting couples without children are dependent on a complicated combination of property and trust laws to determine the division of property. There are no automatic rights to share in assets built up during the relationship, or for one person to make payments towards the other, as for married couples.

The best way to illustrate this is with a practical example involving two neighbouring families.

Ben and Jennifer, at number 12, have been married for 25 years. They have two adult children who are now independent. Ben and Jennifer have both worked throughout the marriage, building up a successful business and using the income to support the family. They have paid off their mortgage, put money aside in ISAs and conservative share portfolios, and accumulated healthy pension pots.

More of the assets are in Ben’s name because he had the relationship with the financial adviser and oversaw more of the financial administration, as are the shares of the business (although neither can quite remember why).

If they divorced, there would be a two-step process of first valuing the assets held in their individual names, joint names and in which they have an interest, such as shares in the business.

Step two would be considering how those assets should be divided to meet their needs and provide a fair share of the matrimonial pot. Some assets may not be divided equally between them, for example if Jennifer had received an inheritance that had been kept completely separate from the other assets.

Impact of divorce on pension protection

In most cases involving a long marriage, a “fair” division is an equal split of the available assets irrespective of whose name they are held in. Ben and Jennifer’s incomes and income needs would also be taken into account, and spousal maintenance orders may be made to make up for the shortfall of their income needs for a period of time. Pension assets, regardless of who accrued them, would also be considered and orders made to ensure both could meet their income needs on retirement.

The financial consequences of a marriage breakdown are dealt with using the Matrimonial Causes Act 1973 and case law that has developed the interpretation of the legislation over the past 50 years.

However, the situation for Bradley and Angelina at number 13 – with similar circumstances to their neighbours except they are not married – would have a very different financial outcome, especially if their children were also over 18, if they separated. They would not have to take any steps to terminate their legal relationship because they have no legal tie, whereas people who are married or in a civil partnership must apply to end the relationship with a divorce or dissolution.

Furthermore, there is no procedure to follow or legislation that provides for the financial consequences of a cohabiting relationship breaking down. If they are not married there is no requirement to provide financial disclosure, let alone financial support.

If the property, business and savings were all in Bradley’s name, Angelina would receive nothing. They would keep the assets and liabilities in their own names but there is no process by which the assets accumulated during the relationship would be shared with Angelina.

If the house was bought by Bradley in his sole name, the legal starting (and often end) point would be that the house belongs to him. If Angelina contributed towards the improvement of the property or paid into a bank account, she would have limited scope to argue she had acquired a share in the property or interest in a bank account using the Trust of Land and Appointment of Trustees Act 1996 (TOLATA).

Unlike the Family Court, which has wide discretion, the Civil Court would examine the financial dealings in the relationship and any available contemporaneous evidence that could show Bradley and Angelina’s intentions. Moreover, the Civil Court applies strict cost rules, so were Angelina unsuccessful in her claim, she may have to pay Bradley’s legal costs too.

What non-court options are there for divorcing couples?

The financially weaker of Bradley and Angelina, and cohabitants like them, could be left in precarious financial positions at the end of a long relationship where both made contributions towards the family. If Angelina had earned no income during the relationship, nor built up savings or paid into a pension, she could be left with nothing and forced to accept a life of financial hardship. Bradley, meanwhile, would not have to share any of the property or investments in his name.

If there are children at school or university then parents have an obligation to support them financially. Angelina would have claims against Bradley to meet her and the children’s housing and income needs. Under Schedule 1 of the Children Act 1989, Angelina could make a claim for maintenance for the children and herself as the children’s primary carer, and for the provision of a property to house the children until they were over 18 or out of full-time education.

Bradley could be ordered to pay other lump sums to meet specific capital needs related to raising the children, like a car or home renovations. Depending on the assets available to Bradley, these provisions could be limited.

What next?

The lack of cohabitation rights has been discussed in England and Wales for the past 15 years, without any legal framework being implemented. The Law Commission published a report on this issue in 2007 and legislation was recommended.

Other countries have forged ahead and enacted legal protection for cohabitants – including Scotland, under the Family Law (Scotland) Act 2006. In Australia, couples in de facto relationships have been afforded legal remedies for decades, under the Family Law Act 1975. Their laws are very wide and cohabiting couples can apply for financial orders when their relationship ends, giving a financially weaker party who has been dependent on their partner some protection when the relationship ends.

The UK Labour government is interested in tackling the lack of financial protection for cohabiting couples in England and Wales and it formed part of its manifesto. The lack of cohabitation laws impacts not just families who choose not to marry but also those with a faith-based marriage that is not legally recognised in England and Wales.

A properly drafted cohabitation agreement is the best possible evidence as to intention.

Islamic marriages, for example, do not fulfil the criteria of a legal marriage unless couples have a separate civil ceremony. Unless it is recognised as a valid marriage, couples have no recourse to English law.

There are also ongoing discussions about the need for reform of marriage laws in England and Wales, either to recognise different religious laws and practices or a mandatory civil system that does not depend on any of them. Until the law changes, couples have no legal protection at the end of their relationship under English law.

How can cohabitants protect themselves

Cohabitants can protect themselves by structuring their finances to reflect how they intend to own their assets. Homes should be purchased in joint names if both partners wish to have a legal interest in it. They should consider how they will contribute towards joint property and sign a declaration of trust to ensure their intentions are clearly recorded from the start.

If one person has no legal interest in a property, they should think twice about contributing towards renovation projects when it is extremely unlikely that they will acquire a legal interest in the property.

When it comes to investments, what is in one person’s name stays with them. For financially astute individuals who want to manage their own wealth, this can be exactly their intention. There is no recourse for the financially weaker party who may have given up their career to raise children or support the high-flying executive.

Couples can enter into a cohabitation agreement, which will set out how they intend to manage their finances during the relationship as well as the funds that may be paid to the financially weaker party if the relationship ends. These agreements are common where a young couple live together in a property owned by one of them and financed by the bank of mum and dad.

Barder events and other ways to challenge a final order upon divorce

The couple, and more often the parents, want to ensure that the partner’s contributions towards the bills, and sometimes the mortgage, are not confused in the future as payments that may acquire an interest in the property.

Arguments between couples commonly turn on the individuals’ intentions. Problems may arise where intentions and beliefs are reframed over time. A properly drafted cohabitation agreement is the best possible evidence as to the intention. The agreement – which can deal with land, property, and money issues – is a contract and will be enforceable so long as it is properly entered into and both parties receive independent legal advice.

Cohabitants are also ignored by the law when it comes to inheritance, so it is important that cohabitants each have a will setting out their wishes and nominating their partner to receive death-in-service benefits or pension funds. This can be more complex when older couples each have children from previous relationships for whom they wish to make provisions.

It is important for couples to take advice from a specialist solicitor to help them navigate the potential tax implications of ensuring that their partner and children are provided for on their death.

Kirsty Morris is a partner at Burgess Mee

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