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Last Updated: Tuesday, 1 March, 2005, 22:34 GMT
Financial ups and downs of getting hitched
MONEY TALK
Sarah Windsor-Lewis
Principal, Punter-Southall Financial Management

Sarah Windsor-Lewis
This week's expert is Sarah Windsor Lewis

Getting married can be a costly business but it could bring financial benefits. A money expert examines the advantages and disadvantages of tying the knot.

When a couple marry, they commit to sharing their life: "for better, for worse, for richer for poorer", and in two out of three cases until divorce they do part.

Many do not stop to consider whether they are better off financially when they are married.

There are four areas and life events you should consider when deciding if you are better off, from a financial point of view, married rather than living with someone.

These are:

  • General tax planning
  • Pensions and benefits
  • Splitting-up
  • Taxation on death

First things first - it is important to understand that in England and Wales there is no such thing as a 'common law partner'.

Not only does the term 'common law partner' not exist in law, there is no legal equivalent to marriage.

Once married, the state expects that couples will support each other financially

From a legal standpoint, a couple are either married or two entirely separate individuals.

Tax planning

Married couples enjoy a major advantage over unmarried couples when it comes to tax.

Married couples can transfer shares and investment property to one another without incurring capital gains tax (CGT).

If unmarried couples do this, then CGT could be due when the asset is transferred.

Put simply, CGT is a tax on the profits made on the sale of an asset but it does not apply to people's main asset, the family home.

Pensions and benefits

Married couples can inherit part of their spouse's second state pension - formerly called the state earnings related pension (Serps).

Many company pension schemes will continue to pay pensions to the spouses of deceased members.

Once married, the state expects that couples will support each other financially.

Many state benefits are means tested, so if one spouse needs to apply for benefits and their spouse has a good income, they may find that they do not get any money.

Unmarried couples usually do not get caught out this way.

Splitting-up

Divorce can throw your best-laid financial plans up in the air.

Recent court cases have shown that when people divorce, everything is up for grabs.

Often a couple's wealth is split 50:50 on divorce.

Vulnerable assets are property, pension, cash, inheritances and employee benefits such as bonuses and share schemes.

This can mean a radical redistribution of assets at the point of divorce.

Wedding ring
Divorce can have serious financial consequences

Unmarried couples, even if they live together, do not have to deal with similar complications.

Unless there is a legal agreement in place, sharing your life and home with someone, even for a long time, does not leave you with many of the rights to property you might expect.

For instance, a woman who lives with her partner and raises their children for 20 years cannot expect maintenance for herself on separation. Nor is she owed a share of the house, unless she has paid towards it herself.

Death taxes

By marrying, you ensure that your spouse has the right to most of your estate when you die, unless otherwise stated in a will.

They can also inherit your estate free of inheritance tax, which is currently 40% on assets of more than 263,000 (2004/2005 tax year).

This can result in a substantial tax saving.

Unmarried couples can circumvent the inheritance tax minefield, to some extent, if they own their home on a joint tenancy basis.

This is when both parties own 100% of the property together and on death the asset is transferred into a sole name.

However, many lawyers recommend that cohabiting couples own a property on a tenants-in-common basis, which allows for each partner to own a distinct proportion of the property.

On death, even with a will in place, the remaining partner may be forced to sell the property just to pay the inheritance tax.

The opinions expressed are those of the author and are not held by the BBC unless specifically stated. The material is for general information only and does not constitute investment, tax, legal or other form of advice. You should not rely on this information to make (or refrain from making) any decisions. Always obtain independent, professional advice for your own particular situation.


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