By Justin Rourke, financial planning director – head of advice, Armstrong Watson
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 per cent 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 3.6 million unmarried couples living together in the UK, more than two times the 1.5 million there were 27 years ago.
The legal position in England and Wales 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.
The rules around intestacy in Scotland are different, and also a little more complicated.
Protecting financial rights while cohabiting
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, Scottish Widows’ research found that only half (52 per cent) 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 per cent) had taken no steps to ensure their other half would receive a payout in the event of their death.
Address challenging topics if not married
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.
At Armstrong Watson, we provide bespoke tax planning, financial planning and wealth management all under one roof.
