Choosing to live together without marrying or entering into a civil partnership is increasingly popular.
The latest Office for National Statistics data shows that the proportion of people who live in a couple that are cohabiting (not in a marriage or civil partnership) is now almost a quarter (24.3%).
One of the common misconceptions you might face is that many of these cohabiting individuals believe that they enjoy many of the same legal protections as those who are married or in a civil partnership.
Sadly, this is not the case. So, if you have clients who are separating but not married, they will need very specific help – particularly when it comes to the division of assets. Read on to find out more.
1. Pensions
You’ve previously read about how often pension assets are simply overlooked when a couple part ways – indeed, just 12% of couples consider their pension as part of divorce proceedings. And that’s when couples are ending a formal marriage or civil partnership!
Unlike in a divorce, where pensions are considered marital assets and divided accordingly, cohabiting partners have no automatic claim to each other’s pension entitlements upon separation. A Pension Sharing Order is, consequently, not an option.
When it comes to splitting pension assets for unmarried couples, the type of pension scheme can play a significant role in determining whether a former partner may have any claim.
For example, a Supreme Court ruling in Northern Ireland in 2017 granted an individual access to her late partner’s local government pension scheme even though they were not married.
Most private pension schemes, however, do not provide for cohabiting partners unless explicitly stated.
2. Property/mortgages
Where an unmarried couple owns a home in joint names, it should be possible to arrive at a settlement. Remember that both parties are responsible for the mortgage repayments until it has been paid off in full, regardless of whether or not they live in the property.
In instances where one partner owns a property in their sole name, the starting point is that the unmarried, non-owning party has no legal or beneficial interest.
However, there are ways in which the non-owning party may be able to establish that they have an interest and an entitlement to a share of the proceeds of any sale:
- Showing they made a financial contribution towards the purchase (for example, a payment towards the deposit)
- Showing they contributed to the mortgage payments.
Individuals separating may also need advice on their future housing needs, such as taking on an existing mortgage in their own right or establishing their borrowing potential for buying a home of their own.
3. Protection and insurance
If your unmarried clients have taken out any joint-life assurance, it’s unlikely that they will be able to split these plans when they separate.
Consequently, existing cover may well lapse, and this means that individuals will need to consider effecting new cover. This may be more expensive, as the clients will likely be older and may have experienced medical issues since they originally took out cover.
4. General living costs
Unlike married couples, cohabiting individuals can’t claim maintenance from the other when they separate if they are struggling to meet their day-to-day needs. So, financial advice may be beneficial for an individual to establish a new budget and how to meet their general living costs.
If an unmarried couple has children, then one party can claim child maintenance, as well as the additional claims that a parent may be able to make for provision for their child.
5. Tax consideration
Married couples and those in a civil partnership benefit from the ability to make advantageous use of certain tax exemptions and allowances.
For example, married couples and civil partners can make inter-spousal transfers of their assets free from Capital Gains Tax (CGT). However, if one half of an unmarried couple gives the other cash or shares, no spousal exemption applies, and the normal CGT rules will apply.
Married couples and civil partners can also benefit from the Marriage Allowance if one is a non-taxpayer, and the other is a basic-rate taxpayer. Here, the non-taxpayer can transfer up to £1,260 of their Personal Allowance to their partner, resulting in a tax reduction of £252 each tax year.
As the name suggests, it can only be used by those in a marriage or a civil partnership, not by unmarried couples.
These issues mean that unmarried couples may benefit from specialist tax advice when they separate.
Get in touch
If you have clients who are separating, financial advice can add real value. Your clients may have many questions about their financial future, and we can give them the confidence to take their next steps.
To find out more, email info@blueskyifas.co.uk or call us on 0118 987 6655.
Please note
This article is for general information only and does not constitute advice. The information is aimed at retail clients only.
The Financial Conduct Authority does not regulate cashflow planning or tax planning.
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 performance.
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.
Your home may be repossessed if you do not keep up repayments on a mortgage or other loans secured on it.
Note that life insurance plans typically have no cash in value at any time and cover will cease at the end of the term. If premiums stop, then cover will lapse.