You build a life with someone and for one reason or another, you don’t get married. Maybe it was due to the COVID lockdown, the cost of a living crisis or you didn’t think you needed to go through the legal stuff to share a life together. These are all valid rationalisations for not getting married. But by not getting married and not taking legal precautions, your children and all your worldly possessions could end up with someone else.
Sarah Coles, senior personal finance analyst, Hargreaves Lansdown, reveals 10 risks unmarried couples and lifelong friends take when they move in with each other and don’t take legal and financial precautions. Some of the risks may be shocking to people.
If one of you dies without a will, the other could get nothing. If the home is in their name, you could lose your home too. If your partner has children, everything passes to them. Otherwise, it goes to their parents.
Hargreaves Lansdown
Marriage rates have fallen 37%
“The plunge in wedding numbers comes against the backdrop of falling marriage rates,” says Coles. “In the 30 years previously (1989 to 2019) wedding numbers fell 36.6%. Meanwhile, the rise in average ages of brides and grooms, and the increasing proportion who have been down the aisle before also reflect established patterns.”
So, while we can take little from the 2020 figures and a sense of how dramatically weddings were impacted by the pandemic – and how hectic subsequent years are likely to be – there’s every sign that the trend of fewer marriages, and weddings at older ages have endured.
Coles highlights that this trend means more couples are still living together without the legal protection of marriage.
“And while it’s brilliant news that people are no longer rushing down the aisle, they need to be aware of the risks they face by cohabiting too,” she says.
Here Coles outlines some serious risks that need addressing before it’s too late.
10 risks of living together without legal protections
If one of you dies without a will, the other could get nothing. If the home is in their name, you could lose your home too. If your partner has children, everything passes to them. Otherwise, it goes to their parents.
Most pensions will pay out to a spouse when you die, Coles explains. “If you’re not married, you can complete a ‘nomination of beneficiaries’ form, to ask for anything to pass to your partner, but if you don’t complete the form there are no guarantees that this will happen,” she says.
If you’re not married and you breach the inheritance tax nil rate band, there could be tax to pay. In some cases, this could mean you can’t afford to stay in your home….
If you split up and one of you owns the house in their name, the other may have no right to live in it or to a share of the property.
If you have children, the father isn’t on the birth certificate, and the mother dies, the father doesn’t automatically have a right to care for the child.
If one of you dies and leaves everything to the other, in a marriage or civil partnership this would all be free of inheritance tax. If you’re not married and you breach the inheritance tax nil rate band, there could be tax to pay. In some cases, this could mean you can’t afford to stay in your home.
There are no inheritable ISAs. If your spouse holds an ISA on death, you will get an additional ISA allowance – called an Additional Permitted Subscription, which essentially means ISA assets they leave you can all be wrapped up in an ISA again without affecting your allowances. If you’re not married, you don’t get this extra ISA allowance.
If you split up and one of you owns the house in their name, the other may have no right to live in it or to a share of the property.
If you split up, and one of you has sacrificed their career for caring responsibilities, they have no right to spousal maintenance.
On average, women’s pay falls 7% for each child they have – so without maintenance to make up the difference, this could leave them thousands of pounds worse off each year.
On the flip side, if the property belongs to one of you entirely, but the other has contributed towards it in some way – including paying a share of the bills or helping with home improvements, they can claim an ‘interest’ in it, and go to a court for a share of the property. It means couples who move in together may have made a bigger commitment than they appreciate.
If you split up, and one of you has sacrificed their career for caring responsibilities, they have no right to spousal maintenance. On average, women’s pay falls 7% for each child they have – so without maintenance to make up the difference, this could leave them thousands of pounds worse off each year.
In the event of a split, if one of you has a sizeable pension and the other has nothing, there’s no compulsion to share.
There are tax disadvantages. We all have a personal allowance that’s not subject to income tax, a personal savings allowance, a dividend allowance and a capital gains tax allowance.
Married couples can share assets between them to take advantage of both people’s allowances, and the lower taxpayer can hold the balance. If unmarried couples try to do this, sharing the assets could trigger a tax bill.
How to protect yourself
Make a will
The only way to ensure an unmarried partner inherits is to draw up a will so that your assets are left exactly as you want them. While it’s vital that everyone makes a will, the stakes for unmarried partners are even higher.
Think carefully about how all assets are owned
If one of you moved in with the other, and the home remains in their name, have you contributed financially? Financial contributions can be reflected by switching to own the property as tenants in common. This allows the contribution to be reflected accurately in the proportions of ownership. Also think before taking on any debt: if the loan is for the benefit of both of you, it should be in both names. And consider your savings, if you’re saving together, it should be in both names.
Consider a co-habitation agreement
This will lay out all kinds of things, from how you manage money between you to who owns what in the relationship. It can also iron out what will happen in the event that you split up.
Ensure both parents have parental responsibility
Fathers can protect themselves by being there when the birth is registered, and being on the birth certificate. If it’s too late for that, you can agree parental responsibility between you and complete the form (https://www.gov.uk/parental-rights-responsibilities/apply-for-parental-responsibility). If you can’t agree, you may need to go to court.
Take out life insurance
Both of you should have enough insurance to ensure the children are provided for in the event you die. After a split, the resident parent should have cover and if one of you is paying child support, they should have cover that will replace it in the event of their death.
Build a nest egg for any children
One of the best ways to protect children against whatever the future holds, according to Coles, is for them to have savings and investments in their own name.
“The Junior ISA can be a really sensible option. Nobody can access the money until they are 18; at that point, it belongs entirely to the child. While the money is saved or invested it grows free of tax, and there’s no tax to pay when it’s withdrawn either,” says Coles.