Legal agreements around money for unmarried couples

Written by 11:14 am Money & Lifestyle

Top myths around couples, money and legal agreements

About 7 minutes to read

Today we’re talking about money and relationships. 

Not how to handle your daily finances when you’re in a couple, nor when to have the talk about your money situation with a new partner (although we have discussed this before). 

No, today we’re discussing what to do when you’re in a long-term relationship, you’ve taken the step to perhaps live together or even buy together, and the question of how to handle your finances is looking a little more complicated than it did when you first started out. 

The Office for National Statistics states that approximately 60% of the population in the UK live as a couple and while the majority are married, around one in five are cohabiting couples. That’s roughly 3.4 million couples who live together but are not bound in marriage or by a civil partnership. It’s also 3.4 million couples who have pretty much no legal rights in the event of separation or death – not to financial support, to a place to live, to anything that the other person owns or owned in their legal name. 

Yet most people believe that there are laws that do protect them. That if they’ve lived with a partner for long enough there are rules in place to ensure that both of them will be okay in the aftermath. Many of these are simply myths – and it’s important not to fall into the trap 

We’ve spoken to two legal experts to get to the bottom of the myths around money and couplehood. 

James Cook, Partner at Collyer Bristow, specialises in private client law – this includes dealing with estates, tax law, cohabitation agreements, probate, powers of attorney etc. He’s also one of the co-authors of Cohabitation: Law, Practice and Precedents.  

Likewise, Baljinder Randhawa, solicitor at Elia Zee, has built a varied caseload ranging from high net worth matters and the division of matrimonial finances (ie. what happens to money and assets in a divorce) to complex matters relating to business structures, assets abroad and unmarried couples. 

Between Cook and Randhawa, there are some huge myths around couples, their finances and the law – and so it’s our job now to unpick them. This includes looking at how the rights of a married couple differ to a cohabiting couple, explaining things like tax benefits and property agreements, as well as exploring contracts like Cohabitation Agreements. 

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Myth 1. There’s a tax for being married.

Actually, no. Quite the opposite. 

Sorry to tell all my fellow singles out there, but the so-called ‘singles tax’ isn’t a myth. In fact, it could add up to more than £7,000 per year according to research discussed by iNews

Married couples can have their tax bill reduced by up to £252 a year through the marriage allowance, which allows one low-earning partner to transfer some of their personal tax allowance to their spouse. Likewise, the capital gains allowance doubles for married couples – figures that definitely add up. There are also benefits for things like inheritance tax if you’re married. 

However, unmarried couples don’t receive any of these benefits. 

“I have a couple as clients at the moment,” says Cook, “And they don’t want to get married or have a civil partnership. They don’t want to change their relationship when it’s very strong as it is. However, they do recognise the tax benefits. One of the conversations they’ve had with me, for example, is that they’ve agreed to get married if one of them becomes seriously ill in order for the other person to benefit from the breaks around inheritance tax. It might seem very unromantic but it’s very practical.” 


What’s mine is…mine? How to talk about money with your partner?

Myth 2. If you’re in a long-term relationship, you have the same rights as married couples. 

If you’ve ever looked at those friends and said ‘oh but they’re basically married’, then you’ll know what I mean about some of the assumptions we all make about other people’s (and our own) relationships. Some seem so completely solid and locked down. They’ve been together forever. They live in the same flat. They’ve bought their first home on a joint mortgage. They’re the real deal. 

But, despite appearances, unless you’ve put a ring on it, you don’t have any of the financial or legal rights that married couples or civil partners benefit from. 

“Many cohabitees are under the false impression they are common-law spouses, with the same guaranteed protections and financial and legal rights as married couples. This is not truly accurate,” says Randhawa. “Those who are cohabiting do not have the same rights over property as those that are married.”

“For example, it is very difficult to make a claim on assets if they split up and cohabitees are also not exempt from inheritance tax if one partner dies. Unmarried couples who have not opted for a civil partnership are at threat of being financially unprotected relates to the fact they are unable to make financial claims on each other’s assets should their relationship break down,” she continues. “Furthermore, cohabitees have no basis upon which to apply for maintenance from their partner (apart from claims for the benefit of their children).”

Essentially it’s only when you can prove that you have an interest or financial stake in an asset or property that you have any legal right to it or part of it. The transfer of assets and TOLATA claims (AKA Trusts of Land and Appointed Trustees Act 1996 – yes all these acronyms are a lot) are two such instances with TOLATA really highlighting the difference between the rights of unmarried versus married couples.

For example, even if you’re in a fifteen-year relationship, you still need to prove your beneficial interest (ie. financial contributions) to claim part of a property. On the other hand, according to Randhawa and Cook, a long marriage (roughly fifteen years or longer) will often see a 50/50 split even if the matrimonial wealth has come from one party. 

Myth 3. Unmarried couples can still benefit from common-law marriage. 

Common-law marriage is apparently the biggest bugbear of many lawyers because it simply doesn’t exist in the UK – and hasn’t done since 1753. 

Yes, that’s right. There is no such thing as common law marriage and whilst there are laws you might be able to benefit from if, say, your long-term partner has passed away without a Will and you’d like to be able to inherit some of their estate (such as the 1975 Act), Common Law marriage is not a real protection. 

“The common-law spouse is the frequent misconception shared by many couples living together without any marriage or civil partnership status,” explains Randhawa. “But the reality is far from the truth, with cohabiting couples sharing almost no legal rights should a relationship break up, compared with those protected by civil partnerships or by marriage. Cohabitees are on the rise across the UK, as well as the number of same-sex couples, therefore making this an important topic of discussion.”

Cook gives more detail, explaining how the 1975 Act (AKA the Inheritance Provision for Family and Dependents Act 1975) allows a surviving cohabiting partner to apply for provision from their deceased partner’s estate. “It’s really for if their partner died intestate (without a Will) or didn’t adequately provide for their partner within an existing Will. It doesn’t cover any kind of claim in the case of separation,” he says. 

“There are also a lot of complexities to the 1975 Act, and some significant pitfalls in terms of 75 back claims,” Cook adds. “It’s much more difficult, say, when the deceased partner has had a previous relationship or even a second relationship. Likewise, if one person has their own wealth but moves into their new partner’s family home, as it may then mean that they have a claim against the estate. This can take away from the provision of children and can make many seemingly simple situations much more difficult to agree.” 

Myth 4. If you’re unmarried you need a Cohabitation Agreement. 

When I first heard of a Cohabitation Agreement, it felt like a solution to the missing Common Law marriage. 

A Cohabitation Agreement outlines the rights and obligations of each partner towards each other – setting out exactly what assets each person is contributing to the relationship and what should be done with them in the case of the relationship ending. With the ability to cover everything from property to your savings or personal belongings, it really does sound like a silver bullet for unmarried couples. 

Reading up online, you’ll quickly discover many an article lauding the benefits of a Cohabitation agreement, especially for unmarried people who live together. But according to Cook, a cohabitation agreement may not be all that it seems. 

“A cohabitation agreement is not widely used and many lawyers aren’t big fans of them,” Cook says. “This is because they’re mainly useful for setting out terms of property – ie. making clear provisions on how you handle that property in the case of one person wanting to take money out and so on. But legal agreements that are much more common and binding already exist – for example, if you’re buying a property with someone else, regardless if they’re your partner or sibling, you can agree to be ‘tenants in common’ or ‘joint tenants’ in the agreement.”

Cook’s point emphasises that in a lot of cases contracts already exist that do the job of a Cohabitation Agreement. Moreover, if your concern is more about what happens should one of you die, then nothing really supersedes a Will in terms of laying out exactly how you want your estate to be passed on.  


Inheritance and why we need to talk about death and money

But that’s not to say they’re not useful at all. There’s a reason why the Cohabitation Rights Bill is gaining traction in the House of Commons. This would see the millions of cohabiting couples across the UK have the same financial rights as those who are married or entered into a civil partnership. 

Creating a cohabitation agreement can be a very sensible idea,” says Randhawa. “They fall under the normal rules of contract law and has some advantages.” 

For example, a cohabitation agreement allows the couple to legally establish who really owns what and if each partner should have rights they might not get automatically when it comes to a property that might otherwise suggest co-ownership and be split 50/50. Likewise, it can ensure that if one partner was financially dependent on the other for years or has children, they will have some right to maintenance payments for themselves after a breakup as well as the kids. 

Another key advantage is the reduced stress at the end of a breakup. 

As Randhawa explains, “The end of a relationship can be a very traumatic and emotional time – the last thing anybody wants is a legal dispute, the situation of being asked to move out of their home, or the feeling of having been financially mistreated. Agreeing your rights and ownerships ahead of time can make life much easier for everybody in the long run.” 

The fact is that whilst the system is imperfect for couples who don’t want to get married or partnered just yet, entering into a cohabitation agreement can provide both parties with certainty about where they will stand financially if the relationship ends.

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Tags: Last modified: 30 July 2021