COHABITATION, CLARITY AND CERTAINTY AS THE ‘BANK OF FAMILY’ KEEPS ON GIVING 

Published on 29 August, 2024 | Bronwyn Warmington

Last month’s change of Government means that the economy is the subject of acute scrutiny at the moment.

Labour has already warned of a £22 billion ‘black hole’ which, says the new Prime Minister, Keir Starmer, means that October’s Budget is “going to be painful” (https://www.bbc.co.uk/news/live/c0rw9edy00zt .

Yet even before that happens, many households across the country are already doing their best to achieve a delicate balance of their own finances.

Their purse strings may not be as stretched as two years ago, when the inflation rate was higher than at any stage for 40 years (https://www.ons.gov.uk/economy/inflationandpriceindices/bulletins/consumerpriceinflation/june2024#:~:text=Image%20.csv%20.xls-,The%20Consumer%20Prices%20Index%20including%20owner%20occupiers’%20housing%20costs%20(CPIH,of%209.6%25%20in%20October%202022.).

Even so, families are naturally keen to secure help wherever possible.

In recent days, various media outlets have reported that the so-called ‘Bank of Family’ is expected to give a record £9.2 billion this year to relatives in order to help them cope (https://www.thetimes.com/article/174720d9-92ff-4657-a7ce-26cb18dc2898?shareToken=7389923fb19b9fbcd286171f709442fd).

The stories have drawn from research jointly conducted by the financial services company Legal and General together with the Centre for Economics and Business Research. (https://group.legalandgeneral.com/en/newsroom/press-releases/tough-choices-facing-the-bank-of-family).

Their study found that the support of parents and grandparents is expected to help fund 42 per cent of all homes purchased by individuals under the age of 55.

As has previously been observed on this ‘blog, such assistance does not come without strings attached.

That is particularly true when these gifts are made by parents well aware that helping a child and their partner take their first steps on the housing ladder can lead to complications if that relationship later founders.

Divorce is, sadly, a reality for many couples. The latest figures published by the Office for National Statistics (ONS) indicate that 41 per cent of spouses have parted within 25 years of exchanging vows (https://www.ons.gov.uk/peoplepopulationandcommunity/birthsdeathsandmarriages/divorce/bulletins/divorcesinenglandandwales/2022).

The situation is not necessarily as clear cut in the case of cohabitation.

We do, of course, know that there are far more unmarried couples than in previous generations.

Further ONS’ numbers reveal that cohabiting couples accounted for 18 per cent of all families in 2023 – that’s 469,000 more families than just a decade earlier (https://www.ons.gov.uk/peoplepopulationandcommunity/birthsdeathsandmarriages/families/bulletins/familiesandhouseholds/2023).

Many individuals intending to marry are aware of the importance of regulating their affairs before they tie the knot in the form of a pre-nuptial agreement in case their relationships do not endure.

Likewise, many husbands and wives understand the merits of a similar arrangement – a post-nuptial agreement – if their personal or financial circumstances change once they have married.

Myself and my colleagues handle an ever greater number of nuptial agreements, some of which are very much driven by parents wanting to protect money and other assets which has been gifted to children about to marry or by way of inheritance planning.

There seems to be less awareness, though, of how useful cohabitation agreements are.

Although they fulfil a broadly similar purpose to a nuptial agreement, they provide the kind of structure which can be of considerable importance for unmarried couples.

That is because there is legislation which gives a framework to how spouses divorce and the process by which financial settlements between them are worked out.

As it stands, there is only limited provision under family law for cohabitees. If no children are involved, disagreements about who might have what claim on the home where they live, for instance, are dealt with under property and trust law instead (https://www.legislation.gov.uk/ukpga/1996/47/contents).

The Labour Party pledged to address the issue of cohabitation rights at its party conference last October

(https://www.dailymail.co.uk/news/article-12614243/Labour-plans-reform-habiting-law-women-rights-couples-split-Emily-Thornberry.html) but the promise wasn’t included in its General Election manifesto and, given the other issues confronting the Government, it might not happen any time soon.

Even if cohabitation legislation is introduced, it will doubtless take some time to navigate its way through parliament.

In the face of such personal and political flux – and with the prospect of the Budget causing a further tightening of belts – cohabitation agreements represent clarity.

Furthermore, they can be as individual as the relationship for which they are drawn up, reflecting very specific situations.

The Legal and General research suggests that lending or gifting by the ‘Bank of Family’ is set to increase still further while Britain continues to be beset by the kind of economic pressures which have Keir Starmer warning that things will get worse before they improve.

Such strains can exacerbate the tensions which are a part of many relationships.

No-one likes contemplating the possibility of a break-up but I feel that most of us would agree that doing whatever is possible to avoid a parting becoming acrimonious amounts common sense.