COHABITATION: SEPARATING FACT FROM FICTION
The common-law marriage myth
A recent poll conducted by the Office for National Statistics (Families and households: 2017) showed that unmarried couples living under one roof is the fastest growing family type in the UK, more than doubling from 1.5 million families in 1996 to 3.3 million in 2017. The married or civil partner couple based family unit is still by far the most common with 12.9 million families, but with a growing proportion of partners opting to cohabit without marrying or entering into a civil partnership, it is troubling that misconceptions about the legal rights and protections afforded to cohabitants living in this way are so widespread.
It could reasonably be assumed, and often is, that when sharing a home with a partner certain financial rights arise, such as a right to the equal division of property on separation or a claim over a cohabiting partner’s estate on their death. These assumptions often stem from the commonly held notion of the ‘common-law marriage’ which suggests that unmarried couples who have lived together for at least two years have much the same legal rights as married couples. This has never been the case, the concept of a common-law marriage is merely a myth with no legal grounding, and as a result there are millions of unmarried cohabitants that are unaware they are at serious financial risk.
The current law
Unmarried cohabitants ought to be aware of the following concerns which differentiate their own rights from those of married couples and civil partners:
- In the event of separation the claims that a cohabitant can bring against a former partner are extremely limited, regardless of the length of cohabitation.
- The idea of equality being used as a starting point for the division of assets on separation, which is well established in divorce law, does not extend to unmarried cohabiting couples and there is little to prevent the primary breadwinner washing their hands of the relationship, with no financial consequence.
- Should one cohabitant die intestate (without having made a valid will), his or her partner may not fall under any class of persons eligible to automatically receive a share of the estate. This means that the surviving partner would have to bring a claim under the Inheritance (Provision for Family and Dependants) Act 1975 in order to benefit at all, and then only if the deceased cohabitant died in England and Wales and the surviving partner can provide certain evidence to support their position.
- If a cohabitant dies having left a Will in favour of their partner, the spouse exemption to inheritance tax (‘IHT’) shall not apply. This exemption applies to married couples alone and allows the deceased to pass unlimited assets to their surviving spouse free of IHT. Furthermore, any of the nil rate band (individual allowance of, at today’s date, £325,000 free of IHT) not used on the death of a married partner shall pass to their surviving spouse to be added to their own nil rate band on second death. Cohabitants cannot benefit from this transfer or any of the bereavement payments and allowances afforded to surviving spouses and civil partners.
- Occupational pension scheme providers are obliged, as of 1990, to offer equal benefit to policy holders and their surviving spouse or civil partner. They are under no such obligation to cohabitants.
- Pursuant to The Life Insurance Act 1774, insurers are not officially able to provide policies allowing one cohabitant to insure the life of their cohabiting partner. There are insurance providers who, none the less, offer such policies and the Insurance Ombudsman has said that it shall enforce their terms but cohabitants must be careful that they do not take out policies which do not meet their needs.
It is worth noting these discrepancies in legal rights apply as much to the surviving partner of engaged couples, who may or may not be cohabiting, that are also afforded no special recognition in law. It is just as important for engaged couples (whether living together or not) to consider what steps they can take to protect themselves.
Cohabitation Rights Bill 2017-19
The Cohabitation Rights Bill has been presented to the House of Lords in the hopes of providing protections for financially disadvantaged cohabitants and to make provision in relation to the property of deceased cohabitants to their surviving partners.
One way in which the Bill seeks to achieve this goal is the proposal for cohabitants who have lived together for at least two years or who have a child together, to be able to make a court application for financial settlement in the event of their separation where financial disparity has arisen during the course of the period of cohabitation. Thus where one cohabitant has been put at financial disadvantage, say by contributing to the purchase or upkeep of the home without receiving any payment or interest, they would be able to seek a court order to rectify the imbalance. The court would then be able to apply the same remedies available in divorce proceedings where it is deemed appropriate, such as payment of a lump sum, transfer or sale of property, and pension sharing arrangements.
If passed into law, the Bill would also extend the same financial rights and provisions currently made for spouses and civil partners on their partner’s death to include cohabitants. Further, the Bill would amend the 1774 Act to formally allow cohabitants to take out life insurance for each other.
The bill was introduced to the House of Lords (for the third time) on 5 July 2017. A date for the general debate on all aspects of the bill has yet to be set but there is some cause for scepticism that it will ever pass into law. Aside from concerns that these financial rights should remain particular to marriage and civil partnership, and the idea that those institutions would be undermined by the extension of these rights to cohabitants, there is a clear issue as to how ‘living together in a relationship’ is to be clearly defined.
How can cohabitants protect themselves?
Couples living in these relationships might consider the possibility of getting married or entering into a civil partnership in order to receive the automatic benefits which they are currently denied as cohabitants. For those wishing to avoid an overtly religious service or extravagant wedding, simple civil ceremonies are sufficient to obtain these same legal rights.
For couples opposed to entering into a marriage or forming a civil partnership, there are other forms of protection:
- Enter into a cohabitation agreement and/or Deed of Trust which sets out how capital assets (for instance the home) are to be owned and resolves any other financial issues (such as the division of household expenses).
- Ensure that each cohabitee has executed a valid Will in order to protect their partner’s interests and avoid them having to make an application under the 1975 Act.
- Make any additional or revisionary provisions necessary to ensure any pensions allow payments to be made to unmarried partners.
- Take out life insurance policies, having ascertained that these will pay out to unmarried partners.
If you require assistance in relation to legal rights in your own relationship or simply wish to learn more about your circumstances, please feel free to contact a member of our Family Law Department on 01242 574244 and we will be happy to meet you and discuss your situation.