Common Law Myth

November 2017
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While wedding bells will soon be chiming for Prince Harry and his bride, many others in the UK appear less willing to marry.

The Office for National Statistics (ONS) reported the number of cohabiting households has more than doubled in the past 20 years, with 3.3 million in 2016 compared to 1.5 million in 1996*. So 6.6 million individuals are sharing family and financial responsibilities, but have no legal framework to fall back on if things go wrong.

Jakki Smith recently won a landmark victory in the courts, when awarded bereavement damages by the health authority, which admitted its negligence contributed to the death of her long term partner. Had she been married, she would have had an automatic entitlement. Similarly Denise Brewster had a long legal battle to win a dependant’s pension from her late partner’s pension scheme.

Family lawyers are becoming increasingly concerned at the consequences of long term relationship break up and are asking policy makers to consider creating similar rights to those enjoyed by married couples.

Day to day, most couples who cohabit miss out on tax breaks and pension benefits available to those who are married.

If things go wrong they have little protection against loss of property rights, and no right to maintenance unless a separate legal contract provides for these. They can commit years to running a home, helping build a business, subsidising the other's lifestyle, having children together but still be left with nothing.

Despite many efforts to dispel the myth of the common law spouse, it lives on. It is a fantasy which can have devastating consequences for one or both parties, not just on relationship break up but also in the event of ill health and death.

Here are some examples of how cohabitants are disadvantaged:-

Tax breaks

  • No right to transfer income tax allowances between them, these can save married couples up to £230 per tax year.
  • No right to gift capital between each other free of capital gains and inheritance tax.
  • No right to inherit ISA funds and maintain the tax free status of these for their own lifetime, unlike married couples and civil partners.

Property Rights

  • Unless each partner makes a will leaving their property to the other, they have no right to inherit, except for property owned as joint tenants. Homes bought together may be owned as joint tenants or as tenants in common. If owned as tenants in common  and there is no will, their  relatives will  inherit part of the property, even if this is not what the deceased intended.
  • If renting a property with one of you as the sole tenant, the other party will have no right to remain in the property if the relationship breaks up. Married couples enjoy some protection in these circumstances.
  • Life assurance policies arranged to cover mortgages and debts or provide a nest egg or ongoing income, must be written in trust for the other partner's benefit. Failure to do this could mean that the payments go into the estate, where they could suffer inheritance tax at 40%. If in trust, they will not be part of the estate so can usually be paid out tax free and before probate is granted.

Pension Rights

  • Pension schemes which pay a married dependant a pension may not recognise a non married partner. This will depend on the scheme rules. Thousands of pounds of pension can be lost if the scheme rules do not cater for non married dependants.
  • Private pensions and lump sum death in service benefits usually allow the pension owner or employee to nominate who should receive lump sums from these plans. This is not restricted to a spouse or civil partner.
  • Trustees are not obliged to follow the nomination but usually do. It is important that nominations are up to date and should be reviewed, whenever circumstances change. Without a nomination the trustees may pay to others.
  • The State provides a Bereavement Support Payment paid to widowers, civil partners under State retirement age. No allowance is paid to unmarried partners.

In sickness and in health

  • If one partner is ill, the other will have few rights to determine how treatment should be given, unless the partner is appointed as attorney. The next of kin, which could be a parent, child or sibling will take precedence over non married partners in medical consultations.

Given these disadvantages of long term cohabitation, it is perhaps surprising that more are opting for this informal arrangement over marriage. The myth of the common law spouse has a lot to answer for and unlike the tooth fairy and Father Christmas it is not just harmless fun.

Kay Ingram
Director of Public Policy, LEBC

Please remember, no news or research item is a recommendation or advice to buy. LEBC Group Ltd is not responsible for accuracy and may not share the author’s views. If you are unsure of the suitability of any investment or product for your circumstances please contact an adviser. The Financial Conduct Authority does not regulate tax planning. Tax rates and allowances may change in future.

* ONS Families and Households Survey 2016

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