5 Ways Cohabiting Couples Can Plan AheadJuly 1, 2015
Family lawyers regularly advise clients who have been cohabiting with a partner on the legal implications after a breakdown of the relationship. It’s surprising how many clients are shocked to discover they have no rights to the home they have lived in for many years.
Unlike married couples or those in same-sex civil partnerships, cohabiting couples have no automatic rights when it comes to property or finances.
The number of cohabiting couples has doubled over the last 20 years and there are now six million in the UK. It’s estimated that half don’t realise they have no automatic legal rights if their relationship ends.
It’s therefore crucial to talk about your future and make plans for what might happen. There are steps you and your partner can take to ensure your financial affairs aren’t left to chance and that provision is made for each other – and for your children.
1. Make a Will
Making a Will is a simple and straightforward way of providing for your partner and gives peace of mind to both of you.
If you don’t have a Will, a set of strict legal rules dictate who receives your estate when you die. These rules don’t recognise cohabiting couples.
It’s also important to bear in mind that contrary to popular belief, getting divorced does not automatically revoke your Will.
2. Make a Living Together Agreement
A Living Together Agreement (or Cohabitation Agreement) records how a cohabiting couple will own and share things. This can include how you organise your finances on a day-to-day basis and usually sets out how you intend to own property and other assets.
This can be particularly important if the family home is registered in just one partner’s name. In the event of a relationship breaking down in such circumstances, couples often have conflicting views of what their intentions were at the beginning of the relationship and what contributions they both made in relation to the family home.
A Living Together Agreement can give both partners security and peace of mind by spelling out the terms on which they share their home, belongings and any other assets.
Most importantly, a Living Together Agreement specifies what would happen in the event of a split. If legal proceedings ensue regarding ownership of the family home, then provided such agreements are properly prepared and both partners had the benefit of legal advice, a court is likely to attach considerable weight to the agreement’s contents.
3. Decide how you will own your home
It’s important to decide whether to own your home as joint tenants or tenants in common.
If you own your home as joint tenants, the whole property automatically passes to the survivor when one of you dies. This is irrespective of the terms of any Will or the rules of intestacy.
If you own your home as tenants in common, however, each partner has a distinct share in the property. In the event of one of you dying, the property doesn’t automatically pass to the other, but will be subject to the terms of a Will or the rules of intestacy.
Expert advice should be sought to determine the best form of tenancy for you and your circumstances.
4. Plan your pension
Married couples and same-sex couples in civil partnerships are entitled to receive Bereavement Allowance for deceased partners and, until April 2016, can also benefit from a former spouse or civil partner’s National Insurance contributions to assist in obtaining a state pension. Cohabiting couples don’t have the same benefits.
People often don’t consider saving for retirement until it’s too late, so good financial advice should be sought to examine the best options for your particular circumstances.
It’s especially important to find out about whether payment will be made to a cohabitee from a private or occupational pension scheme. Some schemes don’t recognise cohabitees, and the administrators will usually have the final say over who any lump sum or dependants’ benefits are paid to.
5. Consider tax
Married couples and same-sex couples in civil partnerships enjoy some tax advantages over cohabiting couples. They can pass assets to each other without having to pay Inheritance Tax, which they will only pay if their combined estates exceed £650,000. The threshold for cohabiting couples is just half this, £325,000.