Having open and honest conversations around your finances is very important for those in a relationship, and it is especially so for cohabiting couples.
Those who choose to be unmarried do not have the same legal protections as those who are married or in civil partnerships. It’s a common misconception that buying a property together or having children automatically gives you these rights, but it isn’t the case. It’s important to have clarity on your finances should one of you die or the relationship break down.
You may be unaware of your position, and you aren’t the only one. Research shows that in England and Wales 46% of people incorrectly assume that cohabiting couples are in a ‘common law’ marriage – but this does not exist in UK law. With 3.6 million unmarried couples living together in the UK who may not fully understand their financial and legal position, this misconception is quite a significant issue.
The government has recently rejected calls to give more legal rights to cohabiting couples. There has however been one moderate concession which is that unmarried people are now entitled to claim State bereavement benefits when their partner dies.
Protect your financial rights
Currently, cohabiting partners will not inherit tax-free assets when their partner dies unless the estate is under £325,000 and left to them in a will. If there is no will, they may not inherit anything.
Cohabiting partners may not automatically be in line to receive funds from pensions or life insurance policies either. Research found that only half of unmarried adults in a relationship knew whether or not their partner had a life insurance policy. 43% of people with this cover hadn’t taken any steps to ensure their partner would receive a payout in the event of their death.
Having difficult conversations
Whether you’re married or unmarried, many couples find it difficult to talk about their finances, particularly when it involves challenging topics like serious illness or death. However, communication can provide clarity and transparency on these subjects, and, if you are in this position, the sooner you do this the better. A financial adviser can help you to facilitate these difficult conversations.
As a cohabiting couple, you can take a step towards providing financial security for yourself, your partner and any children by:
- Having honest conversations: Make sure you’re having these frank discussions about money. Have a good understanding of all your earnings, assets and debts held individually or jointly.
- Getting clarity on property ownership: Is your property owned as a ‘joint tenancy’ or ‘tenancy in common’? Will the arrangement meet your needs when one of you dies?
- Having a will in place: You can write individual or ‘mirror wills’ to put in place who inherits assets and looks after any children in the event of one or both partners dying.
- Reviewing your pension and life insurance policy: Consider nominating your partner as your beneficiary. This can often be done online.
The Financial Conduct Authority does not regulate will writing and some forms of estate planning.
Life assurance plans typically have no cash in value at any time and cover will cease at the end of term. If premiums stop, then cover will lapse.