The tongue in cheek heading of this piece was suggested to me as a topic about the legal differences between unmarried cohabitation and marriage (and civil partnership). (When I mention marriage it should be taken to include civil partnerships). This article isn’t going to be a social commentary.
I will have to simplify the law otherwise this article will turn into a book so I make the inevitable legal disclaimer that you should take legal advice on your individual situation.
The real difference between cohabitation and marriage is on the ending of a relationship, if you are the wealthier party in the relationship and it breaks down, you are much more likely to be better off being unmarried.
Civil partnerships – a warning
Civil partnerships have only been available until now to same-sex couples, but following a government announcement on 2 October 2018 they should soon be available to heterosexual partners as well.
Some people are ideologically opposed to marriage, but want to have their relationship recognised by a civil partnership. For those people then (and I suspect they are limited in number) they will happily go off and enter into a civil partnership.
My fear is that some people will enter into a civil partnership in the belief that it is some form of ‘marriage-lite’. It isn’t. From a legal perspective, civil partnerships and marriage are identical. They are identical concepts, but with different labels.
Civil partnership confers the same legal benefits (and disadvantages) as marriage and if the relationship breaks down, a civil partnership has to be dissolved in the same way a marriage ends with a divorce. The legal process is identical and the same financial claims can be made on the dissolution of a civil partnership as can be made on divorce. The courts adopt exactly the same approach when assessing a financial claim on divorce/dissolution whether you are married or in a civil partnership and whether it is heterosexual or same-sex relationship.
Don’t enter into a civil partnership rather than getting married if you believe it will reduce your partner’s financial claims against you if things don’t work out – it won’t.
During the relationship
For most people during a relationship, from a legal perspective it makes little difference whether you are married or unmarried.
The state does not intervene and people are free to arrange their finances between one another as they want. You can keep your finances entirely separate, pool your resources or one person may be entirely financially dependent on the other.
Depending on the government of the day, there may be some financial benefits to being married, but these benefits tend to be limited and available only to the less well off. For example, Married Couple’s Allowance has been available for the last few years with a potential tax saving of up to £900 a year, but is only available if one spouse is earning less than the personal allowance and the other is a basic rate tax payer. No one proposes marriage just to get an annual £900 tax saving.
If the relationship breaks down and you are not married
There is no legal process to go through to end the relationship. You separate and that is it.
There is no concept of a common law husband or wife under English law. However many times people are told, there is still a widespread misconception that you can be a common law spouse; you can’t. Living with someone, even for decades, does not give you any status in law, nor does it give you any rights if your relationship comes to an end.
Financial claims on separation are governed by principles of property and trust law. In very simple terms, in most cases this is likely to mean that assets are divided according to how they are held.
If you buy a home together and make unequal financial contributions, you would be wise to hold the property in specified shares according to your contributions so if the relationship ends and the property is sold, you each get what you put in. Too often I have seen a client who has purchased a property in joint names with his or her partner, but having put in the lion’s share, looks shocked if the relationship is short-lived when I tell them that their partner is entitled to half of the sale proceeds and there is probably nothing that can be done if their partner is going to insist on ‘their half’. (However, in these sorts of cases I have found most people behave decently and agree to split the sale proceeds according to their contributions.)
A claim can be made to go behind how a property is held, but these claims are never straightforward. There has to be a detailed investigation of what took place during the entire period of ownership, including looking at what may have been said, what reliance was placed on what was said and what contributions were made. Claims can be fraught with risk as they can turn heavily on who is more credible in the witness box.
Unmarried partners cannot make maintenance claims against one another.
If you have children together you may be able to make a claim for child support and also a financial claim under the Children Act.
There is a long-running debate as to whether unmarried cohabitees should be afforded some of the rights that married people have when a relationship comes to an end. This is a political hot potato and making civil partnerships available to everyone may be the government’s way of hitting the debate into the long grass.
Financial claims on divorce
Getting divorced is likely to be expensive if you are the wealthier spouse.
There is no specific formula to be applied to deal with financial claims on divorce. The relevant legislation gives little guidance other than listing factors to be taken into account. This has led to a wide body of case law interpreting the relevant legislation (and then cases interpreting the case law).
No two judges will ever come to the same decision except in the simplest of cases and the interpretation of the legislation changes with the passage of time. It has moved from determining claims based on ‘reasonable need’ to the stage we are now at of a quasi-community of property regime.
Cases start with looking at the assets, income and liabilities and deciding what are ‘marital’ and ‘non-marital assets’. The start and end point of cases where there is enough money to go round may mean dividing the marital assets equally (although this rarely is as easy as it sounds) and each side keeping their non-marital assets. However, in cases where there isn’t enough money, especially where there are children, that approach may be departed from.
A case may mean not just having to divide assets, but also looking at possible maintenance claims with not only the amount of the maintenance, but also the length of term of payment being contested.
Cohabitation v marriage
If you are unmarried and separate, if you are the wealthier party and you manage your finances well, you may not have to give your partner anything and you each keep what you put into the relationship.
However if you chose to marry, you could end up losing half your wealth (or possibly more).
A quick word on pre- and post-nuptial agreements. No agreement can ever be watertight, but will usually be upheld by a judge so long as certain criteria are met, one of which is the agreement is not manifestly unfair. This means that whatever provision is being made under the agreement, it shouldn’t be entirely removed from what a court may order without one.
From a financial point of view, there can be no doubt on death that marriage is better than cohabitation (except for HMRC).
A legacy to an unmarried partner is subject to inheritance tax, but a legacy to a spouse is exempt. With inheritance tax at 40% on estates over £325,000 this can make a vast difference.
AA Gill and Ken Dodd married their long-term partners just before they each died. The cynic in me suggests that this was only to avoid (legitimately) significant inheritance tax on their estates.
If you are married and your spouse dies without a Will you will inherit from their estate under the rules of intestacy. If your unmarried partner dies without a Will you won’t inherit and face the prospect of having to litigate if you want to make a claim against the estate for ‘reasonable financial provision’.
Of course people don’t start relationships worrying about what may be the outcome if things don’t work out, so the best advice I can give to avoid financial discord if they don’t is to find a partner who is your financial equal.
If you need expert advice on divorce or family relationship issues more widely, please contact Philip in our Family & Divorce team. Alternatively, you can email email@example.com or call 020 7631 4141.