3 surprising financial risks that every unmarried couple needs to know about

If you live with your partner but aren’t married to them, you’re one of a growing number of cohabiting couples in the UK. Cohabiting is the fastest growing type of family unit, but despite this, there are still a number of misconceptions about your legal rights as an unmarried couple.

For example, according to research by Royal London, 75% of people who cohabit with their partner aren’t sure what the legal consequences could be if their partner dies without a will.

The truth is that cohabiting couples aren’t recognised by the law, and as such, have very few rights to each other’s assets or finances, no matter how long you have been living with your partner.

Despite this, there are ways that you can protect yourself and your partner from financial difficulties. Here are three important risks to be aware of and some simple steps you can take to prevent any issues from cropping up in the future.

1. If you don’t have a will, your partner isn’t entitled to any of your assets after you pass away

One of the most common misconceptions about cohabiting couples is that your partner will be entitled to inherit your estate after you pass away, even if you don’t have a will. However, despite this type of family unit often being referred to as a “common law marriage”, your partner won’t have any legal right to inherit from you if you pass away.

As a result, if you die without a will in place, your assets are likely to be distributed according to the laws of intestacy.

This means there are very specific people who are entitled to inherit from you, such as your children, parents, and siblings. Sadly, though, your unmarried partner won’t be recognised under this law, so they could potentially lose access to the home you have lived in together as well as any assets you had hoped they would inherit from you.

The only way to be sure that your assets will go to the people you want them to after you die is to write a will.

It’s important to be very clear about your wishes, and to comply with the government’s requirements for a will. This means that, for your will to be valid, at the time of writing it you must:

• Be 18 or over
• Make it voluntarily
• Be of sound mind
• Put it in writing
• Sign it in the presence of two witnesses who are both over 18
• Have it signed by your two witnesses, in your presence.

A solicitor can help you to ensure you’ve met all the conditions needed. Once your will has been written, you will also need to choose someone to be the executor of your will.

Remember that your pension is not usually considered to be part of your estate, so you can’t state what you want to happen to it in your will. Instead, it’s important to complete an “expression of wish”, which your pension’s trustees will use when considering who should inherit your pension in the event of your death.

2. You can’t combine your Inheritance Tax nil-rate band with your partner’s

As an unmarried couple, you’ll also lose some of the tax benefits afforded to married couples. One of the most important ones for Inheritance Tax (IHT) purposes is the ability to combine your nil-rate band with that of your partner.

When you pass away and your beneficiaries inherit your estate, they may need to pay IHT on some of the assets they receive.

Everyone has a nil-rate band of £325,000, so you can leave assets up to this value without your beneficiaries needing to pay IHT on them. In addition, if you leave your home to your children in your will, there is a residence nil-rate band of £175,000. Anything that your loved ones inherit above this threshold may be subject to IHT at a rate of 40%.

Married couples can effectively combine their nil-rate bands, so that the first spouse who passes away can leave their assets to their partner free of IHT. When the second spouse passes away, they can combine their own nil-rate band with those of their partner, allowing them to leave assets of up to £1 million to their beneficiaries (if they are leaving their home to their children) without it being liable for IHT.

Sadly, this particular tax efficiency isn’t possible if you’re not married to your partner. If you’d like to learn about other ways that you can minimise your estate’s IHT liability, you could consult with a financial planner. Your planner can work with you to find alternative solutions to help with this.

3. You may not have the right to financial support or property if you separate

In the event of a separation, there are some entitlements that aren’t available – or that are more difficult to access – for unmarried partners.

If your partner owns the home that you both live in and you separate, then you don’t have a legal right to stay in the home. This means that you may be forced to leave, even if you have contributed to the property in other ways.

If this does happen, you may be able to claim a “beneficial interest” in the property. This means that you have contributed to the property in another way, for example towards mortgage payments or to the costs of upkeep and repairs.

If your claim is successful, you may be able to secure long-term rights to the property. Alternatively, the court may issue an “occupation order”, permitting you to stay in the house for a limited amount of time.

It’s also important to understand that unmarried partners don’t have a legal right to any financial support from their ex-partner after separation if you weren’t married. This is the case even if you were financially dependent on your partner during the relationship.

However, if you have children with your partner, both parents have a legal duty of care to the child.  Usually, whichever parent lives with the child after the separation is entitled to child maintenance payments from the other.

You can protect yourself and your partner from running into financial difficulty after a potential separation by creating a cohabitation agreement. This is a legal document that you can create with a solicitor at any point that will set out exactly what you each want to happen to your assets in the event that you separate in the future.

Get in touch

It can be complicated to figure out what your legal rights are as an unmarried couple. If you’d like some help protecting yourself and your partner from any potential legal or financial difficulties, we can help. Email us at advise-me@fosterdenovo.com  or call us on 0330 332 7866.

Please note

A pension is a long-term investment not normally accessible until 55 (57 from April 2028). The fund value may fluctuate and can go down, which would have an impact on the level of pension benefits available. Past performance is not a reliable indicator of future results.

The tax implications of pension withdrawals will be based on your individual circumstances. Thresholds, percentage rates and tax legislation may change in subsequent Finance Acts.

The Financial Conduct Authority does not regulate estate planning, tax planning or will writing.

This article is for information only. Please do not act based on anything you might read in this article. All contents are based on our understanding of HMRC legislation, which is subject to change.