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How cohabiting couples can limit potential financial disadvantages

  • Learn about how cohabiting couples can limit potential financial disadvantages
  • Find out the disadvantages cohabiting couples suffer when a relationship breaks down
  • Find out the disadvantages cohabiting couples suffer when a partner dies
CPD
Approx.30min
How cohabiting couples can limit potential financial disadvantages

Cohabitation is the fastest-growing family type in the UK, but an unmarried couple’s legal and financial rights are complex, confusing and widely misunderstood.

As many as two-thirds of cohabiting couples are unaware of their lack of rights, as reported in a recent survey by family justice organisation Resolution. This lack of rights has serious financial consequences for cohabitants and their families.

At the beginning of the relationship

Cohabitants are at an immediate financial disadvantage in comparison with married and civil-partnered couples from the day they move in together, primarily as a consequence of various allowances being unavailable to them.

For example, the marriage allowance, worth £238 a year, is specifically designed to reward marital over cohabitation status. 

A spouse who does not use their full personal tax-free allowance may transfer up to £1,190 of their personal allowance in the current tax year to their tax-paying spouse or civil partner.

Similarly, married and civil-partnered couples can share assets between them to take advantage of their personal savings and dividends allowances, while reducing any capital gains tax liability on assets held jointly by combining their gains allowance.

By contrast, a transfer of property between cohabiting couples means an immediate capital gains tax charge at 20 per cent or 28 per cent. However, the challenges faced by cohabiting couples become much more pronounced on the breakdown of a relationship.

 

What if the relationship breaks down

If a cohabiting couple split up, the biggest source of contention is likely to be the ownership of the home they shared.

With no process analogous to divorce available, complex property case law has developed, enabling the non-owning cohabitant to claim a share in the property most commonly by demonstrating a “beneficial interest” in the home.

If this is not documented, which is often the case, significant financial contributions must be demonstrated: for example, by making the mortgage repayments and by showing there was a “joint intention” that would result in them having an interest in the property.

But although it is possible to make these claims, it can be difficult and draining both financially and emotionally, and a fair outcome is not always guaranteed.

A mother can find that she is not legally entitled to any share in the family home if the property has been purchased in her partner’s name and she has not made contributions to the mortgage. 

Even if she seeks to stay in the family home for the sake of the children, she will be required to leave the property once the children have reached adulthood. Unlike spouses or civil partners, she cannot apply for maintenance for herself. 

Yet this might not be the most costly injustice facing cohabiting couples. Cohabitants and their families are at an even greater disadvantage on the death of each partner.

If a partner dies

A cohabitant has no automatic rights to their partner’s estate, making wills especially important for cohabiting couples. If one partner dies without making a will, that partner’s children – or family members, if they have no children – would inherit everything. The bereaved partner has only limited rights to claim what would be reasonable for their “maintenance”.