How getting married will boost your wealth.When the bestselling author Stieg Larsson died unexpectedly in 2004, his long-time partner Eva Gabrielsson was left with no claim to the millions he made from the Millennium Trilogy, merely because they were not married or in a civil cooperation.
What emerged was a legal nightmare that would never have been countenanced if their affair had been cemented by an official document.
It is a rare case, but one that highlights the different ways unmarried couples are still attended by the law, particularly when it comes to the sticky matter of their finances.
Cohabiting couples are the fastest-growing family group in the UK, with 3.5 million unmarried couples in the country, according to data from the Office of National Statistics – a rise of 772,000 since 2009.
But there is a massive raft of areas where these couples could be at risk of losing out financially compared with those who are married or in a civil partnership.
Arguably the most important and often the most sensitive legal wrangling comes into play if someone dies.
If a couple is not married or in a civil partnership, the surviving partner has no lawful right to inherit anything.
If there are children, the assets would go to them; otherwise they may go to the parents or siblings of the late partner.
One way to eradicate this situation is to have a will in place, but despite a surge in demand for wills in the past year, around 40 per cent of UK grown-ups do not have one.
Sean McCann, a chartered financial planner at NFU Mutual, says: “While it may be reasonable to bring a claim against your partner’s estate, this can be an expensive and drawn-out process.
“It’s very important for unmarried couples to write wills, as dying without a will means the law will determine what happens to your assets. In England and Wales, the surviving partner of a cohabiting couple doesn’t have an automatic right to a share of the estate.”
Two other factors are inheritance and tax allowances. Wedded couples and those in civil partnerships can usually leave everything they own to their partner automatically.
The existing partner will also inherit their partner’s unused inheritance tax (IHT) allowance, of £325,000, and their residence nil rate band of £175,000, allowing them to pass on extra of their estate tax-free when they die.
However, for cohabiting couples, if assets worth more than £325,000 are left on which IHT is usually charged, the existing partner will have to pay the 40 per cent tax, usually due within six months of a death.
But there are ways to mitigate these costs, and if you have a confused situation, it may be worth talking to a financial adviser for help with inheritance tax planning – although this will cost.
Married couples are also able to authorize ownership of assets without paying capital gains tax (CGT), while those who cohabit may have to pay this on anything passed between them.
Wedded couples can also use each other’s CGT allowance, giving them a limit of £24,600, compared with £12,300 for individuals for the current tax year.
If the late person has a pension, this will usually automatically go to a surviving spouse. However, if the couple are cohabiting, they may not have any automatic entitlement to it.
Therefore it’s important for those in this situation to complete an “expression of wishes” form and to keep it up to date. This is signed and given to the pension provider, asserting where you would like the money to go if you die.
Alistair McQueen, head of savings and retirement at Aviva, says: “Different pensions will have different rules, so a first act should be to contact the pension provider concerned to get their specific advice on what happens in the event of death.
“If the planned recipient of any pension wealth is not the individual’s partner or civil partner or next of kin, it would be wise to complete a notification of inheritor form or expression of wish form and complement this with clear justification in writing.”
There is more information and advice on the Pensions Advisory Service website.
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The relationship allowance is another benefit only accessible to those who are married or in a civil partnership. If there is one non-taxpayer in the couple, the partner who pays tax can use their partner’s allowance, which can be up to £250 a year and can be backdated for five years.
Cohabiting couples are also treated differently over property ownership. Karen Barrett, founder of financial advice platform Unbiased.co.uk, explains: “If your spouse or civil partner dies, you’ll inherit their share of the property instantly, because you own it jointly as a couple.
“But if you’re not joined, you could face a nightmare scenario in which your late spouse’s families now own half your house. You can prevent this, of course, by making wills, but even that’s not ideal, as you then have to wait for probate to be granted, which can take a year or more.”
If you own a home with a partner and you are not married or in a civil partnership, it will either be as joint tenants, which means their share of the property will pass to you on death, or as tenants in common, which means if they die, their share will be authorized on in accordance with their will (if they have one), and if they don’t, it will be passed by the laws of intestacy.
Preparing married or becoming a civil partner costs around £35 per person for the basic paperwork and you need to give notice at a register office. But especially right now, this isn’t the right solution for everyone.
And yet the law as it continues means there are real implications of not doing so if you’re in a relationship with connected financial affairs. It is 17 years since Larsson’s death caused mass shaking of heads over the antiquated treatment of family finance. But couples in 2021 are still doctored fundamentally differently because of a single piece of paper.
Until that changes, there will often be a risk that one person – usually a partner who has taken more time off for caring responsibilities – will lose out financially.
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