'I am a common law spouse' is the frequent misconception shared by many couples living together without any marriage or civil partnership status.
But the reality is far from the truth, with cohabiting couples sharing almost no legal rights should a relationship break up, compared with those protected by civil partnerships or through the virtue of the ‘m’ word.
This problem cannot be neglected, not least because cohabitees are on the rise across the UK.
Data released by the Office for National Statistics in August 2019 show the number of people cohabiting in the UK has risen by 25.8 per cent in the past 10 years, making it the fastest-growing family type in the UK.
To add to this, the number of same-sex couple families has more than doubled since 2015.
This growth trajectory is not the same for marriages, which have declined in the same period, although it is still the most common family type in the UK.
So what are the financial implications of not being married versus those of having tied the knot?
Common law spouse
Matrimonial consultant, Sheela Mackintosh-Stewart, founder of ifamiliesUK, says many cohabitees are under the false impression they are common law spouses, with the same guaranteed protections and financial and legal rights as married couples.
In fact, figures from the National Centre for Social Research reveal almost half mistakenly believe the myth.
This concern is echoed by several others in the industry.
Key points
- Those who are cohabiting do not have the same rights over property as those that are married
- It is very difficult to make a claim on assets if they split up
- Cohabitees are also not exempt from inheritance tax if one partner dies
Hannah Saxe, senior associate at Irwin Mitchell, says: “There is a common misunderstanding that someone can be in a common law marriage with their partner if they have been in an unmarried relationship for a long time.”
The main reason unmarried couples who have not opted for a civil partnership are at threat of being financially unprotected relates to the fact they are unable to make financial claims should their relationship break down.
Ms Saxe adds: “It does not matter how long a couple have been together, if they are not legally married or in a civil partnership they will find it very difficult to make claims against each other’s assets if they split up.”
She adds that cohabitees have no basis upon which to apply for maintenance from their partner (apart from claims for the benefit of their children).
Transfer of assets
So how does transfer of assets such as property work under both marriage and cohabitation?
Ms Saxe says unmarried couples are only able to make financial claims for themselves in relation to a property, such as their family home, if they can establish they have an interest in it.
Ms Mackintosh-Stewart confirms: “Unmarried couples have no guaranteed rights to ownership of each other’s property on break-up, unless they can successfully show evidence of financial contribution, a written agreement or trust deeds that clearly set out the share of legal ownership of the property and financial contributions.”
Ms Mackintosh-Stewart explains that spouses and cohabitees who are disinherited from the deceased spouse or partner’s will can launch a challenge on grounds of invalidity or that they have been financially provided for.
She adds: “They can make a legal claim as a ‘dependant’ on basis of hardship under inheritance laws of the Inheritance (Provision for Family and Dependents) Act 1975, which is costly, distressing and has no guarantee of success.”
TOLATA
Sahil Aggarwal, family lawyer at Moore Blatch, says: “Claims between cohabiting couples are dealt with under the Trusts of Land and Appointment of Trustees Act 1996 (TOLATA). Unlike a married couple, the relationship between a cohabiting couple is treated much more like that of a business relationship.”
He adds: “Claims under TOLATA therefore rely much more on evidence.”
Ms Stewart-Mackintosh highlights that married spouses are exempt from paying any inheritance tax on a partner’s death, whereas cohabitees are not exempt from paying the 40 per cent rate of IHT if the estate value is more than £325,000.
The length of a marriage by which the law decides how to split matrimonial assets is slightly subjective, but appears to typically cover those that last more than 10 years.
Farhana Shahzady, family law partner at TWM Solicitors, says: “Long marriages will often lead to a 50/50 split even if most of the matrimonial wealth has come from just one of the parties. What constitutes a long marriage is not set out by statute but experience and case law points to marriages over 15 years.”
So what happens if a property is under one person’s name when a cohabitation breaks down?
Beneficial interest
Ms Saxe says the other person is left to prove under trust law principles that he or she has what is called a ‘beneficial interest’.
In other words, that the legal owner holds the property on trust for both of them.
She says beneficial interest can be proved through financial contributions towards the value of the property, such as contributing to the deposit, mortgage repayments or renovations.
In theory it may still be possible to prove a beneficial interest without such evidence if there was a common intention, such as an agreement in writing.
Ms Saxe adds: “If they have children, they might agree to delay sale or a transfer until their children are older to ensure their housing needs are met. In the absence of such an agreement, an application can be made to court under Schedule 1 of the Children Act 1989 for such an order.”
Experts also stressed that married couples can benefit from a deceased partner’s pension under a marriage.
Ms Mackintosh-Stewart says: “In comparison, cohabitees receive none of these tax perks and there is no automatic right to benefit from a deceased partners’ pension, bereavement or survivors’ payments unless they are formally named as ‘nominated beneficiary, [which] is now under legal review after the Denise Brewster case.”
Ricky Chan, director and chartered financial planner at IFS Wealth and Pensions, confirms that if the deceased had any defined benefit pensions, these usually include a “dependant’s pension”.
He adds: “But a cohabiting partner would not normally meet the definition of a ‘dependant’ under the scheme rules, although definitions do vary between schemes.”
Cohabitation rights bill
Mr Chan recommends that advisers encourage clients to ensure their wills are drafted to reflect their wishes and ensure beneficiary forms are updated with the relevant pension providers.
He adds: “Both married and cohabiting couples may wish to review existing life insurance to ensure that they’re either cross-owned by each other or placed into a trust so if the policy were to pay out, it would pay out to the surviving partner and in a timely manner.”
Parliament is currently considering a cohabitation rights bill, which aims to protect people who have lived as a couple and make a provision about the property for surviving cohabitees upon the death of a partner.
The bill received a second reading in the House of Lords in March this year and is due to go through the committee stage, with no concrete date scheduled so far.
Ms Saxe adds: “Hopefully the change in the law about civil partnerships (in that they are now available for straight couples as well as same-sex couples) signals that parliament is recognising the importance of these issues and the need for change, but Brexit may mean the bill is not given the attention it deserves for some time.”
Saloni Sardana is features writer at FTAdviser and Financial Adviser
