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Separate tablings

After enacting the Civil Partnership Act last year, the Government could draw up a legal framework for common-law partners who see their relationship break down. Jeremy Abraham, who heads the family and private client department at law firm Russell Jones & Walker, examines proposals put forward in a Law Commission report

It has been a busy six months for those advising individuals in relationships or, more particularly, those advising on the likely financial consequences that may flow from the breakdown of such relationships.

Hard on the heels of the implementation last December of the Civil Partnership Act 2004 came the House of Lords’ judgments in the cases of Miller and MacFarlane.

May saw a less trumpeted but possibly more significant initiative in family law when the Law Commission published its 373-page paper on the potential for change to the rights of unmarried cohabitees on the conclusion of such a relationship.

The commission’s report is a response to the concern expressed in the debate preceding the Civil Partnership Act 2004, which regulates registered same-sex partnerships. Some regretted that those in cohabitation, largely those in hetero-sexual relationships, often referred to as common-law wives or husbands, were not being offered a similar codified framework.

Consequently, the commission was asked by the Government to consider the potential for change and its suggestions are to be found in this report, to which responses should be made by September 30. The commission anticipates publishing its final report, including any recommendations for change, next summer.

The commission relates that in 2001, the census results showed that there were over two million cohabiting couples in the UK. Three-quarters of a million of these couples had at least one dependent child, meaning that there were around one and a quarter million dependent children with parents in a cohabiting relationship.

In 2004, 42 per cent of births were outside marriage, with marriage rates in decline but divorce rates remaining high.

The Government Actuary’s Department predicts that 25 years from now, there will be 3.8 million cohabiting couples compared with 10 million in marriage. The thoughts within this paper therefore have the potential to affect many people – certainly far more than the number of same-sex relationships forecast to be registered under the Civil Partnership Act.

What the commission proposes can be read in detail on its website at www.lawcom.gov.uk but its suggestions include:

• A definition of a qualifying relationship, filtering out those relationships to which the proposed rights would not apply.

• A framework of rights.

• The potential for those in qualifying relationships to opt out of that framework.

• A process of court proceedings to resolve issues arising within the framework.

The commission’s remit specifically excluded consideration of the tax consequences of such a framework and the changes that would have to follow in income support, insolvency and immigration regulations or any knock-on effect to the pension industry. Emphasis has been placed on the paper’s role as a discussion document.

If the Government were to adopt the proposals in their present form, would it look to effect the wholesale changes which accompanied the Civil Partnership Act? In that case, the intention was to put registered civil partners in the same position as those who marry. In this case, the position is not stated but can be inferred from the proposals generally.

It seems likely that the principle applied would be one of some recognition but of less consequence than that given to those who choose to marry. Quite how that might be done could provide opportunity for further consultation although that was not the format adopted for consequential changes to tax and other regulations following the implementation of the Civil Partnership Act 2004.

But what of the proposals? The commission suggests that an intimate and exclusive relationship that results in or includes children should qualify. Obviously, this would include a relationship in which children are born to both partners but would also encompass one in which children are brought to it by either of the partners.

The commission also considers that childless relationships of a minimum duration (and two years is specifically mentioned) might also be included.

The commission suggests that the number of those eligible to apply for relief should be reduced by the application of concepts of economic sacrifice or unfair sharing. In other words, not every cohabiting couple with a child or every couple in a relationship of a minimum duration, or both, would be eligible to apply for an award.

Assuming the eligibility hurdles have been cleared, the commission suggests that the limited and piecemeal property and child-based remedies currently available should be augmented by provisions akin to those on divorce or the dissolution of a civil partnership.

The commission stops short of recommending the same provision as on divorce although this has been adopted in some countries. It is at pains to suggest that although the range of remedies might be similar to divorce, restrictions should be in place that result in lesser awards. Nonetheless, along with lump-sum and maintenance provision, the commission contemplates property transfers and pension sharing.

For those couples not wanting to fall within the commission’s framework, the alternative suggested is a cohabitation agreement along the lines of the pre-nuptial agreement of those contemplating marriage.

Here, for the financial adviser, is an interesting point. How far would such a document provide an opportunity for financial planning on the part of one of the couple or both? With legislation uncertain and some way off, some crystal-ball gazing is required. What seems certain is that the advice customarily given by lawyers, that significant changes may only arise following marriage, will no longer hold good.

It also seems likely when advising those about to start cohabitation that the customary suggestion that the couple need only concern themselves with the acquisition (or, more commonly, the denial) of property-based rights will also be incorrect.

However, there is a logical impediment to the consensual opting-out that the commission proposes. For cohabitation agreements between any cohabiting couples to be given statutory recognition, then so, surely, must be the pre-nuptial agreement. If not, those contemplating marriage would be logically worse off since, as the law stands, they would not enjoy the same opportunity to regulate themselves as their unmarried but cohabiting equivalents.

As we all know, despite encouraging noises from some courts, pre-nuptial agreements are of virtually no significant effect in determining a court’s division of a family’s wealth on divorce or on what from December 2006 will be the dissolution of a registered civil partnership.

The courts have found that such arrangements are contrary to public policy because perceived as a threat to the institution that is marriage. The changes suggested by the commission should provide an improved prospect for married couples to become self-regulating via pre-nuptial contracts.

Whether these ideas become law depends on public reaction. As the commission acknowledges, wherever a line is drawn, there will be cases that fall beyond it where the result is unfair. What the commission is asking is whether that line should remain where it is or should it be shifted to provide greater assistance for some, predominantly those burdened with childcare? What it may also be championing is the recognition of pre-nuptial agreements.

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