Not married to your partner ? Why it may make financial sense to get hitched!
What you NEED to know about money if you’re not married to your partner
Increasing numbers of couples are choosing to live together as if they are married, without ever actually tying the knot. Millions buy homes together, have children together, share their finances – and as such believe they have some legal protection should something go wrong.
But despite myths of ‘common law marriage’, unmarried couples have very few of the rights enjoyed by those who are married or in civil partnerships.
It means that thousands of couples get caught out thinking that they will have some of the protections offered to married couples, in some cases leaving them financially vulnerable and in some cases worse off than their married counterparts.
Zahra Pabani, divorce lawyer, says: ‘Many couples live together in la-la-land for decades, often with children, not realising that they are not protected if anything goes wrong.’
So what rights do unmarried couples have?
We run through the rules for married couples and those in civil partnerships versus cohabitees – and what you need to watch out for if you are not married. The same rules tend to apply to those in civil partnerships as those who are married.
SHARING A HOME
Married or in a civil partnership
- If you are married or in a civil partnership, both partners have a legal right to live in the matrimonial home, regardless of who bought it or has a mortgage on it.
- This means that in the event of a divorce, one person does not risk being forced to move out of their home with no help at all.
- The decision over who is given ownership of the property can be decided by the courts during divorce proceedings, and they do not necessarily choose in favour of the original owner.
- However, if you own the home or are a joint owner, your partner will not be able to simply sell it without your agreement.
- Married individuals can buy and hold land, property, savings or investments in their own right during marriage, and any property owned before the marriage took place remains their property. However if the marriage breaks down, all property is taken into account when working out a financial settlement.
- Unmarried couples have far less security in this respect. If you are living in your partner’s home and you break up, they can ask you to leave and you have no legal entitlements, even if it has been your home for many years.
- The exception can be if you and your partner have children. In some cases, a court can transfer a property into the name of the other partner if they decide it’s in the best interest of the children, and this is usually only done until the youngest child reaches the age of 18.
- In some cases, unmarried partners may be able to claim a right to their partner’s property in the even they break up. This is by proving that they have a ‘beneficial interest’ – showing a court that you have made a contribution to the property.
- Zahra Pabani adds that you will generally need evidence if this is the case, which is something that couples may want to consider to protect themselves should things go awry.
- It is possible to put a cohabitation agreement in place to offer greater protection to unmarried couples who live together, she adds.
- This could specify things like
Who owns and owes what at the time of the agreement and in what proportions
What financial arrangements you have decided to make while you are living together
How property, assets and income should be divided if you should split up
- This could prevent a partner from making a claim on a property they did not co-purchase – and it could equally prevent one partner asking the other to leave their home with nothing.
PREPARING FOR THE WORST
Married or in a civil partnership
The biggest financial benefits of marriage versus cohabiting come in the event that one person dies.
- A married couple can bequeath anything they like to each other, and the remaining partner will not pay any inheritance tax.
- Furthermore, their inheritance tax allowance is combined, so the pair can pass on twice as much tax free to their survivors.
- If they own a property together, they will soon be able to pass on the whole thing to their children without any inheritance tax due, if the property is valued at under £1million.
- Gary Smith, Chartered Financial Planner, explains: ‘Whereas assets valued above £325,000 passed between cohabiting couples on death may be subject to Inheritance Tax of 40 per cent on the excess, a deceased spouse / civil partner can pass an estate of any worth to the surviving spouse without immediate tax consequences.
- ‘Furthermore, any unused Inheritance Tax nil rate band by the deceased can be passed to his / her beloved for their use in the future; creating a potential nil rate band of £650,000 for the survivor. This will potentially improve further from 6th April 2017 when the Residence Nil Rate Band (RNRB) is introduced and a married spouse will be able to potentially claim a further £200,000, resulting in £850,000 combined.’
- That’s not all. Any gifts can be made between married couples without incurring any inheritance tax.
- A surviving married spouse can also inherit the Isa savings of their deceased partner and maintain their tax-free status.
- There are different types of payments available to the partners of those who pass away at a young age. These are paid for from the National Insurance contributions of the person who has passed away.
- The payments help widows bringing up children with a sudden drop in family income, or help families and bereaved partners to find the money needed for a funeral and other immediate costs after a loved one passes away.
- The payments system is currently being overhauled, with new rules coming into force in April.
- Unmarried couples cannot share their inheritance tax allowances.
- Gifts made between partners are also subject to the usual rules and may be subject to inheritance tax should the giver pass away within seven years of the gift being made.
- Isa allowances cannot be inherited by unmarried couples.
- They are also not eligible for any bereavement payments. This is even if the couple have children, who will have lost their mother or father.
Married or in a civil partnership
- If a married person dies without leaving a will, their spouse gets everything up to £250,000 and then half of anything above this amount. These are the rules in England and Wales, they are different in Scotland and Northern Ireland.
- Unmarried couples do not automatically inherit from each other, should one pass away, unless the couple owned property jointly.
- They can only inherit from each other by writing a will.
- Occupational pension schemes must offer equal benefits for husbands and wives. There are slightly different rules for those who joined an occupational pension scheme before May 17 1990.
- Occupational and personal pensions do not have to offer provision for the dependents of the scheme member and so they vary from scheme to scheme.
- Where schemes do allow members to make provisions for their partner, they may have to fill out an ‘expression of wishes’ form, which states who you want benefits to be paid to should you pass away.
- However, the rules may change in time, due to a new landmark ruling by the Supreme Court earlier this month.
- Denise Brewster, 42, challenged a ruling that she was not automatically entitled to a ‘survivor’s pension’ as she would have been, were she married to her partner when he died. Ms Brewster, a lifeguard from Coleraine, Northern Ireland, and her partner Lenny McMullan had lived together for ten years and owned their own home.
- They had got engaged just two days before Mr McMullan died. Five Supreme Court justices unanimously ruled she is entitled to receive payments under the pension scheme.
- Their decision could affect the rights of other cohabitees, but as the ruling was so recent it is still unknown how it will play out.
Married and unmarried couples
- The rules around debt are the same whether a couple is married or not. Debts that are in one person’s name remain in their name, whether they are married or not.
- Debts held jointly are the responsibility of both parties. If one person can’t pay, in general it is on the other to pay the full sum.
Rachel Rickard Straus
As one of the leading IFA practices in Greater Manchester, Logic Wealth Planning has a team of experienced Financial Advisors specialising in Wealth Management. Working closely with clients in the Heywood, Rochdale, Bury and surrounding areas across the North West, we believe that however modest your income may be, when it comes to Pensions, Savings and Investments we provide the very best financial advice, ensuring that your money is working hard for you and allowing you to enjoy a comfortable lifestyle right through to and including your Retirement years. For your first meeting with us – entirely free and without obligation – please call us now on 0808 1234 321. We look forward to hearing from you.