An often overlooked, but vital aspect, of any long term cohabiting relationship is the need to ensure adequate financial planning. Many of the benefits available to married couples, for example regarding inheritance tax, are not available to cohabiting partners. Nevertheless, by taking the time to review their financial arrangements, unmarried couples can ensure that, where possible, their money can be inherited by their Partner after their death.
One the most important aspects of any cohabiting relationship is to have a valid will. A Will governs the inheritance provisions for most of a person’s estate and sets out binding instructions for a person’s executors. In the absence of any Will, the assets of cohabitees will go to any children in the first instance, then the parents, and then any siblings, with unmarried partners having no automatic entitlement whatsoever to property solely owned by their Partner.
There are, however, some aspects of the estate which fall outside a will, and further consideration must be given to these aspects. For example, there can be instances where ownership of houses and bank accounts may not pass in accordance with the terms of a Will.
Couples can also make provision for other assets, like pensions and life insurances. Although a recent Supreme Court decision in Northern Ireland (Denise Brewster) has enabled an unmarried Partner to inherit certain public sector pensions in limited circumstances, where the Partner lived with the deceased for at least 2 years, it remains the predominant position that there is no automatic right to a survivor's pension where the couple are not married. It remains to be seen whether private pensions will be affected, as they generally set their own rules about eligibility.
The easiest way to deal with any uncertainty is to ensure that a Partner is named as the nominee on a pension scheme. It is sensible therefore to check your scheme rules to ensure that a Partner is properly registered to receive any available pension upon the death of their cohabitee. A similar check should be made in relation to life insurance policies.
While there have been attempts to persuade the Government to change the legal position of cohabitees, most notably by the Law Commission, the Government has rejected any recommendations and have said they have no plans to change the law at the moment.
Jane Whitfield, from our private client department has recently discussed the Brewster case on Radio Berkshire: please click here to listen to that interview. It is available until at least mid March.
With cohabitation becoming ever more common, a way to deal with the financial issues where long term cohabitation is envisaged, is to draw up a Cohabitation Agreement, a legal document setting out the ownership of the assets; the obligations in that relationship and what happens in the case of the relationship breakdown and other aspects regarding the family finances. It can be especially important if one partner has substantial assets compared to the other partner, for example the family home being in their sole name. Taking the time to produce a working agreement can save a lot of heartache and stress on relationship breakdown and can also be a useful starting point for drawing up a will.