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My partner and I are in the process of setting up a cohabitation agreement but struggling to come to an agreement of equity split.

At the point I moved in with my partner he had equity in the property of £160,000. However since then the equity has moved to £200k given mortgage repayments and home improvements. Since moving in I have contributed 50% towards all bills, mortgage payments and home improvements. Based on the total equity of £200k, we have worked out that my partner should have 90% of the equity (his original £160k plus £20k of the increased equity since I moved in, and I have the other £20k equity since I moved in) giving me 10% share. Does this sound right?

My concern going forwards is if I am paying 50% towards a £200k mortgage with a 20 year term, should I be entitled to a bigger share? Thanks

  • Is £200k the outstanding mortgage balance now? (just checking as it's also the total equity you mention) – Ganesh Sittampalam Feb 5 '18 at 12:55
  • IMO, if you have a 10% equity share then you should be paying 10% of the mortgage and home improvements. Cohabitation expenses would be 50/50 (food, utilities, etc). – Bob Baerker Feb 5 '18 at 19:26
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The simplest way to work this out is not to think of splitting the equity, which will vary over time, but separately splitting the ownership of the property and the responsibility for the mortgage, both of which can be given stable values as described in this excellent answer to another question.

With the values you've given the house is now worth £400K, of which £180K is your partner's current equity, and £20K is your current equity. Of the remaining £200K, you expect to pay it off equally, i.e. you are both going to contribute £100K (the actual amount you will pay will be more, but in present values based on the loan you are taking on, £100K is right).

So overall, your partner should own £280K/£400K = 70% of the overall house, and you should own £120K/£400K = 30% of the overall house. And along with that, you both have 50% liability for the mortgage.

If you later split up or sell the house while the mortgage is still running, you then need to calculate your actual equity at that point based on those percentages. For example suppose the house has fallen in value to £350K, and the mortgage is now £100K. The ownership of the house is £105K to you, £245K to him; and the responsibility for the mortgage is £50K each. So your equity at that point would be £55K and his would be £195K, out of the £250K total.

The key thing is that the equity proportions are dynamic and would depend on the house value and outstanding mortgage at any given time. Right now they would start out at 90:10, and once the mortgage is paid off, they would be stable at 70:30, at least as far as your current agreement is concerned. But in between they will fluctuate as you pay off the mortgage and depending on how the house changes value.

In the longer term, particularly if your finances become more mingled or you get married, but even just if you cohabit long-term and this bill passes, you might find that the law overrides that agreement. There's more discussion of those issues in this question.

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    I considered just suggesting this question is a duplicate of the other question, but I wanted to provide some explanation that's specific to this particular question and it wouldn't have fitted in a comment. – Ganesh Sittampalam Feb 5 '18 at 13:06
  • Thanks for this, really helpful, I couldn't find the original question you referred to. – Claire Williamson Feb 5 '18 at 13:39
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As far as I know, there's no legally required format for a "cohabitation agreement", so why would you want to write your equity shares into it as percentages?

Your calculation makes absolute sense based on values today, but as the remaining mortgage goes down and the value of the house changes, so too will the calculation.

So why not just write the calculation into the agreement? i.e. Your partner gets the first £160k, and anything else gets split 50:50.

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