Major changes are on the cards for the four million people who live as part of a couple but are not married. The plans would give them new financial rights if their relationship comes to an end. The ideas are put forward in a report by the Law Commission for England and Wales published this summer. In Scotland unmarried couples already have some rights (see box). There are no plans to change the rules in Northern Ireland. For simplicity this article uses the word ‘married’ to include registered civil partnerships by people of the same sex.
Most cohabiting couples are under 45 as younger people routinely live together before getting married. But there are around 760,000 couples where one partner is more than 45 and in older age groups cohabitation is often not a prelude to marriage. It is a long-term commitment outside the conventional system.
Many people believe that there is some sort of common-law marriage which gives couples who have lived together in a committed relationship some of the rights of couples who have actually married. That has not been true in England and Wales for more than 250 years since the Marriage Act 1753 formalised the status of marriage. In fact couples who are not married (or civil partners) have virtually no financial rights in England and Wales if their relationship ends. That is true even if they have been together a long time and whether or not they have children. This lack of rights can cause considerable hardship if they do break up. Women are most likely to suffer as they often give up their paid jobs to have children and look after the home. If that home belongs to their partner they can end up with nothing if the relationship comes to an end.
The Law Commission has stopped well short of suggesting that cohabiting couples should have the same rights as those who are married. Recently new laws and high profile divorce cases have established that a wife or husband can demand half of their spouse’s property, money and pension and even have some rights to a share of future earnings. These rights are obtained the moment the marriage vows are exchanged. The Law Commission’s plans for unmarried couples would be much weaker.
First, they would not apply to all couples. Only those who had children together or who had lived together for a certain length of time would be included at all Where there are no children it says that period should be fixed somewhere between two and five years. However, it recognised that some cohabiting couples have deliberately chosen not to get married because they do not want the intervention of the law and the courts into what they see as a private relationship. So any couple would be able to opt out of the new rules as long as both partners had taken separate legal advice and made their own agreement about what would happen if the relationship ended. However, the courts could overturn that agreement if one partner later claimed it would cause severe economic hardship.
Second, even where the new rules did apply unmarried partners would get much weaker rights than those enjoyed by a spouse. Rather than sharing out the property of both parties equally the courts would only take account of the economic contribution in terms of time or money which each had made during the relationship. For example one partner might have cared for children or relatives instead of going to work. Another may have boosted the value of a partner’s home or done work in a business for no pay. The person who moved in might have given up accommodation of their own.
Once these economic contributions have been assessed then the courts would look at whether it has led to one partner suffering financially or the other partner benefiting financially. For example one may have bought all the groceries so that the other partner could afford the mortgage on a property only he owned. One partner could claim she had cared for the children or a relative and therefore had not worked and built up savings or pension rights. In these cases the partner who came out of the relationship with a clear economic advantage would have to pay some redress to the other. The courts would try to share out fairly what the Law Commission calls "the pluses and minuses" of the relationship.
That would be done by making a financial order which could include one party making a cash payment or transferring property to the other or sharing out pension rights accrued during the relationship.
These arrangements are quite separate from maintenance for children of the relationship which the absent partner has to pay now and would still have to pay under the new rules.
Inheritance Tax
The Law Commission’s proposals – and the new laws in Scotland – do not deal
with the different tax rules that apply to unmarried and married couples. The
main advantage which spouses have is that any money or property left to them by
their partner is completely exempt from Inheritance Tax. That means they can
inherit the family home without worrying about its value and with no tax to pay.
That is not true for cohabiting couples. In some cases the survivor has to pay
Inheritance Tax on the value of their shared home and may even have to sell it.
For example, if the home is worth £800,000, half that will be left to the
survivor. That is well above the £300,000 Inheritance Tax threshold and tax of
40% will be due on the £100,000. If the surviving partner cannot find the
£40,000 tax they will have to sell the family home to pay it.
The Government has not said when – or even if – it plans to implement the Law Commission’s proposals in England and Wales.
Example
Kate and Steve lived together for twelve years. When Kate moved into Steve’s
home she paid for redecoration and some building work. A couple of years later
they had a baby, Meg, and Kate gave up her job. Two years later a second
daughter, Janey was born. Steve and Kate agreed that Kate would care for them
full time until both were at school. Meanwhile Steve got promotions at work and
built up valuable pension rights in his company scheme. Apart from child care
Kate shared the work and some of the cost of decorating and maintaining the
house. But Steve paid the mortgage and was the legal owner of the property.
After twelve years their relationship ended. Steve insisted that Kate left what
he called ‘his’ home even though Kate had custody of the girls. Steve paid child
support for his daughters but nothing for Kate’s own needs. All the work and
money she put into his house has gone. She now has to try to get a full time job
after a long break. And when Steve retires she will have no rights to any of the
pension he has earned.
Under the Law Commission’s proposals Kate would be able to apply to the courts for some redress. She would be entitled to ask for some share of the value she had put into the home by giving up work and caring for the children and more directly by paying for decorating and improvement work. And she could ask for a share of the value of the pension Steve earned while they lived together. But Kate would not be entitled to half the value of the home or a share of Steve’s earnings or future earnings as she would if she and Steve had married.
Scotland
Since 4 May 2006 a couple who live together as if they were married (or in a
same sex civil partnership) have legal rights if they separate. Each can claim
against their ex-partner if they think that they have suffered an economic
disadvantage or the other has gained an economic advantage due to the way the
family unit was arranged. If one partner owns the family home the other cannot
claim against that. If one partner dies without a will or with a will that does
not make adequate provision then the survivor can make a claim against the
estate. Claims have to be made within strict time limits which are roughly one
year from the separation or six months from the death. The new law replaces
complex provisions which could lead to cohabiting couples being considered as
married for some legal purposes.
November 2007