In today’s Daily Mail Online, Sir Nicolas Mostyn raises an interesting argument about the legal rights of people who live together (cohabitees). The financial implications differ greatly depending on whether someone is married or not. There is a seismic shift in the law when people get married.
When Neil Trotter won £108m on the lottery earlier this year, he was seen pictured with his girlfriend. As they are not married, unless his girlfriend could show that the money used to buy the ticket came from jointly held funds, then she is not entitled to a penny. Had she been married she’d be looking at receiving half in divorce.
The law relating to married couples in England & Wales is entirely different to those who are not married, save for applications concerning children, which fall under the same legislation for both types of parents and that is the Children Act 1989. So if Mr Trotter and his girlfriend had children, she would be able to make a financial claim on the children’s behalf, just not for herself.
You Are Either Married or You Are Not
Marriage is a contract and with that contract comes benefits and liabilities. You enter into the contract of marriage voluntarily and willingly and there is a conscious decision for you to be bound in partnership.
As soon as you are married you start building an interest in the finances of you as a couple. You also need to be aware that any pre-marital cohabitation will count towards the length of your marriage provided that there was a seamless move from cohabitation into marriage (i.e. no breakups for any significant period of time).
As soon as you are married the Courts will view you as a partnership and irrespective of what your contributions may be, be they financial or child-rearing, they will invariably be considered equal.
When you take your marriage vows you take someone for ‘richer for poorer’, you also promise that all that you have you give to the other person and share it with them. At the risk of taking the romance entirely out of the wedding ceremony, these are just some of the terms of your contract of marriage.
If you do not get married then you do not enter into a contract and therefore you do not have the benefit or the liabilities of that relationship. Let us dispel an urban myth; there is no such thing as a ‘common law spouse’. You can live with someone for 50 years, but unless you are married you are not entitled to anything purely on the basis that you live together.
People living together (cohabitees) do not automatically inherit from one another under the Rules of Intestacy. Therefore the only way you can provide for a cohabitant on death is to make a Will.
Unfortunately gifts on death to a cohabitee are not exempt from Inheritance Tax as they would be if you were married.
If you want your assets to pass in their entirety to your cohabitee on your death and you want to avoid Inheritance Tax, then this can be achieved if it is in relation to real estate as you can hold the property as joint tenants. This means that the property passes to the survivor in its entirety outside of any provision in a Will.
All assets other than real estate however will be subject to Inheritance Tax. Whilst cohabitees do not automatically inherit if a partner dies intestate (i.e. without making a Will) the surviving party may be able to argue that they are a ‘maintained person’ pursuant to the Inheritance (Provision for Family and Dependents) Act 1975.
As mentioned above, Inheritance Tax is not exempt if you are not married but spouses who inherit are currently exempt from paying any Inheritance Tax.
Capital Gains Tax is payable in respect of transactions between unmarried couples whereas they are exempt between spouses. It is however important to always check this position with your accountant because if you have separated from your spouse there is a time limit after which you will be liable for Capital Gains Tax on any transactions between spouses.
A married couple on divorce can transfer real estate between themselves without being liable to pay Stamp Duty. This is unfortunately not an option for the transfer of a property between unmarried couples, who would be liable to pay stamp duty on that transfer from their joint names into one party’s sole name. The amount of stamp duty will depend on the value put on the property at the date of transfer and does not include any deduction for the mortgage.
If you are not married then you need to check with your pension provider as to what, if any, provision they will provide a cohabitee in the event of your death. This would include issues such as death in service benefit or pension income for your partner in the event you predecease your partner whilst your pension is in payment. You ought to check the position with your own pension provider and if you can, consider whether to nominate your cohabitee as the person to receive those pension benefits.
Whether you marry or not is entirely a decision that only you can make. It is however so much more than just a piece of paper, it creates a legally binding contract between two people who find that the door opens to a wealth of opportunities and benefits that would not otherwise be available to them.
Marriage is a partnership and a contract and as such you have to take the rough with the smooth. If there are any debts, regardless of the fact that they may not be in your name, you may find that the marital assets have to be utilised to pay off that debt whereas if you are not married any debt in one persons’ name remains the sole liability of that individual.
If you choose to remain unmarried but wish to protect your assets and/or your partner, then you do need to consciously arrange your affairs. You may want to consider one or all of the following:
- Making a Will.
- Entering into a Declaration of Trust in relation to the ownership of property.
- Entering into a living together agreement or Cohabitation Agreement setting out the rights and responsibilities of both parties, thereby eliminating any confusion later on.
For a free initial consultation call freephone 0800 916 9055 or contact us online and we will call you.
Slater and Gordon are a leading Family Law firm with offices in London, Manchester, Liverpool, Sheffield, Birmingham, Edinburgh, Cardiff, Milton Keynes, Merseyside, Bristol, Newcastle, Halifax, Wakefield, Derby, Cambridge & meeting rooms in Bramhall, Cheshire.