Some myths have a tendency to stick around, to work their way into the public lexicon to the point that people don’t stop to question their validity – in the United Kingdom, common law marriage is one such myth.
“It's very widespread, people talk about it, the newspapers write about it as if it was a real thing but there is no legal status in England for common law marriage,” says Julian Washington, head of Intermediary Relationship Management for RBC Wealth Management International.
A British Social Attitudes survey conducted in 2008 found that 51 percent of respondents thought common law marriage was a legitimate status.
“What people think that means is if you live together for long enough then eventually you’ll acquire rights so that on their death, or on separation, you will automatically be entitled to some financial provision from your ex,” says Washington. “Unfortunately, it just isn’t true.”
Well, not in England where unmarried couples do not, generally, have any financial rights against each other when they split up. Even if children are involved, one’s options are limited.
“In England it’s difficult,” says Washington. “If there are children of the relationship, then the parent that’s looking after them can apply to the court for provision for the children but not for themselves.”
Yet it’s an all too common scenario: two people meet, they move in together (into a property owned by one of them) and in time start a family. As dynamics change, and perhaps one partner withdraws from their career to raise the children full time, the other takes over financial duties, paying for all of their shared expenses. Then there’s a split or worse, a death.
They’re not married so there’s no family court that can intervene to bring about a fair sharing of the value of the home and the other assets they own.
“You’re stuck with the basic law of property and if the property is in one person’s name it’s generally irrelevant that the one partner has been paying the mortgage for many years,” says Washington. Unless the couple sits down and comes to an actual agreement as to how they intend to share the equity – and that agreement can be proven in court -- the non-owning partner is stuck, Washington adds.
According to the Office for National Statistics (ONS), cohabiting couple families are the fastest growing family type. As of 2015, there were 3.1 million opposite sex cohabiting couple families and 90,000 same sex cohabiting couple families in the UK.
“It’s a pretty major and important social change,” says Washington.
In June 2015, the latest attempt to change the law for cohabiting couples -- the Cohabitation Rights Bill – was introduced in the House of Lords. The aim is to “provide certain protections for persons who live together as a couple or have lived together as a couple; and to make provision about the property of deceased persons who are survived by a cohabitant; and for connected purposes.”
Unfortunately, without protections, couples choosing not to get married need to acknowledge, and plan financially, for the fact they don’t have the same legal rights as their married counterparts. It's yet to be seen whether the new bill will make it onto the statute book in the UK.
On the other side of the Atlantic, U.S. advisers share some of these concerns. “I would say the biggest fear [or concern] I would have with people choosing cohabitation is lack of clarity,” says Roberta Ruddy, director of RBC Wealth Management’s International Wealth Solutions in New York.
“What happens if somebody gets sick? What happens if somebody just changes the lock on the door and says ‘I’m the one that’s on lease you’re no longer the person I want to cohabit with?’ Your furniture is there; your personal effects, what rights do you have? Where do you stand?”
But both Ruddy and Washington acknowledge there are ways to protect one’s financial interests.
Draft a will and consider trust structures
Despite pressures to change the rules surrounding intestacy – essentially, dying without a written will – to include co-habiting couples, for the time being, one of the best ways to protect your unmarried partner in the event of your death is to draft a will.
One issue Ruddy notes when working with couples is that a will only takes effect upon death of the person who signed the document. In the event of disability, for example, the other partner will not be protected, she says.
However, there are many legal vehicles that can be created to supplement a will, such as a trust created during one’s lifetime, where the this issue can be addressed and where provisions can be made to provide for the other partner.
Ruddy suggests the best course of action is to formulate a plan that is flexible enough to provide protection when circumstances change.
Create a cohabitation agreement
A cohabitation agreement establishes which partner owns which assets and in cases like Washington’s classic scenario, can, if things go wrong, demonstrate how the former partners intended their financial contributions to a mortgage or other assets to be treated. It can also record who owns what at the start of the cohabitation.
For couples with children (or who are planning to have them) this agreement can help highlight how you intend to provide for the children.
Think about taxes
“So many crucially-important tax reliefs are hinged on marriage – inheritance tax, , capital gains taxes – the relevant tax exemptions apply as between husbands and wives (and same sex spouses) but not to unmarried couples,” says Washington. “If you have made a will and you’re leaving everything to your partner and you’re not married, well, you must be aware that there’s no spouse exemption on that transfer.”
In this case, married couples have a clear tax-advantage in that they can transfer assets – including real estate – between one another on death with no tax liability, avoiding the 40 percent inheritance tax charge.
Look into life insurance
Life insurance may also a good strategy to consider, which can be used to cover liabilities including tax, a joint mortgage held by cohabitees or outstanding debts in the event that one partner dies. In some cases, unmarried partners may want to make life insurance policies a stipulation in the cohabitation agreement.
Estate planning is certainly more complex for those who haven’t been joined in matrimony, and, unless and until there is a change in the law, cohabiting couples need to keep this very much in mind. “Some modern couples don’t like the historic aspects of traditional marriage,” says Washington. “But if they prefer simply to live together, they have to be alert to all these very important legal and tax concerns which can catch them unaware.”