The government is floating a major shake-up of rights for unmarried couples. If it goes ahead, the knock-on financial impact on cohabiting partners could be significant.
The motivation behind the change in the law is to protect unmarried parents who can find themselves in a situation of extreme financial hardship if their relationship fails. Although this objective is laudable and should correct many wrongs, it may mean that some couples who have been cohabiting for years will be forced to enter into an opt-out agreement at some cost.
Whatever the government decides, financial advisers need to be prepared for change and should be urging their clients to have the “difficult” discussions about who might get what if they were to break up right now and get their paperwork in order.
Individualised planning
The reforms could require advisers to look beyond the immediate financial circumstances of their clients and consider how their relationship and living arrangements may affect their position in the future.
A holistic, forward-looking approach will be fundamental - the process will necessitate asking sensitive and personal questions about the nature of a couple’s relationship, their joint aspirations and plans and how they see their family and financial life panning out over a period of time.
Estate and tax planning
Inheritance is where it gets really stark. Under the current rules, if a cohabiting partner dies without a will, their partner could get nothing - no matter how long they have been living together – unless financial dependency can be proved. A partner’s estate can bypass their partner even if they have lived together longer than other married couples.
Reform could change that by giving qualifying partners a share on death or an automatic dependency right, again cutting out the need for costly litigation. That could be a game-changer for a client whose home is in their partner’s name alone. Under the current law, a surviving partner can face eviction or a forced sale to satisfy the claims of blood relatives, who would automatically inherit under the intestacy rules.
Here's the catch that advisers need to be aware of: the tax system still draws a hard line between married (or civil-partnered) couples and everyone else. Married partners can transfer assets to each other free of inheritance tax and capital gains tax. Cohabitants cannot. So, unless the tax rules change at the same time as the family-law reforms, your client could end up with a strange hybrid - new property rights on separation or death, but none of the tax breaks that cushion the blow for married couples. This is the reason why staunchly proud unmarried cohabitants “give in” to the system in their later years to ensure that their partners benefit from the tax reliefs granted to married couples particularly on death.
Property ownership and contributions
Advisers will need to carefully review property structures, especially where only one partner has legal title but both contribute financially, as this could affect future entitlement.
As the current law stands, if someone is not married and is not a legal or beneficial owner, they are likely to have no claim to share in the equity of the family home. Proving they deserve a share can mean an expensive court battle with unpredictable outcomes.
The proposed reforms aim to replace that mess with a more straightforward system: if unmarried partners have lived together long enough (probably three years, or any time if they have a child together), made financial sacrifices, or become financially intertwined, they could apply for a settlement. This is essentially moving closer to the protections married couples enjoy - though probably not all the way there as the government wishes to protect the special status of marriage.
Currently, if someone is not a legal or beneficial owner, they have no immediate legal right to stay in the property when the relationship ends. That makes life simpler for lenders chasing repayment - but it also means separating couples can stall possession proceedings, creating headaches.
The reforms may give the non-owning partner a proper route to claim a transfer, buy-out, or deferred sale. For lenders, it is unclear whether this might provide more predictability or draw out disputes for longer. It might nudge lenders into preferring joint borrowing or tightening affordability checks on solo applications, where a partner is living in the property.
More broadly, it may be that we will see more couples buying together, anticipating shared rights from the outset. First-time-buyer joint applications could increase, and advisers may need to navigate a boom in declarations of trust and cohabitation agreements as people try to get ahead of the new rules.
‘Til death do us part
Financial planning may shift toward recognising dependency primarily on death rather than during the relationship, depending on how legal rights evolve.
Pension schemes don't have to pay survivor benefits to an unmarried partner - they usually need a nomination form or proof that partners have been living together for at least two years. If a nomination is out of date, or the scheme's rules are vague, disputes can ensue. The reforms would introduce a statutory definition of "qualifying cohabitant" that schemes could apply directly.
If your client is saving into a defined-contribution pension, they can probably expect their scheme to tighten up its process - so a client’s expression of wish form should be kept current and consistent with their will.
Death-in-service and group life policies may simplify their rules once legislation defines who qualifies. Life insurers may adjust premiums, and income-protection and critical-illness policies could update beneficiary terms if financial dependency receives statutory recognition.
Monitoring legislative changes
Crucially, the rules are not settled, so advisers will need to monitor developments rather than assume the proposed framework will become law in its current form.
Advisers will also need to stay alert to how reform treats tax reliefs and legal recognition of cohabitant rights, as marriage is likely to retain a dominant status.
Rising complexity in advice delivery
At the moment, disputes between separating cohabitants are resolved through general property and trust law which can be expensive, slow, and unpredictable.
Codified rights should narrow the zone of dispute over time. But clients shouldn’t expect overnight savings: there will almost certainly be an initial spike in claims as people test the new boundaries. Pending that clarity, keeping good records - details of deposits, mortgage payments, renovation costs, childcare arrangements, career sacrifices – will be important in supporting any future claim.
Ultimately, advisers need to be thinking ahead: reform is likely to introduce additional legal nuance, increasing the need for technical expertise and coordinated advice with legal professionals.
