Divorce solicitor, Alexander Garrett from Holmes & Hills Solicitors Family Law Team discusses the importance of separation agreements with emphasis on the importance of recording finances and the risks if you don't put a separation agreement in place.
A Separation Agreement is a form of agreement that parties can enter into when they want to stop living together as a couple. This Agreement can detail arrangements for matters such as finances, children, and property. They can be used for married or unmarried couples although it has, historically, been rarely used.
It is believed that the reason for this, is as a society most couples with assets and finances that they wish to be protected have often been married and when married, they have tended to utilise more secure forms of financial provision such as a financial Order of the court where parties are given far more rights.
However, the average age at which people in England and Wales get married has been getting later over the last 50 years. This is leading to more unmarried couples with numerous assets and properties that require legal protection. Non-married couples have, notoriously, had fewer rights in respect of finances and property than married couples on the breakdown of a relationship.
Unlike married couples, it is not possible for a cohabiting couple to obtain a financial Order addressing the finances of their relationship.
Separation Agreements are therefore now becoming more commonly used as a means of documenting financial settlements on the breakdown of a relationship.
It is best to highlight the importance of a Separation Agreement for non-married couples that are separating by giving a common example that often arises on separation and is something that parties should look out for and be careful of:
Mr A and Miss B are in a cohabiting relationship, they have no children and own a house together in equal shares valued at £400,000.00 with a mortgage of £200,000.00, leaving an equity of £200,000.00.
Unfortunately, Mr A and Miss B decide to separate and as part of the separation, it is agreed that Mr A shall remain in the home and “buy out” Miss B’s share in the home (equivalent to £100,000.00 being half of the equity).
Mr A obtains advice from a mortgage advisor and determines that according to his income, he will be able to remortgage the property and release £70,000.00 from the equity to pay Miss B in return for her transferring the property to Mr A. Whilst this is £30,000.00 less than her entire interest, Miss B orally agrees that she will accept this proposal to allow Mr A to remain living in the home as she is keen to have her money as a lump sum to put it into a different type of investment.
At this point, Mr A and Miss B should enter into a Separation Agreement drawn up by a Solicitor to document the fact that Mr A is paying £70,000.00 to Miss B in full and final settlement of her interest in the property.
Let’s imagine that one year passes from the point Mr A has the property transferred into his sole name and Miss B receives her lump sum of £70,000.00.
Miss B has been residing with her parents since separation and now wishes to purchase her own home, unfortunately, her investment has not been successful, and she has earned no interest on the £70,000.00 since it was received. She has a meeting with her mortgage advisor, and she discovers that for the types of property she wishes to purchase in her ideal area, she will require a deposit of at least £100,000.00.
Miss B decides that she will pursue a claim against Mr A for the remaining £30,000.00 she missed out on plus additional money to represent the increase in house prices over the course of the last year as this was only agreed orally and nothing was recorded in writing.
Mr A, having thought that he had paid Miss B in full and final settlement, receives a letter from a Solicitor stating that they intend to take legal action regarding the remaining balance as it was Miss B’s understanding that £70,000.00 was viewed as a part payment, and that she would receive the remaining balance plus interest when Mr A had the appropriate funds.
This entire problem could have been resolved by simply entering into a Separation Agreement detailing in writing the financial settlement reached between the parties.
Obviously, in order for a Separation Agreement to protect you and be upheld by a court, it is vital that it is drafted correctly, and this is something our expert family solicitors can assist you with.
If you would like information or advice about entering into a Separation Agreement, please feel free to contact us to book a fixed fee initial consultation with one of our specialist family lawyers.
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