Why getting married still protects your finances – but shouldn’t

When the bestselling author Stieg Larsson died suddenly in 2004, his long-time partner Eva Gabrielsson was left with no claim to the millions he made from the Millennium Trilogy, simply because they were not married or in a civil partnership.

What followed was a legal nightmare that would never have been countenanced if their relationship had been cemented by an official document.

It is a rare case, but one that highlights the different ways unmarried couples are still treated by the law, especially when it comes to the sticky matter of their finances.

Cohabiting couples are the fastest-growing family group in the UK, with 3.5 million unmarried couples in the country, according to data from the Office of National Statistics – a rise of 772,000 since 2009.

But there is a huge raft of areas where these couples could be at risk of losing out financially compared with those who are married or in a civil partnership.

Arguably the most important and often the most emotional legal wrangling comes into play if someone dies.

If a couple is not married or in a civil partnership, the surviving partner has no legal right to inherit anything.

If there are children, the assets would go to them; otherwise they may go to the parents or siblings of the deceased partner.

One way to eradicate this situation is to have a will in place, but despite a surge in demand for wills in the past year, around 40 per cent of UK adults do not have one.

Sean McCann, a chartered financial planner at NFU Mutual, says: “While it may be possible to bring a claim against your partner’s estate, this can be an expensive and drawn-out process.

“It’s particularly important for unmarried couples to write wills, as dying without a will means the law will decide what happens to your assets. In England and Wales, the surviving partner of a cohabiting couple doesn’t have an automatic right to a share of the estate.”

Two other factors are inheritance and tax allowances. Married couples and those in civil partnerships can usually leave everything they own to their partner automatically.

The surviving partner will also inherit their partner’s unused inheritance tax (IHT) allowance, of £325,000, and their residence nil rate band of £175,000, allowing them to pass on more of their estate tax-free when they die.

However, for cohabiting couples, if assets worth more than £325,000 are left on which IHT is usually charged, the surviving partner will have to pay the 40 per cent tax, usually due within six months of a death.

But there are ways to mitigate these costs, and if you have a complicated situation, it may be worth speaking to a financial adviser for help with inheritance tax planning – although this will cost.

Married couples are also able to pass ownership of assets without paying capital gains tax (CGT), while those who cohabit may have to pay this on anything passed between them.

Married couples can also use each other’s CGT allowance, giving them a limit of £24,600, compared with £12,300 for individuals for the current tax year.

If the deceased person has a pension, this will usually automatically go to a surviving spouse. However, if the couple are cohabiting, they may not have any automatic entitlement to it.

Therefore it’s important for those in this situation to complete an “expression of wishes” form and to keep it up to date. This is signed and given to the pension provider, stating where you would like the money to go if you die.

Alistair McQueen, head of savings and retirement at Aviva, says: “Different pensions will have different rules, so a first act should be to contact the pension provider concerned to get their specific guidance on what happens in the event of death.

“If the intended recipient of any pension wealth is not the individual’s spouse or civil partner or next of kin, it would be wise to complete a notification of beneficiaries form or expression of wish form and complement this with clear explanation in writing.”

There is more information and advice on the Pensions Advisory Service website.

The marriage allowance is another benefit only available to those who are married or in a civil partnership. If there is one non-taxpayer in the couple, the partner who pays tax can use their partner’s allowance, which can be up to £250 a year and can be backdated for five years.

Cohabiting couples are also treated differently over property ownership. Karen Barrett, founder of financial advice platform Unbiased.co.uk, explains: “If your spouse or civil partner dies, you’ll inherit their share of the property instantly, because you own it jointly as a couple.

“But if you’re not married, you could face a nightmare scenario in which your late spouse’s relatives now own half your house. You can prevent this, of course, by making wills, but even that’s not ideal, as you then have to wait for probate to be granted, which can take a year or more.”

If you own a home with a partner and you are not married or in a civil partnership, it will either be as joint tenants, which means their share of the property will pass to you on death, or as tenants in common, which means if they die, their share will be passed on in accordance with their will (if they have one), and if they don’t, it will be passed by the laws of intestacy.

Getting married or becoming a civil partner costs around £35 per person for the basic paperwork and you need to give notice at a register office. But especially right now, this isn’t the right solution for everyone.

And yet the law as it stands means there are real implications of not doing so if you’re in a relationship with connected financial affairs. It is 17 years since Larsson’s death caused mass shaking of heads over the antiquated treatment of family finance. But couples in 2021 are still treated fundamentally differently because of a single piece of paper.

Until that changes, there will always be a risk that one person – usually a partner who has taken more time off for caring responsibilities – will lose out financially.