Cohabitation: The Financial Consequences of Relationship Breakdown [2006] EWLC 179(10) (04 May 2006)

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You are here: BAILII >> Databases >> The Law Commission >> Cohabitation: The Financial Consequences of Relationship Breakdown [2006] EWLC 179(10) (04 May 2006)
URL: http://www.bailii.org/ew/other/EWLC/2006/179(10).html
Cite as: [2006] EWLC 179(10)

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PART 10

COHABITATION CONTRACTS AND OPT-OUT AGREEMENTS

INTRODUCTION

We have provisionally proposed in Parts 5 to 9 that:

(1) parties to cohabiting relationships who satisfy statutory eligibility requirements should have access to new statutory remedies on separation;

(3) these statutory remedies should take the form of a specific scheme for financial relief between eligible cohabitants on separation, under which the courts exercise a discretion structured by principles; and

(3) the remedies available to cohabitants under the Inheritance (Provision for Family and Dependants) Act 1975 ("the 1975 Act") should be amended so that they correlate with any new remedies that are available on separation during the parties' joint lives.

We have also provisionally proposed in Part 5 that cohabitants should be able to oust the operation of the statutory scheme for financial relief on separation by means of an agreement that neither shall apply for financial relief.

Any agreement which removes or modifies the mutual obligations and responsibilities of the cohabiting parties between themselves cannot affect their financial liability towards their children.

In this Part, we consider:

(1) the variety of agreements that might be made by cohabitants and the enforceability of cohabitation contracts:

(2) the potential significance of an "opt-out agreement";

(3) the aims of a scheme that allows cohabitants to opt out of statutory remedies;

(4) who should be able to enter into opt-out agreements;

(5) how explicitly (if at all) an opt-out agreement should oust the operation of a new statutory scheme;

(6) the scope of opt-out agreements: what they ought to, or might, cover;

(7) what formalities, if any, should be required for an opt-out agreement to be binding ("qualifying criteria");

(8) what circumstances, if any, should permit a court to set aside the terms of an opt-out agreement ("grounds for review"); and

(9) whether a express declaration of trust, executed by both parties, should take effect as an opt-out agreement and, if so, what its scope as an opt-out should be.

In Part 8, we invited consultees' views on whether opting out should also be possible in relation to the 1975 Act. For ease of exposition, the discussion in this Part proceeds on the assumption that couples should be entitled to opt out from financial relief both on separation and on death, and (largely

THE VARIETY OF AGREEMENTS THAT MAY BE MADE BY COHABITANTS

Cohabitants may enter into a range of agreements that provide for their rights and responsibilities. Such agreements may do any (or all) of the following:

(1) provide for how the cohabitants will organise their finances and other issues during their relationship;

(2) provide for how the cohabitants would divide their property and finances in the event that their relationship ends;

(3) determine, at the point of separation, how they will now divide their property and finances; or

(4) declare how a particular asset is owned.^[3]

Cohabitation contracts

Whether or not a new statutory scheme is introduced for cohabitants on separation, the legal force of cohabitation contracts may be felt to need clarification, for the avoidance of any possible doubt about their validity.

All cohabitants should be able to enter into cohabitation contracts. Capacity to enter into such contracts should not be dependent on the eligibility requirements under any new statutory scheme. The sort of contracts which we are concerned with here could lawfully be made by any persons, whatever the nature of their relationship.

We provisionally propose that legislation should provide (for the avoidance of doubt) that, in so far as a cohabitation contract deals with the financial or property relationship of the parties, it is not contrary to public policy. Do consultees agree?

Opt-out agreements

For the purposes of the following discussion, the term "opt-out agreement" means an agreement made between eligible cohabitants before, during or following a period of cohabitation, containing terms which have the effect of ousting the jurisdiction of the court under any new statutory scheme providing financial relief on separation and death. That agreement might also go further by providing positively for how the parties' assets will be divided should separation or death occur. We discuss below how joint express declarations of trust might be treated in this context.

In this section, we are only concerned with agreements that are intended to have effect on the termination of relationships. We do not discuss agreements dealing with financial and other matters that arise during a couple's relationship

THE POTENTIAL SIGNIFICANCE OF AN OPT-OUT AGREEMENT

An opt-out agreement would enable the parties, at least to some extent, to determine for themselves the division of their assets on the termination of their relationship, rather than it being for the court to decide. The extent to which that would be the case would depend on the status given to such agreements.

An opt-out agreement could give rise to one of three possible consequences:

(1) it could be merely a factor that the court would take into account when making adjustments under a new scheme;

(2) it could be binding, but the court would have the power to ignore the agreement in certain circumstances; or

(3) it could be completely binding (subject to the general law).

We shall need to decide which of these approaches to adopt.

We can envisage various circumstances in which eligible (or potentially eligible) cohabiting couples might wish to opt out of any new statutory scheme. For example:

Y and Z were both married previously. Y was divorced and Z was widowed. They both have independent adult children from those marriages. They would like to live together but they do not want to marry: Y's divorce settlement was hard won and they each want to retain their financial independence, partly to protect their children's inheritances. They therefore do not want their cohabitation to give rise to the possibility that either might have a claim in the event of their separation or the death of one of them.

Y and Z wish to ensure that their assets pass to the children of their first relationship when they die, rather than to their new partner. Others might wish to preserve inherited capital for the benefit of other relatives. Some might have been given money by a parent to buy property with their partner and they, or their parent, may wish to ensure that the money is returned to their parent (or at least preserved for that cohabitant's future use) if the property were sold. Some couples might simply want to affirm their financial independence from each other.

DESIGNING AN OPT-OUT

We believe that any provision for opting out of the remedial scheme must be:

(1) sufficiently certain, so that couples who chose to opt out could be sure that a court would uphold their agreement in all but highly exceptional circumstances;

(2) sufficiently protective of vulnerable parties, so that the court would have the power to overturn opt-out agreements in limited, appropriate circumstances; and

(3) accessible, in the sense of not being unnecessarily burdensome or expensive, so that those with few assets (who may therefore have the greatest need to protect them) could make effective agreements easily.

Opting out would deprive the parties of access to remedies which they would otherwise have enjoyed. This has implications for the format that opt-out agreements should take and formalities that might be required for agreements to be binding. We consider that it is important that such agreements should be executed in a manner which:

(1) draws both parties' attention to the significance of the step being taken;

(2) provides certainty (as a matter of evidence) that opting out had been effected; and

(3) limits opportunities for the exercise of undue influence on the party who potentially stands to lose more as a result of opting out.

It would be necessary for the courts to have some power to set aside agreements, not least where the agreement was vitiated as a matter of general law or where any special formalities had not been observed. But we are concerned that any scheme that we recommend should not create too much scope for the court to intervene and so prevent parties from relying on their agreements with confidence.

There are various mechanisms which might produce the desired outcome. Each has its attractions and each its potential drawbacks. At this stage, we do not intend to put forward provisional proposals, but rather to invite consultees' views on each model. We are interested to receive views on how the models might be improved or how some of them might be amalgamated to form a suitable scheme.

WHO SHOULD BE ABLE TO ENTER INTO AN OPT-OUT AGREEMENT?

It would not matter whether (at the point of entering the agreement or at any point in the future) the parties were eligible under a new statutory scheme. Parties might wish to enter into opt-out agreements at a point before any new statutory scheme potentially applied to them.

In Part 9, we considered whether it should be possible for relationships where one party is under the age of 18 to be eligible under any new scheme. The mere fact that minors might not be eligible under a new scheme would not itself justify preventing them from entering into opt-out agreements. However, there may be other reasons why minors should not be able to enter into binding opt-outs.

Under English law, the only contracts which are binding on a minor are "contracts for necessaries",

If this general principle were applicable to opt-out agreements (which would not usually be contracts for necessaries), in cases where only one party was a minor, that party would be protected either way. If it were in the minor's interests that the agreement be enforced, the minor would be able to enforce it. If the minor's interests would be prejudiced by the agreement, he or she could avoid it and apply under the scheme instead.

Take the example of A and B who are 17 and 19 years old respectively. They purport to enter into an opt-out agreement, and B seeks to rely on that agreement against A in separation proceedings five years later. The fact that A was not eligible under the new statutory scheme when the agreement was made (assuming that the scheme did not apply to minors) would be irrelevant to the enforceability of the agreement. Applying English contract law to their opt-out agreement would render it voidable at A's option; A could therefore enforce the opt-out agreement against B (who was not a minor when the agreement was made), but B could not enforce it against A.

It is interesting to note, however, that some other jurisdictions take a different view. For example, in New Zealand, the usual contractual rule is expressly suspended by the Act so that minors are allowed to make fully binding agreements under the legislation, although, if the minor is under eighteen and has never been married, the contract must be scrutinised by the court.

We provisionally propose that parties should be able to enter into an opt-out agreement regardless of whether their relationship is eligible under any new statutory scheme at the point of entering the agreement or subsequently.

We invite the views of consultees on whether minors should be entitled to enter into opt-out agreements, and if so, whether those agreements should be treated as contracts made by minors.

SHOULD AN OPT-OUT AGREEMENT EXPLICITLY OUST THE OPERATION OF A NEW STATUTORY SCHEME?

There is a strong argument for saying that if cohabitants intend to oust the scheme, their agreement should state expressly that that is the case. If the parties are giving up an entitlement to apply for remedies that they would otherwise have, it is essential that they be aware of what they are doing. Evidence of that knowledge, and that the parties did indeed intend to opt out of the scheme, would best be supplied by an express acknowledgement of that fact on the face of the agreement.

It may be too onerous, however, to insist that the agreement refer to the legislation by name. Particularly if not given specific legal advice, parties might not refer to the statutory scheme expressly, but refer in more general terms to claims for financial relief. For example, the parties might state expressly in their agreement that no financial relief is to be given to either party, save for that contained within the agreement. It might be appropriate to allow such terms to eliminate the possibility of a claim being made under a new statutory scheme.

More difficult would be those cases where an agreement provided simply for how the parties' assets (whether all or some of them) would be divided in the event of separation or death. Such an agreement might not refer expressly to the relevant legislation or state in more general terms that the agreement was intended to prevent the possibility of claims for financial relief being made in future. We would have no clear evidence in these cases from the agreement itself that the parties were aware of, or intended to oust, the statutory scheme. We discuss this issue further below at paragraph 10.36.

We invite the views of consultees as to whether an opt-out agreement should only be effective if it expressly states in specific or more general terms that neither party is to be entitled to apply for financial relief under any new statutory scheme.

THE SCOPE OF OPT-OUT AGREEMENTS

Agreements that simply oust the scheme

Some parties' agreements might simply exclude the scheme entirely, without making express alternative arrangements for the determination of the ownership of the parties' property or its division between them following separation or death. In such a case, the general law would apply. There seems to us to be no reason why parties should not be able to make such basic agreements, which simply oust the operation of the new scheme.

Agreements that also seek to make positive provision for the parties

Other parties might go further than simply ousting the scheme by making their own provision for how their assets should be divided, thus displacing both the statutory scheme and the general law of property and trusts in favour of the parties' agreed distribution of income and property.

Can positive provision be made?

In so far as the agreement were concerned with the position on any future separation, this would be straightforward. Such an agreement could be made by way of contract (to be performed in the event of separation).

Special considerations arise regarding provision on death. Parties may make agreements concerning income or capital provision which, as a matter of construction, are binding even though the person making provision has subsequently died. Such agreements would be enforceable against the deceased party's estate. More difficult is the case where the agreement is not intended to take effect until one party's death. It would be possible for the parties to provide for each other on death by executing a trust which either created immediately vested shares in possession, or a series of life and reversionary interests. It is not straightforwardly possible to achieve the same effect by contract, as the parties' intentions appear to be "testamentary" in that the provision is to take effect only on death and not before. The appropriate method of achieving such objectives would be by execution of a will, although it may be that depending upon the circumstances the parties' agreement could be construed as comprising a contract to create a will.

Over what assets would the opt-out apply?

The parties might make an agreement which sought to set out how their property would be divided in the event of separation or death. Such an agreement might seek to determine future property division and financial provision in two ways:

(1) by providing that specific assets should go to each party; or

(2) by providing that each party should obtain a specified proportion of a pool of assets and/or receive a specified regular payment from the other party.

An agreement dealing with specific items of property would be highly unlikely to cater comprehensively for all of the parties' assets. It might have dealt with all of the parties' assets at its inception, but the identity of those assets might have changed subsequently as old assets were disposed of and new assets acquired. However, we do not think it necessary that an agreement should deal with all of the parties' assets in order to qualify as an opt-out agreement. Some couples might find it suitable to list particular assets which would belong solely to one or other party in the event of separation or death, and those which would be divided in some other way. In some cases, one party might wish to ensure that a particular, much-loved asset should remain with him or her on separation or death, but not be concerned about how the rest of the assets were divided.

If parties had included a provision expressly opting out of the statutory scheme, it would generally be clear from the terms of that provision whether the scheme were excluded entirely or only in relation to particular assets or issues. Were the law to allow for "implied" opt-outs, simply on the basis of alternative provision having been made (as discussed in paragraph 10.30), the court might then be faced with a difficult question of construction when it came to determine whether, and, if so, to what extent, the operation of the statutory scheme were excluded. The difficulty arising from this is another reason to be hesitant about allowing such implied opt-out agreements to have effect.

Suppose that Y and Z (from our example in paragraph 10.14 above) entered into an opt-out agreement which made provision for a specific asset (say, a car). The parties may have intended (or simply assumed) any one of the following outcomes regarding their other property. That the car should belong to Y, but that:

(1) the court should remain free to divide the remaining assets pursuant to the statutory scheme, treating Y's receipt of the car as part of Y's share;

(2) the court should remain free to divide the remaining assets pursuant to the statutory scheme, but not treat the value of the car as counting towards Y's share, so Z cannot be compensated for the fact that Y has the car; or

(3) Y's receipt of the car should be by way of compromise of any claim Y might have against Z for financial relief, and so Y could not make any claim in the event of separation or Z's death.

Whether an opt-out agreement that covered a specific asset had the meaning in (1), (2) or (3) would depend on the interpretation of its terms, in light of the existence of our proposed statutory scheme. Depending on the construction of the agreement, the parties would remain free to pursue a claim for financial relief in respect of assets in relation to which the agreement was silent.

Another approach might involve distinguishing between provision made for capital and income. For example, if the agreement covered only capital and did not in general terms oust the scheme, the court could have jurisdiction under the scheme in respect of any application relating to income.

as

We discuss below whether an express joint declaration of trust would be classified as an opt-out agreement. If it were so classified, it would only operate in relation to the asset that was the object of the trust.

We invite the views of consultees on whether, if an opt-out agreement relates only to part of a couple's financial affairs and does not exclude the parties from making any application to court:

(1) the couple should be bound by the terms of the agreement in respect of the assets or issues that the agreement covers; but

(2) the court should remain free to deal with the assets and issues not covered by the agreement.

QUALIFYING CRITERIA AND GROUNDS FOR REVIEW

It is necessary to consider whether any particular formalities or other "qualifying criteria" should be satisfied before an opt-out agreement would be effective to exclude the operation of the statutory scheme and be enforceable in its own terms. Requiring certain formalities to be complied with could give both parties a better opportunity to consider what they were agreeing to and whether or not it was a suitable agreement for both of them.

Alternatively (or additionally) the parties could be protected by giving the court the power to refuse to enforce an opt-out agreement (even if it satisfied any prescribed qualifying criteria) in light of the circumstances prevailing when one party sought to enforce it ("grounds for review").

In our view, the more by way of qualifying criteria than were required by the scheme (or voluntarily taken by the parties), the less opportunity there should be for the courts to overturn it. Parties who had been given the opportunity to consider an agreement carefully and to take advice on it should not be permitted later to apply to the courts to overturn the agreement simply because they have changed their mind. Conversely, the less demanding the qualifying criteria (or the fewer the precautions voluntarily taken by the parties at the outset), the more expansive should be the grounds for review.

There are, of course, two other possibilities. First, that the general law alone regulate opt-out agreements, with no special statutory formalities or grounds for review. Secondly, that the law require both onerous qualifying criteria and confer on the courts a wide power of review.

Qualifying criteria

There are currently no special rules regarding formalities for making a cohabitation contract, save those imposed by the general law.

Requiring qualifying criteria to be satisfied in order for an opt-out agreement to be enforceable might favour knowledgeable cohabitants, aware of their legal position under the scheme and the preconditions for opting out. An unscrupulous individual could make an agreement with his or her partner, deliberately not complying with the qualifying criteria, knowing that if it became disadvantageous to him or her at a later stage it could be overturned.

However, a failure to prescribe any qualifying criteria might lead to lengthy cases involving disputed evidence about whether an agreement had been made at all and, if so, what its terms were.

Comparative survey

PART 10

COHABITATION CONTRACTS AND OPT-OUT AGREEMENTS

INTRODUCTION

We have provisionally proposed in Parts 5 to 9 that:

(1) parties to cohabiting relationships who satisfy statutory eligibility requirements should have access to new statutory remedies on separation;

(3) these statutory remedies should take the form of a specific scheme for financial relief between eligible cohabitants on separation, under which the courts exercise a discretion structured by principles; and

(3) the remedies available to cohabitants under the Inheritance (Provision for Family and Dependants) Act 1975 ("the 1975 Act") should be amended so that they correlate with any new remedies that are available on separation during the parties' joint lives.

We have also provisionally proposed in Part 5 that cohabitants should be able to oust the operation of the statutory scheme for financial relief on separation by means of an agreement that neither shall apply for financial relief.

Any agreement which removes or modifies the mutual obligations and responsibilities of the cohabiting parties between themselves cannot affect their financial liability towards their children.

In this Part, we consider:

(1) the variety of agreements that might be made by cohabitants and the enforceability of cohabitation contracts:

(2) the potential significance of an "opt-out agreement";

(3) the aims of a scheme that allows cohabitants to opt out of statutory remedies;

(4) who should be able to enter into opt-out agreements;

(5) how explicitly (if at all) an opt-out agreement should oust the operation of a new statutory scheme;

(6) the scope of opt-out agreements: what they ought to, or might, cover;

(7) what formalities, if any, should be required for an opt-out agreement to be binding ("qualifying criteria");

(8) what circumstances, if any, should permit a court to set aside the terms of an opt-out agreement ("grounds for review"); and

(9) whether a express declaration of trust, executed by both parties, should take effect as an opt-out agreement and, if so, what its scope as an opt-out should be.

In Part 8, we invited consultees' views on whether opting out should also be possible in relation to the 1975 Act. For ease of exposition, the discussion in this Part proceeds on the assumption that couples should be entitled to opt out from financial relief both on separation and on death, and (largely

THE VARIETY OF AGREEMENTS THAT MAY BE MADE BY COHABITANTS

Cohabitants may enter into a range of agreements that provide for their rights and responsibilities. Such agreements may do any (or all) of the following:

(1) provide for how the cohabitants will organise their finances and other issues during their relationship;

(2) provide for how the cohabitants would divide their property and finances in the event that their relationship ends;

(3) determine, at the point of separation, how they will now divide their property and finances; or

(4) declare how a particular asset is owned.^[3]

Cohabitation contracts

Whether or not a new statutory scheme is introduced for cohabitants on separation, the legal force of cohabitation contracts may be felt to need clarification, for the avoidance of any possible doubt about their validity.

All cohabitants should be able to enter into cohabitation contracts. Capacity to enter into such contracts should not be dependent on the eligibility requirements under any new statutory scheme. The sort of contracts which we are concerned with here could lawfully be made by any persons, whatever the nature of their relationship.

We provisionally propose that legislation should provide (for the avoidance of doubt) that, in so far as a cohabitation contract deals with the financial or property relationship of the parties, it is not contrary to public policy. Do consultees agree?

Opt-out agreements

For the purposes of the following discussion, the term "opt-out agreement" means an agreement made between eligible cohabitants before, during or following a period of cohabitation, containing terms which have the effect of ousting the jurisdiction of the court under any new statutory scheme providing financial relief on separation and death. That agreement might also go further by providing positively for how the parties' assets will be divided should separation or death occur. We discuss below how joint express declarations of trust might be treated in this context.

In this section, we are only concerned with agreements that are intended to have effect on the termination of relationships. We do not discuss agreements dealing with financial and other matters that arise during a couple's relationship

THE POTENTIAL SIGNIFICANCE OF AN OPT-OUT AGREEMENT

An opt-out agreement would enable the parties, at least to some extent, to determine for themselves the division of their assets on the termination of their relationship, rather than it being for the court to decide. The extent to which that would be the case would depend on the status given to such agreements.

An opt-out agreement could give rise to one of three possible consequences:

(1) it could be merely a factor that the court would take into account when making adjustments under a new scheme;

(2) it could be binding, but the court would have the power to ignore the agreement in certain circumstances; or

(3) it could be completely binding (subject to the general law).

We shall need to decide which of these approaches to adopt.

We can envisage various circumstances in which eligible (or potentially eligible) cohabiting couples might wish to opt out of any new statutory scheme. For example:

Y and Z were both married previously. Y was divorced and Z was widowed. They both have independent adult children from those marriages. They would like to live together but they do not want to marry: Y's divorce settlement was hard won and they each want to retain their financial independence, partly to protect their children's inheritances. They therefore do not want their cohabitation to give rise to the possibility that either might have a claim in the event of their separation or the death of one of them.

Y and Z wish to ensure that their assets pass to the children of their first relationship when they die, rather than to their new partner. Others might wish to preserve inherited capital for the benefit of other relatives. Some might have been given money by a parent to buy property with their partner and they, or their parent, may wish to ensure that the money is returned to their parent (or at least preserved for that cohabitant's future use) if the property were sold. Some couples might simply want to affirm their financial independence from each other.

DESIGNING AN OPT-OUT

We believe that any provision for opting out of the remedial scheme must be:

(1) sufficiently certain, so that couples who chose to opt out could be sure that a court would uphold their agreement in all but highly exceptional circumstances;

(2) sufficiently protective of vulnerable parties, so that the court would have the power to overturn opt-out agreements in limited, appropriate circumstances; and

(3) accessible, in the sense of not being unnecessarily burdensome or expensive, so that those with few assets (who may therefore have the greatest need to protect them) could make effective agreements easily.

Opting out would deprive the parties of access to remedies which they would otherwise have enjoyed. This has implications for the format that opt-out agreements should take and formalities that might be required for agreements to be binding. We consider that it is important that such agreements should be executed in a manner which:

(1) draws both parties' attention to the significance of the step being taken;

(2) provides certainty (as a matter of evidence) that opting out had been effected; and

(3) limits opportunities for the exercise of undue influence on the party who potentially stands to lose more as a result of opting out.

It would be necessary for the courts to have some power to set aside agreements, not least where the agreement was vitiated as a matter of general law or where any special formalities had not been observed. But we are concerned that any scheme that we recommend should not create too much scope for the court to intervene and so prevent parties from relying on their agreements with confidence.

There are various mechanisms which might produce the desired outcome. Each has its attractions and each its potential drawbacks. At this stage, we do not intend to put forward provisional proposals, but rather to invite consultees' views on each model. We are interested to receive views on how the models might be improved or how some of them might be amalgamated to form a suitable scheme.

WHO SHOULD BE ABLE TO ENTER INTO AN OPT-OUT AGREEMENT?

It would not matter whether (at the point of entering the agreement or at any point in the future) the parties were eligible under a new statutory scheme. Parties might wish to enter into opt-out agreements at a point before any new statutory scheme potentially applied to them.

In Part 9, we considered whether it should be possible for relationships where one party is under the age of 18 to be eligible under any new scheme. The mere fact that minors might not be eligible under a new scheme would not itself justify preventing them from entering into opt-out agreements. However, there may be other reasons why minors should not be able to enter into binding opt-outs.

Under English law, the only contracts which are binding on a minor are "contracts for necessaries",

If this general principle were applicable to opt-out agreements (which would not usually be contracts for necessaries), in cases where only one party was a minor, that party would be protected either way. If it were in the minor's interests that the agreement be enforced, the minor would be able to enforce it. If the minor's interests would be prejudiced by the agreement, he or she could avoid it and apply under the scheme instead.

Take the example of A and B who are 17 and 19 years old respectively. They purport to enter into an opt-out agreement, and B seeks to rely on that agreement against A in separation proceedings five years later. The fact that A was not eligible under the new statutory scheme when the agreement was made (assuming that the scheme did not apply to minors) would be irrelevant to the enforceability of the agreement. Applying English contract law to their opt-out agreement would render it voidable at A's option; A could therefore enforce the opt-out agreement against B (who was not a minor when the agreement was made), but B could not enforce it against A.

It is interesting to note, however, that some other jurisdictions take a different view. For example, in New Zealand, the usual contractual rule is expressly suspended by the Act so that minors are allowed to make fully binding agreements under the legislation, although, if the minor is under eighteen and has never been married, the contract must be scrutinised by the court.

We provisionally propose that parties should be able to enter into an opt-out agreement regardless of whether their relationship is eligible under any new statutory scheme at the point of entering the agreement or subsequently.

We invite the views of consultees on whether minors should be entitled to enter into opt-out agreements, and if so, whether those agreements should be treated as contracts made by minors.

SHOULD AN OPT-OUT AGREEMENT EXPLICITLY OUST THE OPERATION OF A NEW STATUTORY SCHEME?

There is a strong argument for saying that if cohabitants intend to oust the scheme, their agreement should state expressly that that is the case. If the parties are giving up an entitlement to apply for remedies that they would otherwise have, it is essential that they be aware of what they are doing. Evidence of that knowledge, and that the parties did indeed intend to opt out of the scheme, would best be supplied by an express acknowledgement of that fact on the face of the agreement.

It may be too onerous, however, to insist that the agreement refer to the legislation by name. Particularly if not given specific legal advice, parties might not refer to the statutory scheme expressly, but refer in more general terms to claims for financial relief. For example, the parties might state expressly in their agreement that no financial relief is to be given to either party, save for that contained within the agreement. It might be appropriate to allow such terms to eliminate the possibility of a claim being made under a new statutory scheme.

More difficult would be those cases where an agreement provided simply for how the parties' assets (whether all or some of them) would be divided in the event of separation or death. Such an agreement might not refer expressly to the relevant legislation or state in more general terms that the agreement was intended to prevent the possibility of claims for financial relief being made in future. We would have no clear evidence in these cases from the agreement itself that the parties were aware of, or intended to oust, the statutory scheme. We discuss this issue further below at paragraph 10.36.

We invite the views of consultees as to whether an opt-out agreement should only be effective if it expressly states in specific or more general terms that neither party is to be entitled to apply for financial relief under any new statutory scheme.

THE SCOPE OF OPT-OUT AGREEMENTS

Agreements that simply oust the scheme

Some parties' agreements might simply exclude the scheme entirely, without making express alternative arrangements for the determination of the ownership of the parties' property or its division between them following separation or death. In such a case, the general law would apply. There seems to us to be no reason why parties should not be able to make such basic agreements, which simply oust the operation of the new scheme.

Agreements that also seek to make positive provision for the parties

Other parties might go further than simply ousting the scheme by making their own provision for how their assets should be divided, thus displacing both the statutory scheme and the general law of property and trusts in favour of the parties' agreed distribution of income and property.

Can positive provision be made?

In so far as the agreement were concerned with the position on any future separation, this would be straightforward. Such an agreement could be made by way of contract (to be performed in the event of separation).

Special considerations arise regarding provision on death. Parties may make agreements concerning income or capital provision which, as a matter of construction, are binding even though the person making provision has subsequently died. Such agreements would be enforceable against the deceased party's estate. More difficult is the case where the agreement is not intended to take effect until one party's death. It would be possible for the parties to provide for each other on death by executing a trust which either created immediately vested shares in possession, or a series of life and reversionary interests. It is not straightforwardly possible to achieve the same effect by contract, as the parties' intentions appear to be "testamentary" in that the provision is to take effect only on death and not before. The appropriate method of achieving such objectives would be by execution of a will, although it may be that depending upon the circumstances the parties' agreement could be construed as comprising a contract to create a will.

Over what assets would the opt-out apply?

The parties might make an agreement which sought to set out how their property would be divided in the event of separation or death. Such an agreement might seek to determine future property division and financial provision in two ways:

(1) by providing that specific assets should go to each party; or

(2) by providing that each party should obtain a specified proportion of a pool of assets and/or receive a specified regular payment from the other party.

An agreement dealing with specific items of property would be highly unlikely to cater comprehensively for all of the parties' assets. It might have dealt with all of the parties' assets at its inception, but the identity of those assets might have changed subsequently as old assets were disposed of and new assets acquired. However, we do not think it necessary that an agreement should deal with all of the parties' assets in order to qualify as an opt-out agreement. Some couples might find it suitable to list particular assets which would belong solely to one or other party in the event of separation or death, and those which would be divided in some other way. In some cases, one party might wish to ensure that a particular, much-loved asset should remain with him or her on separation or death, but not be concerned about how the rest of the assets were divided.

If parties had included a provision expressly opting out of the statutory scheme, it would generally be clear from the terms of that provision whether the scheme were excluded entirely or only in relation to particular assets or issues. Were the law to allow for "implied" opt-outs, simply on the basis of alternative provision having been made (as discussed in paragraph 10.30), the court might then be faced with a difficult question of construction when it came to determine whether, and, if so, to what extent, the operation of the statutory scheme were excluded. The difficulty arising from this is another reason to be hesitant about allowing such implied opt-out agreements to have effect.

Suppose that Y and Z (from our example in paragraph 10.14 above) entered into an opt-out agreement which made provision for a specific asset (say, a car). The parties may have intended (or simply assumed) any one of the following outcomes regarding their other property. That the car should belong to Y, but that:

(1) the court should remain free to divide the remaining assets pursuant to the statutory scheme, treating Y's receipt of the car as part of Y's share;

(2) the court should remain free to divide the remaining assets pursuant to the statutory scheme, but not treat the value of the car as counting towards Y's share, so Z cannot be compensated for the fact that Y has the car; or

(3) Y's receipt of the car should be by way of compromise of any claim Y might have against Z for financial relief, and so Y could not make any claim in the event of separation or Z's death.

Whether an opt-out agreement that covered a specific asset had the meaning in (1), (2) or (3) would depend on the interpretation of its terms, in light of the existence of our proposed statutory scheme. Depending on the construction of the agreement, the parties would remain free to pursue a claim for financial relief in respect of assets in relation to which the agreement was silent.

Another approach might involve distinguishing between provision made for capital and income. For example, if the agreement covered only capital and did not in general terms oust the scheme, the court could have jurisdiction under the scheme in respect of any application relating to income.

as

We discuss below whether an express joint declaration of trust would be classified as an opt-out agreement. If it were so classified, it would only operate in relation to the asset that was the object of the trust.

We invite the views of consultees on whether, if an opt-out agreement relates only to part of a couple's financial affairs and does not exclude the parties from making any application to court:

(1) the couple should be bound by the terms of the agreement in respect of the assets or issues that the agreement covers; but

(2) the court should remain free to deal with the assets and issues not covered by the agreement.

QUALIFYING CRITERIA AND GROUNDS FOR REVIEW

It is necessary to consider whether any particular formalities or other "qualifying criteria" should be satisfied before an opt-out agreement would be effective to exclude the operation of the statutory scheme and be enforceable in its own terms. Requiring certain formalities to be complied with could give both parties a better opportunity to consider what they were agreeing to and whether or not it was a suitable agreement for both of them.

Alternatively (or additionally) the parties could be protected by giving the court the power to refuse to enforce an opt-out agreement (even if it satisfied any prescribed qualifying criteria) in light of the circumstances prevailing when one party sought to enforce it ("grounds for review").

In our view, the more by way of qualifying criteria than were required by the scheme (or voluntarily taken by the parties), the less opportunity there should be for the courts to overturn it. Parties who had been given the opportunity to consider an agreement carefully and to take advice on it should not be permitted later to apply to the courts to overturn the agreement simply because they have changed their mind. Conversely, the less demanding the qualifying criteria (or the fewer the precautions voluntarily taken by the parties at the outset), the more expansive should be the grounds for review.

There are, of course, two other possibilities. First, that the general law alone regulate opt-out agreements, with no special statutory formalities or grounds for review. Secondly, that the law require both onerous qualifying criteria and confer on the courts a wide power of review.

Qualifying criteria

There are currently no special rules regarding formalities for making a cohabitation contract, save those imposed by the general law.

Requiring qualifying criteria to be satisfied in order for an opt-out agreement to be enforceable might favour knowledgeable cohabitants, aware of their legal position under the scheme and the preconditions for opting out. An unscrupulous individual could make an agreement with his or her partner, deliberately not complying with the qualifying criteria, knowing that if it became disadvantageous to him or her at a later stage it could be overturned.

However, a failure to prescribe any qualifying criteria might lead to lengthy cases involving disputed evidence about whether an agreement had been made at all and, if so, what its terms were.

Comparative survey

It is useful to consider what requirements are demanded by other jurisdictions for what we call opt-out agreements to be enforceable.

In New Zealand, in order to be binding, a cohabitation agreement must be in writing and signed by both parties, and comply with the following further conditions:

(1) each party to the agreement must have independent legal advice before signing the agreement;

(2) a lawyer must witness the signature of each party to the agreement; and

(3) the lawyer who witnesses the signature of a party must certify that, before that party signed the agreement, the lawyer ^[17] explained to that party the effect and implications of the agreement.^[18]

In Sweden, cohabitation and termination agreements must be in writing and signed by the parties to be valid.

In Australia, different states have different rules prescribing the qualifying criteria for formal cohabitation agreements. In New South Wales, an agreement will be binding if:

(1) the agreement is in writing;

(2) the agreement is signed by the party against whom it is sought to be enforced;

(3) each party to the relationship was, before the time at which the agreement was signed by him or her, furnished with a certificate by a solicitor which states that the solicitor provided legal advice to that party, independently of the other party to the relationship, as to the following matters:

(a) the effect of the agreement on the rights of the parties to apply for an order for property adjustment or maintenance; and

(b) the advantages and disadvantages, at the time that the advice was provided, to the party of making the agreement; and

(4) the certificates referred to accompany the agreement.^[20]

Possible qualifying criteria

There is therefore a range of formalities (over and above those that may be required by the general law) and other qualifying criteria which new legislation could require to be observed before an opt-out agreement would be binding. We have already discussed the issue of how explicitly an agreement should oust the statutory scheme to be treated as an opt-out agreement at all.

AGREEMENT BETWEEN THE PARTIES

We have assumed throughout the preceding text, and when discussing the right to opt out in Part 5, that there must be agreement between the parties. Although unlikely to occur in practice, it might be possible for potential applicants unilaterally to surrender any future claim that they have under the scheme. The respondent would be unlikely to disagree that such a unilateral opt-out should be effective. However, it should not be possible for a potential respondent to opt out of the statutory scheme by unilateral declaration.

A REQUIREMENT OF WRITING

At the outset, we should make it clear that by "writing" we mean a written paper document rather than any other form of writing (such as an email or other electronic document). As we discuss below, we envisage that such documents should be signed.

We consider that a writing requirement for basic opt-out agreements would perform at least two functions. First, it would serve a cautionary function, by alerting parties to the significance of the step being taken. Secondly, it would increase evidential certainty, reducing the potential for dispute about the existence and terms of alleged oral agreements. If agreements not recorded in writing in any way were regarded as binding, this would invite the possibility of lengthy disputes in which one party sought to establish the existence of an agreement and its terms while the other sought to refute it.

There are at least four options for writing requirements, in addition to any that might be required in specific circumstances by the general law:

(1) that the agreement be "evidenced in writing";^[23]

(2) requirement that the agreement be contemporaneously made "in writing",^[24] and that either

(a) only those terms that were in writing would be enforceable, and those that were not would simply be ignored; or

(b) provided some of the agreement were in writing, all terms that could be proved, including oral terms, would be enforceable; or

(3) that the agreement be "in writing" and incorporate all of the terms which the parties have expressly agreed in one document, on pain of the entire agreement otherwise being void.^[25]

Of these, only (2a) would preclude attempts to prove the existence of oral terms, as each of the others would leave an incentive to do so, whether to void the entire agreement, (in the case of (3)), to prove the existence of terms outside the writing (in the case of (2b)), or to prove the existence of some collateral contract, (in the case of (1)). Complete certainty may therefore be elusive. Use of "entire agreement" clauses might be desirable.

The "cautionary" function would best be served by a requirement of contemporaneous writing. Since an "evidenced in writing" requirement could be satisfied by writing prepared some time after the original agreement had been made, it might therefore not perform the cautionary function adequately. However, the fact that the writing would have to contain all the material terms agreed, and that it would have to be signed and that signature witnessed (see below), might go some way to make up for the fact that it were not executed contemporaneously with the agreement.

In order to advance the third of our suggested functions of a writing requirement - protection of the party who agreed to opt out only on condition of alternative provision being made - whatever writing requirement were adopted ought to apply to all aspects of the agreement, that is to say both the basic opt-out and any alternative provision agreed between the parties.

In considering this issue, it is important to bear in mind our later question about what weight the court should give to an agreement that failed to comply with whatever qualifying criteria (including writing requirement) were imposed. As we shall see, in the context of agreements to opt out, any breach of any formality requirement could be cured by the court essentially giving effect to the parties' agreement (provided its existence and terms were proved) in the exercise of its discretion were the statutory scheme invoked by either party.

Whatever writing requirement were adopted, it might be helpful to provide expressly that any subsequent variation to, or cancellation of, an agreement should also have to satisfy it. This would seem particularly important in so far as the subsequent agreement related to the opt-out, but would also be helpful in so far as it made alternative provision from that originally agreed. There would otherwise be potential for the original agreement, and the certainty it provides, to be undermined by protracted disputes about alleged subsequent conversations and events.

SHOULD AGREEMENTS BE SIGNED?

If an agreement should be written, we think that the parties should each sign the document in order to confirm their agreement to it. We do not think that this would be unduly onerous and it would avoid dispute at a later date.

SHOULD AGREEMENTS BE WITNESSED?

When two people sign a legal document there is always the risk that one might forge or force the other's signature, or that one might claim that their signature was forged or forced. Some deeds, such as wills, or transfers of land, are witnessed in order to avoid just such potential challenges. The disadvantage of a requirement that agreements be witnessed is that it necessarily exposes the parties' private ordering of their affairs to third parties. Such a requirement might prove to be a deterrent to opting out. However, a requirement of witnessed signatures might help to avoid later challenges about the circumstances in which the agreement was made.

We consider that these three requirements - that the agreement be written, signed and witnessed - have three particular merits. They would offer a degree of certainty both that the parties had in fact considered and agreed to the terms of the document. They would also give the act of opting out a degree of formality which itself drew the parties' attention to the significance of the step that they were taking. But they would also not be expensive to undertake.

SHOULD THE PARTIES MAKE FULL DISCLOSURE OF THEIR ASSETS?

If cohabitants intended to opt out of the statutory scheme, they might reasonably wish to know what assets their partner has before they did so. No professional adviser could be expected to offer an opinion on whether or not an agreement were reasonable unless provided with that information.

However, some couples, keen to keep their finances wholly separate from one another, might find a requirement of full disclosure an unwarranted intrusion. It would be possible to provide that such a requirement would not be necessary for the validity of an agreement, but instead be treated as a relevant circumstance in any later proceedings in which one party sought to set aside the agreement.

ADVICE FROM AN INDEPENDENT THIRD PARTY

There are three levels of advice which could be offered to cohabitants considering whether to make an opt-out agreement, and which could be required as a precondition of the agreement's enforceability:

(1) general advice about the existence of the statutory scheme and the nature of what would be lost if the parties opted out of it;

(2) general advice on the meaning of an agreement which the parties had written for themselves; and

(3) specific advice about whether an agreement were appropriate for a particular couple, in light of the remedies potentially available under the statutory scheme.

General advice as to existence of the statutory scheme and the nature of what would be lost by opting out

It would be highly desirable for general advice to be given as to the existence of the statutory remedies, so that a couple was aware, in very broad terms, of what they were giving up. It would also be possible to offer more detailed advice about the nature of the statutory scheme, the benefits lost, and the burdens avoided, by one or both parties were they to opt out. This advice would not be specifically tailored to the individual couple and could be given by advice agencies rather than by solicitors. However, couples might be disappointed (or misled) by receiving only general advice, rather than more individualised advice as to whether a particular agreement was suitable for them. Moreover, this level of advice would not help the parties be sure that their agreement in fact did what they wanted it to do.

General advice from an independent person as to the meaning of a proposed agreement

Such advice would enable couples to know that they were signing an agreement which said what they intended (particularly as regards alternative provision made by the agreement, beyond the basic opt-out). The advice could be given by advice agencies, if they felt able to do so. The cost of obtaining such advice would be small. However, this advice would not be concerned with whether the couple were making a good bargain. Again, some couples might erroneously think that the advice they received provided confirmation that the agreement was prudent, even though their adviser had made it clear that this was not the function or nature of the advice given. We are interested in consultees' views on the utility or otherwise of such advice.

Advice as to whether an agreement was appropriate^[29]

As we have seen above, it is a requirement in some jurisdictions for agreements to be considered by a lawyer, who will give advice at some level (the level varies depending on the jurisdiction) before the parties sign it. Some jurisdictions consider such lawyer-endorsed agreements to be wholly binding, with very few grounds to avoid them. Other jurisdictions allow challenges on certain grounds, notwithstanding that a lawyer has advised.

Before any adviser can express a view on the adequacy (or otherwise) of the benefits of an agreement to their client they will seek full disclosure from both parties. They will require information about the parties' finances and their intentions and expectations. They will ask the parties to consider their future plans, the potential for life-changing events and how they intend to cope with them.

Giving this level of advice is time-consuming. This is particularly so because lawyers might want to take advice in turn from financial advisers on, say, the valuation of pensions. Conversely, financial advisers retained by the cohabitants would be able to offer advice on the value of proposed benefits but not the legal effect of particular clauses. This means it is inherently expensive and would therefore only be appropriate for, and indeed accessible by, some couples. For those with limited means, the expense would be likely to be out of proportion to their resources.

Another difficulty is that couples might not think of every eventuality which could affect them. If advisers were expected to do so for them, and to provide for every possible alternative in the agreement (with the possibility of a negligence suit if they failed to do so) they would either be forced to pay vast indemnity insurance premiums, the cost of which would be passed on to the client, or they would refuse to undertake the work altogether. Clearly, much would depend here on the extent of the adviser's assumption of responsibility.

There may therefore be practical problems with solicitors providing independent legal advice. However, we are aware that solicitors do already draft cohabitation contracts and we would like to receive their views on how much work is involved in the process and how far they consider that their duties to the client extend.

Whether or not it were legally required as a precondition for a binding opt-out agreement, where the parties had chosen to receive independent legal advice, we think that the courts should have only a minimal power of review, if any. We are particularly concerned that any agreements made after specific, detailed legal and financial advice should not be susceptible to challenge in the courts save where the agreement was vitiated under the general law, where the parties had failed to comply with any formalities required for opt-out agreements or (perhaps) owing to supervening events. The possibility of this last ground for challenge is discussed below. By contrast, where the parties had not obtained independent legal advice, a wider power of review might be warranted.

We invite the views of consultees on what qualifying criteria, if any, should be necessary for an opt-out agreement to be binding.

Model opt-out agreements

By "model agreements" we mean draft agreements or discrete clauses which could be used by cohabitants to formulate their personal opt-out agreements. They would not be mandatory but would assist those wishing to self-regulate to do so without incurring the expense and trouble of instructing a solicitor to draft the agreement. Model agreements might assist parties in complying with whatever qualifying criteria the law imposed, provide some level of general advice, and encourage parties to consider all of the pertinent issues by prompting them appropriately at each stage of the document. Offering a series of standard terms which couples could use without having to instruct a solicitor might help couples to consider how they would deal with potential future situations. They could be accompanied by explanatory booklets and companion websites.

New Zealand is, to our knowledge, the only jurisdiction which offers a statutory form of model cohabitation contract for the use of cohabitants.

While it might be helpful for model agreements to be made available, an agreement contained in legislation, even secondary legislation, would be difficult to amend and slow to adapt to changes in society. We do not consider that it should be the first choice method for designing and disseminating a model agreement. There could be a place for model agreements drafted by a group of organisations with specialist knowledge of family law. It was suggested to us that, if it had the resources to do so, the Law Society could co-ordinate and oversee a group comprising members of Resolution, the Family Law Bar Association and others with the ability and experience to draft an agreement of this nature.

However, all that such an agreement could offer would be the opportunity for couples to word binding agreements that expressed their wishes. It would not offer advice on the suitability or otherwise of such agreements for their individual circumstances. Moreover, couples using such models without the benefit of advice might find that the agreement they made was not the agreement that one or both of them intended. This could be a great drawback to the utility of model agreements.

We invite the views of consultees on the use of model agreements and how they should be drafted.

Grounds for review

We consider here the events or circumstances which might allow a court to set aside an opt-out agreement and make alternative provision on separation or death.

Contracts made between spouses (and civil partners)

In considering the circumstances in which the courts should be entitled to review opt-out agreements, it is useful to begin by examining the position of spouses and civil partners. Their ability to enter into and enforce pre-nuptial agreements and separation agreements is not unfettered, and there is a substantial difference in the treatment of pre-nuptial contracts and agreements made on separation. The law's treatment of these agreement provides a background for our consideration of how a new scheme could treat equivalent agreements made by cohabitants.

PRE-NUPTIAL CONTRACTS

For decades, pre-marital agreements were given no weight in divorce proceedings. They were considered to be contrary to public policy on the ground that they contemplated the dissolution of the marriage.

K v K

SEPARATION AGREEMENTS

PART 10

COHABITATION CONTRACTS AND OPT-OUT AGREEMENTS

INTRODUCTION

We have provisionally proposed in Parts 5 to 9 that:

(1) parties to cohabiting relationships who satisfy statutory eligibility requirements should have access to new statutory remedies on separation;

(3) these statutory remedies should take the form of a specific scheme for financial relief between eligible cohabitants on separation, under which the courts exercise a discretion structured by principles; and

(3) the remedies available to cohabitants under the Inheritance (Provision for Family and Dependants) Act 1975 ("the 1975 Act") should be amended so that they correlate with any new remedies that are available on separation during the parties' joint lives.

We have also provisionally proposed in Part 5 that cohabitants should be able to oust the operation of the statutory scheme for financial relief on separation by means of an agreement that neither shall apply for financial relief.

Any agreement which removes or modifies the mutual obligations and responsibilities of the cohabiting parties between themselves cannot affect their financial liability towards their children.

In this Part, we consider:

(1) the variety of agreements that might be made by cohabitants and the enforceability of cohabitation contracts:

(2) the potential significance of an "opt-out agreement";

(3) the aims of a scheme that allows cohabitants to opt out of statutory remedies;

(4) who should be able to enter into opt-out agreements;

(5) how explicitly (if at all) an opt-out agreement should oust the operation of a new statutory scheme;

(6) the scope of opt-out agreements: what they ought to, or might, cover;

(7) what formalities, if any, should be required for an opt-out agreement to be binding ("qualifying criteria");

(8) what circumstances, if any, should permit a court to set aside the terms of an opt-out agreement ("grounds for review"); and

(9) whether a express declaration of trust, executed by both parties, should take effect as an opt-out agreement and, if so, what its scope as an opt-out should be.

In Part 8, we invited consultees' views on whether opting out should also be possible in relation to the 1975 Act. For ease of exposition, the discussion in this Part proceeds on the assumption that couples should be entitled to opt out from financial relief both on separation and on death, and (largely

THE VARIETY OF AGREEMENTS THAT MAY BE MADE BY COHABITANTS

Cohabitants may enter into a range of agreements that provide for their rights and responsibilities. Such agreements may do any (or all) of the following:

(1) provide for how the cohabitants will organise their finances and other issues during their relationship;

(2) provide for how the cohabitants would divide their property and finances in the event that their relationship ends;

(3) determine, at the point of separation, how they will now divide their property and finances; or

(4) declare how a particular asset is owned.^[3]

Cohabitation contracts

Whether or not a new statutory scheme is introduced for cohabitants on separation, the legal force of cohabitation contracts may be felt to need clarification, for the avoidance of any possible doubt about their validity.

All cohabitants should be able to enter into cohabitation contracts. Capacity to enter into such contracts should not be dependent on the eligibility requirements under any new statutory scheme. The sort of contracts which we are concerned with here could lawfully be made by any persons, whatever the nature of their relationship.

We provisionally propose that legislation should provide (for the avoidance of doubt) that, in so far as a cohabitation contract deals with the financial or property relationship of the parties, it is not contrary to public policy. Do consultees agree?

Opt-out agreements

For the purposes of the following discussion, the term "opt-out agreement" means an agreement made between eligible cohabitants before, during or following a period of cohabitation, containing terms which have the effect of ousting the jurisdiction of the court under any new statutory scheme providing financial relief on separation and death. That agreement might also go further by providing positively for how the parties' assets will be divided should separation or death occur. We discuss below how joint express declarations of trust might be treated in this context.

In this section, we are only concerned with agreements that are intended to have effect on the termination of relationships. We do not discuss agreements dealing with financial and other matters that arise during a couple's relationship

THE POTENTIAL SIGNIFICANCE OF AN OPT-OUT AGREEMENT

An opt-out agreement would enable the parties, at least to some extent, to determine for themselves the division of their assets on the termination of their relationship, rather than it being for the court to decide. The extent to which that would be the case would depend on the status given to such agreements.

An opt-out agreement could give rise to one of three possible consequences:

(1) it could be merely a factor that the court would take into account when making adjustments under a new scheme;

(2) it could be binding, but the court would have the power to ignore the agreement in certain circumstances; or

(3) it could be completely binding (subject to the general law).

We shall need to decide which of these approaches to adopt.

We can envisage various circumstances in which eligible (or potentially eligible) cohabiting couples might wish to opt out of any new statutory scheme. For example:

Y and Z were both married previously. Y was divorced and Z was widowed. They both have independent adult children from those marriages. They would like to live together but they do not want to marry: Y's divorce settlement was hard won and they each want to retain their financial independence, partly to protect their children's inheritances. They therefore do not want their cohabitation to give rise to the possibility that either might have a claim in the event of their separation or the death of one of them.

Y and Z wish to ensure that their assets pass to the children of their first relationship when they die, rather than to their new partner. Others might wish to preserve inherited capital for the benefit of other relatives. Some might have been given money by a parent to buy property with their partner and they, or their parent, may wish to ensure that the money is returned to their parent (or at least preserved for that cohabitant's future use) if the property were sold. Some couples might simply want to affirm their financial independence from each other.

DESIGNING AN OPT-OUT

We believe that any provision for opting out of the remedial scheme must be:

(1) sufficiently certain, so that couples who chose to opt out could be sure that a court would uphold their agreement in all but highly exceptional circumstances;

(2) sufficiently protective of vulnerable parties, so that the court would have the power to overturn opt-out agreements in limited, appropriate circumstances; and

(3) accessible, in the sense of not being unnecessarily burdensome or expensive, so that those with few assets (who may therefore have the greatest need to protect them) could make effective agreements easily.

Opting out would deprive the parties of access to remedies which they would otherwise have enjoyed. This has implications for the format that opt-out agreements should take and formalities that might be required for agreements to be binding. We consider that it is important that such agreements should be executed in a manner which:

(1) draws both parties' attention to the significance of the step being taken;

(2) provides certainty (as a matter of evidence) that opting out had been effected; and

(3) limits opportunities for the exercise of undue influence on the party who potentially stands to lose more as a result of opting out.

It would be necessary for the courts to have some power to set aside agreements, not least where the agreement was vitiated as a matter of general law or where any special formalities had not been observed. But we are concerned that any scheme that we recommend should not create too much scope for the court to intervene and so prevent parties from relying on their agreements with confidence.

There are various mechanisms which might produce the desired outcome. Each has its attractions and each its potential drawbacks. At this stage, we do not intend to put forward provisional proposals, but rather to invite consultees' views on each model. We are interested to receive views on how the models might be improved or how some of them might be amalgamated to form a suitable scheme.

WHO SHOULD BE ABLE TO ENTER INTO AN OPT-OUT AGREEMENT?

It would not matter whether (at the point of entering the agreement or at any point in the future) the parties were eligible under a new statutory scheme. Parties might wish to enter into opt-out agreements at a point before any new statutory scheme potentially applied to them.

In Part 9, we considered whether it should be possible for relationships where one party is under the age of 18 to be eligible under any new scheme. The mere fact that minors might not be eligible under a new scheme would not itself justify preventing them from entering into opt-out agreements. However, there may be other reasons why minors should not be able to enter into binding opt-outs.

Under English law, the only contracts which are binding on a minor are "contracts for necessaries",

If this general principle were applicable to opt-out agreements (which would not usually be contracts for necessaries), in cases where only one party was a minor, that party would be protected either way. If it were in the minor's interests that the agreement be enforced, the minor would be able to enforce it. If the minor's interests would be prejudiced by the agreement, he or she could avoid it and apply under the scheme instead.

Take the example of A and B who are 17 and 19 years old respectively. They purport to enter into an opt-out agreement, and B seeks to rely on that agreement against A in separation proceedings five years later. The fact that A was not eligible under the new statutory scheme when the agreement was made (assuming that the scheme did not apply to minors) would be irrelevant to the enforceability of the agreement. Applying English contract law to their opt-out agreement would render it voidable at A's option; A could therefore enforce the opt-out agreement against B (who was not a minor when the agreement was made), but B could not enforce it against A.

It is interesting to note, however, that some other jurisdictions take a different view. For example, in New Zealand, the usual contractual rule is expressly suspended by the Act so that minors are allowed to make fully binding agreements under the legislation, although, if the minor is under eighteen and has never been married, the contract must be scrutinised by the court.

We provisionally propose that parties should be able to enter into an opt-out agreement regardless of whether their relationship is eligible under any new statutory scheme at the point of entering the agreement or subsequently.

We invite the views of consultees on whether minors should be entitled to enter into opt-out agreements, and if so, whether those agreements should be treated as contracts made by minors.

SHOULD AN OPT-OUT AGREEMENT EXPLICITLY OUST THE OPERATION OF A NEW STATUTORY SCHEME?

There is a strong argument for saying that if cohabitants intend to oust the scheme, their agreement should state expressly that that is the case. If the parties are giving up an entitlement to apply for remedies that they would otherwise have, it is essential that they be aware of what they are doing. Evidence of that knowledge, and that the parties did indeed intend to opt out of the scheme, would best be supplied by an express acknowledgement of that fact on the face of the agreement.

It may be too onerous, however, to insist that the agreement refer to the legislation by name. Particularly if not given specific legal advice, parties might not refer to the statutory scheme expressly, but refer in more general terms to claims for financial relief. For example, the parties might state expressly in their agreement that no financial relief is to be given to either party, save for that contained within the agreement. It might be appropriate to allow such terms to eliminate the possibility of a claim being made under a new statutory scheme.

More difficult would be those cases where an agreement provided simply for how the parties' assets (whether all or some of them) would be divided in the event of separation or death. Such an agreement might not refer expressly to the relevant legislation or state in more general terms that the agreement was intended to prevent the possibility of claims for financial relief being made in future. We would have no clear evidence in these cases from the agreement itself that the parties were aware of, or intended to oust, the statutory scheme. We discuss this issue further below at paragraph 10.36.

We invite the views of consultees as to whether an opt-out agreement should only be effective if it expressly states in specific or more general terms that neither party is to be entitled to apply for financial relief under any new statutory scheme.

THE SCOPE OF OPT-OUT AGREEMENTS

Agreements that simply oust the scheme

Some parties' agreements might simply exclude the scheme entirely, without making express alternative arrangements for the determination of the ownership of the parties' property or its division between them following separation or death. In such a case, the general law would apply. There seems to us to be no reason why parties should not be able to make such basic agreements, which simply oust the operation of the new scheme.

Agreements that also seek to make positive provision for the parties

Other parties might go further than simply ousting the scheme by making their own provision for how their assets should be divided, thus displacing both the statutory scheme and the general law of property and trusts in favour of the parties' agreed distribution of income and property.

Can positive provision be made?

In so far as the agreement were concerned with the position on any future separation, this would be straightforward. Such an agreement could be made by way of contract (to be performed in the event of separation).

Special considerations arise regarding provision on death. Parties may make agreements concerning income or capital provision which, as a matter of construction, are binding even though the person making provision has subsequently died. Such agreements would be enforceable against the deceased party's estate. More difficult is the case where the agreement is not intended to take effect until one party's death. It would be possible for the parties to provide for each other on death by executing a trust which either created immediately vested shares in possession, or a series of life and reversionary interests. It is not straightforwardly possible to achieve the same effect by contract, as the parties' intentions appear to be "testamentary" in that the provision is to take effect only on death and not before. The appropriate method of achieving such objectives would be by execution of a will, although it may be that depending upon the circumstances the parties' agreement could be construed as comprising a contract to create a will.

Over what assets would the opt-out apply?

The parties might make an agreement which sought to set out how their property would be divided in the event of separation or death. Such an agreement might seek to determine future property division and financial provision in two ways:

(1) by providing that specific assets should go to each party; or

(2) by providing that each party should obtain a specified proportion of a pool of assets and/or receive a specified regular payment from the other party.

An agreement dealing with specific items of property would be highly unlikely to cater comprehensively for all of the parties' assets. It might have dealt with all of the parties' assets at its inception, but the identity of those assets might have changed subsequently as old assets were disposed of and new assets acquired. However, we do not think it necessary that an agreement should deal with all of the parties' assets in order to qualify as an opt-out agreement. Some couples might find it suitable to list particular assets which would belong solely to one or other party in the event of separation or death, and those which would be divided in some other way. In some cases, one party might wish to ensure that a particular, much-loved asset should remain with him or her on separation or death, but not be concerned about how the rest of the assets were divided.

If parties had included a provision expressly opting out of the statutory scheme, it would generally be clear from the terms of that provision whether the scheme were excluded entirely or only in relation to particular assets or issues. Were the law to allow for "implied" opt-outs, simply on the basis of alternative provision having been made (as discussed in paragraph 10.30), the court might then be faced with a difficult question of construction when it came to determine whether, and, if so, to what extent, the operation of the statutory scheme were excluded. The difficulty arising from this is another reason to be hesitant about allowing such implied opt-out agreements to have effect.

Suppose that Y and Z (from our example in paragraph 10.14 above) entered into an opt-out agreement which made provision for a specific asset (say, a car). The parties may have intended (or simply assumed) any one of the following outcomes regarding their other property. That the car should belong to Y, but that:

(1) the court should remain free to divide the remaining assets pursuant to the statutory scheme, treating Y's receipt of the car as part of Y's share;

(2) the court should remain free to divide the remaining assets pursuant to the statutory scheme, but not treat the value of the car as counting towards Y's share, so Z cannot be compensated for the fact that Y has the car; or

(3) Y's receipt of the car should be by way of compromise of any claim Y might have against Z for financial relief, and so Y could not make any claim in the event of separation or Z's death.

Whether an opt-out agreement that covered a specific asset had the meaning in (1), (2) or (3) would depend on the interpretation of its terms, in light of the existence of our proposed statutory scheme. Depending on the construction of the agreement, the parties would remain free to pursue a claim for financial relief in respect of assets in relation to which the agreement was silent.

Another approach might involve distinguishing between provision made for capital and income. For example, if the agreement covered only capital and did not in general terms oust the scheme, the court could have jurisdiction under the scheme in respect of any application relating to income.

as

We discuss below whether an express joint declaration of trust would be classified as an opt-out agreement. If it were so classified, it would only operate in relation to the asset that was the object of the trust.

We invite the views of consultees on whether, if an opt-out agreement relates only to part of a couple's financial affairs and does not exclude the parties from making any application to court:

(1) the couple should be bound by the terms of the agreement in respect of the assets or issues that the agreement covers; but

(2) the court should remain free to deal with the assets and issues not covered by the agreement.

QUALIFYING CRITERIA AND GROUNDS FOR REVIEW

It is necessary to consider whether any particular formalities or other "qualifying criteria" should be satisfied before an opt-out agreement would be effective to exclude the operation of the statutory scheme and be enforceable in its own terms. Requiring certain formalities to be complied with could give both parties a better opportunity to consider what they were agreeing to and whether or not it was a suitable agreement for both of them.

Alternatively (or additionally) the parties could be protected by giving the court the power to refuse to enforce an opt-out agreement (even if it satisfied any prescribed qualifying criteria) in light of the circumstances prevailing when one party sought to enforce it ("grounds for review").

In our view, the more by way of qualifying criteria than were required by the scheme (or voluntarily taken by the parties), the less opportunity there should be for the courts to overturn it. Parties who had been given the opportunity to consider an agreement carefully and to take advice on it should not be permitted later to apply to the courts to overturn the agreement simply because they have changed their mind. Conversely, the less demanding the qualifying criteria (or the fewer the precautions voluntarily taken by the parties at the outset), the more expansive should be the grounds for review.

There are, of course, two other possibilities. First, that the general law alone regulate opt-out agreements, with no special statutory formalities or grounds for review. Secondly, that the law require both onerous qualifying criteria and confer on the courts a wide power of review.

Qualifying criteria

There are currently no special rules regarding formalities for making a cohabitation contract, save those imposed by the general law.

Requiring qualifying criteria to be satisfied in order for an opt-out agreement to be enforceable might favour knowledgeable cohabitants, aware of their legal position under the scheme and the preconditions for opting out. An unscrupulous individual could make an agreement with his or her partner, deliberately not complying with the qualifying criteria, knowing that if it became disadvantageous to him or her at a later stage it could be overturned.

However, a failure to prescribe any qualifying criteria might lead to lengthy cases involving disputed evidence about whether an agreement had been made at all and, if so, what its terms were.

Comparative survey

It is useful to consider what requirements are demanded by other jurisdictions for what we call opt-out agreements to be enforceable.

In New Zealand, in order to be binding, a cohabitation agreement must be in writing and signed by both parties, and comply with the following further conditions:

(1) each party to the agreement must have independent legal advice before signing the agreement;

(2) a lawyer must witness the signature of each party to the agreement; and

(3) the lawyer who witnesses the signature of a party must certify that, before that party signed the agreement, the lawyer ^[17] explained to that party the effect and implications of the agreement.^[18]

In Sweden, cohabitation and termination agreements must be in writing and signed by the parties to be valid.

In Australia, different states have different rules prescribing the qualifying criteria for formal cohabitation agreements. In New South Wales, an agreement will be binding if:

(1) the agreement is in writing;

(2) the agreement is signed by the party against whom it is sought to be enforced;

(3) each party to the relationship was, before the time at which the agreement was signed by him or her, furnished with a certificate by a solicitor which states that the solicitor provided legal advice to that party, independently of the other party to the relationship, as to the following matters:

(a) the effect of the agreement on the rights of the parties to apply for an order for property adjustment or maintenance; and

(b) the advantages and disadvantages, at the time that the advice was provided, to the party of making the agreement; and

(4) the certificates referred to accompany the agreement.^[20]

Possible qualifying criteria

There is therefore a range of formalities (over and above those that may be required by the general law) and other qualifying criteria which new legislation could require to be observed before an opt-out agreement would be binding. We have already discussed the issue of how explicitly an agreement should oust the statutory scheme to be treated as an opt-out agreement at all.

AGREEMENT BETWEEN THE PARTIES

We have assumed throughout the preceding text, and when discussing the right to opt out in Part 5, that there must be agreement between the parties. Although unlikely to occur in practice, it might be possible for potential applicants unilaterally to surrender any future claim that they have under the scheme. The respondent would be unlikely to disagree that such a unilateral opt-out should be effective. However, it should not be possible for a potential respondent to opt out of the statutory scheme by unilateral declaration.

A REQUIREMENT OF WRITING

At the outset, we should make it clear that by "writing" we mean a written paper document rather than any other form of writing (such as an email or other electronic document). As we discuss below, we envisage that such documents should be signed.

We consider that a writing requirement for basic opt-out agreements would perform at least two functions. First, it would serve a cautionary function, by alerting parties to the significance of the step being taken. Secondly, it would increase evidential certainty, reducing the potential for dispute about the existence and terms of alleged oral agreements. If agreements not recorded in writing in any way were regarded as binding, this would invite the possibility of lengthy disputes in which one party sought to establish the existence of an agreement and its terms while the other sought to refute it.

There are at least four options for writing requirements, in addition to any that might be required in specific circumstances by the general law:

(1) that the agreement be "evidenced in writing";^[23]

(2) requirement that the agreement be contemporaneously made "in writing",^[24] and that either

(a) only those terms that were in writing would be enforceable, and those that were not would simply be ignored; or

(b) provided some of the agreement were in writing, all terms that could be proved, including oral terms, would be enforceable; or

(3) that the agreement be "in writing" and incorporate all of the terms which the parties have expressly agreed in one document, on pain of the entire agreement otherwise being void.^[25]

Of these, only (2a) would preclude attempts to prove the existence of oral terms, as each of the others would leave an incentive to do so, whether to void the entire agreement, (in the case of (3)), to prove the existence of terms outside the writing (in the case of (2b)), or to prove the existence of some collateral contract, (in the case of (1)). Complete certainty may therefore be elusive. Use of "entire agreement" clauses might be desirable.

The "cautionary" function would best be served by a requirement of contemporaneous writing. Since an "evidenced in writing" requirement could be satisfied by writing prepared some time after the original agreement had been made, it might therefore not perform the cautionary function adequately. However, the fact that the writing would have to contain all the material terms agreed, and that it would have to be signed and that signature witnessed (see below), might go some way to make up for the fact that it were not executed contemporaneously with the agreement.

In order to advance the third of our suggested functions of a writing requirement - protection of the party who agreed to opt out only on condition of alternative provision being made - whatever writing requirement were adopted ought to apply to all aspects of the agreement, that is to say both the basic opt-out and any alternative provision agreed between the parties.

In considering this issue, it is important to bear in mind our later question about what weight the court should give to an agreement that failed to comply with whatever qualifying criteria (including writing requirement) were imposed. As we shall see, in the context of agreements to opt out, any breach of any formality requirement could be cured by the court essentially giving effect to the parties' agreement (provided its existence and terms were proved) in the exercise of its discretion were the statutory scheme invoked by either party.

Whatever writing requirement were adopted, it might be helpful to provide expressly that any subsequent variation to, or cancellation of, an agreement should also have to satisfy it. This would seem particularly important in so far as the subsequent agreement related to the opt-out, but would also be helpful in so far as it made alternative provision from that originally agreed. There would otherwise be potential for the original agreement, and the certainty it provides, to be undermined by protracted disputes about alleged subsequent conversations and events.

SHOULD AGREEMENTS BE SIGNED?

If an agreement should be written, we think that the parties should each sign the document in order to confirm their agreement to it. We do not think that this would be unduly onerous and it would avoid dispute at a later date.

SHOULD AGREEMENTS BE WITNESSED?

When two people sign a legal document there is always the risk that one might forge or force the other's signature, or that one might claim that their signature was forged or forced. Some deeds, such as wills, or transfers of land, are witnessed in order to avoid just such potential challenges. The disadvantage of a requirement that agreements be witnessed is that it necessarily exposes the parties' private ordering of their affairs to third parties. Such a requirement might prove to be a deterrent to opting out. However, a requirement of witnessed signatures might help to avoid later challenges about the circumstances in which the agreement was made.

We consider that these three requirements - that the agreement be written, signed and witnessed - have three particular merits. They would offer a degree of certainty both that the parties had in fact considered and agreed to the terms of the document. They would also give the act of opting out a degree of formality which itself drew the parties' attention to the significance of the step that they were taking. But they would also not be expensive to undertake.

SHOULD THE PARTIES MAKE FULL DISCLOSURE OF THEIR ASSETS?

If cohabitants intended to opt out of the statutory scheme, they might reasonably wish to know what assets their partner has before they did so. No professional adviser could be expected to offer an opinion on whether or not an agreement were reasonable unless provided with that information.

However, some couples, keen to keep their finances wholly separate from one another, might find a requirement of full disclosure an unwarranted intrusion. It would be possible to provide that such a requirement would not be necessary for the validity of an agreement, but instead be treated as a relevant circumstance in any later proceedings in which one party sought to set aside the agreement.

ADVICE FROM AN INDEPENDENT THIRD PARTY

There are three levels of advice which could be offered to cohabitants considering whether to make an opt-out agreement, and which could be required as a precondition of the agreement's enforceability:

(1) general advice about the existence of the statutory scheme and the nature of what would be lost if the parties opted out of it;

(2) general advice on the meaning of an agreement which the parties had written for themselves; and

(3) specific advice about whether an agreement were appropriate for a particular couple, in light of the remedies potentially available under the statutory scheme.

General advice as to existence of the statutory scheme and the nature of what would be lost by opting out

It would be highly desirable for general advice to be given as to the existence of the statutory remedies, so that a couple was aware, in very broad terms, of what they were giving up. It would also be possible to offer more detailed advice about the nature of the statutory scheme, the benefits lost, and the burdens avoided, by one or both parties were they to opt out. This advice would not be specifically tailored to the individual couple and could be given by advice agencies rather than by solicitors. However, couples might be disappointed (or misled) by receiving only general advice, rather than more individualised advice as to whether a particular agreement was suitable for them. Moreover, this level of advice would not help the parties be sure that their agreement in fact did what they wanted it to do.

General advice from an independent person as to the meaning of a proposed agreement

Such advice would enable couples to know that they were signing an agreement which said what they intended (particularly as regards alternative provision made by the agreement, beyond the basic opt-out). The advice could be given by advice agencies, if they felt able to do so. The cost of obtaining such advice would be small. However, this advice would not be concerned with whether the couple were making a good bargain. Again, some couples might erroneously think that the advice they received provided confirmation that the agreement was prudent, even though their adviser had made it clear that this was not the function or nature of the advice given. We are interested in consultees' views on the utility or otherwise of such advice.

Advice as to whether an agreement was appropriate^[29]

As we have seen above, it is a requirement in some jurisdictions for agreements to be considered by a lawyer, who will give advice at some level (the level varies depending on the jurisdiction) before the parties sign it. Some jurisdictions consider such lawyer-endorsed agreements to be wholly binding, with very few grounds to avoid them. Other jurisdictions allow challenges on certain grounds, notwithstanding that a lawyer has advised.

Before any adviser can express a view on the adequacy (or otherwise) of the benefits of an agreement to their client they will seek full disclosure from both parties. They will require information about the parties' finances and their intentions and expectations. They will ask the parties to consider their future plans, the potential for life-changing events and how they intend to cope with them.

Giving this level of advice is time-consuming. This is particularly so because lawyers might want to take advice in turn from financial advisers on, say, the valuation of pensions. Conversely, financial advisers retained by the cohabitants would be able to offer advice on the value of proposed benefits but not the legal effect of particular clauses. This means it is inherently expensive and would therefore only be appropriate for, and indeed accessible by, some couples. For those with limited means, the expense would be likely to be out of proportion to their resources.

Another difficulty is that couples might not think of every eventuality which could affect them. If advisers were expected to do so for them, and to provide for every possible alternative in the agreement (with the possibility of a negligence suit if they failed to do so) they would either be forced to pay vast indemnity insurance premiums, the cost of which would be passed on to the client, or they would refuse to undertake the work altogether. Clearly, much would depend here on the extent of the adviser's assumption of responsibility.

There may therefore be practical problems with solicitors providing independent legal advice. However, we are aware that solicitors do already draft cohabitation contracts and we would like to receive their views on how much work is involved in the process and how far they consider that their duties to the client extend.

Whether or not it were legally required as a precondition for a binding opt-out agreement, where the parties had chosen to receive independent legal advice, we think that the courts should have only a minimal power of review, if any. We are particularly concerned that any agreements made after specific, detailed legal and financial advice should not be susceptible to challenge in the courts save where the agreement was vitiated under the general law, where the parties had failed to comply with any formalities required for opt-out agreements or (perhaps) owing to supervening events. The possibility of this last ground for challenge is discussed below. By contrast, where the parties had not obtained independent legal advice, a wider power of review might be warranted.

We invite the views of consultees on what qualifying criteria, if any, should be necessary for an opt-out agreement to be binding.

Model opt-out agreements

By "model agreements" we mean draft agreements or discrete clauses which could be used by cohabitants to formulate their personal opt-out agreements. They would not be mandatory but would assist those wishing to self-regulate to do so without incurring the expense and trouble of instructing a solicitor to draft the agreement. Model agreements might assist parties in complying with whatever qualifying criteria the law imposed, provide some level of general advice, and encourage parties to consider all of the pertinent issues by prompting them appropriately at each stage of the document. Offering a series of standard terms which couples could use without having to instruct a solicitor might help couples to consider how they would deal with potential future situations. They could be accompanied by explanatory booklets and companion websites.

New Zealand is, to our knowledge, the only jurisdiction which offers a statutory form of model cohabitation contract for the use of cohabitants.

While it might be helpful for model agreements to be made available, an agreement contained in legislation, even secondary legislation, would be difficult to amend and slow to adapt to changes in society. We do not consider that it should be the first choice method for designing and disseminating a model agreement. There could be a place for model agreements drafted by a group of organisations with specialist knowledge of family law. It was suggested to us that, if it had the resources to do so, the Law Society could co-ordinate and oversee a group comprising members of Resolution, the Family Law Bar Association and others with the ability and experience to draft an agreement of this nature.

However, all that such an agreement could offer would be the opportunity for couples to word binding agreements that expressed their wishes. It would not offer advice on the suitability or otherwise of such agreements for their individual circumstances. Moreover, couples using such models without the benefit of advice might find that the agreement they made was not the agreement that one or both of them intended. This could be a great drawback to the utility of model agreements.

We invite the views of consultees on the use of model agreements and how they should be drafted.

Grounds for review

We consider here the events or circumstances which might allow a court to set aside an opt-out agreement and make alternative provision on separation or death.

Contracts made between spouses (and civil partners)

In considering the circumstances in which the courts should be entitled to review opt-out agreements, it is useful to begin by examining the position of spouses and civil partners. Their ability to enter into and enforce pre-nuptial agreements and separation agreements is not unfettered, and there is a substantial difference in the treatment of pre-nuptial contracts and agreements made on separation. The law's treatment of these agreement provides a background for our consideration of how a new scheme could treat equivalent agreements made by cohabitants.

PRE-NUPTIAL CONTRACTS

For decades, pre-marital agreements were given no weight in divorce proceedings. They were considered to be contrary to public policy on the ground that they contemplated the dissolution of the marriage.

K v K

SEPARATION AGREEMENTS

PART 10

COHABITATION CONTRACTS AND OPT-OUT AGREEMENTS

INTRODUCTION

We have provisionally proposed in Parts 5 to 9 that:

(1) parties to cohabiting relationships who satisfy statutory eligibility requirements should have access to new statutory remedies on separation;

(3) these statutory remedies should take the form of a specific scheme for financial relief between eligible cohabitants on separation, under which the courts exercise a discretion structured by principles; and

(3) the remedies available to cohabitants under the Inheritance (Provision for Family and Dependants) Act 1975 ("the 1975 Act") should be amended so that they correlate with any new remedies that are available on separation during the parties' joint lives.

We have also provisionally proposed in Part 5 that cohabitants should be able to oust the operation of the statutory scheme for financial relief on separation by means of an agreement that neither shall apply for financial relief.

Any agreement which removes or modifies the mutual obligations and responsibilities of the cohabiting parties between themselves cannot affect their financial liability towards their children.

In this Part, we consider:

(1) the variety of agreements that might be made by cohabitants and the enforceability of cohabitation contracts:

(2) the potential significance of an "opt-out agreement";

(3) the aims of a scheme that allows cohabitants to opt out of statutory remedies;

(4) who should be able to enter into opt-out agreements;

(5) how explicitly (if at all) an opt-out agreement should oust the operation of a new statutory scheme;

(6) the scope of opt-out agreements: what they ought to, or might, cover;

(7) what formalities, if any, should be required for an opt-out agreement to be binding ("qualifying criteria");

(8) what circumstances, if any, should permit a court to set aside the terms of an opt-out agreement ("grounds for review"); and

(9) whether a express declaration of trust, executed by both parties, should take effect as an opt-out agreement and, if so, what its scope as an opt-out should be.

In Part 8, we invited consultees' views on whether opting out should also be possible in relation to the 1975 Act. For ease of exposition, the discussion in this Part proceeds on the assumption that couples should be entitled to opt out from financial relief both on separation and on death, and (largely

THE VARIETY OF AGREEMENTS THAT MAY BE MADE BY COHABITANTS

Cohabitants may enter into a range of agreements that provide for their rights and responsibilities. Such agreements may do any (or all) of the following:

(1) provide for how the cohabitants will organise their finances and other issues during their relationship;

(2) provide for how the cohabitants would divide their property and finances in the event that their relationship ends;

(3) determine, at the point of separation, how they will now divide their property and finances; or

(4) declare how a particular asset is owned.^[3]

Cohabitation contracts

Whether or not a new statutory scheme is introduced for cohabitants on separation, the legal force of cohabitation contracts may be felt to need clarification, for the avoidance of any possible doubt about their validity.

All cohabitants should be able to enter into cohabitation contracts. Capacity to enter into such contracts should not be dependent on the eligibility requirements under any new statutory scheme. The sort of contracts which we are concerned with here could lawfully be made by any persons, whatever the nature of their relationship.

We provisionally propose that legislation should provide (for the avoidance of doubt) that, in so far as a cohabitation contract deals with the financial or property relationship of the parties, it is not contrary to public policy. Do consultees agree?

Opt-out agreements

For the purposes of the following discussion, the term "opt-out agreement" means an agreement made between eligible cohabitants before, during or following a period of cohabitation, containing terms which have the effect of ousting the jurisdiction of the court under any new statutory scheme providing financial relief on separation and death. That agreement might also go further by providing positively for how the parties' assets will be divided should separation or death occur. We discuss below how joint express declarations of trust might be treated in this context.

In this section, we are only concerned with agreements that are intended to have effect on the termination of relationships. We do not discuss agreements dealing with financial and other matters that arise during a couple's relationship

THE POTENTIAL SIGNIFICANCE OF AN OPT-OUT AGREEMENT

An opt-out agreement would enable the parties, at least to some extent, to determine for themselves the division of their assets on the termination of their relationship, rather than it being for the court to decide. The extent to which that would be the case would depend on the status given to such agreements.

An opt-out agreement could give rise to one of three possible consequences:

(1) it could be merely a factor that the court would take into account when making adjustments under a new scheme;

(2) it could be binding, but the court would have the power to ignore the agreement in certain circumstances; or

(3) it could be completely binding (subject to the general law).

We shall need to decide which of these approaches to adopt.

We can envisage various circumstances in which eligible (or potentially eligible) cohabiting couples might wish to opt out of any new statutory scheme. For example:

Y and Z were both married previously. Y was divorced and Z was widowed. They both have independent adult children from those marriages. They would like to live together but they do not want to marry: Y's divorce settlement was hard won and they each want to retain their financial independence, partly to protect their children's inheritances. They therefore do not want their cohabitation to give rise to the possibility that either might have a claim in the event of their separation or the death of one of them.

Y and Z wish to ensure that their assets pass to the children of their first relationship when they die, rather than to their new partner. Others might wish to preserve inherited capital for the benefit of other relatives. Some might have been given money by a parent to buy property with their partner and they, or their parent, may wish to ensure that the money is returned to their parent (or at least preserved for that cohabitant's future use) if the property were sold. Some couples might simply want to affirm their financial independence from each other.

DESIGNING AN OPT-OUT

We believe that any provision for opting out of the remedial scheme must be:

(1) sufficiently certain, so that couples who chose to opt out could be sure that a court would uphold their agreement in all but highly exceptional circumstances;

(2) sufficiently protective of vulnerable parties, so that the court would have the power to overturn opt-out agreements in limited, appropriate circumstances; and

(3) accessible, in the sense of not being unnecessarily burdensome or expensive, so that those with few assets (who may therefore have the greatest need to protect them) could make effective agreements easily.

Opting out would deprive the parties of access to remedies which they would otherwise have enjoyed. This has implications for the format that opt-out agreements should take and formalities that might be required for agreements to be binding. We consider that it is important that such agreements should be executed in a manner which:

(1) draws both parties' attention to the significance of the step being taken;

(2) provides certainty (as a matter of evidence) that opting out had been effected; and

(3) limits opportunities for the exercise of undue influence on the party who potentially stands to lose more as a result of opting out.

It would be necessary for the courts to have some power to set aside agreements, not least where the agreement was vitiated as a matter of general law or where any special formalities had not been observed. But we are concerned that any scheme that we recommend should not create too much scope for the court to intervene and so prevent parties from relying on their agreements with confidence.

There are various mechanisms which might produce the desired outcome. Each has its attractions and each its potential drawbacks. At this stage, we do not intend to put forward provisional proposals, but rather to invite consultees' views on each model. We are interested to receive views on how the models might be improved or how some of them might be amalgamated to form a suitable scheme.

WHO SHOULD BE ABLE TO ENTER INTO AN OPT-OUT AGREEMENT?

It would not matter whether (at the point of entering the agreement or at any point in the future) the parties were eligible under a new statutory scheme. Parties might wish to enter into opt-out agreements at a point before any new statutory scheme potentially applied to them.

In Part 9, we considered whether it should be possible for relationships where one party is under the age of 18 to be eligible under any new scheme. The mere fact that minors might not be eligible under a new scheme would not itself justify preventing them from entering into opt-out agreements. However, there may be other reasons why minors should not be able to enter into binding opt-outs.

Under English law, the only contracts which are binding on a minor are "contracts for necessaries",

If this general principle were applicable to opt-out agreements (which would not usually be contracts for necessaries), in cases where only one party was a minor, that party would be protected either way. If it were in the minor's interests that the agreement be enforced, the minor would be able to enforce it. If the minor's interests would be prejudiced by the agreement, he or she could avoid it and apply under the scheme instead.

Take the example of A and B who are 17 and 19 years old respectively. They purport to enter into an opt-out agreement, and B seeks to rely on that agreement against A in separation proceedings five years later. The fact that A was not eligible under the new statutory scheme when the agreement was made (assuming that the scheme did not apply to minors) would be irrelevant to the enforceability of the agreement. Applying English contract law to their opt-out agreement would render it voidable at A's option; A could therefore enforce the opt-out agreement against B (who was not a minor when the agreement was made), but B could not enforce it against A.

It is interesting to note, however, that some other jurisdictions take a different view. For example, in New Zealand, the usual contractual rule is expressly suspended by the Act so that minors are allowed to make fully binding agreements under the legislation, although, if the minor is under eighteen and has never been married, the contract must be scrutinised by the court.

We provisionally propose that parties should be able to enter into an opt-out agreement regardless of whether their relationship is eligible under any new statutory scheme at the point of entering the agreement or subsequently.

We invite the views of consultees on whether minors should be entitled to enter into opt-out agreements, and if so, whether those agreements should be treated as contracts made by minors.

SHOULD AN OPT-OUT AGREEMENT EXPLICITLY OUST THE OPERATION OF A NEW STATUTORY SCHEME?

There is a strong argument for saying that if cohabitants intend to oust the scheme, their agreement should state expressly that that is the case. If the parties are giving up an entitlement to apply for remedies that they would otherwise have, it is essential that they be aware of what they are doing. Evidence of that knowledge, and that the parties did indeed intend to opt out of the scheme, would best be supplied by an express acknowledgement of that fact on the face of the agreement.

It may be too onerous, however, to insist that the agreement refer to the legislation by name. Particularly if not given specific legal advice, parties might not refer to the statutory scheme expressly, but refer in more general terms to claims for financial relief. For example, the parties might state expressly in their agreement that no financial relief is to be given to either party, save for that contained within the agreement. It might be appropriate to allow such terms to eliminate the possibility of a claim being made under a new statutory scheme.

More difficult would be those cases where an agreement provided simply for how the parties' assets (whether all or some of them) would be divided in the event of separation or death. Such an agreement might not refer expressly to the relevant legislation or state in more general terms that the agreement was intended to prevent the possibility of claims for financial relief being made in future. We would have no clear evidence in these cases from the agreement itself that the parties were aware of, or intended to oust, the statutory scheme. We discuss this issue further below at paragraph 10.36.

We invite the views of consultees as to whether an opt-out agreement should only be effective if it expressly states in specific or more general terms that neither party is to be entitled to apply for financial relief under any new statutory scheme.

THE SCOPE OF OPT-OUT AGREEMENTS

Agreements that simply oust the scheme

Some parties' agreements might simply exclude the scheme entirely, without making express alternative arrangements for the determination of the ownership of the parties' property or its division between them following separation or death. In such a case, the general law would apply. There seems to us to be no reason why parties should not be able to make such basic agreements, which simply oust the operation of the new scheme.

Agreements that also seek to make positive provision for the parties

Other parties might go further than simply ousting the scheme by making their own provision for how their assets should be divided, thus displacing both the statutory scheme and the general law of property and trusts in favour of the parties' agreed distribution of income and property.

Can positive provision be made?

In so far as the agreement were concerned with the position on any future separation, this would be straightforward. Such an agreement could be made by way of contract (to be performed in the event of separation).

Special considerations arise regarding provision on death. Parties may make agreements concerning income or capital provision which, as a matter of construction, are binding even though the person making provision has subsequently died. Such agreements would be enforceable against the deceased party's estate. More difficult is the case where the agreement is not intended to take effect until one party's death. It would be possible for the parties to provide for each other on death by executing a trust which either created immediately vested shares in possession, or a series of life and reversionary interests. It is not straightforwardly possible to achieve the same effect by contract, as the parties' intentions appear to be "testamentary" in that the provision is to take effect only on death and not before. The appropriate method of achieving such objectives would be by execution of a will, although it may be that depending upon the circumstances the parties' agreement could be construed as comprising a contract to create a will.

Over what assets would the opt-out apply?

The parties might make an agreement which sought to set out how their property would be divided in the event of separation or death. Such an agreement might seek to determine future property division and financial provision in two ways:

(1) by providing that specific assets should go to each party; or

(2) by providing that each party should obtain a specified proportion of a pool of assets and/or receive a specified regular payment from the other party.

An agreement dealing with specific items of property would be highly unlikely to cater comprehensively for all of the parties' assets. It might have dealt with all of the parties' assets at its inception, but the identity of those assets might have changed subsequently as old assets were disposed of and new assets acquired. However, we do not think it necessary that an agreement should deal with all of the parties' assets in order to qualify as an opt-out agreement. Some couples might find it suitable to list particular assets which would belong solely to one or other party in the event of separation or death, and those which would be divided in some other way. In some cases, one party might wish to ensure that a particular, much-loved asset should remain with him or her on separation or death, but not be concerned about how the rest of the assets were divided.

If parties had included a provision expressly opting out of the statutory scheme, it would generally be clear from the terms of that provision whether the scheme were excluded entirely or only in relation to particular assets or issues. Were the law to allow for "implied" opt-outs, simply on the basis of alternative provision having been made (as discussed in paragraph 10.30), the court might then be faced with a difficult question of construction when it came to determine whether, and, if so, to what extent, the operation of the statutory scheme were excluded. The difficulty arising from this is another reason to be hesitant about allowing such implied opt-out agreements to have effect.

Suppose that Y and Z (from our example in paragraph 10.14 above) entered into an opt-out agreement which made provision for a specific asset (say, a car). The parties may have intended (or simply assumed) any one of the following outcomes regarding their other property. That the car should belong to Y, but that:

(1) the court should remain free to divide the remaining assets pursuant to the statutory scheme, treating Y's receipt of the car as part of Y's share;

(2) the court should remain free to divide the remaining assets pursuant to the statutory scheme, but not treat the value of the car as counting towards Y's share, so Z cannot be compensated for the fact that Y has the car; or

(3) Y's receipt of the car should be by way of compromise of any claim Y might have against Z for financial relief, and so Y could not make any claim in the event of separation or Z's death.

Whether an opt-out agreement that covered a specific asset had the meaning in (1), (2) or (3) would depend on the interpretation of its terms, in light of the existence of our proposed statutory scheme. Depending on the construction of the agreement, the parties would remain free to pursue a claim for financial relief in respect of assets in relation to which the agreement was silent.

Another approach might involve distinguishing between provision made for capital and income. For example, if the agreement covered only capital and did not in general terms oust the scheme, the court could have jurisdiction under the scheme in respect of any application relating to income.

as

We discuss below whether an express joint declaration of trust would be classified as an opt-out agreement. If it were so classified, it would only operate in relation to the asset that was the object of the trust.

We invite the views of consultees on whether, if an opt-out agreement relates only to part of a couple's financial affairs and does not exclude the parties from making any application to court:

(1) the couple should be bound by the terms of the agreement in respect of the assets or issues that the agreement covers; but

(2) the court should remain free to deal with the assets and issues not covered by the agreement.

QUALIFYING CRITERIA AND GROUNDS FOR REVIEW

It is necessary to consider whether any particular formalities or other "qualifying criteria" should be satisfied before an opt-out agreement would be effective to exclude the operation of the statutory scheme and be enforceable in its own terms. Requiring certain formalities to be complied with could give both parties a better opportunity to consider what they were agreeing to and whether or not it was a suitable agreement for both of them.

Alternatively (or additionally) the parties could be protected by giving the court the power to refuse to enforce an opt-out agreement (even if it satisfied any prescribed qualifying criteria) in light of the circumstances prevailing when one party sought to enforce it ("grounds for review").

In our view, the more by way of qualifying criteria than were required by the scheme (or voluntarily taken by the parties), the less opportunity there should be for the courts to overturn it. Parties who had been given the opportunity to consider an agreement carefully and to take advice on it should not be permitted later to apply to the courts to overturn the agreement simply because they have changed their mind. Conversely, the less demanding the qualifying criteria (or the fewer the precautions voluntarily taken by the parties at the outset), the more expansive should be the grounds for review.

There are, of course, two other possibilities. First, that the general law alone regulate opt-out agreements, with no special statutory formalities or grounds for review. Secondly, that the law require both onerous qualifying criteria and confer on the courts a wide power of review.

Qualifying criteria

There are currently no special rules regarding formalities for making a cohabitation contract, save those imposed by the general law.

Requiring qualifying criteria to be satisfied in order for an opt-out agreement to be enforceable might favour knowledgeable cohabitants, aware of their legal position under the scheme and the preconditions for opting out. An unscrupulous individual could make an agreement with his or her partner, deliberately not complying with the qualifying criteria, knowing that if it became disadvantageous to him or her at a later stage it could be overturned.

However, a failure to prescribe any qualifying criteria might lead to lengthy cases involving disputed evidence about whether an agreement had been made at all and, if so, what its terms were.

Comparative survey

It is useful to consider what requirements are demanded by other jurisdictions for what we call opt-out agreements to be enforceable.

In New Zealand, in order to be binding, a cohabitation agreement must be in writing and signed by both parties, and comply with the following further conditions:

(1) each party to the agreement must have independent legal advice before signing the agreement;

(2) a lawyer must witness the signature of each party to the agreement; and

(3) the lawyer who witnesses the signature of a party must certify that, before that party signed the agreement, the lawyer ^[17] explained to that party the effect and implications of the agreement.^[18]

In Sweden, cohabitation and termination agreements must be in writing and signed by the parties to be valid.

In Australia, different states have different rules prescribing the qualifying criteria for formal cohabitation agreements. In New South Wales, an agreement will be binding if:

(1) the agreement is in writing;

(2) the agreement is signed by the party against whom it is sought to be enforced;

(3) each party to the relationship was, before the time at which the agreement was signed by him or her, furnished with a certificate by a solicitor which states that the solicitor provided legal advice to that party, independently of the other party to the relationship, as to the following matters:

(a) the effect of the agreement on the rights of the parties to apply for an order for property adjustment or maintenance; and

(b) the advantages and disadvantages, at the time that the advice was provided, to the party of making the agreement; and

(4) the certificates referred to accompany the agreement.^[20]

Possible qualifying criteria

There is therefore a range of formalities (over and above those that may be required by the general law) and other qualifying criteria which new legislation could require to be observed before an opt-out agreement would be binding. We have already discussed the issue of how explicitly an agreement should oust the statutory scheme to be treated as an opt-out agreement at all.

AGREEMENT BETWEEN THE PARTIES

We have assumed throughout the preceding text, and when discussing the right to opt out in Part 5, that there must be agreement between the parties. Although unlikely to occur in practice, it might be possible for potential applicants unilaterally to surrender any future claim that they have under the scheme. The respondent would be unlikely to disagree that such a unilateral opt-out should be effective. However, it should not be possible for a potential respondent to opt out of the statutory scheme by unilateral declaration.

A REQUIREMENT OF WRITING

At the outset, we should make it clear that by "writing" we mean a written paper document rather than any other form of writing (such as an email or other electronic document). As we discuss below, we envisage that such documents should be signed.

We consider that a writing requirement for basic opt-out agreements would perform at least two functions. First, it would serve a cautionary function, by alerting parties to the significance of the step being taken. Secondly, it would increase evidential certainty, reducing the potential for dispute about the existence and terms of alleged oral agreements. If agreements not recorded in writing in any way were regarded as binding, this would invite the possibility of lengthy disputes in which one party sought to establish the existence of an agreement and its terms while the other sought to refute it.

There are at least four options for writing requirements, in addition to any that might be required in specific circumstances by the general law:

(1) that the agreement be "evidenced in writing";^[23]

(2) requirement that the agreement be contemporaneously made "in writing",^[24] and that either

(a) only those terms that were in writing would be enforceable, and those that were not would simply be ignored; or

(b) provided some of the agreement were in writing, all terms that could be proved, including oral terms, would be enforceable; or

(3) that the agreement be "in writing" and incorporate all of the terms which the parties have expressly agreed in one document, on pain of the entire agreement otherwise being void.^[25]

Of these, only (2a) would preclude attempts to prove the existence of oral terms, as each of the others would leave an incentive to do so, whether to void the entire agreement, (in the case of (3)), to prove the existence of terms outside the writing (in the case of (2b)), or to prove the existence of some collateral contract, (in the case of (1)). Complete certainty may therefore be elusive. Use of "entire agreement" clauses might be desirable.

The "cautionary" function would best be served by a requirement of contemporaneous writing. Since an "evidenced in writing" requirement could be satisfied by writing prepared some time after the original agreement had been made, it might therefore not perform the cautionary function adequately. However, the fact that the writing would have to contain all the material terms agreed, and that it would have to be signed and that signature witnessed (see below), might go some way to make up for the fact that it were not executed contemporaneously with the agreement.

In order to advance the third of our suggested functions of a writing requirement - protection of the party who agreed to opt out only on condition of alternative provision being made - whatever writing requirement were adopted ought to apply to all aspects of the agreement, that is to say both the basic opt-out and any alternative provision agreed between the parties.

In considering this issue, it is important to bear in mind our later question about what weight the court should give to an agreement that failed to comply with whatever qualifying criteria (including writing requirement) were imposed. As we shall see, in the context of agreements to opt out, any breach of any formality requirement could be cured by the court essentially giving effect to the parties' agreement (provided its existence and terms were proved) in the exercise of its discretion were the statutory scheme invoked by either party.

Whatever writing requirement were adopted, it might be helpful to provide expressly that any subsequent variation to, or cancellation of, an agreement should also have to satisfy it. This would seem particularly important in so far as the subsequent agreement related to the opt-out, but would also be helpful in so far as it made alternative provision from that originally agreed. There would otherwise be potential for the original agreement, and the certainty it provides, to be undermined by protracted disputes about alleged subsequent conversations and events.

SHOULD AGREEMENTS BE SIGNED?

If an agreement should be written, we think that the parties should each sign the document in order to confirm their agreement to it. We do not think that this would be unduly onerous and it would avoid dispute at a later date.

SHOULD AGREEMENTS BE WITNESSED?

When two people sign a legal document there is always the risk that one might forge or force the other's signature, or that one might claim that their signature was forged or forced. Some deeds, such as wills, or transfers of land, are witnessed in order to avoid just such potential challenges. The disadvantage of a requirement that agreements be witnessed is that it necessarily exposes the parties' private ordering of their affairs to third parties. Such a requirement might prove to be a deterrent to opting out. However, a requirement of witnessed signatures might help to avoid later challenges about the circumstances in which the agreement was made.

We consider that these three requirements - that the agreement be written, signed and witnessed - have three particular merits. They would offer a degree of certainty both that the parties had in fact considered and agreed to the terms of the document. They would also give the act of opting out a degree of formality which itself drew the parties' attention to the significance of the step that they were taking. But they would also not be expensive to undertake.

SHOULD THE PARTIES MAKE FULL DISCLOSURE OF THEIR ASSETS?

If cohabitants intended to opt out of the statutory scheme, they might reasonably wish to know what assets their partner has before they did so. No professional adviser could be expected to offer an opinion on whether or not an agreement were reasonable unless provided with that information.

However, some couples, keen to keep their finances wholly separate from one another, might find a requirement of full disclosure an unwarranted intrusion. It would be possible to provide that such a requirement would not be necessary for the validity of an agreement, but instead be treated as a relevant circumstance in any later proceedings in which one party sought to set aside the agreement.

ADVICE FROM AN INDEPENDENT THIRD PARTY

There are three levels of advice which could be offered to cohabitants considering whether to make an opt-out agreement, and which could be required as a precondition of the agreement's enforceability:

(1) general advice about the existence of the statutory scheme and the nature of what would be lost if the parties opted out of it;

(2) general advice on the meaning of an agreement which the parties had written for themselves; and

(3) specific advice about whether an agreement were appropriate for a particular couple, in light of the remedies potentially available under the statutory scheme.

General advice as to existence of the statutory scheme and the nature of what would be lost by opting out

It would be highly desirable for general advice to be given as to the existence of the statutory remedies, so that a couple was aware, in very broad terms, of what they were giving up. It would also be possible to offer more detailed advice about the nature of the statutory scheme, the benefits lost, and the burdens avoided, by one or both parties were they to opt out. This advice would not be specifically tailored to the individual couple and could be given by advice agencies rather than by solicitors. However, couples might be disappointed (or misled) by receiving only general advice, rather than more individualised advice as to whether a particular agreement was suitable for them. Moreover, this level of advice would not help the parties be sure that their agreement in fact did what they wanted it to do.

General advice from an independent person as to the meaning of a proposed agreement

Such advice would enable couples to know that they were signing an agreement which said what they intended (particularly as regards alternative provision made by the agreement, beyond the basic opt-out). The advice could be given by advice agencies, if they felt able to do so. The cost of obtaining such advice would be small. However, this advice would not be concerned with whether the couple were making a good bargain. Again, some couples might erroneously think that the advice they received provided confirmation that the agreement was prudent, even though their adviser had made it clear that this was not the function or nature of the advice given. We are interested in consultees' views on the utility or otherwise of such advice.

Advice as to whether an agreement was appropriate^[29]

As we have seen above, it is a requirement in some jurisdictions for agreements to be considered by a lawyer, who will give advice at some level (the level varies depending on the jurisdiction) before the parties sign it. Some jurisdictions consider such lawyer-endorsed agreements to be wholly binding, with very few grounds to avoid them. Other jurisdictions allow challenges on certain grounds, notwithstanding that a lawyer has advised.

Before any adviser can express a view on the adequacy (or otherwise) of the benefits of an agreement to their client they will seek full disclosure from both parties. They will require information about the parties' finances and their intentions and expectations. They will ask the parties to consider their future plans, the potential for life-changing events and how they intend to cope with them.

Giving this level of advice is time-consuming. This is particularly so because lawyers might want to take advice in turn from financial advisers on, say, the valuation of pensions. Conversely, financial advisers retained by the cohabitants would be able to offer advice on the value of proposed benefits but not the legal effect of particular clauses. This means it is inherently expensive and would therefore only be appropriate for, and indeed accessible by, some couples. For those with limited means, the expense would be likely to be out of proportion to their resources.

Another difficulty is that couples might not think of every eventuality which could affect them. If advisers were expected to do so for them, and to provide for every possible alternative in the agreement (with the possibility of a negligence suit if they failed to do so) they would either be forced to pay vast indemnity insurance premiums, the cost of which would be passed on to the client, or they would refuse to undertake the work altogether. Clearly, much would depend here on the extent of the adviser's assumption of responsibility.

There may therefore be practical problems with solicitors providing independent legal advice. However, we are aware that solicitors do already draft cohabitation contracts and we would like to receive their views on how much work is involved in the process and how far they consider that their duties to the client extend.

Whether or not it were legally required as a precondition for a binding opt-out agreement, where the parties had chosen to receive independent legal advice, we think that the courts should have only a minimal power of review, if any. We are particularly concerned that any agreements made after specific, detailed legal and financial advice should not be susceptible to challenge in the courts save where the agreement was vitiated under the general law, where the parties had failed to comply with any formalities required for opt-out agreements or (perhaps) owing to supervening events. The possibility of this last ground for challenge is discussed below. By contrast, where the parties had not obtained independent legal advice, a wider power of review might be warranted.

We invite the views of consultees on what qualifying criteria, if any, should be necessary for an opt-out agreement to be binding.

Model opt-out agreements

By "model agreements" we mean draft agreements or discrete clauses which could be used by cohabitants to formulate their personal opt-out agreements. They would not be mandatory but would assist those wishing to self-regulate to do so without incurring the expense and trouble of instructing a solicitor to draft the agreement. Model agreements might assist parties in complying with whatever qualifying criteria the law imposed, provide some level of general advice, and encourage parties to consider all of the pertinent issues by prompting them appropriately at each stage of the document. Offering a series of standard terms which couples could use without having to instruct a solicitor might help couples to consider how they would deal with potential future situations. They could be accompanied by explanatory booklets and companion websites.

New Zealand is, to our knowledge, the only jurisdiction which offers a statutory form of model cohabitation contract for the use of cohabitants.

While it might be helpful for model agreements to be made available, an agreement contained in legislation, even secondary legislation, would be difficult to amend and slow to adapt to changes in society. We do not consider that it should be the first choice method for designing and disseminating a model agreement. There could be a place for model agreements drafted by a group of organisations with specialist knowledge of family law. It was suggested to us that, if it had the resources to do so, the Law Society could co-ordinate and oversee a group comprising members of Resolution, the Family Law Bar Association and others with the ability and experience to draft an agreement of this nature.

However, all that such an agreement could offer would be the opportunity for couples to word binding agreements that expressed their wishes. It would not offer advice on the suitability or otherwise of such agreements for their individual circumstances. Moreover, couples using such models without the benefit of advice might find that the agreement they made was not the agreement that one or both of them intended. This could be a great drawback to the utility of model agreements.

We invite the views of consultees on the use of model agreements and how they should be drafted.

Grounds for review

We consider here the events or circumstances which might allow a court to set aside an opt-out agreement and make alternative provision on separation or death.

Contracts made between spouses (and civil partners)

In considering the circumstances in which the courts should be entitled to review opt-out agreements, it is useful to begin by examining the position of spouses and civil partners. Their ability to enter into and enforce pre-nuptial agreements and separation agreements is not unfettered, and there is a substantial difference in the treatment of pre-nuptial contracts and agreements made on separation. The law's treatment of these agreement provides a background for our consideration of how a new scheme could treat equivalent agreements made by cohabitants.

PRE-NUPTIAL CONTRACTS

For decades, pre-marital agreements were given no weight in divorce proceedings. They were considered to be contrary to public policy on the ground that they contemplated the dissolution of the marriage.

K v K

SEPARATION AGREEMENTS

A separation agreement is an agreement made by spouses in the process of divorcing which sets out how their property and finances should be divided. Separation agreements between spouses have never been viewed as void or contrary to public policy, but the courts have taken the view that parties cannot wholly oust the jurisdiction of the court by such an agreement.

If a party to a separation agreement applies to the court for ancillary relief, the court must consider various factors in deciding what weight to give the agreement. It must consider the conduct of both parties leading up to the agreement, the circumstances surrounding the making of the agreement, the importance that the parties attached to it and the parties' subsequent conduct in consequence of it.

The position of cohabitants compared

One rationale for the restrictions on spouses' contractual freedom and the consequent scope of the court's powers to review pre-nuptial and separation agreements might be found in the legal commitment made by them when they formalise their relationship in marriage. It could be argued that when two people marry or register a civil partnership they effectively opt into an agreement drafted by the state. The "contract" to which they agree prescribes terms relating to their treatment of each other during the relationship and gives each party the right to apply to court for financial relief on dissolution.

Whatever the suitability of this regime for spouses and civil partners, we do not consider that the same level of flexibility may be appropriate for cohabitants who, it can be argued, have a strong claim to retaining greater contractual freedom. Unlike spouses, cohabitants have not positively elected to subject themselves to a particular legal scheme. A new statutory scheme would apply to them by default in order to provide protection to the party in a weaker economic position in consequence of the relationship on separation. Where a couple do not wish their relationship to be subject to that scheme, we consider it important that they should have a meaningful opportunity to avoid it by agreement. We think it important that any opportunity for the court to review the agreement and set it aside should therefore be limited clearly by statute, particularly if onerous qualifying criteria had been satisfied at the point of making the agreement.

Comparative survey

It is again instructive to consider how other jurisdictions have dealt with the enforcement of opt-out agreements.

In New South Wales,

(1) the circumstances of the parties have so changed that enforcement would lead to serious injustice;^[42] or

(2) if the parties have, by their words or conduct, revoked or consented to the revocation of the agreement, or that the agreement has otherwise ceased to have effect.^[43]

This involves a consideration of the conduct of the parties and the circumstances following the date when the contract was entered into.^[44]

The New Zealand courts have a wider jurisdiction, not limited to subsequent events.

(1) the provisions of the agreement;

(2) the length of time since the agreement was made;

(3) whether the agreement was unfair or unreasonable in the light of all the circumstances at the time it was made;

(4) whether the agreement has become unfair or unreasonable in the light of any changes in circumstances since it was made (whether or not those changes were foreseen by the parties);

(5) the fact that the parties wished to achieve certainty as to the status, ownership, and division of property by entering into the agreement; and

(6) any other matters that the court considers relevant.

In the case of an agreement about the outcome on death, whether the estate of the deceased spouse or de facto partner has been wholly or partly distributed.

The "serious injustice" standard was introduced in 2001 in place of a simple "unfairness" standard. The legislative intent was to raise the threshold for court intervention and to give more weight to contractual certainty. The New Zealand courts have responded to this change and now exercise their power to set aside agreements very restrictively.

What grounds for review should we adopt?

There will always be cases when the courts must intervene to overturn an agreement, even if they are only occasions when the agreement is vitiated on grounds recognised by the general law or for failure to comply with any additional formalities that might be required. Some would argue that the law should go no further, even in relation to agreements made years before they come to be enforced.

It is difficult to achieve a proper balance here. On the one hand, it is important to respect the parties' autonomy. To intervene and to review their agreements too readily may undermine the confidence of cohabitants in the integrity of opt-out agreements and as a result provide insufficiently strong incentives to self-regulate. There is a premium on certainty. Offering an opt-out which could be reviewed by the courts in almost every case would be offering only an illusory freedom to contract out.

On the other hand, it is important to protect the vulnerable and to take adequate account of the inherent difficulty of providing for future events. The process must be fair and just. We reiterate the proposition we put forward in paragraph 10.46: that the more formalities were required before an agreement was made, the less opportunity there should be for overturning it at a later date.

It is important to contrast the treatment of agreements reached at the point of separation, and those concluded at the outset of cohabitation, possibly many years before a subsequent separation or death. The grounds for review of the former category of agreement should be extremely limited, and may perhaps be confined to grounds available under the general law and failure to comply with any qualifying criteria.

OVERTURNING ON THE GROUNDS PROVIDED BY THE GENERAL LAW

Opt-in agreements would be subject to the general law and would therefore be susceptible to challenge on the grounds of fraud, duress, undue influence, misrepresentation, mistake and so on. Agreements could also (though very rarely) be rendered unenforceable by events outside the control of the parties under the doctrine of frustration.

REVOCATION BY CONDUCT

We have suggested that any formalities required for agreements' creation should also be observed on its variation or revocation. However, there may also be cases where the parties have, by their own conduct, effectively revoked the agreement (for example, if the parties agreed that they would hold their assets separately but then intermingled them completely). In such circumstances, the agreement should not stand.

FAILURE TO OBSERVE QUALIFYING CRITERIA

If an agreement had been made which did not comply with any formalities or other qualifying criteria that were required by statute in order for an opt-out agreement to be binding, it would not bind the parties. However, such an agreement would not have to be completely ignored. In the Northern Territory of Australia, a "formal agreement" is enforceable provided that it is in writing and signed. If the parties omit these basic formalities, they will be considered to have made a "basic agreement". Such basic agreements are not enforceable if subsequently disavowed by one party, but they are a matter for the court to consider when adjudicating on cohabitants' respective shares of their joint asset pool.

For example, suppose that in our case in paragraph 10.14 Y had made it clear to Z as a condition of Z moving in that Z should have no claim against Y in the event of separation, and Z had implicitly accepted this term by moving in. That agreement did not comply with the requisite formalities. However, it might be proper for the court to take the parties' implicit agreement into account when deciding what order, if any, it would be fair to make in all the circumstances.

However, to allow informal agreements to have any potential significance to the court's deliberations might undermine much of the certainty that formalities are designed to create and invite the sort of protracted forensic inquiry that we are seeking to avoid. If such agreements were to have any weight, then in our view the higher the level of adherence to the formalities and the greater the level of advice received, the more weight the judge should give to the agreement. It would be one thing to take account of a signed, written, witnessed agreement which failed to satisfy the qualifying criteria only for want of relevant legal advice (if such advice were required for the agreement to be binding), but quite another to encourage evidence of oral agreements to be given.

We invite the views of consultees on the significance, if any, to be attached to agreements which did not comply with the qualifying criteria required for agreements to be binding.

SUPERVENING EVENTS

We consider that the most likely reason for an applicant wishing to overturn an opt-out agreement would be the occurrence of an event subsequent to the making of the agreement which had not been anticipated by the couple when the agreement was made. If a couple's agreement had anticipated the eventuality in question and catered for it, then it should not be open to either of them later to seek to set aside the agreement if that eventuality indeed arose.

This is an issue which would, in practice, usually apply only in relation to agreements made before or during the parties' relationship. Separation agreements would rarely, if at all, be susceptible to being reopened as a result of subsequent events for two reasons:

(1) unlike agreements made at the outset of cohabitation, agreements reached at the point of separation would be performed shortly after they were made, leaving little opportunity for anything to supervene; and

(2) the restrictive limitation period for claims to be made under the new statutory scheme would itself prevent many cases from coming to court after the agreement had been reached.^[56]

Birth of a child

It may be that the terms of the agreement should be susceptible to review if the parties had a child together. However, using the birth of a child as an automatic ground for substantive review in all cases might be inappropriate because so many cohabitants have children; few agreements would stand. It might, in effect, make the offer of the opportunity to opt out largely illusory.

We consider, therefore, that any such ground of review should only apply in situations where the parties' agreement had not contemplated and made provision for the adult parties in the event that a child were born. If the parties had thought about how they should deal with that situation, it would seem oppressive for the court to intervene.

Marriage of the parties to each other

If cohabitants married or formed a civil partnership they would exchange the private ordering that they had effected through an opt-out agreement for the "public ordering" of marriage, which currently restricts the parties' freedom to contract in this way and is likely to revoke any will that either party has made.

Grave and unforeseen change of circumstances

We do not consider that the mere effluxion of time should be sufficient to allow the reopening of an agreement. Save where one of the specified events of the sort contemplated above had occurred (birth of a child or the parties' marriage), it seems to us that the court should only have a power to intervene, if at all, on proof that some other grave and unforeseen (or, more restrictively, unforeseeable) change of circumstances had occurred in that period.

Dealing with the effluxion of time: sunset clauses

Any agreement made between a cohabiting couple before or during their relationship is likely to become less relevant to the parties' circumstances with the passage of time. It is important that they keep this in mind, and update it at regular intervals.

One way of encouraging parties to ensure that their agreement remains suitable would involve the use of sunset clauses. The law could insist that sunset clauses be placed in every cohabitation agreement, by providing generally that no agreement could last beyond a specified period or that it would be ended by a specific event. This would ensure that couples continued to keep in mind their agreement and the need to update it by giving agreements a limited shelf-life; that is, they would end after a particular period or on the occurrence of a particular event. If the parties failed to reaffirm the agreement's terms or to renegotiate them, the agreement would lapse and the statutory scheme would apply if the parties separated.

The New South Wales Law Reform Commission considered the utility of sunset clauses in its Review of the Property (Relationships) Act 1984 (New South Wales).

We think that a statutory provision requiring the use of sunset clauses in every case would be unwieldy and unhelpful, and too much of an imposition on those whose circumstances may be such that no review is necessary. We therefore consider that this issue would better be dealt with privately, by the optional insertion of such a clause into cohabitation agreements tailored to the parties' individual circumstances. For example, the birth of a child might be made the subject of such a clause, rather than the parties making express provision to deal with the eventuality at the outset.

We invite the views of consultees on the potential role of "sunset clauses".

An alternative or additional requirement of manifest injustice?

In New Zealand and certain states in Australia,

There are two distinct issues here:

(1) whether an agreement that is, on the face of it, manifestly unjust should be set aside by the court simply because of that injustice – that is, should manifest injustice be a ground for setting aside an agreement?

(2) whether any subsequent and supervening event following the making of an agreement should only lead to the agreement being set aside if, as a result of that event, it would be manifestly unjust to enforce the agreement.

We invite the views of consultees as to what circumstances, if any, should permit the courts to set aside the terms of an otherwise binding opt-out agreement. In particular, we seek consultees' views on the following:

(1) whether the court's powers to set aside an agreement should be limited to the grounds for setting aside contracts under the general law and failure to comply with qualifying criteria;

(2) if other grounds should be included, whether these should relate to:

(a) events or circumstances at the time of the making of the agreement;

(b) subsequent, supervening events or circumstances;

(c) in either case, should legislation identify particular events having that effect and, if so, what should they be? Or should they be defined generically and, if so, how?

(d) in either case, ought the court to have the power to set aside terms of the agreement simply on the ground that a relevant event occurred? Or ought the court's power to intervene be limited, for example, to situations where, in light of the specified event, enforcement of the agreement would result in manifest injustice to either party?

(3) whether any formal distinction should be drawn between agreements made at the point of separation and those made earlier.

Result of an agreement being set aside

If a ground for review justifying the court's intervention were established, it may not be necessary for the entirety of the opt-out agreement to be rendered unenforceable. The agreement might deal appropriately with some assets but not with others. The court would then be faced with the problem of whether to implement those terms which still appeared fair, or whether to overturn the entire agreement and consider the parties' financial affairs afresh.

It is tempting to suggest that the former option should be applied in all cases. This would have the advantage of allowing the parties to retain their autonomy as far as possible. However, it is possible to envisage circumstances in which allowing part of the agreement to stand would give the court insufficient leeway to make an appropriate order.

We invite the views of consultees on how the court should proceed where an otherwise binding opt-out agreement has been set aside:

(1) ought the court to have the power, where possible, to sever those terms affected by the vitiating circumstances, exercise its adjustive jurisdiction in relation to the issues covered in that area of the agreement, but otherwise enforce the agreement? or

(2) ought the agreement to fall entirely, leaving the court to exercise its jurisdiction without any limitation by the agreement, but having regard, where appropriate, to its terms?

THE STATUS OF EXPRESS DECLARATIONS OF TRUST

We must give separate consideration to the status of express trusts, and in particular express trusts of land, made by parties contemplating cohabitation or by those who are already cohabiting. Ought such trusts, if executed by both parties,

Currently, declarations of trust are used by cohabitants as a means of fixing their respective shares in assets purchased either in joint names or in the name of one cohabitant only. Such express declarations of trust will create immediately vested proprietary interests in possession. In the absence of any statutory scheme providing financial relief, these trusts currently determine how the parties' property will be divided in the event of separation.

Members of the judiciary

However, we need to consider the position as it would be were a new statutory scheme providing financial relief on separation created, and were cohabitants permitted to opt out of the Inheritance (Provision for Family and Dependants) Act 1975. We shall discuss in Part 11 the retrospective impact of any new scheme, which will be particularly relevant to those who will have executed express trusts prior to the implementation of any new statutory scheme and done so on the basis that they will determine what happens on separation.

If the effect of a jointly declared express trust were to opt out of any new scheme in relation to the trust property, it would have to be subject to the same qualifying criteria and susceptible to the same grounds of challenge as any other opt-out agreement. In order to avoid protracted litigation about the juridical nature of a particular agreement between cohabitants (and therefore about the required formalities, and possible grounds for review), we must consider whether a trust should be treated as an opt-out for the purposes of a new statutory scheme.

Clearly, for a trust to operate as an opt-out, both cohabitants would have to be party to it; unilateral declarations of trust could not oust the scheme unless accompanied by a separate opt-out agreement. But whether the trust should, itself, be treated as an opt-out under the scheme is a difficult issue.

The scope of any opt-out created by a trust

There are at least two ways in which the scope of an opt-out created by a trust could be treated. First, and most broadly, if an express trust concerning the ownership of a particular asset were treated as an opt-out, it could be treated as having the effect of excluding the new scheme entirely in relation to that asset and/or its value.

Alternatively, an express trust could be given much narrower significance, quite different from ordinary opt-out agreements. The scheme could provide that the existence of the express trust should bar an applicant only (and very specifically) from making an economic advantage claim in relation to the respondent's share under the trust on the basis that the applicant had in fact made greater financial contributions to the acquisition of that trust property than were reflected in his or her own share.

This difference of approach has significant implications for the discussion which follows.

Different types of trust

Trusts of land

ARGUMENTS AGAINST TREATING EXPRESS TRUSTS OF LAND AS OPT-OUTS

Any opt-out from the scheme should be made voluntarily. The problem with many trusts of land in this regard is that the parties have no choice but to make them. If land is purchased by more than one person, the Land Registry now requires purchasers to state how they wish to hold the property beneficially to enable the Registrar to enter a Form A Restriction.

If trusts of land were treated as binding opt-outs, then all couples who bought property jointly would be taken to have opted out of the new scheme in respect of that property. However, given the Land Registry's requirement of an express trust, it would be impossible to be sure (simply on the basis of a trust of land having been declared) that the parties intended such a trust to operate as a mechanism to divide their property on separation, to the exclusion of the statutory scheme.

If a trust were treated as an opt-out, but the parties nevertheless wanted the statutory scheme to apply to them on separation, they would effectively be required to opt back into the new scheme. This might seem unduly cumbersome, onerous and potentially expensive. More seriously, it would significantly undercut the policy underpinning an opt-out scheme; it would automatically deprive the economically weaker party of the protection which the scheme was intended to provide and it would do so in relation to what is likely to be the parties' most valuable asset. The potentially weaker party would then have to persuade the other party either to opt back in or to agree to hold the property in shares that were favourable to the weaker party.

It seems to us, therefore, that there is a very strong argument for saying that a trust of land executed in these circumstances ought not by itself to be treated as an opt-out. If the parties wished to opt out, and to do so in the same terms as those in the declaration of trust, they should be required to make a separate agreement to that effect, or to ensure that the terms of the trust itself made it clear that it was intended to have that effect.

However, this does depend on the scope of the opt-out, as discussed at paragraph 10.130 above. The concerns expressed here would be of far less weight were the trust only to preclude an economic advantage claim relating to the parties' contributions to the acquisition of the trust property.

ARGUMENTS IN FAVOUR OF TREATING EXPRESS TRUSTS OF LAND AS OPT-OUTS

There are arguments the other way which may be felt to be particularly strong if the opt-out were confined in the way discussed at paragraph 10.131. Currently, express declarations of trust provide certainty for cohabitants on separation.

Moreover, if trusts could not in themselves be treated as opt-outs, those couples who did want the terms of the trust to determine property division and financial provision on separation or death would have to make a separate agreement to achieve their aim. The process of both executing a deed of trust and drawing up an opt-out agreement might be considered cumbersome, onerous and be potentially expensive (though no more so, and possibly less so, than the "opt-back-in" requirement discussed at paragraph 10.135).

We have already discussed the formality requirements for opt-out agreements in general terms. If trusts were treated as opt-outs, certain safeguards could be put in place to ensure that parties understood what they were doing. Parties could be advised at the time of purchase that, unless they subsequently made a mutual variation of the trust deed, they would be bound by the terms of the trust in the event of separation or death. This would effectively force the parties to consider how they wished to deal with their largest asset should they separate and so encourage couples to take responsibility for their own situation (though, as we noted above, this may be counterproductive for the potentially weaker party). It might reduce the number of cases between cohabitants which went to court, since their greatest asset would be divided on the basis of the trust.

This raises important issues about the advice that would be given to cohabitants when they purchased property were a new statutory scheme created, whether or not the trust were itself treated as an opt-out.

ADVISING ON TRUSTS OF LAND ALONGSIDE A NEW SCHEME

At present, a conveyancing solicitor dealing with the transfer of a property to cohabitants advises them both on the issue of beneficial interests and the distinction between joint tenancies and tenancies in common. Solicitors are allowed to advise both parties in this way on the basis that a trust deed is a non-contentious document.

Whatever the current position may be regarding trust deeds, an opt-out from any new scheme by its nature would clearly be contentious. It would entail the parties giving up rights to apply for financial relief under a new scheme. It might often be apparent which party was likely to be the one who would be disadvantaged by the opt-out. If a joint declaration of trust were to be treated as an opt-out (certainly if it constituted an entire opt-out in relation to the property) it would become a contentious document.

Other express trusts

In the case of other trusts, where the parties do not declare the trust pursuant to a statutory requirement that they do so, different considerations may arise. Here, at least, the parties would have chosen to declare the trust. However, it may not be safe to assume from the mere fact of the trust's having been declared that the parties intended thereby to oust the statutory scheme (certainly entirely, as discussed at paragraph 10.130. Other motives might lie behind the trust being executed; for example, simply as a device to hold property or for tax planning purposes.

As in the land context, we could not be sure from the mere fact of the trust's having been executed that the parties intended that the trust should govern the destination of the property on separation and death, to the exclusion of the statutory scheme. Unless it were clear either from the face of the trust or from the surrounding circumstances that the parties intended to oust the scheme, we could not safely treat trusts as opt-outs. Again, therefore, it might be desirable either for some separate document to be executed, setting out the opt-out agreement, or for an explicit statement to be made on the face of the trust deed to the effect that the operation of the scheme was to be excluded either generally or in relation to the trust property.

We invite the views of consultees on whether an express trust declared by both cohabitants should be treated in any circumstances as an opt-out, or whether the court should have the power to override such trusts when providing financial relief on separation or death.

If consultees consider that an express trust itself ought not to be treated as an opt-out, we invite views on how the arrangement of property pursuant to such a trust could, if the parties desired, be transposed into an opt-out agreement that would apply on separation or death.

If consultees consider that an express trust ought to be treated as an opt-out, we invite views on whether those advising purchasers (whether they are solicitors, licensed conveyancers or other advisers) about express trusts of land should be able to advise both parties about the effect of the declaration of trust, and about any aspect of the statutory scheme and the right to opt out.

OPT-IN BY AGREEMENT?

Throughout this Part, we have considered the issue of opting out of a statutory scheme. It might also be possible to use agreement in limited cases as a mechanism for opting in. We have already raised that possibility in a rather specific context in our discussion of trusts, in so far as express declarations of trust were automatically treated as opt-outs, effectively requiring those who wished to do so to opt back in.

However, it has been suggested that there might also be a place for opt-in agreements in relation to couples who, although cohabiting in the required sense, were not eligible to apply under a new statutory scheme, for example because they had not lived together for any minimum period or had not had children (if such facts were set as eligibility requirements), but who nevertheless wished to be subject to the scheme. It would be possible to permit such couples to opt in by agreement, thereby allowing them, in the event that their relationship founders and they are unable to agree the terms on which they will separate, to take the issue to the family courts and to be dealt with under the statutory scheme. In so far as a minimum duration requirement would function as a measure of the parties' commitment, effectively making that a precondition of the claim, there is a case to be made for allowing parties to make their commitment clear at an earlier point by agreeing that they wish to be subject to the scheme.

We invite the views of consultees on whether cohabitants who would otherwise not be eligible to apply, having not satisfied any minimum duration requirement or had children, should be entitled in any circumstances to opt in to the statutory scheme by agreement.

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Note 1    See Child Support Act 1991, s 9; a consent order for child maintenance will only exclude the possibility of applications to the Agency for at most one year: s 4(10)(aa), and not at all if the parent with care claims relevant benefits: s 6.    [Back]

Note 2    See text to n 12 for one issue where the question of provision on death must be treated differently from separation.    [Back]

Note 3    We consider whether a declaration of trust can be treated as an opt-out at para 10.124.    [Back]

Note 4    See from para 3.15.    [Back]

Note 5    In so far as it is a contract for a will: Theobald on Wills (16th ed 2001) para 10-02 and following; or involved mutual wills. For the parties to determine the outcome on death, they may need to execute wills. We discuss this issue at para 10.35.    [Back]

Note 6    See para 10.124    [Back]

Note 7    Except in so far as we have provisionally proposed that such agreements should not be contrary to public policy.    [Back]

Note 8    Chitty on Contracts (29th ed 2004) para 8-004.    [Back]

Note 9    Property (Relationships) Act 1976, ss 21I(1)-(3).    [Back]

Note 10    Cohabitees Act (Sweden), s 9.    [Back]

Note 11    We discuss the treatment of express trusts in this context from para 10.124 below.    [Back]

Note 12    Theobald on Wills (16th ed 2001) para 10-02 and following.     [Back]

Note 13    Sykes v Sykes (1979) FLC 90-652 (Australia); K v K (Ancillary Relief: Pre-nuptial Agreement) [2003] 1 FLR 120.    [Back]

Note 14    McFarlane v McFarlane, Parlour v Parlour [2004] EWCA Civ 872, [2005] Fam 171.    [Back]

Note 15    In particular in relation to trusts of land and contracts for the disposition of interests in land: see Law of Property Act 1925, ss 52 and 53; Law of Property (Miscellaneous Provisions) Act 1989, s 2. The requirements for wills are prescribed by the Wills Act 1837, s 9.    [Back]

Note 16    Contrast the criticism of the current law that so much may turn on alleged conversations held years ago: para 4.9.    [Back]

Note 17    Although the statute does not indicate whether the lawyer witnessing the agreement must be different from the lawyer providing independent legal advice, or whether the witnessing lawyer also needs to explain the effect and implications of the agreement, we are told by practitioners that one lawyer may offer all advice required and act as witness to one party. Only two lawyers therefore need be involved.    [Back]

Note 18    Property (Relationships) Act 1976 (New Zealand), s 21F(2)-(5).    [Back]

Note 19    Cohabitees Act 2003 (Sweden), s 9.    [Back]

Note 20    Property (Relationships) Act (New South Wales) 1984, s 47(1)(b)-(e).    [Back]

Note 21    Certainly not in a way that would bar a claim being made in relation to facts which predated that purported opt-out.    [Back]

Note 22    The potential for such disputes is demonstrated by current case law: see the discussion of oral agreements in the context of implied trusts and proprietary estoppel at para 4.9.    [Back]

Note 23    In all its material terms, with the option for parties to waive any term not evidenced in writing which was entirely for their benefit, and to cure the omission of any term to their detriment by consenting to perform it: see generally Chitty on Contracts (29th ed 2004) para 4-026.    [Back]

Note 24    Maintenance agreements between spouses must currently be “in writing” in order to be binding: Matrimonial Causes Act 1973, 34, subject always to the court’s power to review agreements under s 35 and in the event of one party applying for ancillary relief inconsistent with the agreement’s terms; see below para 10.88.    [Back]

Note 25    As under the Law of Property (Miscellaneous Provisions) Act 1989, s 2, subject to the possibility of rectification by the court or the finding of a collateral contract.    [Back]

Note 26    See Chitty on Contracts (29th ed 2004) para 4-018.    [Back]

Note 27    Even if that agreement might not otherwise be subject to any comparable formality requirement under the general law.    [Back]

Note 28    It should at least be necessary for the person against whom the agreement is sought to be enforced to have signed it.    [Back]

Note 29    See also para 10.142 below relating to the competence of conveyancers to give advice in connection with opt-out agreements and trusts of land.    [Back]

Note 30    The experience of New South Wales provides an example of how subjecting legal advisers to too wide an obligation may be unworkable in practice: Review of the Property (Relationships) Act 1984 (NSW) (2002) New South Wales Law Reform Commission Discussion Paper No 44, paras 4.51 to 4.59. The original legislation included a requirement that solicitors advise each party as to whether an agreement was to his or her advantage, “financially or otherwise”, and whether it was “prudent … to sign the agreement”. There was concern that this requirement went beyond the scope of solicitors’ expertise; their function is to provide legal, rather than financial, advice. The Property (Relationships) Act 1984 was subsequently amended and now requires solicitors to provide “legal advice [relating to] the effect of the agreement … and the advantages and disadvantages … of making the agreement”: s 47(1)(d), as amended.    [Back]

Note 31    See currently the Advicenow website’s skeleton of issues to be considered in the making of “living together agreements”: http://www.advicenow.org.uk/go/livingtogether/index.html (last visited 4 May 2006).    [Back]

Note 32    Property (Relationships) Act 1976, s 21E. The model agreement was created by the Property (Relationships) Model Form of Agreement Regulations 2001, and is available at http://www.justice.govt.nz/pubs/reports/2001/relation_property/regulations.PDF (last visited 4 May 2006). The purpose of introducing model agreements was “to minimise the legal expenses of those who wish to enter into a cohabitation contract” (s 21(E)(1)).    [Back]

Note 33    N v N (Jurisdiction: Pre-nuptial Agreement) [1999] 2 FLR 745; X v X (Y and Z intervening) [2002] 1 FLR 508.    [Back]

Note 34    Under Matrimonial Causes Act 1973, s 25(2)(g). The same approach will probably be taken towards contracts made by civil partners.    [Back]

Note 35    See for example S v S (Matrimonial Proceedings: Appropriate Forum) [1997] 1 WLR 1200; M v M (Prenuptial Agreement) [2002] 1 FLR 654; K v K (Ancillary Relief: Prenuptial Agreement) [2003] 1 FLR 120.    [Back]

Note 36    K v K (Ancillary Relief: Pre-nuptial Agreement) [2003] 1 FLR 120. The court upheld the agreement as to its capital provision, but, as the agreement did not touch on the question of maintenance, it felt free to make an order for periodical payments.    [Back]

Note 37    Wilson v Wilson (1845) 14 Sim 405, (1848) 1 HLC 538; Hyman v Hyman [1929] AC 601.    [Back]

Note 38    Edgar v Edgar [1980] 1 WLR 1410; G v G (Financial Provision: Separation Agreement) [2000] 2 FLR 18.    [Back]

Note 39    Edgar v Edgar [1980] 1 WLR 1410, 1417, per Ormrod LJ. See also Camm v Camm (1983) 4 FLR 577, where poor legal advice received by the wife, and pressure from the husband’s belligerent and uncooperative attitude, resulted in the Court of Appeal increasing the level of the wife’s periodical payments contained in the parties’ separation agreement. In B v B (Consent Order: Variation) [1995] 1 FLR 9, bad legal advice resulted in the court increasing the wife’s periodic payments under a consent order.     [Back]

Note 40    Smith v McInerney [1994] 2 FLR 1077; X v X (Y and Z Intervening) [2002] 1 FLR 508, at [103], where Munby J refused to vary a separation agreement because the wife had received legal advice and there was no inequality of bargaining power.     [Back]

Note 41    Formalities for making binding cohabitation contracts in New South Wales are described at para 10.54.    [Back]

Note 42    Property (Relationships) Act (New South Wales) 1984, s 49(1). This provision applies to separation contracts in the same way that it applies to cohabitation contracts.    [Back]

Note 43    Property (Relationships) Act (New South Wales) 1984, s 50. A separation contract (an agreement made in contemplation of separation, or after separation) cannot be rendered unenforceable on this ground.    [Back]

Note 44    See also De Facto Relationships Act 1991 (Northern Territory), s 46(2).    [Back]

Note 45    Similar approaches are taken in Sweden (Cohabitees Act 2003, s 9) and in Canada (see for example Family Law Act (Ontario) 1990, s 56(4) and Marital Property Act 1980 (New Brunswick), s 41(b)).    [Back]

Note 46    Formalities for making binding cohabitation contracts in New Zealand are described at para 10.52.    [Back]

Note 47    Property (Relationships) Act 1976, s 21J(1).    [Back]

Note 48    Property (Relationships) Act 1976, s 21J(4).    [Back]

Note 49    Property (Relationships) Act 1976, s 21J(5). (Although the courts have the power to overturn such contracts, they are usually unimpeachable on the grounds of public policy: see Butterworths, Family Law in New Zealand (11th ed 2003) para 7.207.    [Back]

Note 50    C v S [2004] NZFLR 546; Harrison v Harrison [2005] NZFLR 252.    [Back]

Note 51    R Deech, “The Case Against Legal Recognition of Cohabitation” (1980) 29 International and Comparative Law Quarterly 480, at 496.    [Back]

Note 52    See, for example, the position in New South Wales (para 10.93). A cohabitation contract can be made before or during a relationship, and a separation contract can be made after separation, or in contemplation of separation. The terms of both can be ignored if the parties did not comply with the prescribed formalities or if they revoked the contract (by words or conduct). However, only cohabitation contracts (and not separation contracts) can be varied on the substantive ground that the parties’ circumstances have so changed that enforcement of the agreement would result in “serious injustice”.    [Back]

Note 53    The narrowness of the doctrine of frustration may be avoided, where the wording of the agreement permits, by the device of construing the contract in such a way that it does not apply at all to the problem that has arisen. It would not, however, be safe to rely on this device as a cure for the limitations of the doctrine of frustration in dealing with cohabitants’ agreements.    [Back]

Note 54    See Sykes v Sykes (1979) FLC 90-652, an Australian family case dealing with a pre-marital agreement which the courts deemed to have been terminated by implied agreement because the parties had acted contrary to its terms over a long period and with a substantial asset or series of assets.    [Back]

Note 55    De Facto Relationships Act 1991 (Northern Territory), s 45(2).    [Back]

Note 56    See para 11.72.    [Back]

Note 57    Wills Act 1837, s 18.    [Back]

Note 58    If the contract were made long before marriage was even contemplated, the court might be inclined to give it less weight than one made immediately prior to the marriage in light of the circumstances then existing.    [Back]

Note 59    Review of the Property (Relationships) Act 1984 (NSW) (2002) New South Wales Law Reform Commission Discussion Paper No 44, para 4.119-4.121.    [Back]

Note 60    Including the Northern Territory, Queensland, the Australian Capital Territory and, unless the parties have contracted out of the provision, South Australia.    [Back]

Note 61    New South Wales, Tasmania and Western Australia.    [Back]

Note 62    Cohabitees Act 2003, s 9.    [Back]

Note 63    Trusts involving third parties presumably should be excluded.    [Back]

Note 64    On death, the trust defines (and would continue to define for the purposes of a new scheme) the extent to which the asset falls within the deceased’s estate or is the property of the survivor, but currently does not of itself exclude the survivor from making a claim under the Inheritance (Provision for Family and Dependants) Act 1975.    [Back]

Note 65    See Part 3, n 14.    [Back]

Note 66    See para 11.85.    [Back]

Note 67    The classic Goodman v Gallant situation: [1986] Fam 106. Though, by analogy with the remedy of equitable accounting, a claim for economic advantage in respect of such payments made during the relationship could remain tenable where the respondent had failed to honour an agreement to pay a certain proportion of the mortgage payments, with the result that the applicant had paid more than had been agreed. The same would apply with regard to any payments made following separation but before final settlement of the claim for financial relief were reached. See generally Clarke v Harlowe [2005] EWHC 3062 (Ch), [2005] WTLR 1482.    [Back]

Note 68    At para 7.37, we discuss this issue in relation to the practical operation of a new scheme .    [Back]

Note 69    The information is required under the provisions of the Land Registration Act 2002, s 44(1), and the Land Registration Rules 2003, r 95(2)(a). It must be given on Form FR1 in the case of first registration, and on Form TR1 in the case of a transfer of registered land.    [Back]

Note 70    At this point, the relative inflexibility of a trust, and the difficulty of predicting the future and so what might be a fair outcome at the point of separation or death may make agreement difficult. To give one party a larger share of the beneficial title now (larger than would have been justified in view of the financial contributions being made by that party to the acquisition of the property and so than might otherwise have been chosen) just in case a larger share would achieve a fairer distribution on future separation may seem unduly generous. But it is very hard to predict what might prove appropriate.     [Back]

Note 71    Though not on death, where, although the trust will determine what falls within the estate, a claim by the survivor under the Inheritance (Provision for Family and Dependants) Act 1975 remains possible.    [Back]

Note 72    If it only precluded the making of claims regarding contributions to the acquisition of the property, the position would arguably be no different from now.    [Back]

Note 73    See paras 10.70 to 10.78 above.    [Back]

Note 74    Para 10.135.    [Back]

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