How to "future proof" your wealth as a non-married couple
Protecting wealth is a hot topic for many of our clients and being able to navigate what, how and when to approach it can be daunting…
According to the most recent ONS figures, the number of cohabiting couples has grown by 29.7 per cent in the last 10 years. With more people now choosing to live together than get married, unfortunately the law doesn’t provide the appropriate protection to non-married couples in the way you’d expect. There are huge risks for couples who choose to live together in a non-married partnership and have no provisions in place to protect their wealth, assets or financial position.
Lawyers have been campaigning for many years to change the legal protection for couple who decide not to marry. The Cohabitation Rights Bill 2014 is calling for reforms into the legal protection that is in place in order to reflect the diversity of how couples choose to live in today’s society. In an ideal scenario, couples should be able to make an emotional and financial commitment in the eyes of the law, without the requirement of marriage, regardless of gender. However, until these changes are granted, there are a number of measures that individuals can take to protect their financial position as a non-married couple.
Why should I look at protecting my wealth as a non-married couple?
Married couples are able to get legal and financial protection if a relationship breaks down and benefit from certain safeguards, including improved rates of inheritance tax and next of kin status for their partner. Unfortunately, non-married couples don’t have the same protection and therefore could be opening themselves up to huge financial risks by not utilising contracts such as Living Together Agreements / Cohabitation Agreements or Declarations of Trust.
In doing so, there are benefits for both parties. Within a couple, there is often a financially ‘weaker’ party who has mutually agreed to adopt a ‘stay home’ status, for example looking after children or elderly parents or running a household. As a result, this often inhibits their ability to contribute financially to a household. If the relationship in this situation was to breakdown, the stay home partner could be entitled to very little and at the most would have limited legal protection. (NB: there is slightly more protection when children are involved).
Conversely, if you are bringing significant wealth to a partnership, you may want to protect it to ensure that you can keep what is rightfully yours should the relationship breakdown.
What are the risks if I don’t protect my wealth as a non-married couple?
Failing to protect your wealth if you are living with a partner but are not married can cause considerable financial and emotional turmoil. Although approaching such agreements can be daunting, it can allow couples to take control of their relationship and not be caught unawares later down the line. Going through a breakup of any nature can be extremely stressful and emotionally charged, but if both parties know what entitlement they have through a legally-binding agreement, they know where they stand from the outset.
What can I do to protect my wealth?
There are a couple of wealth protection tools available which help to safeguard your financial position. Cohabitation Agreements, otherwise known as ‘Living Together Agreements’, can help to give both parties the protection they need. They are tailored to your specific needs and requirements and help to outline the entitlement of both parties in the event of a separation.
Additionally, a ‘Declaration of Trust’ provides a different way of protecting wealth. For example, if one party owns a house in full, and the other party has moved in and agreed to make significant improvements to the property - for example building an extension - it may be agreed that as ‘payment’ for the efforts or contributions made to the property, the ownership could be made to accommodate that, for example stating that the ownership is therefore split 80:20. This ensures that the property still remains in the name of the predominant owner but in the event of a separation, the contributing party has some financial claim over the property.
When should I consider protecting my wealth?
The opportune time to consider protecting your wealth is before any significant life event, such as moving in together, before getting married or having children. Having said that, individuals can still consider a Cohabitation Agreement at any time - even after a couple have lived together for many years. Common occurrences include after an inheritance windfall.
How do I start conversations with my partner?
Instigating conversations about putting in wealth protection agreements can be unnerving but it shouldn’t be shied away from. Many individuals find it easier for advice and guidance between partners to come from a trusted professional adviser, such as a lawyer or accountant. Many law firms offer a free hour of advice or telephone consultation to help facilitate the right agreement for you and your wealth.
The most important factor of Living Together Agreements or a Declaration of Trust is that it helps individuals and couples to protect the wealth that they have now and also what they may have in future to avoid any emotional or financial distress that could be experienced in the long term. Taking control of the relationship can be far more rewarding and helps mitigate the risks in the event of the worst happening.