Cohabiting? 4 important financial factors to consider
With later-life divorces on the rise and marriage pressures lifting for young people, cohabiting is more popular than ever. Read 4 financial factors to consider.
Over the last few decades, cohabiting has become a completely normal way to live. The pressure on young couples to marry as soon as they begin living together has been lifted, and many couples now choose to marry later on or not at all.
According to the Guardian, this has caused the proportion of adults in a marriage or civil partnership in England and Wales to fall below 50% for the first time. What’s more, the Office for National Statistics (ONS) says cohabiting couples with children make up 18% of families in the UK.
It’s not just young couples who are deciding to cohabit. With later-life divorces on the rise according to , it may be that older couples choose to cohabit in their next relationship after a divorce, rather than heading straight into another marriage.
While cohabiting with your partner may feel exactly the same as being married or in a civil partnership, where your finances are concerned, it’s actually very different.
Keep reading to find out four financial factors that cohabiting partners need to pay attention to, and why.
- Property
If you and your partner own your home together and are not married, it is crucial that the terms of your mortgage are clear, and that you both understand your rights if you separate later.
For example, if you own an equal share in the property (meaning you contributed an equal amount upfront, and divide the mortgage repayments between you), this might make things simpler if you split up. You would likely both have an equal stake in any equity you gain from selling the home after your separation.
However, if one partner owns the majority of, or the entire property, and the other pays a contribution to the mortgage, things could become more complicated if you go your separate ways.
Ultimately, it is important to realise that you do not possess the same legal rights as a married couple if you separate.
So, drawing up a cohabitation agreement when you begin living together could help to parse out crucial details, including each person’s stake in your shared home.
- Protection and Lasting Powers of Attorney
If you are in a cohabiting relationship, you may not have stopped to consider what might happen if one of you passed away or became seriously ill. While this is an unpleasant thought, it is important to reckon with such an eventuality and protect yourselves from financial stress as best you can.
Protective measures like life insurance could be a good place to start. Even though you aren’t married, you can take out joint life cover, and this may be advisable if you have a mortgage or other assets together.
On the other hand, it may be wise for each individual to take out critical illness cover or income protection. Both these forms of cover can help you pay essential expenses if you become ill, without relying too heavily on your savings or your partner’s income.
In addition to insurance, two important documents you could consider registering are a “health and welfare” and “financial” Lasting Power of Attorney (LPA).
A financial LPA lets you nominate an “attorney”, for example, your long-term partner, who is able to access your money and make decisions for you if you are unable to do so yourself (or if you don’t want to). On the other hand, a health and welfare LPA allows your attorney to make decisions about your care, medication, and treatment if you are unable to make these choices autonomously.
For instance, if you were in an accident that left you incapacitated, your partner could then access your bank accounts to help pay continued bills, and make decisions about your care. Unfortunately, without LPAs in place, your partner could be left with zero control over your finances or your wellbeing in these unthinkable circumstances.
This is true for married couples too, but unmarried partners may find it even harder to obtain access to these important decisions through the Court of Protection, which is why LPAs are so important.
- Tax
You might already be aware that married couples benefit from tax breaks that cohabiting couples sadly don’t have access to – even if you’ve been together a very long time.
If you’re married, you may benefit from:
- The Marriage Allowance, which allows one spouse to transfer a portion of their Personal Allowance to the other, if the recipient earns less than the Personal Allowance in that tax year.
- Inheritance Tax (IHT) breaks – spouses can inherit each other’s entire estate IHT-free when they pass away, whereas an unmarried partner would be subject to the same IHT liability as any other beneficiary.
As a cohabiting couple, not benefiting from these helpful tax breaks means it may be helpful to work with a financial planner to mitigate your tax bill in other areas if possible.
Fortunately, you may be able to claim child and working tax credits if you are a cohabiting couple, even if you are not married, as of the 2024/25 tax year. The rules around claiming child and working tax credits as a couple are complex, so it may be helpful to speak to HMRC directly about your situation. It’s also worth noting that these benefits are moving over to Universal Credit (UC) as of April 2025, meaning there could be a change to your circumstances.
- Wills
When you or your partner passes away, they won’t automatically inherit your estate – unless, of course, you say so in your will.
For example, if you are an unmarried couple with two children and you passed away tomorrow, your estate would likely be divided between your children. If they are not yet 18 years old, you may wish to specify in a letter of wishes that your partner should have control of your children’s inheritance, and spend (or invest) it in their best interests, until they’re adults.
In any case, it is absolutely essential to draw up a will that clearly states what your partner should inherit if you pass away, and it might be wise for them to do the same too. Nothing is legally assumed where your unmarried partner is concerned, so if you were to pass away without a will, they may be left with nothing from your estate at all.
Get in touch to learn more about financial planning as a cohabiting couple
At Kellands, we believe in supporting your life decisions and helping you to grow your wealth around your goals. If you and your partner are cohabiting, we can make sure your wealth is protected if something goes wrong, and offer guidance on making the most of your money together.
To get started, email us at hale@kelland.co.uk, or call 0161 929 8838.
Please note
This article is for general information only and does not constitute advice. The information is aimed at retail clients only.
All contents are based on our understanding of HMRC legislation, which is subject to change.
The Financial Conduct Authority does not regulate estate planning, tax planning, Lasting Powers of Attorney, or will writing.
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