Cohabiting: Legal and Financial Implications

In recent years, a significant shift in relationship dynamics has been observed, with a growing proportion of the population choosing to live together without getting married. While this arrangement offers flexibility and may align with the personal beliefs of many couples, it’s crucial to understand the legal and financial implications that come with it.

Lack of Legal Protection in Pension Rights

One of the most significant financial risks for cohabiting couples concerns pension rights. Unlike married couples, where the surviving spouse is often entitled to a portion of their deceased partner’s pension, cohabiting partners typically have no automatic rights. This means if one partner with a substantial pension passes away, the surviving partner could receive no pension benefits, leading to financial instability.

Intestacy Laws and Inheritance

The intestacy laws, which come into play when someone dies without a will, can be particularly harsh for cohabiting couples. The recent changes in these laws underscore the importance of having a will. Without it, a surviving partner may inherit nothing, as the law does not recognize them as a legal heir.

The Challenge of Proving Financial Dependency

Under the Inheritance (Provision for Family Dependents) Act 1975, it’s possible for a surviving cohabiting partner to make a claim for financial dependency. However, proving this dependency can be a complex and emotionally taxing process, often requiring legal assistance.

Inheritance Tax Implications

The differences in inheritance tax (IHT) treatment between married and unmarried couples are stark. For married couples, assets can be transferred to the surviving spouse IHT-free, regardless of value. In contrast, cohabiting couples can only transfer assets up to the nil rate band of £325,000 IHT-free. Beyond this threshold, assets are taxed at 40%. For example, on a £1 million estate, the tax deduction for an unmarried partner would be a substantial £270,000.

Real-Life Consequences

There have been distressing cases where, following the death of one partner, the surviving partner and their children face eviction. This is often due to disputes with relatives who do not approve of the relationship, highlighting the precarious position cohabiting couples can find themselves in without legal protection.

Protecting Your Rights and Assets

For cohabiting couples, it’s crucial to take proactive steps to protect their rights and assets. This includes:

  1. Creating a Will: A will is essential to ensure that assets are distributed according to your wishes.
  2. Cohabitation Agreement: This legal document can outline the financial arrangements between partners and provide some protection.
  3. Pension Nominations: Ensure that pension providers have up-to-date nomination forms, where possible, to include the full name and address of the cohabiting partner.
  4. Legal Advice: Taking legal advice can provide clarity on the best steps to take to protect both partners.

When considering the implications for children in the context of cohabiting couples, several key factors come into play, especially in the event of one partner’s death or separation.

Implications for Children in Cohabiting Relationships

The legal and financial protections for children in cohabiting relationships can differ significantly from those in marriages, particularly in the areas of inheritance, custody, and financial support.

1. Inheritance Issues

  • Without a Will: If a cohabiting parent dies without a will, their children may inherit their assets under the rules of intestacy. However, this does not include stepchildren unless they have been legally adopted.
  • With a Will: A will can specify how a parent’s assets should be distributed, ensuring that children, including stepchildren, are provided for according to the parent’s wishes.

2. Custody and Living Arrangements

  • Biological Parents: If one biological parent dies, custody typically defaults to the surviving biological parent, regardless of the living arrangement.
  • Stepchildren: For stepchildren, unless the stepparent has legal parental responsibility (through adoption or other legal means), they may not automatically continue to live with the stepparent if the biological parent passes away.

3. Financial Support

  • Child Support: The surviving biological parent is typically responsible for the financial support of the children. However, stepchildren may not receive support unless the stepparent has legally adopted them or agreed to provide support.
  • Government Benefits: Children may be eligible for certain government benefits upon the death of a parent, but this can be complex in cohabiting situations and may require legal advice.

4. Legal Protection and Planning

  • Parental Responsibility: It’s important for cohabiting parents, especially non-biological ones, to understand their legal rights and responsibilities towards their children and stepchildren.
  • Guardianship: Parents should consider appointing a guardian in their will to ensure that their children are cared for by someone they trust in the event of their death.

5. Emotional and Psychological Impact

  • Stability and Security: The death or separation of parents can have a significant emotional and psychological impact on children. Ensuring legal and financial stability can help mitigate some of these effects.
  • Family Dynamics: The involvement of extended family, especially in contentious situations, can affect the well-being of children. It’s important to manage these relationships carefully.


For cohabiting couples with children, it’s crucial to take steps to ensure the children’s legal and financial security. This includes making a will, understanding parental responsibilities, and considering the appointment of guardians. Additionally, seeking legal advice can provide clarity and help in making informed decisions for the welfare of the children.


The majority of people give more thought and time to planning their annual holiday than on considering how best to manage their personal affairs, this is particularly true with regard to time and consideration on how their Wills should be drafted.

Tax Planning

One is legally allowed to arrange one’s financial affairs so that one pays the minimum of tax. We have always advocated that clients look first at government approved avoidance schemes, such as ISA’s, Pensions, Enterprise Investment Schemes & Venture Capital Trust investments.

Lasting Powers of Attorney

Thinking and talking about what would happen if our faculties deserted us is uncomfortable. That is why it is important to consider Lasting Powers of Attorney. Imagine how much worse the situation would be for your family if you had a stroke, serious accident or dementia without making appropriate arrangements.

Residential Nil-Rate Band

The Residential Nil Rate Band Under the current Inheritance Tax regime, on death the first £325,000 of each individual’s net estate is taxed at 0%. This is known as the “nil-rate band” (“NRB”). Unless any tax reliefs apply, the rest of their net estate is then taxed at 40%.

Inheritance Tax Planning

£4.7 Bn of Inheritance Tax payments were collected by HMRC in tax year 2015 -16 , that’s a record amount of money from inheritance tax, mostly because of rising house prices.


A significant proportion of the population, prefer to live together but not get married. For them there is no spouse or single partner exemption. If one of the partners had a large pension and died, the remaining partner is likely to get NO pension at all.