Pension advice for same-sex or co-habiting couples

This article is part of
Guide to pensions and divorce

Pension advice for same-sex or co-habiting couples

Pension advice on divorce is complicated enough with heterosexual couples, but there are even more legal challenges with same-sex civil partners and heterosexual co-habitees with children.

Understanding the law on cohabitation and civil partnerships and marriages is helpful when dealing with couples wanting to separate and share their assets.

Legally, cohabiting, unmarried couples do not have any entitlement to financial and legal protection. As such, there is no legal obligation for one part of the couple to support the other financially on separation, although there may be children involved. 

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Moreover, there is no legal way to allow for pension splitting for co-habitees. 

However, if a couple does want to come to an amicable arrangement and request some form of financial advice, it is important first for the adviser to understand the couple's legal status.

As Stephen Chilcott, chartered financial planner for Addidi Wealth, explains: "It is essential the legal status of the client is established at outset.

"There continues to be the mistaken concept of the common law recognising relationships such as co-habitees.

"This so-called common-law marriage does not exist in law, although the pension rules of a particular scheme may acknowledge the relationship.

"Knowing the legal status of a client and what the particular pension rules allow is crucial to providing accurate and relevant advice."

Figure 1: Know your limitations

It is good for advisers to have an understanding of the legislative history when considering pensions and divorce/separation, what has changed recently and what is allowed (or not allowed) by law.

Currently, pension sharing orders and earmarking orders are only available to married couples and not available to cohabiting couples.

Back in 2006, the Law Commission issued proposals to change the law to allow pension sharing orders for cohabiting couples, but this has not been brought into law. 

Couples can, at the outset or during a relationship, draw up a cohabitation agreement, which will set out exactly what assets each partner is bringing to the relationship and how they should be divided in the event of the relationship breaking down, although this will not affect the pension.

Advisers in this position of having to arrange the finances for a cohabitating couple should also advise them on reviewing existing pension scheme documentation, such as nomination/expression of interest forms.

A cohabiting partner may have originally intended all of their pension benefit for his or her partner in the event of the member's death - if this is not changed at the time of the break-up, the scheme trustees could still pay out to the former partner in the event of the member's death.

It could be judicious to advise setting up trusts or nomination forms in the children's names, so any dependents will still benefit financially, even if their parents are no longer living together.