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YourMoney.com guide: Financial considerations for cohabiting couples

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24/03/2015
According to recent figures, 5.9m UK residents currently live with a partner they are not married to, or in a civil partnership with.

In fact, contemporary data indicates that cohabiting couples are the fastest growing family unit in the UK. However, cohabitees currently have no recognition in law – as a result, there are no legal protections for either partner if a relationship ends. While campaigns aimed at rectifying the current legal situation are ongoing, successive governments have been failed to take action, and no cohesive position has been established in law.

Luckily, there are things a cohabiting couple can do to ensure their financial interests are protected and their affairs are managed shrewdly. Here are some key things to consider.

  • Pensions

Cohabiting couples, unlike married couples and civil partnerships, are not entitled to receive the additional state pension or bereavement allowance in the event of a partner’s death.

Similarly, few pension schemes automatically pay out to unmarried partners in the event of death.

Fortunately, partners can request an ‘expression of wish’ from their pension provider, indicating how they want their pension paid in the event of their death. Unfortunately, even this provision isn’t enough to guarantee you will receive your partner’s pension if they pass away. “A major weakness in the law at present,” notes Marilyn Stowe of Stowe Family Law, “is that such declarations are not fully binding – a pension provider has no legal obligation to honour it.”

  • Wills

It is sensible to have a binding will in place from the moment you become financially independent.

However, it is particularly important if you are cohabiting. This is because cohabitees do not have an automatic claim on their partner’s estate if no will is in place – as a result, only a clear and valid will can ensure your assets end up where you want them to be if you’re not around.

A will drafted by a solicitor can cost as much as £500, but it’s only necessary to seek professional help if your financial affairs are complex. Which? offer an online service allowing individuals to write up wills using an online template for £57 – for a further £32, customers can have their will reviewed and finalised by a professional.

For more information on effective estate planning, please visit the YourMoney.com guides ‘Making a will’ and ‘Estate executors and you’.

  • Property

If a cohabiting couple buy a home together, a central consideration is whether they arrange the contract as joint tenants, or tenants in common.

“As tenants in common, cohabiting couples each own a pre-specified share of a property – as joint tenants, both partners own the whole property between them,” remarks Stowe. “This is an important distinction, because if one joint tenant passes away the whole property becomes solely owned by the remaining partner. If one tenant in common passes away, their share is transferred to a recipient named in their will.”

  • Cohabitation Agreements

A cohabitation agreement is arguably the most important provision for cohabiting couple.

“Presently, there is no legal obligation for partners to split shared assets evenly – or for partners to receive a share of anything they do not directly own – if a relationship ends,” notes Marilyn Stowe.

This is why a cohabitation agreement is invaluable if either or both of you have any independent financial holdings (e.g. property, savings, liabilities, investments etc.). “These agreements articulate and establish precisely the assets each partner holds in a relationship – and how they should be divided in the event of the relationship ending,” Stowe says.

An agreement of this kind is particularly important if a cohabiting couple live in a property owned by one partner, but in which the mortgage has been (or is being) paid by both. “If these contributions aren’t clearly established in an agreement, the property owner has no legal obligation to offer their ex-partner a share if they split up.”

Furthermore, a cohabitation agreement identifies areas of possible conflict – such as shared bank accounts, cards and bills, childcare responsibilities – and determines how they should be resolved.

Cohabitation agreements can be expensive – it could cost you over £1,000 for a professional to draft, review and finalise one. Templates can be downloaded from a number of websites for a small fee, but it is important to solicit professional help in ensuring the agreement is correctly filled out – even minor errors can render the contract void.

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