Financial considerations: Getting married

It’s certainly not the first thing people think about when setting up home together, but it’s important that couples understand the differences between being married, being in a civil partnership or simply living together, known as ‘cohabiting’, particularly from a legal standpoint. Generally speaking, a civil partnership is a legal relationship which has been registered by two people, and they are available to both same sex and opposite sex couples.

In legal terms, a marriage or a civil partnership gives couples a far stronger footing over the future of their relationship than simply living together. For example, if a partner dies, the spouse or civil partner doesn’t have to fight a legal battle over who will get ownership of their assets. Similarly, in the event of a separation, both a marriage and a civil partnership give both parties more legal protection in terms of what happens to any children in the relationship.

Without any legal arrangement in place, cohabiting couples have fewer legal rights than married couples or those in a civil partnership. For example, in the event of your death, a private pension isn’t automatically passed on to your partner, and you don’t have any tax benefits as a couple. Also, if you and your partner have separate bank accounts, your partner won’t be legally able to access your account. However, cohabiting couples can agree to sign a legally-binding ‘cohabitation agreement’, which can help to determine the arrangements for your finances, property and children while you’re living together and if you were to split up, become ill or die. As uncomfortable as these conversations can be, it’s better to have them early, and to get your position set out in writing.

There’s probably nothing less romantic then to whisper in the ear of your beloved: “I think we should get a prenup”. While prenuptial agreements are more common in the US, they have become increasingly used in the UK too, and it’s worth finding out whether you and your partner need one.
Prenups aren’t considered suitable or necessary for most couples, and are usually only signed when one partner has significantly greater wealth or assets than the other, or where one partner is a business owner or landowner.

A prenup is not considered to be automatically binding in UK law, but they will usually be upheld in divorce proceedings as long as the prenup is believed to be an agreement that has been freely entered into and understood by both parties, is considered fair, contractually valued and was signed at least one month before the wedding.

Some people can be offended even by the mention of a prenup, but it’s generally considered as evidence of good intentions to your partner in case the relationship breaks down. Signing a prenup might seem like a passion killer, but it means far less likelihood of an acrimonious fight over assets in the future, and demonstrates a commitment to making sure you’ll do the right thing for your partner even in the event the relationship breaks down.

On a similarly unromantic subject, it’s more tax-efficient to be married or in a civil partnership compared with just cohabiting. This makes it much easier to carry out tax planning as a couple. For example, spouses and civil partners are able to transfer certain assets, including pension contributions as mentioned, to each other completely free of Capital Gains Tax (CGT).

Also, when it comes to Inheritance Tax (IHT) a married or civil partnership couple have a combined IHT allowance of £650,000 (a Nil Rate Band of £325,000 per individual) provided the first person to pass away leaves all their assets to the surviving spouse. In those cases, the surviving spouse then has an IHT allowance of £650,000 to leave to children, grandchildren or any other beneficiaries. The estate of the surviving spouse can also claim an additional IHT allowance called the Residence Nil Rate Band (RNRB) if they plan to leave the family home to their descendants.

Relationships are all about going through the bad times as well as the good times together. But even the best relationships can come under extreme pressure when one partner suffers an unexpected life event. It’s a good idea to think about what you would both do if you or your partner lost your job, or is unable to work due to accident or illness. Talking to a financial adviser can help you to decide on protection plans such as income protection, critical illness cover or life insurance policies designed to provide you with emergency income or to pay out a lump sum should the worst happen. Similarly, it’s a good idea to talk to your partner about building an emergency fund (ideally three months’ worth of living expenses), which should help to cover any unexpected bills.

And don’t be afraid to talk about pensions and retirement planning. A good place to start is to think about the type of retirement you both want to have together (travelling the world? Settling down by the seaside?). One of the advantages of retiring as a couple is that you can pool your assets and make the most of pension allowances. For example, a higher earning spouse or civil partner approaching the annual pension contribution allowance or the Lifetime Allowance can pay additional contributions into their partner’s pension.

Whether you’re married, in a civil partnership or cohabiting, it’s a good idea for both of you to make a will. This gives you the opportunity to clearly state what should happen to your money, your possessions and your property after you die. It also removes much of the complexity that comes with sorting out a person’s estate after their death, which is a particularly difficult and stressful period at the best of times. It’s particularly important to have a will if you are cohabiting, because you can state what you want your partner to receive in the event of your death, without leaving it up to the courts to decide. For example, if you’re cohabiting with your partner but are not married or in a civil partnership with them, you have no automatic entitlement to their estate under the intestacy rules.

Building a life with the person you love can be exciting and nerve-wracking at the same time, especially when you start to consider all of the financial decisions you both need to make.

If you’re unsure where to start, Amber River can help. Our independent financial planners have plenty of experience of helping couples understand the things to consider before making any decisions, and we won’t be too shy to ask the tough questions you need to know the answers to. So, whether this is your first Valentine’s Day together or one of many, we can help you feel better prepared for the future, with a financial plan you’re both fully on board with that is just the right combination of the head and the heart.