Caught in the unmarried trap?

Post by Mearns & Company in News

Being frank about your finances is important in any relationship. But cohabiting couples in particular, who do not have the same legal protections as those who are married or in civil partnerships, need to know where they stand should one of them die or the relationship break down.

Many are unaware of their position. A 2022 Women and Equalities Committee report included a reminder that 46% of people in England and Wales wrongly assume that couples living together are in a ‘common law’ marriage – a concept which does not in fact exist in UK law.

This misconception is a problem as there are now 3.6m unmarried couples living together in the UK, more than two times the 1.5m 27 years ago.

The legal position has not changed significantly since then, with the government recently rejecting calls to give more legal rights to cohabiting couples. However there has been one moderate concession, with unmarried people now entitled to claim State bereavement benefits should their partner die.

Protecting financial rights

While this change is welcome, it still means cohabiting partners do not inherit assets tax-free if their partner dies — unless the estate is under £325,000 and left to them in a will – and may not inherit anything at all if there is no will. They may also not be in line to receive funds from pensions or life insurance policies. Buying a property together or having children does not automatically give you these rights — so couples in this situation, who have ongoing financial responsibilities, need to plan their finances carefully.

Surprisingly, the Scottish Widows research found that only half (52%) of unmarried adults in a relationship knew whether or not their partner had a life insurance policy. The research also showed that four out of 10 people with this cover (43%) had taken no steps to ensure their other half would receive a payout in the event of their death.

Address challenging topics

Many couples — married and unmarried — find it difficult to talk about money, particularly when it also involves more challenging topics, like discussing serious illness or death. But there are simple, inexpensive ways to ensure you are providing financial security for your partner and any children, whatever the future holds.

Cohabitees can help protect themselves by taking the following three steps:

• Start talking: Have an open and frank discussion about money, covering earnings, assets and debts, held individually or jointly.
• Check property ownership: Your property could be owned as a ‘joint tenancy’ or ‘tenancy in common’. Will the arrangement meet your needs if one of you dies?
• Write a will: These can be individual or ‘mirror wills’ for couples setting out who inherits assets and looks after any children in the event of one or both partners dying.
• Nominate your partner as a beneficiary on your pension or life insurance policy: This generally involves filling out one form, which can often be done online.

The Financial Conduct Authority does not regulate will writing and some forms of estate planning.

Life assurance plans typically have no cash in value at any time and cover will cease at the end of term. If premiums stop, then cover will lapse.