Cohabiting is now so common that just one in ten couples wait until marriage to move in together. But few realise just how precarious their future finances will be if they never tie the knot.
More than 6.8 million people in the UK are now cohabiting — the highest level since records began in 1994.
But while there may not always be immediate advantages to getting married, failing to legally formalise your relationship could cost you dearly.
Exposed: Couples who never marry are likely to face inheritance tax at 40%, as they do not benefit from any of the advantages that married couples do
Lawyers warn the cracks are beginning to show as cohabiting couples face the reality of just how little protection they have.
In cases heard by Money Mail, mothers have been booted out of their homes, older common-law widows have been left penniless and families have seen inheritances snatched away.
So what rights do you have — and how can you protect yourself if you are living with your partner unmarried? Can the length of time you have lived together strengthen your rights when splitting your assets, too? Money Mail asks the experts…
What are your rights?
There is a widespread belief that just by virtue of living together, couples have rights over each other’s assets.
Almost half of people believe that cohabitees have the same legal rights as married couples if they separate, a survey by law firm Stowe Family Law has found. But that is a myth.
Divorce and family lawyer Vanessa Lloyd Platt, who has represented celebrities, says: ‘The first biggest mistake that people make is to believe the concept of common-law husband and wife. It doesn’t give you rights and has no status whatsoever.
‘The second biggest mistake is thinking that the longer you cohabit, the more rights you have. That is a complete fallacy.’ Whether a couple has lived together for a month or 30 years, there is no difference in the way a break-up is treated, she adds.
Katy Jordan, a senior lawyer at Stowe, says: ‘There is no law that governs cohabiting couples. In some cases, you can see why.
‘For example, if people have lived together for just a couple of months, it seems incredibly extreme that they would have to split their finances equally.’
Cohabiting couples are also treated differently by the taxman and do not enjoy the same tax breaks that married couples do.
But couples in civil partnerships are afforded the same rights and protections as those who are married.
The Labour Party has promised in its manifesto to ‘strengthen the rights and protections available to women in cohabiting couples’.
It is not yet clear how it plans to do this and experts warn that material changes would be difficult to implement in practice.
Property
Couples can live together for decades, share bills, mortgage payments and even children. But if the relationship breaks down, or a partner passes away, one person can be left with nothing.
If you are living with a partner out of wedlock you do not automatically have a financial claim against each other, but you may have some rights where property is concerned. Your claim to a property will mostly depend on who owns it and how they own it.
If the home is in one person’s name because they either already owned it when the relationship started or have since bought it with their own money, this can cause the biggest heartbreak, Ms Jordan says.
She says: ‘It can be very messy where only one person is named as an owner because — unlike with married couples — their partner can be kicked out of their family home.
I’ve seen cases where people have lived together for decades and one is suddenly told they must leave. It can take months and months to argue and it is very expensive.’
The main problem arises when the other partner can’t prove the contributions they have made towards the house over the years, says Ms Lloyd Platt. She explains: ‘In this case they will get nothing from the property.’
Safeguard: Unmarried couples do not automatically inherit anything when their partner dies
This is even the case if they both started paying towards the mortgage, she adds. When a couple is married and it’s the matrimonial home, there is an automatic assumption that it should be divided equally unless proven otherwise. But this is not the case for cohabitees.
Ms Lloyd Platt says: ‘One lady had been cohabiting with her partner for 15 years and didn’t get a single receipt or record of her contributions so she couldn’t prove any claim over the property. He turned around and said she had made no contributions. She just didn’t have a case.’
You will have more rights if you are listed as a joint owner of the home. If you are ‘joint tenants’, you have equal rights to the property, regardless of who paid more. And on the death of one of the partners, their share in the property will pass to the survivor.
If it is held as ‘tenancy in common’, each tenant can own a different share of the property.
For example, if one partner provides 40 per cent of the house deposit and pays 40 per cent of the mortgage, their share will be 40 per cent of the house price, whether it goes up or down. Each partner is free to leave their share to whoever they wish in their will.
In some cases, both partners are named on the mortgage as borrowers, but only one is named as the legal owner.
In this case, both parties are responsible for making sure the mortgage is paid, but only one has rights over the property should they split up.
Unmarried couples are largely unprotected if one passes away. Unlike for married couples or those in a civil partnership, there is no legal right to property that is not jointly owned.
Many people wrongly think their loved ones will automatically inherit their assets when they die — but if a person dies intestate (without a will), they lose control over what happens to their estate.
Say a childless couple have lived together for ten years but the house was bought before the relationship began and is in the name of one person.
If that person dies, the laws of intestacy would mean that the house would be sold and the proceeds might go to their parents or children from another relationship — rather than their partner.
Couples who jointly own a property will be able to keep their homes if a partner dies intestate.
However, tenants in common could find they end up co-owning their house with their late partner’s mother, father or children.
Co-habiting couples in Scotland may be able to make claims for cash sums or assets from intestate estates. But this can cost thousands and there is no guarantee a court will rule in their favour.
Inheritance
Partners who never marry are likely to face a 40 per cent tax shock, as they don’t benefit from the tax advantages of married couples.
Emma McCann, lifestyle and estate planning partner at law firm Irwin Mitchell, says: ‘If you leave everything to your spouse, it would be totally free of inheritance tax.
But if you cohabit, you must pay 40 per cent inheritance tax on anything above your nil-rate band of £325,000 as you are treated like any other beneficiary.’
Death duties: Partners who never marry are likely to face a 40% tax shock, as they don’t benefit from the tax advantages of married couples
This means that remaining unmarried can add tens — or even hundreds — of thousands of pounds to your partner’s tax bill upon your death.
So costly is it that older couples who have lived together for decades are now getting married for this reason, Ms McCann says.
The larger tax bill can have a ripple effect and also impact the amount that your children receive on your death.
She explains: ‘When a couple hasn’t been married, family beneficiaries end up getting a lot less in inheritance because so much more goes to the taxman.’
Cohabiting partners are not automatically entitled to any of their partner’s property, financial assets or belongings if they die intestate — unless they can be shown to be jointly owned.
They do have the legal right to claim against their partner’s estate if they’ve been cohabiting for more than two years.
However, this could be protracted, stressful and expensive — particularly if the deceased had blood relatives who would otherwise stand to inherit, according to Ben Glassman, financial planning partner at wealth management firm Evelyn Partners.
Pensions
Couples who simply live together have ‘no claims whatsoever’ against their partner’s pension if they split up, says Ms Jordan.
That is unlike married couples, who can apply for a pension sharing order and are typically entitled to 50 per cent of their partner’s pension.
She says: ‘It can have a huge impact on a person’s ability to plan for retirement, especially where one person has stayed at home to look after the children and not saved into a pension, while their partner went to work and paid everything into one pension pot.
Out of reach: Couples who simply live together have ‘no claims whatsoever’ against their partner’s pension
The couple may have planned out their retirement based on this. One person might find they suddenly can’t afford to retire because they have nothing set aside.’
However, cohabiting couples do have more rights over their partner’s pension in the case of death. The rules vary from scheme to scheme.
Sean McCann, chartered financial planner at wealth manager NFU Mutual, says those with older defined benefit pensions, which pay a guaranteed income in retirement, should check what level of survivor’s pension is payable, as it varies.
Those with modern defined contribution schemes can typically nominate someone to inherit the balance of their pension pot if they were to die.
Unless scheme members have officially stated that they wish their pension to go to their partner when they die, pension providers can’t normally hand it over to them. Instead, the pension is likely to be given to any dependent children.
Non-negotiable ways to protect wealth
Draw up and sign a cohabitation agreement
The number-one priority for couples who live together unmarried should be to draw up what is known as a ‘cohabitation agreement’, says Ms Lloyd Platt.
‘This is a contract that sets out the terms of a relationship and addresses what happens if the relationship ends. It can cover what will happen with property and financial support, such as who pays what and for how long.’
Ms Jordan says: ‘It’s like a pre-nup for non-married couples and can be very valuable. It’s difficult to prove how a property was owned and what contributions were made, even when someone has put in a big deposit.
‘This contract outlines this and makes a record of the payments.’
She suggests drawing one up before the relationship starts to break down.
You can create one of these contracts with a solicitor or buy them at a stationery shop, says Ms Lloyd Platt. However, a court can disregard a cohabitation agreement if it isn’t fair or reasonable.
At a very minimum, couples should write out their intent on a piece of paper and sign this in front of a witness, Ms Lloyd Platt adds. This can be helpful during difficult separations.
Get your pension in order
Anyone with a workplace or private pension should make sure to nominate their partner as a key beneficiary.
This means they would be more likely to inherit your nest egg if the worst happens.
If one person stays at home while the other goes to work, it is important to have a proper pension plan in place.
You could suggest that the working partner opens a pension in your name and pays into it to ensure a level of security in the case of a break-up. They will still receive tax relief on this money.
Write a will
It is vital that you make a will regardless of your relationship status, but it is especially important if you are cohabiting.
A will can ensure that your wealth and assets, including savings, property or even your pet, do go to your partner
Unmarried couples do not automatically inherit anything when their partner dies.
But a will can ensure that your wealth and assets, including savings, property or even your pet, do go to your partner.
Each person must make their own will to ensure the surviving partner is provided for.
For example, you can leave your estate to your partner and name them as a legal guardian for your children if they don’t already have parental responsibilities.
- Tell us about your experiences of living together. Email [email protected]
What to do at every life stage
Young couples
Couples in their twenties and thirties who buy their first home together before getting married could be sitting on a ticking time bomb if they are not careful, lawyers warn.
Much of the time, one person has had help from the Bank of Mum and Dad or received an inheritance that they are able to put towards the deposit.
But unless this is carefully recorded, the person who has made the larger contribution could lose their share if the relationship breaks down.
Divorce lawyer Vanessa Lloyd Platt says: ‘We deal with hundreds of cases where parents come to us and say we contributed a lot towards a child’s property and want the money back because they have split up — or want to ensure the money at least remains with their child and not in the hands of their ex.’
Unless there is a formal loan agreement in place, the court will view the payment as a gift and it is therefore equally split between the rowing couple if they are joint owners of the property.
Ms Lloyd Platt adds: ‘We British tend to find it a distasteful subject but, if you are subsidising your child, it is sensible to have the conversation and to set up an agreement.’
Couples can either sign a loan agreement, whereby they promise to repay the money out of the proceeds of the house if they split up, or they can record the contribution split in a cohabitation agreement.
All cohabiting couples should write one of these contracts regardless of whether they buy property or have children together, Ms Lloyd Platt advises.
Families
When a family breaks up, it can be difficult for everyone involved, so it is important that precautions are in place should it come to the worst.
Fathers who are not married do not automatically have parental responsibility unless they are registered as the father on the child’s birth certificate or have a court order. However, they may still have a duty to provide child support.
When writing a cohabitation agreement, parents can also set out the arrangements for children should the relationship break down, such as financial support and where they will live.
You can outline your respective duties and what you would like to happen, making a co-parenting plan.
Ms Lloyd Platt says that thanks to the work of her law firm in this regard, unmarried partners can now claim more maintenance support for their children when one parent is far wealthier than the other.
She says: ‘If you have children and, for example, the father has significantly more wealth than the mother and she is going to look after their kids, then she can ask to continue to live in the property even if she isn’t a named owner.
‘He must easily be able to afford to buy more homes of the same value that he can live in. And the claim is only through the children while they are minors, which means the property goes back to the father when they come of age and the mother can only temporarily live there.’
However, where both parents work and the mother earns a salary, this will not apply even if he earns far more.
Similarly, if you have a parental plan and agree that you will both have exact shared care in terms of time, you would not even get child support, she adds. This is because both parents take on the same responsibility for looking after the children.
Ms Lloyd Platt says, ‘This is hugely different to your rights if you are married, where you would have a claim over each other’s property and wealth.
‘A lot of men don’t like to commit properly if they were married before. They are savvy and know what they are doing. Don’t just take it on “Trust me, darling”.
‘Not a day goes by where someone comes in and I ask why on earth they didn’t get married. They say we were happy and didn’t feel the need, but that really means he didn’t want to commit and they just accepted it. They live to regret that.
‘Don’t be hoodwinked into a situation that you can’t come back from.’
Retired couples
Failing to get your financial affairs in order can be devastating for the person who is left behind should one of you die.
In one case seen by Ms Lloyd Platt, a woman was left penniless when the man she loved died.
They moved in together in their seventies and she sold her home and they used the proceeds to live a luxurious retirement. But when he died, she found that all of his estate, including the property that she lived in, went to his children.
She says: ‘The reality is they weren’t married so she got nothing. Nothing had been formalised and put into writing so the children got everything. It was a very sad case.’
If you are concerned that your partner will face a large inheritance tax bill upon your death or get less than you would like, you can start to make gifts to transfer your wealth while you are still alive.
Married couples and civil partners can transfer assets such as cash, investments and property between them, without giving rise to any tax liabilities.
This is not the case for cohabiting couples. However, they can still make financial gifts to each other so long as they live for more than seven years after the transfer was made. And this could shield some of the estate from inheritance tax.
Estate planner Emma McCann says lifetime gifts can be hugely advantageous in this case, as can giving to charity if it reduces your inheritance tax liability.
The partners should look at how their assets are held and consider any lifetime gifts they want to make.
‘The planning is a lot more complex for cohabiting couples and costs a lot more to set up.’
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