Whilst undoubtedly exciting, the practicalities of moving in with a new partner can often add to the never-ending to do list. Important decisions such as choosing how you will manage your finances during the relationship, and if the relationship were to end, are often forgotten or assumed as agreed.
In England and Wales, the law offers limited protection for cohabiting couples. Associate Solicitor, Madia Aslam, has recently highlighted the key differences between married and unmarried couples in the following article here.
This short article builds upon this and considers what practical arrangements (such as a cohabitation agreement, declaration of trust and transfer of equity) an individual could put in place to ensure their financial position is protected both during a relationship and if they were to later separate.
Cohabitation agreement
An increasing number of cohabiting couples are deciding to formally record their rights and responsibilities in relation to property and finances within a document called a cohabitation agreement.
Whilst there are certain criteria to be followed, a cohabitation agreement can be carefully tailored to ensure it meets a particular couples’ requirements in respect of separate assets, joint assets, financial arrangements during the relationship and financial arrangements if they were to later separate.
For high net worth couples with multiple properties and interests, a cohabitation agreement is an effective option to provide reassurance, preserve wealth and help prevent costly legal disputes in the event of separation.
Declaration of Trust
A declaration of trust is a legal document which sets out the individual entitlement each co-owner has over the income and the sale proceeds for a property. With a rise in cohabiting unmarried couples buying properties together, a declaration of trust can be used to protect individual deposits and change the percentage ownership based on initial or ongoing contributions.
For properties requiring renovations or repairs, a declaration of trust can also alter the percentage ownership over time to account for contributions to the property made after completion.
This document can be amended or cancelled if both parties agree, but it sets out the agreed terms should there be a breakdown in the relationship. This is essential to protect each individual’s financial security.
Transfer of Equity
A Transfer of Equity is the legal process of adding or removing a person from the legal title to your property. The key difference between a Transfer of Equity and a sale is that at least one of the existing owners remains on the legal title as they are either transferring part of their equity to another person, or they are receiving additional equity in the property.
Transfers of Equity can be used in a number of circumstances. For example, following marriage or moving in with a new partner, you may wish to add your spouse or partner to the title of your home, in the alternative following a separation or divorce a Transfer of Equity is often used to buy out the share of the person leaving the property. For high net worth couples with multiple properties, Transfers of Equity can also be used as a way of managing their wealth and tax affairs.
When completing a Transfer of Equity to add an additional person to your property title, you should consider a Declaration of trust or cohabitation agreement as both can assist in setting out your intentions and arrangements for joint ownership of the property.
Before entering into a Transfer of Equity, you should also consider the possible tax implications of the transfer as it often attracts Stamp Duty and other personal tax liabilities.
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