Don’t leave a parting gift
AS MORE unmarried couples set up home, there has been a rise in people writing cohabitation agreements to divide their assets and savings fairly in case they break up.
More than three-quarters of lawyers have reported a rise in cohabitation agreement enquiries over the past year according to Direct Line, yet more than two million cohabiting couples have no agreement in place, putting them at risk.
While many such couples are young, growing numbers of older, divorced people are moving in together as well. It may be even more important for them to protect assets built up over a lifetime.
Lawyers say the best time to set up an agreement is when you move in together, although having children or taking out joint financial products such as a mortgage are also triggers.
Direct Line Life Insurance business manager Chloe Couper said that without a written agreement, unmarried couples have little protection over who owns what: “This can lead to costly court proceedings and extra stress after a break-up.”
The need for an agreement is becoming more urgent as many couples have postponed weddings due to social distancing rules, while moving in together anyway.
An agreement should cover bank accounts, savings, mortgage or rental payments, investments and child custody or maintenance. Inheritances, next-of-kin rights and household bills are also key, while animal lovers may want to set out who keeps pets.
Tom De Burgh Williams, chartered financial planner at Charles Stanley, said cohabiting couples do not have the same legal rights to property as a married couple.
In marriage, assets are assumed to be jointly owned, but with cohabiting couples they are personal. “Your agreement should spell out how any property will be split, and what happens to its contents and other joint purchases,” he said.
Williams said things become complex if just one person owns the property but the other makes financial contributions: “You need to decide how those will be paid back.” Having children together further complicates matters. “Once you agree custody arrangements, discuss the financials. How will both parents be contributing to day-to-day costs?”
Williams warned that separating couples risk incurring a capital gains tax (CGT) bill when dividing up assets: “Married couples and those in a civil partnership can give assets to their ex-partner without having to pay CGT, cohabiting couples cannot.”
Shona Lowe, private client director at 1825 Financial Planning, said cohabitees also face different rules on inheritance tax: “If a spouse dies, there is no inheritance tax when transferring assets to the survivor, but unmarried couples may face a bill.”
Couper said couples also need to prepare for unexpected death, and urged them to consider taking out life insurance to protect joint liabilities.
Svenja Keller, head of wealth planning at Killik & Co, said couples must also write their wills. “Otherwise a surviving partner could end up with nothing, unless they have a dependency claim,” she said.