Starting a relationship later in life brings complications when merging finances since most people have “financial baggage”.
If you’re choosing to cohabit, rather than marry, it’s important to know your rights and take steps to protect the assets you have worked hard for.
It’s not exactly romantic, but once the practical stuff is taken care of you can get on with planning all the fun things. Here’s what you need to know...
Moving into your partner’s home?
If you're moving into your partner's house or vice versa, it’s important for both of you to be clear about the financial implications.
If it’s agreed that the “non-owner” is to contribute to mortgage and bills, then it’s necessary to spell out what that means in terms of whether that person is to have any legal ownership of the property should you split up or sell.
A legal document called a Declaration of Trust can confirm that the non-owner has no beneficial interest in a pre-acquired property. This is to try and prevent a situation where the non-owner tries to assert a claim to the property if you do split.
Buying a new home?
If you buy a home together (and aren’t married), you should take care to protect your assets. Common law marriage is a myth in legal terms. The law doesn’t recognise cohabitation in the same way it does marriage, which means that should you split up, there’s nothing to say who owns what in legal terms.
As well as considering owning a property as tenants in common, you can consider drawing up a cohabitation agreement to detail who owns what, in terms of bricks and mortar as well as furniture and artwork, for example.
You should also use the right legal structure so the property passes automatically to the surviving partner in the event of death. Property purchase contracts can be drawn up as either “joint tenancy” or “tenants in common”. Under joint tenancy, both partners own the whole property, meaning that if one person dies, the survivor carries on owning it. Tenants in common means each partner owns a specific share. Under this arrangement, the share a person has in a property can be left to whoever they choose.
This works well for those who have children from previous relationships. And it will also prevent the surviving partner being forced to move out by their partner's beneficiaries.
Speak openly about money
Couples of all ages are notoriously poor about discussing their finances. In later life finances become more involved as most have accrued assets – property, stock market investments, pensions and savings. Many will have also racked up debts. If you do have debts, make sure you’re honest about them from the outset. These things will come out eventually anyway.
If you’re in this relationship for the long term you need to start thinking like a couple, financially. It can be tricky of one has invested wisely and saved all their life, and the other doesn’t have two pennies to rub together. But as long as you’re both honest and open about money, it should be something you can work through.
Discuss how to split your household expenses based on who receives more or less from their pension or salary. One person could cover the big outgoings like rent or the mortgage, while the other covers household bills and grocery shopping. Alternatively, you could simply pay different portions of the overall cost. It will help to make estimates of what the bills are expected to reach each month and go from there.
Factor in rent or mortgage, council tax, gas and electricity, water, TV licence, home insurance, TV subscription, broadband and phone line rental. Remember to allow extra for council tax as your single person’s discount will be lost.
Organise bank accounts
The easiest way to pay bills is to set up an automatic payment to a joint account once a month. You don’t have to give up your own bank account. Just add a joint account that you both have access to. Put in enough cash to cover your end of the deal and perhaps a little extra as a slush fund to account for irregular expenses.
It’s better to contribute more than you expect to pay originally so there’s no nasty surprises – like if the boiler packs up. If the idea of any joint account is too much to handle, one of you will have to take the lead and the other pay into that account.
What if we end up getting married?
If you do end up tying the knot, make sure you consider who will inherit the property (and assets) you own jointly. Where there are children from a previous marriage, a step-parent might not want to leave their assets to step children, should they die first. A will can detail this. Rather than leaving the house outright to your husband or wife, your portion of property and assets pass into a trust for your spouse’s benefit.
This would mean that if your other half survived you, he or she would be entitled to live in the house for the rest of their life.
The terms of the trust would then set out that on their death, your estate would pass to your children, and would not pass according to the terms of your spouse’s will.
And what if we break up?
It’s not very romantic, but it’s prudent to have a contingency plan should things not work out between you. There is no such thing as a common-law husband or wife so you need to think about what would happen to assets if you did split up.
If you break up, an agreement should clearly outline what rights each has. Cohabitation agreements can act as an insurance policy and cover everything from property ownership to who owns the sofa. Speak to a solicitor who can draw one up.
Update your will
Equally it’s important to make sure your will is updated. If you don’t have one, now is the time to get on with it. Without a will, your estate is governed by the rules of intestacy which can be very prescriptive, causing significant settlement delays and may lead to your assets and belongings being allocated to someone you may not wish to leave them to.
Cohabiting couples don’t currently benefit from the intestate rules, as the law doesn’t recognise cohabitation in the same way it does marriage - and assets don’t automatically pass between couples. For this to happen, both partners would need to make a will, naming each other as a beneficiary.
How to find a solicitor
Getting the relevant legal documents drawn up by a solicitor you can trust will bring peace of mind for you both. If you don’t have a solicitor, you can find one at The Law Society.
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