Protecting your financial position when you’re unmarried may be slightly more complicated. But with some careful checks you and your partner can take steps to ensure you’re not financially disadvantaged. Ed Read Cutting, our Director in Belgium, looks at the key areas to consider.
More couples today are co-habiting or in same sex relationships, with marriage rates continuing to fall. As a result there are now 3.6 million unmarried couples in the UK, up from 1.5 million in 1996.
So why does this matter when it comes to finance? Firstly, the level of automatic protection is not as high for unmarried couples; common law marriage – or the idea that you’ll be treated as spouses just because you live together – is a myth. This is because the legal status of a marriage or civil partnership provides the basis of many rights. Unmarried couples simply don’t have the same legal protection and no legal responsibility for each other in the event of a breakup. This is incredibly important from a financial perspective; if you’re unmarried you might find yourself in an uncertain position. As a result, it’s important that you’re not financially disadvantaged. Sadly, these circumstances are especially likely to impact women who may be the key childcare provider; any non-financial contributions won’t be considered if you separate and want to claim for assets or property.
With those thoughts in mind what areas of financial planning should you particularly focus on if you’re part of an unmarried couple? Or what advice should you give to your children who are beginning to talk about setting up home with a partner?
Pensions are a tool which can be used to pass wealth free from tax. However, there’s no automatic way to benefit unless you nominate your partner as beneficiary using an Expression of Wishes form. If you haven’t done so any pension funds will pass to your next of kin – perhaps a parent, brother, sister, niece or nephew – rather than your partner. As always, the detail depends on the rules of the pension scheme, and there are a few nuances; the RAF pension scheme allows unmarried partners of officers to receive their pension automatically.
Your State Pension will depend on your own and your partner’s contributions. Depending on your contributions and when you’ve reached State Pension age, if you’re married your surviving spouse may inherit or be entitled to some of your State Pension. The same can’t be said for unmarried couples. There are some upsides to being unmarried though – two single State Pensions are worth more than the married couples!
If you are unmarried and own a home together the best course of action is to hold the property in joint tenancy (rather than as tenants in common) to ensure you both have a claim over it. Unlike married couples you will have to prove ownership or financial contributions; non-financial contributions such as caring for children are not enough to warrant you an automatic share. A declaration of trust can also be useful enabling you and your partner to set out how your property should be divided if it’s sold in the future.
When it comes to insurance the best approach is to think about the practicalities. Insurance should act as your financial safety net; for example, if your partner dies you may need to adjust the way you work if you have a family. If you take out a life insurance policy naming your partner as the beneficiary, each of you could receive a lump sum or regular payment which allows some financial breathing space. Also check whether you have death in service benefits as part of your employment; if so, you should make sure you name your partner as a beneficiary.
A Will is one of the most important documents to have in place, and you should ensure all of your beneficiaries are named in it. If you die without a Will your partner won’t automatically inherit in the same way your spouse, civil partner or children would. In this case the law of intestacy applies, and your Estate will pass to your closest living relative. You may have more options if you and your partner have lived together for more than two years – if this is the case you might be able to apply for family provision. But this is rocky territory – if you want your partner to inherit make your sure Will reflects your wishes.
Lasting Power of Attorney
A Lasting Power of Attorney (LPA) allows you to choose who will act for you if you become incapacitated or unable to make decisions yourself. Just like married couples you do have to nominate your attorney – it’s not automatically awarded to your partner, spouse or civil partner. Once an LPA is in place it can cover all decisions about your financial situation and healthcare matters if you become ill or suffer an accident and become incapacitated.
Investments in joint names
Unmarried couples should make investments in joint names – especially if your plan is to sell or realise gains. This is because there’s no option to transfer assets without tax charges. By making investments in both names, two Capital Gains Tax allowances can then be used.
Put it in writing
As noted above a declaration of trust or cohabitation agreement can be really useful if you’re unmarried. As a legal document it sets out the assets each person is bringing into the relationship, and how they should be divided if things break down. These documents can be particularly helpful of one of you has moved into the other’s home, and you begin sharing bills. Ultimately, they can help protect each party’s property rights and ownership under a formal contract.
Cohabiting couples don’t enjoy the same tax breaks that married couples and civil partners have the right to. As a result, there are fewer options to move assets between the two of you, or inherit without triggering possible tax charges. One of the most significant issues is that Inheritance Tax will apply – spouses and civil partners can leave their Estate to one another without any fear of IHT, but if you’re unmarried the same rights don’t apply. Our article about the tax implications for unmarried couples provides more detail.
If you have separate bank accounts, you and your partner won’t be able to access each other’s if one of you dies. You also won’t automatically be entitled to the funds. Any capital will fall into the Estate and will be distributed according to the terms of the Will or intestacy. So, if you’re keen not to cause complications with day-to-day cash flow perhaps set up a joint account which you both pay into, or speak to your bank about authorising access to your account in particular circumstances.
Hopefully this checklist offers some guidance if you’re unmarried and thinking about your financial position. Alternatively, you may be a parent or grandparent wanting to share some useful thoughts with children or grandchildren as they take steps into adulthood.
In summary, if you’re an unmarried couple don’t assume you have automatic rights or protection when it comes to your finances. Taking steps to plan ahead – in case of separation or death – is sensible. Thankfully the tide is turning and there are calls for change for co-habiting couples, but at present there are no plans to reform; things are not on the side of unmarried partners quite yet. It’s always best to protect all aspects of your wealth if you’re unmarried.