Many couples today choose to live together rather than marry, but is it a wise decision? When it comes to money – maybe not. Relationship expert for match.com Kate Taylor reveals how saying “I do” could be the best choice for your financial future.
On a day-to-day basis, cohabiting and marriage share a lot of the same financial benefits. You can split living expenses, halve your mortgage or rent costs, and support each other. But they also share some downsides; whether you are married or not your partner’s income will be considered when applying for tax credits. Similarly, when it comes to paying council tax, you will also be considered as a couple even if you are not married, meaning that both parties are liable to pay the tax.
There is also no difference between cohabiting and marriage when it comes to debt: you are never legally obliged to pay debts incurred in someone else’s name. So, for example, if your spouse takes out a loan in his or her name only, they are solely responsible for paying it back, even if you share a surname.
But in the event of a split or death, there is a HUGE difference between marriage and cohabitation. You might think, as lots of people do, that you will receive the proverbial ‘common-law spouse’ status if you live together. Actually, the term ‘common law’ has had no legal meaning in this country since 1753 and is merely a social reference. So legally-speaking, unless you’ve had a formal marriage ceremony, you’re not married; and if you’re not, you could be worse off in several ways…
Firstly, you have no legal right to inherit anything from your unmarried partner if they die ‘intestate’ (without leaving a will). This issue has hit the headlines recently. Author Stieg Larsson, of the ‘Millennium’ trilogy of books, died suddenly at the age of 50, just as ‘Girl with a Dragon Tattoo’ was published. Eva Gabrielsson had been his partner for 30 years and supported him throughout his career, but because they had (in her words) ‘never got around to marriage’, she received none of the estate. Nothing. Not a penny. She was only entitled to half of the apartment they’d shared for many years, and no royalties from the books she’d helped him write. Instead, his estate went to his brother and father, from whom he’d been estranged for many years. Larsson had promised to set up a trust fund for Gabrielsson to ensure her right to his money, but died before it was completed. She now has a web page where readers can donate money.
Secondly, if you’re unmarried, you’ll have to pay inheritance tax, currently set at 40% on an estate worth over £325,000, (the tax is payable on the amount over this amount). If you are married and your spouse dies, you do not have to pay any inheritance tax on anything you inherit from them. But if you are unmarried, you have no such benefits. Instead, you’ll have to pay full inheritance tax. Say, for example, you live with your partner in a home they bought in their name. Should they die and leave the house to you in their will, you’ll be required to pay 40% tax if their estate is worth over £325,000. This money is due within six months, although in some cases (usually when property is included) it is may be possible to pay in instalments over ten years.
You also won’t inherit your unmarried partner’s inheritance tax threshold. Presently, in the UK, when a married person dies, their inheritance-tax threshold (£325,000) passes on to their spouse. So when the spouse dies, their estate can be worth £650,000 (their £325,000 threshold + their deceased partner’s £325,000) before any inheritance is due. Unmarried partners do not get this benefit.
Whilst it’s hard to think about the future when you’re in the first flush of love, it’s important to love with your heart AND your head. For more advice on your rights whether single or married, read the Citizen's Advice Bureau's information page on living together, marriage and civil partnership.
Thinking about proposing? Read Kate Taylor's guide to the perfect marriage proposal.