The Law Commission (LAW COM No 307) COHABITATION: THE FINANCIAL CONSEQUENCES OF RELATIONSHIP BREAKDOWN Presented to the Parliament of the United Kingdom by the Lord Chancellor and Secretary of State for Justice by Command of Her Majesty July 2007 Cm 7182 £xx.xx The Law Commission was set up by the Law Commissions Act 1965 for the purpose of promoting the reform of the law. The Law Commissioners are: The Honourable Mr Justice Etherton, Chairman Mr Stuart Bridge Mr David Hertzell1 Professor Jeremy Horder Mr Kenneth Parker QC The Chief Executive of the Law Commission is Mr Steve Humphreys. The Law Commission is located at Conquest House, 37-38 John Street, Theobalds Road, London WC1N 2BQ. The terms of this report were agreed on 3 July 2007. The text of this report is available on the Internet at: http://www.lawcom.gov.uk 1 Mr David Hertzell was appointed a Law Commissioner with effect from 1 July 2007, in succession to Professor Hugh Beale QC, FBA. The terms of this report were agreed on 3 July 2007. ii THE LAW COMMISSION COHABITATION: THE FINANCIAL CONSEQUENCES OF RELATIONSHIP BREAKDOWN TABLE OF CONTENTS PART 1 - INTRODUCTION 1 THIS REPORT 1 WHY IS THIS ISSUE IMPORTANT? 2 Demographic data and future projections 3 Public attitudes towards cohabitation 6 THE BACKGROUND TO THE PROJECT 6 TERMS OF REFERENCE 7 THE CONSULTATION PAPER 9 The Consultation Paper’s provisional proposals in outline 9 THE CONSULTATION PROCESS 10 RECENT DEVELOPMENTS 11 Recent decisions of the House of Lords 11 Recent research 12 Debate in Parliament and beyond 13 Child support reform 13 Developments in other jurisdictions 13 THE STRUCTURE OF THIS REPORT AND AN OUTLINE OF THE SCHEME 14 THE COST OF REFORM 15 ACKNOWLEDGEMENTS 16 PART 2 - SHOULD THERE BE REFORM? 17 INTRODUCTION 17 THE CURRENT LAW 17 The decision in Stack v Dowden 18 iii THE CONTINUING CASE FOR STATUTORY INTERVENTION 20 Express trusts and conveyancing 22 SHOULD THERE BE NEW STATUTORY REMEDIES? 25 Family policy: supporting marriage and family stability 27 Public education and relationship support 30 Uncertainty, unfairness and hardship under the current law 34 The case of cohabitants with children 35 The case of cohabitants without children 38 AN OPT-IN SCHEME OR A SCHEME OF GENERAL APPLICATION? 40 OTHER ISSUES RAISED BY CONSULTEES 43 CONCLUSIONS 45 PART 3 - ELIGIBILITY FOR REMEDIES ON SEPARATION 46 INTRODUCTION 46 WHO ARE “COHABITANTS”? 46 A statutory checklist? 49 FURTHER ELIGIBILITY REQUIREMENTS 51 Cohabitants who have children together 52 Cohabitants without children 53 Should there be a minimum duration requirement? 53 Where should a minimum duration requirement be set? 56 Other cohabitants with children 57 A discretion to dispense with the minimum duration requirement? 59 Breaks in continuity 60 SPECIAL CASES 61 Minors and relatives 61 Concurrent relationships 62 APPLICATION OF THE SCHEME TO EXISTING RELATIONSHIPS 63 iv PART 4 - FINANCIAL RELIEF ON SEPARATION 68 INTRODUCTION 68 THE AVAILABLE OPTIONS 68 Extension or modification for cohabitants of the Matrimonial Causes Act 1973 68 A rule-based or formulaic approach 70 A principled discretion 71 Need as the guiding principle for discretion? 72 OUR RECOMMENDED APPROACH 73 The scheme in outline 73 Qualifying contributions 76 Examples of qualifying contributions 76 Domestic contributions 77 Future contributions 78 Joint decision-making 78 Retained benefit 79 Benefit dependent on the respondent’s input 80 Gifts 80 Economic disadvantage 81 Examples of economic disadvantage 81 Determining the extent of economic disadvantage 82 Sharing the loss 83 The economic equality ceiling 83 The discretionary factors 85 The welfare of children 86 The relevance of conduct 88 No requirement of manifest unfairness 89 The available orders and the clean break 89 Child-care costs 90 v The effect of finding a new partner 91 Liability under Schedule 1 to the Children Act 1989 92 COURTS, PROCEDURE AND ENFORCEMENT 92 Civil courts or family courts? 93 Costs 95 Public funding 96 Mediation 96 Anti-avoidance and enforcement 96 Interaction with Schedule 1 to the Children Act 1989 97 Taxation and social security 97 THE INTERACTION OF THE SCHEME WITH THE LAW OF IMPLIED TRUSTS AND ESTOPPEL 97 Illustrating the interaction problem 98 Conclusions 99 THE LIMITATION PERIOD 100 PART 5 - COHABITATION CONTRACTS AND OPT-OUT AGREEMENTS 103 INTRODUCTION 103 COHABITATION CONTRACTS 104 OPT-OUT AGREEMENTS 104 Objectives 105 Other jurisdictions 106 Correlation between qualifying criteria and jurisdiction to set aside 107 Qualifying criteria 108 Formalities 108 Consideration 109 Capacity 109 Full financial disclosure? 110 Mandatory terms, model agreements and pro formas 110 vi The scope of the qualifying criteria 111 Effect of an opt-out agreement 112 The grounds for setting opt-out agreements aside 113 Express declarations of trust and other financial arrangements 114 Certain religious marriages 115 The effect of implementation on existing cohabitants 116 Opting in by agreement? 116 PART 6 - SUCCESSION ON DEATH: INTESTACY AND FAMILY PROVISION 118 INTRODUCTION 118 INTESTACY 119 CONSEQUENTIAL REFORM OF THE INHERITANCE (PROVISION FOR FAMILY AND DEPENDANTS) ACT 1975 120 Eligibility to bring a claim on death 121 The concept of “cohabitant” 121 Further eligibility requirements: children and duration 121 Cohabitants who have children together 122 Cohabitants who do not have children together 122 No discretion to dispense with the requirements 123 Cohabitants who separate shortly before death 124 Basis for financial provision on death 125 General criteria 126 Additional criteria for cohabitants who separate shortly before death 127 Orders and agreements restricting future applications under the 1975 Act 128 Orders in separation proceedings restricting 1975 Act applications 128 Agreements restricting 1975 Act applications 129 “Children of the family” 130 THE LAW RELATING TO WILLS 132 vii PART 7 - JURISDICTION AND APPLICABLE LAW 134 INTRODUCTION 134 JURISDICTION 134 APPLICABLE LAW 138 REFORM PROPOSALS FROM EUROPE 138 PART 8 - LIST OF RECOMMENDATIONS 141 APPENDIX A - THE CURRENT LAW 149 INTRODUCTION 149 EXPRESS REGULATION BY THE PARTIES 150 Express declarations of trust in respect of land 151 Express trusts of personal property 153 “Cohabitation contracts” 153 IMPLIED TRUSTS AND PROPRIETARY ESTOPPEL 154 Resulting trusts 155 Constructive trusts 156 Proving a common intention constructive trust 156 Express common intention constructive trusts 157 Inferred common intention constructive trusts 157 Detrimental reliance 158 Quantifying the beneficial entitlement in the shared home 158 Proprietary estoppel 160 The representation or assurance 160 Detrimental reliance 161 The remedy: “satisfying the equity” 161 Ownership of funds in bank accounts 162 RESOLVING DISPUTES OVER THE HOME CO-OWNED BY COHABITANTS 162 FAMILY LAW REMEDIES ON RELATIONSHIP BREAKDOWN 164 Protection of occupation 164 viii Applicants who are entitled to occupy 164 Applicants who are not entitled to occupy 165 Transfer of tenancies 166 Provision for children 168 Maintenance and the Child Support Act 1991 168 Capital provision under Schedule 1 to the Children Act 1989 169 PROPERTY ENTITLEMENT ON THE DEATH OF A COHABITANT 171 Property passing otherwise than by probate 171 Intestacy 172 Entitlement on intestacy 172 Bona vacantia 172 Family provision 174 Claim as a dependant 175 Claim as a cohabitant 175 Reasonable financial provision 176 CONCLUSION 177 APPENDIX B - FINANCIAL RELIEF ON SEPARATION: HOW WOULD IT WORK? 178 HOW IS ECONOMIC DISADVANTAGE TO BE QUANTIFIED? 178 The nature and limits of the exercise 178 Potential sources of assistance 179 SOME WORKED EXAMPLES 182 APPENDIX C - FURTHER DISCUSSION OF ALTERNATIVE SCHEMES FOR RELIEF 190 INTRODUCTION 190 EXTENSION OF THE MATRIMONIAL CAUSES ACT 1973 AND ITS UNDERLYING PRINCIPLES 190 The suitability of the Matrimonial Causes Act 1973 for cohabitants 190 Problems with the “sharing” principle 190 Problems with a “needs” principle 192 ix Extending the Matrimonial Causes Act 1973 to cohabitants with children 193 ADAPTING THE MATRIMONIAL CAUSES ACT 1973 194 SOME OTHER OPTIONS 195 Schemes with multiple principles 195 Relying on opt-out agreements to accommodate diversity? 197 RULE- OR FORMULA-BASED SCHEMES AND APPROACHES 197 APPENDIX D - ACKNOWLEDGEMENTS 199 x THE LAW COMMISSION COHABITATION: THE FINANCIAL CONSEQUENCES OF RELATIONSHIP BREAKDOWN To the Right Honourable Jack Straw MP, Lord Chancellor and Secretary of State for Justice PART 1 INTRODUCTION THIS REPORT 1.1 This Report makes recommendations to Parliament on certain aspects of the law relating to cohabitants. It considers the financial consequences of the ending of cohabiting relationships by separation or death. It follows two years of work by the Law Commission and builds on a Consultation Paper published on 31 May 2006. 1.2 In this Report, we conclude that reform is needed to address inadequacies in the current law. We recommend a new statutory scheme designed specifically for cohabitants on separation. The scheme would apply only to cohabitants who have had children together or who have lived together for a specified number of years.1 The scheme would not equate cohabitants with married couples or give them equivalent rights. Nor would it provide a new status which cohabitants should sign up to in order to gain new rights. The scheme would apply to all cohabitants who satisfied the eligibility criteria. But it would respect the autonomy of couples by allowing them, subject to necessary protections, to disapply the scheme and make their own arrangements. It would not automatically require parties to share their property with their ex-partners and would not require them to pay maintenance. Instead, the scheme would address particular economic consequences of the contributions made by the parties during the relationship. 1.3 We recognise that these recommendations will be unwelcome to some who, for various reasons, consider that cohabitants should not be granted legal remedies of this sort. Others may feel that the recommendations do not go far enough and that in the twenty-first century cohabitants should be given the same status and the same rights as married couples.