Busting the myths of cohabitation
So, it is much less complicated if you just live together, right? Wrong. There are an estimated 3.3 million cohabiting couples in the UK, this fastest growing family type has more than doubled since the mid-1990s.
Society is changing, but unfortunately the laws of England and Wales haven’t kept up. A recent poll revealed that a significant number of cohabiting couples mistakenly believe they are ‘common law spouses’ and that this will protect them should their relationship end or one partner die. The truth is you may have lived with your partner for years, brought up children together and even given up your career for the family’s benefit, but you still have no right to support if the relationship breaks down and no automatic entitlement to benefit from your partner’s estate.
When a marriage breaks down the court can allocate the available assets and pensions based on what is fair and the needs of each party to the marriage. That is simply not the case for unmarried couples. If the property you live in is in the name of your partner establishing that you have any interest in it can be extremely difficult, even if you have paid towards the bills for years. Making a claim relying on a piece of legislation known as the Trusts of Land Act 1996 can be extremely complicated and expensive, with no guarantee that the financially weaker party will be awarded what may seem fair.
The good news is that there is plenty you can do to avoid problems in the future with a little forward planning.
Think about how you own property
If you are buying a property together, or moving in to your partner’s property, think about how you are paying for property both in terms of the initial deposit and mortgage repayments. Be aware that if one partner is contributing all the funds towards the purchase of the property, but you are buying in joint names the partner paying will effectively be giving away half the house immediately, which may not be his or her intention. Equally, by placing the property in one person’s name, you are not guaranteeing the other partner’s security. If contributions towards the deposit or the mortgage payments are unequal, this can be reflected in the deeds or in a separate Declaration of Trust. There are likely to be tax implications, so it is important to seek advice before you take any steps to change the ownership of the property.
Make a cohabitation agreement
No one wants to think that their relationship may break down, but then again no one drives a car without the benefit of car insurance.
A cohabitation agreement can set out who brings what into a relationship and how it should be shared on separation. This can include the house but also other items such as cars and house contents. Think about how things may change; for example, what if you have children together? Ask an experienced family lawyer to help you put the agreement in place and review it on a regular basis
Make sure you have an appropriate Will in place:
The harsh truth is that a cohabiting partner has no automatic right to benefit from their partner’s estate after his or her death, no matter how long they have been in a relationship or whether they have children together. Instead, the surviving partner may face bringing a claim through the courts (under the Inheritance (Provision for Family and Dependants) Act 1975) against their partner’s relatives or even against their own children for reasonable provision from the estate to maintain themselves.
It is possible to frame your Will to provide for your partner for his or her lifetime, to stay living in the house, for example, whilst also protecting the capital to pass to your children eventually. This may be particularly relevant and appropriate where there are children from a previous relationship.
Assets held by a couple jointly (as ‘joint tenants’), such as a house or a joint bank account, will belong to the surviving partner automatically on the death of one of you. But it is important to have advice before making any changes to the ownership of assets because of potential tax implications.
Sort out pension and death in service benefit
If you have a pension or life insurance policy (including death in service benefit), it is important to make sure you have nominated your partner as the intended beneficiary of the policy if you want him or her to benefit (this is usually via a nomination or expression of wish form rather than under your Will). Again, it is a good idea to take advice from your financial adviser to make sure you have taken the right steps to deal with pensions and life policies.
Plan ahead to avoid an unwelcome tax bill
Cohabiting couples do not benefit from the same inheritance tax allowances as married couples, leaving them at a distinct tax disadvantage. There are steps which can be taken to improve the position, for example, via carefully structured Wills. Couples may also wish to consider life insurance written in trust to cover any inheritance tax bill on first death.
Feeling inclined to propose?
For those who have decided not to marry because they want to keep their finances and property separate (perhaps having been ‘stung’ in a previous divorce), the good news is that a well drafted and properly implemented pre-nuptial agreement coupled with appropriately tailored Will planning can effectively address those concerns.
If marriage is in prospect, it is important to note that an existing Will is automatically revoked on marriage unless it includes a specific provision contemplating the forthcoming nuptials and expressly preserving the Will.
Whether you are thinking of tying the proverbial knot, consider this a step too far, or are perhaps concerned on behalf of adult children or grandchildren in the legal limbo of cohabitation (particularly if you are helping them out financially), the importance of planning ahead with the benefit of specialist legal advice cannot be underestimated. This allows couples to make well informed choices and take appropriate action for real peace of mind.
For further information please contact Claire Johnson or Gaynor Dickens two of the Partners in the Private Client & Family team respectively at Geldards LLP.
Geldards is one of the country's leading regional law firms with over 350 staff based in Wales, The Midlands, and London. We are a full-service law firm providing practical legal advice to private and public companies, local authorities, public bodies, charities & government agencies as well as private individuals.
Claire Johnson, Partner, Private Client
029 2039 1728
Gaynor Dickens, Partner, Family
029 2038 6524