£900,000 cohabitation claim redresses an economic disadvantage

  • Insight

24 April 2018

A recent court decision in a cohabitation claim has shown the need for parties in a cohabiting relationship to consider properly regulating their arrangements from an early stage. 

In the case of M v S the court awarded more than £900,000 to redress the economic disadvantage suffered by one of the cohabiting parties, in part as a result of contributing to the mortgage where she was not an owner of the property. 

In this article, we look at the lessons to be learned from this case and the need for cohabiting couples to put a living together or cohabitation agreement in place.

Cohabitant’s claims - the law

Cohabitant’s claims were introduced by the Family Law (Scotland) Act 2006. Section 28 of the Act provides that when a cohabiting couple split up, a court can make an order in favour of one of them where the defender has derived an economic advantage from contributions made by the applicant, taking into account whether (and if so, to what extent) the applicant has suffered economic disadvantage in the interests of the defender or any relevant child and separately, the court can make orders requiring the defender to pay in respect of any economic burden of caring, after the end of cohabitation, for a child of whom the cohabitants are parents. 

M v S – the facts

In the case of M –v- S the couple had lived together for nineteen years. They had two children who were grown up by the time of the court case. Both parties worked on a self-employed basis throughout the period of the relationship. 

The case was concerned with the first element of Section 28, namely whether or not the Defender derived an economic advantage from contributions by the Applicant, and if so, to what extent the Applicant suffered economic disadvantage in the interests of the Defender or of the family. 

Claims under the Act, although it has been in force for 12 years, are relatively rare. The Supreme Court in the leading case of Gow –v- Grant 2013 SC (UKSC) 1 set out how such claims should be measured. That case specifically addressed the situation that in a relationship lasting a long number of years, it is unlikely and, in fact, impracticable for people to keep ‘running accounts’. 

The Supreme Court acknowledged that contributions and sacrifices were likely to be made because it was a “non-commercial relationship without the individuals at the time counting the cost of bargaining for a return”. The Supreme Court also specifically ruled that in order to assess the question of whether or not there had been advantage or disadvantage, the financial position of each of the parties at the commencement of the cohabitation and then the financial position of each of the parties at the end of the cohabitation was what had to be looked at. 

If during that time there has been an economic advantage gained by the defender or an economic disadvantage suffered by the pursuer then an award is available. 

The pursuer’s claim

The pursuer’s claim was in two parts. The first related to the increase in value of the family home over the period of their relationship. The family home was held in the defender’s sole name. That element of the claim was valued at £544,000 being one-half of the increase in the value of the property in the period.

The second part of the pursuer’s claim, which was valued at £368,000, was in respect of the loss of income that the pursuer had suffered over the period of cohabitation as a result of working part time in order to look after the parties’ children. She sought to claim one-half of the total loss of earnings to ensure that the burden between the parties was equally shared. At the time the parties’ first child was born, the pursuer had intended to return to full time work. In the end she decided that this wasn’t possible and that she wanted to spend one day per week at home. On the other days of the working week, the parties’ children were looked after by paid nannies. 

Decision of the court

The court held that the purpose of a cohabitant’s claim under Section 28 of the 2006 Act is not to relieve one party from poverty, but the redress of economic disadvantage. The court accepted that over the period of the relationship the pursuer had contributed a regular monthly amount, which was broadly one-half of the monthly mortgage payment. 

As a result, the court held that the pursuer was entitled to share in the increase in the value of the property over that period. In this particular case, one-half share of the increase in value was substantially more than the monthly contributions actually made. The court’s position was that it was entitled to take account of both the economic disadvantage (the monies paid out) suffered by the pursuer as well as the economic advantage gained by the defender (in respect of the increase in value of his property).

Cohabitation lessons learned

Take legal advice

Parties who are entering into a cohabitation relationship and living together should consider the consequences of the actions that they take during the course of that relationship. Not many will seek advice at the particular time but an awareness that cohabitation gives rise to rights and obligations is an important first point. 

Financial loss/gain

Loss of income as a result of giving up work in the interests of the children is an economic disadvantage to be considered by the court. Where one parent is going to be giving up or reducing working hours, the parents should make a decision about that together. The parents should recognise that if one of them is going to be suffering an economic disadvantage as a consequence of looking after children then some compensatory type payment or allowance should be made to acknowledge that.

Balancing costs

For many people simply continuing in the relationship and perhaps sharing unequally their household running costs may be regarded as sufficient “balance” but it will likely require further authority from the court for this point to be more definitively understood. 

Property

Where the cohabitees live together in a property owned by only one of them, it is important that decisions are made at an early stage as to who has responsibility for the various household running costs and bills. In particular, consideration should be given to whether or not the mortgage should be met jointly, whether equally or in different proportions and, what the consequences of those payments might be. Failure to consider these things at the early stage in a relationship could give rise to significant claims if the relationship fails. 

Cohabitation Agreements

Our advice is that a living together or cohabitation agreement should be considered and in many cases entered into at the start of a cohabiting relationship. While it is not necessarily regarded as the most romantic thing to do, nor is it at the top of many priority lists, it is important to consider the consequences of living together. Documenting what it is intended is part of that.

In M –v- S, having not apparently done any of this, the award was £912,000 and was almost certainly not within the contemplation of either of the parties at the earlier stages in their relationship.  

Parties do not always think about seeing a solicitor when they start cohabiting, because it is not always obvious to them that there are legal issues arising. The consequences of the judgement in M –v- S is likely to lead to more claims being made on the termination of cohabitation and we encourage individuals to find out more.  

For further information on cohabitation agreements, contact