Why getting hitched could be good for your financial wellbeing

• Many UK couples choose cohabitation over marriage.

• But being married or in a civil partnership can bring tax advantages, and legal rights if you split up.

• Take the time to think about how you can make the most of your married status, or make sure your finances are in order if you decide not to formalise your relationship legally.

February 7 – 14th is National Marriage Week, and whilst we aren’t going to suggest you get married just because of the financial benefits, a marriage or civil partnership can play an important role in your financial wellbeing. It may not sound romantic to focus on money during marriage week, but taking care of those you love surely has to be a beautiful thing.

Marriage, civil partnership and cohabitation trends

According to an April 2020 report from the UK Office for National Statistics (ONS), marriage rates for opposite-sex couples in 2017 were at their lowest level since records began in 1862. This continues a gradual long-term decline seen since the early 1970s.

The same report shows that cohabiting is increasing with around 9 out of 10 couples living together before they get married. And plenty are not bothering with the getting married part at all. In a separate report from November 2019, the ONS found the proportion of families containing a cohabiting couple increased from 15.3% in 2009 to 18.4% in 2019 reflecting the declining marriage trend.

However, in September 2020 the ONS has reported that numbers of single-sex couples choosing marriage or civil partnership continues to increase. As this wasn’t possible before 2004 there’s been some catching up to do. Since 31 December 2019, opposite-sex couples have also been allowed to become civil partners giving them the rights and benefits that come with being in a legally recognised union.

The myth of the ‘common-law’ spouse

Although “common-law” marriage was abolished in 1753 many unmarried couples still think it’s a thing. A 2019 survey by the University of Exeter on behalf of the Economic and Social Research Council found that 46% of us are under the mistaken impression that cohabiting couples form a common law marriage. This has remained largely unchanged over the last fourteen years (it was 47% in 2005) despite a significant increase in the number of cohabiting couples over that time.

According to Anne Barlow, Professor of Family Law and Policy at the University of Exeter, in reality, cohabitation grants no general legal status to a couple despite cohabiting becoming the fastest growing type of household over the previous decade. According to the report writers the result is often severe financial hardship for the more vulnerable party in the event of separation, particularly working mothers who have taken career breaks to rear children.

Missing out on the chance to have a civil divorce, with all the financial protection it can provide, can also be an issue for the Muslim couples who have a religious marriage, but don’t follow it up with a civil ceremony as this report from February 2020 from the Commons Library explains. Particularly often on Muslim women as our article Can divorce be financially harder on ethnic minority women? explores.

Getting married could be good … for your tax situation

Married or civil partners can transfer some assets between them without generating a capital gains tax liability provided the receiving spouse is domiciled in the UK for tax purposes as this HMRC website explains. For example, in the tax year 2020/21, the government website tells us that everyone is allowed to make £12,300 profit in each tax year before having to pay capital gains tax. So if you’re selling shares, transferring some of them to your spouse or civil partner first means each of you can claim this allowance on their sale, effectively doubling your tax-free profits. As this April 2020 article from consumer champion Which? explains, transferring assets to your spouse or civil partner is also exempt from inheritance tax.

However, as the HMRC website explains, transfers between unmarried couples generate a tax gain (or loss) for the partner giving the asset regardless of whether any money changed hands. What’s more, the transfer could potentially be captured by inheritance tax rules, too. You can find out more about this in our article Giving financial help to those you care about.

Everyone can save or invest up to £20,000 in a tax-efficient ISA. If you have taken full advantage of this in your name, you can transfer £20,000 to your spouse or civil partner free of tax, and they can open an account in their own name. to also benefit.

According to the government’s website, if one of you is on a low income or not working full time, the other partner can share £1,250 of their personal income-tax allowance via the Marriage Allowance. This is not available to cohabiting couples at all.

The potential tax savings carry on even after you die. The government’s website on inheritance tax says that the threshold before your estate needs to pay inheritance tax currently stands at £325,000, rising to £500,000 if you leave your main home to your children or grandchildren. Everything in your estate above this is potentially taxable. However, if you’re married or in a civil partnership everything you leave to your other half is tax free. Given that inheritance tax is paid at a rate of 40%, this could be a huge saving and means you can use your tax-free allowance to leave bequests to others. This is not an option if you are cohabiting.

It’s even better news for your children if your estate is worth less than £2 million. When you die, your unused allowance can be added to that of your spouse or civil partner. This means your joint estate could be worth as much as £1 million before inheritance tax falls due. With average house prices increasing by about 50% in the last ten years, as this chart from January 2021 from Trading Economics and Halifax Bank of Scotland shows, this could become more relevant to more families.

Getting married could be good … if you separate

If you decide to end the relationship, you’ll have legal rights to the “fair financial remedy” we mentioned earlier. This may help if you end up in a legal battle for who gets what, or who pays for what when it comes to supporting your children. If you haven’t tied the knot and your partner has their name on everything, they could walk away with it all.

Getting married could be good … when one of you dies

If your partner dies without making a will, the laws of intestacy will recognise your relationship automatically if you’re married. The first £270,000 of your estate will pass to them automatically. They also inherit half of the remainder with the balance being divided equally among your children. If you don’t have any children or your estate is worth less than £270,000 your spouse inherits everything.

If you’re not married or in a civil partnership, blood relatives will get priority. This article from Citizens Advice explains the laws of intestacy rather nicely. As this government site explains, if you’d written a will before you tied the knot, getting married will make it invalid. So, it’s not only worth writing a will in the first place, you should think about reviewing your will on a regular basis; especially if you’re separated but not divorced.

If you’re not married and your name isn’t on the title deeds of your house or other assets (like bank accounts), you could be in a situation where you lose everything. This would make a difficult time even more stressful.

If one of you is still working when they die, many company pension schemes will pay out a lump sum equivalent to a multiple of their annual salary – for example, three or four times. This can be paid out to the spouse, civil partner, unmarried partner or children. But it is dependent on your telling your pension provider who you want it to go to using an “expression of wishes” form also known as a “nominations” form.

If one of you is retired and claiming a company or private pension the situation isn’t as clear cut. Widows/widowers pensions are not automatically paid out to non-married partners unless a nomination form is in place. But in February 2017 the Supreme Court ruled that withholding the survivor’s pension from a long-term cohabitee was discriminatory. This report from solicitors Coffin Mew has more details.

But as HR magazine reported at the time this case only tested the public sector pension system (for government and local authority workers) and it is still unclear how you define a “long-term relationship” or what other tests might need to be applied. Such as having shared financial arrangements, or joint property ownership, for example.

Depending on when you and your spouse retired, married and civil partners may also be entitled to their spouse’s remaining State Pension, depending on the level of National Insurance their spouse paid during their lifetime. There is more on that at this government website.

What should you do if you’re happy to stay as you are?

If you’re one of the growing number of people who just doesn’t fancy getting married, what can you do to protect your rights and your loved ones?

Take the time to make sure your financial arrangements are codified through other legal means. Get a professional to write your will, arrange powers of attorney for each other, and make sure joint accounts, property and other shared assets are set up properly.

This could help with recognising your property rights but not necessarily improve your tax situation. Speaking to a financial adviser could help you structure your wealth more appropriately – and more efficiently – given your individual circumstances.

Whether you’re married or in a civil partnership or not it’s imperative that you think long and hard about the quality of your relationship before combining your finances. Giving away your financial independence could leave you more vulnerable to economic abuse, as explained in our article Economic abuse. What is it, what are its affects and how could you protect yourself from it?

It requires a level of trust that you’d only probably have for the man or woman of your dreams who shares your visions and aspirations, and who you want to spend the rest of your life with. And if that describes your relationship, you might want to get married after all.