Cohabitation: the new legal landscape

The days of an unmarried couple setting up home together, with no legal rights or obligations being imposed on this arrangement, are soon to be over. The Family Law (Scotland) Act 2006, which came into force on 4 May 2006, has introduced entirely new rights for cohabitants in Scotland.

There has not been a huge amount of publicity about these new rights for cohabiting couples, to say the least, and considering the fact that there are over 150,000 couples cohabiting in Scotland, this may lead to future difficulties as the vast majority of those living together will be unaware that the legalities of their relationship have changed. To attempt to combat this, the Family Law Association is planning a campaign to raise public awareness of the Act and its implications.

An unclear definition

Sections 25-29 of the new Act deal with cohabitants. Section 25 provides a definition. Under section 25(1) a “cohabitant” is a person who is, or was, living with another person as if they were husband and wife, or two persons of the same sex who are or were living together as if they were civil partners. So far, so clear. However, section 25(2) then goes on to muddy the waters, by stating that in “determining for the purposes of sections 26-29” (the remaining sections on cohabitation) whether a person is a cohabitant of someone else, the court shall have regard to (a) the length of the period during which they lived together, (b) the nature of the relationship during that period and (c) the nature and extent of any financial arrangements subsisting or which subsisted during that period. Therefore, we are given a straightforward definition of cohabitant, and then a list of factors which should be considered when deciding whether or not someone is a cohabitant.

This seems contradictory and confusing. Under the new Act it is conceivable that a person could have multiple cohabitants – for example, someone who works away from home may have different cohabitants in different cities. It does seem likely from the drafting of this section that it is intended that the Act will not bestow rights for example on those who have had a very short relationship, although if their financial affairs were extremely interdependent, the outcome might be different. At this stage, it could be very difficult to advise clients confidently whether they will qualify as a “cohabitant” under the Act. Judicial interpretation will hopefully make matters clearer. It should be stated that the requirement for those cohabiting to be living together as if they were “husband and wife” or civil partners, means that those who simply share a flat, for example, as flatmates, will not be affected.

So what are the main changes which the legislation will bring in? The two most important changes relate to the breakdown of the relationship, first by separation and secondly by death of one of the cohabitants.

Support after breakdown

Under section 28, a cohabitant has the right to apply for financial provision on the termination of the cohabitation “otherwise by reason of death” – i.e. separation. The applicant can apply to the court for an order for payment of a capital sum for their own benefit and/or a further sum to reflect the additional burden of having to care for a child who is either a child of both of the parties or a child who has been accepted as a child of the family. The court also has the power to make an interim order and can order payment to the applicant by way of a lump sum or instalments.

In deciding whether or not to make an order, the court has to take account of the extent to which the defender has derived an economic advantage from the contributions of the applicant and also whether the applicant has suffered an economic disadvantage in the interests of the defender and/or any child of the family. The court then must balance any economic advantage or disadvantage gained or suffered by either party. “Economic advantage” includes gains in capital, income and earning capacity and “economic disadvantage” is to be construed accordingly.

On the face of it, this section would appear to mirror section 9(1)(b) of the Family Law (Scotland) Act 1985. However, under the 1985 Act, the primary focus when dealing with financial provision on divorce is the identification and valuation of “matrimonial property” and any deviation from an equal division must be justified. The new provisions however do not use division of the parties’ property as a starting point and simply allow the court to make an order as it sees fit concerning financial provision on the cohabitants’ separation. This introduces a very wide power and it is extremely difficult to predict how the courts will deal with quantification in respect of orders under section 28. Will they take a “broad axe” approach or will a more rigorous approach be insisted upon? Only time will tell.

Significantly, the application must be brought within a year from when the couple separated. The court has no discretion to extend this period. One year does not give people a lengthy period of time to deliberate about raising an action or negotiate a settlement. This is one of the problems of lack of publicity in this area – people may not realise that they had a right to apply for financial provision, until it is too late to do so. The ever-present problem of identifying a date of separation will arise in these type of applications as well.

Rights on intestacy

The second main change is to be found in section 29. This provision deals with the rights of a surviving cohabitant following their partner dying intestate. If the deceased cohabitant has made a will, the law remains unchanged. However, if the situation is one of intestacy, the survivor may apply for financial provision out of the deceased’s estate, which can take the form of a capital sum or a property transfer out of the deceased’s net intestate estate. A lump sum or instalments are both competent.

The court will consider (a) the size and nature of the estate, (b) any benefit received or to be received by the survivor (for example, from the deceased’s pension scheme or joint life policies), (c) any other claims on the estate, such as those of the deceased’s children, and (d) any other matters which the court considers to be appropriate. Significantly, the court cannot make an order awarding the survivor a higher amount that they would have had right to had the parties been married (or in a civil partnership.)

Another important feature is that any order for payment of a capital sum/transfer of property must be made from the deceased’s net estate after payment of inheritance tax, debts and satisfaction of any prior or legal rights claims of a surviving spouse/civil partner. Therefore, if someone is married but separated and living with their new partner, even for a number of years, the wife’s rights on succession are not overridden and the surviving cohabitant could be left with nothing. Essentially, the legislation is designed to give some rights to cohabitants but not the same rights as married couples. Overall, this new provision strengthens the argument for making a will, although the Scottish Law Commission is presently reviewing cohabitants’ rights to claim in testate estate.

Little time to act

The timescales are even tighter for these types of application as they must be brought within six months of the death. Again, there is no judicial discretion allowed to extend this time limit so it will be important for solicitors to act quickly for their clients who intend to claim. The deceased must have been living with the survivor in Scotland immediately before he or she died. So, if the parties separate just before the death, the survivor has no right to claim.

There are two other provisions which the new Act brings in concerning cohabitants. Section 26 deals with the rights of cohabitants in the ownership of household goods. There will be a (rebuttable) presumption that household gifts acquired (other than by gift or succession from a third party) during the cohabitation should be owned in common. There is no guidance offered as to how the presumption may be rebutted.

Section 27 provides that where any question arises as to the rights of a cohabitant to (a) any money derived from any allowance made by either cohabitant for their joint household expenses or for similar purposes, or (b) any property acquired out of such money, that (subject to any agreement to the contrary), the money/property shall be treated as belonging to each cohabitant in equal shares. However, crucially, “property” does not include a residence used by the cohabitants as the sole or main residence in which they live (or lived) together.

The new law means that cohabiting couples separating after 4 May will be affected, thus having retrospective effect on a largely uneducated public. Practitioners in this field will be dealing with an entirely new set of rights for cohabitants, rights of which many clients will not be aware. As with all new law, some judicial interpretation will be necessary before solicitors will be able to advise their cohabiting clients with any degree of certainty. It will indeed be interesting to watch this area of law evolve in the coming years.

Lesley Gordon is a partner and head of the Family Law Team, and Jenny Nobbs an assistant, at Lindsays, Edinburgh