How to plan your finances when you cohabit
7 min read
Couples who live together, even for many decades, even if they have children together, should not assume they have the same legal rights as a married couple.
More people are cohabiting at different points in their life. From young people moving in together, sometimes sooner than they might like out of financial necessity, to older couples blending their families after divorce or bereavement.
Many more of those cohabiting have significant financial commitments and assets.
It pays to carefully consider how to protect yourself, your children, and your partner.
Buying property when you co-habit
If you are living together with a joint tenancy agreement you are both liable for rent. When it comes to buying a home as a pair it gets more complicated.
You could decide to go in as joint tenants, where the property is owned equally. If you were to split up, you would each be entitled to half of the sale proceeds. You would also automatically inherit each other’s share of the home if your partner was to die.
This is not the case if you buy together as tenants in common. In this scenario you could own in different proportions, 20/80, or 40/60 for example, with the person bringing more money to the purchase owning a greater proportion of the home.
What happens to your property when you split up after co-habiting
If you are tenants in common, your relationship ends and you decide to sell the property, you’d be entitled only to your agreed share. More significantly, if you are tenants in common and your partner dies, you would not inherit their share of the property, unless it is explicitly stated that you should in their will.
If your name is not on the deeds at all, you are not automatically entitled to any share of the property, even if you have lived in it or informally contributed to a mortgage for years. You may be able to make a claim in court for partial ownership, but this is complicated, expensive and best avoided.
Draw up a will and a living together agreement
If you want your partner to inherit any of your possessions, everything from a record collection to your savings, investments or pension, and your share of a property as tenants in common, you need to draw up a will.
Without a will, all assets will go to your next of kin (your child, parent, or sibling) even if you have been with your partner for many decades.
You might also want to draw up a living together agreement to highlight how your possessions or assets might be split if your relationship was to end.
You can do this with a solicitor to give it legal weight. Otherwise, you may also want to consider a more informal document between you, as a way to structure what can be uncomfortable discussions.
Understand joint financial products
When taking out a joint financial product, a bank account or mortgage, for example, understand how it connects you to your partner.
Your credit files are not impacted by living together, but they are when you open a joint account. That means if your partner has a terrible record of keeping on top of their money, it could impact your ability to borrow, or vice versa.
When borrowing together, and that includes having an overdraft facility on a joint account, you are jointly liable for money borrowed, too.
If your partner refuses to repay their debts, you will have to cover them.
Consider joint or single life insurance
Those married or in a civil partnership receive a bereavement support payment if their spouse dies before state pension age.
This has not yet been extended to those who are cohabiting.
You should think, therefore, about how your partner would cope financially if you were to die.
Consider life insurance if you think they’d struggle to look after your children or pay the mortgage on their income alone.
You can take a joint life insurance policy, which can be slightly cheaper because it will only pay out once, when the first partner in a couple dies.
The major downside to joint life insurance is that if you were to split up, and decided to take out a new single life insurance policy instead, your premiums will most probably be higher because you will be older or may have more pre-existing health conditions.
Two single policies might be more suitable if you are cohabiting.
You might also want to consider putting your life insurance into trust. Life insurance payouts are income-tax free, but they are added to your estate for inheritance tax purposes.
Married couples can inherit their partner’s estate without paying inheritance tax, but that isn’t true of those who live together, with the exception of a property that is owned as joint tenants.
Ask your insurer about putting any policy in trust.
Laura Whateley is a freelance writer and author of Sunday Times bestselling book Money: A User's Guide. She has written for a wide variety of publications including The Times, The Guardian, Grazia, Refinery 29, Elle, Red and Stylist.
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