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It is increasingly common for couples to live together, even with children, without giving a second thought to marriage. Yet research by Aviva shows that cohabiting couples are exposed to more financial risks than those who are married or in a civil partnership. Have you and your partner got your heads in the sand, or have you carefully accounted for all pitfalls?
As with anything financial, knowing your rights should be top of the list, and Aviva's latest Family Finance Report shows that many cohabitees are lacking the knowledge they need. Even though 51% believe that Government benefits favour married couples, 36% do not know about the Marriage Allowance, which allows a spouse making under £11,000 a year to transfer some of their tax allowance to their partner. And more worryingly, 19% wrongly believe that they are fully entitled to Bereavement Benefit, with many not considering what would happen to their partner's pension should they pass away.
Most cohabiting couples seem to be aware that they are missing out, as they tend to feel less secure (68%) than those who are married/in a civil partnership (76%). Their demographics also tend to differ, with cohabitees tending to have lower incomes and sparser savings, and just 58% are homeowners compared with 74% of married/civil couples.
The average amount of debt does not differ substantially from those who are married/civil partners, but cohabiting couples are twice as likely to treat secured debt as separate, and 31% even manage their money entirely separately. Many of these differences could be explained by cohabiting couples being on average much younger than married couples/civil partners, but given the changing views on marriage and the costs many seem to associate with getting married, these differences are not likely to disappear with age.
This means that there will likely be an increasing number people who will be missing out on shared pensions, bereavement benefits and numerous tax breaks, simply by not making their relationship official. And at the same time, 10% of cohabitees admit to still being in a relationship simply because they can't afford to leave (compared with 13% of married persons), showing that cohabitation can be just as 'restrictive' as marriage.
There are many reasons not to get married, just as there are reasons to tie the knot. Those couples that are happy to stay together without making it official will have to compensate by making sure their finances are connected in all the ways that matter. For instance, 74% of cohabitees do not have a will and 64% do not have life insurance, making them extra vulnerable should the worse happen.
Furthermore, only 4% have a cohabitation agreement, which makes the remaining 96% vulnerable to financial loss and costly legal difficulties. The main reason given for not having these legal and financial protections in place is their affordability, with 24% saying that is why they do not have a will. And yet a joint will typically costs around £300 (according to Aviva), a reasonable fee to pay for ensuring peace of mind, especially with children in the picture (which 38% of cohabitees have).
Aside from a will and cohabitation agreement, Aviva advises cohabitees to make sure they know exactly what would happen if one partner were to lose their income or health, and what would happen to pension benefits upon a partner's death. Consider taking out an income protection and/or life insurance policy that takes non-married partners into account, and above all make sure to communicate about finances clearly and honestly. Financial pitfalls are much easier to conquer as a team.
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