If you like it but you haven’t put a ring on it

I give advice to couples regularly, those couples can be married, same sex, co-habiting or otherwise, but the common thread is that they are together and plan to stay together, and they want to make financial plans with common future for themselves.

The issue can be that they are not married, in Ireland as many as one in ten people are co-habiting, which takes in people who are engaged but not married, couples who live together straight and gay alike who are not married, and separated people who form new relationships but are not yet divorced.

While their love may be true, their treatment in the system is not the same as married people, it can also mean a lack of rights to the property of the other person, something which is legislated for if you are married or in a civil partnership.

For instance, if a husband gives a wife a gift, even if it’s a billion Euro, there is no Capital Acquisition Tax (or CAT), with regular couples the threshold is €16,750 and any amount above that is taxed at a rate of 30%.

Common law husbands/wives historically had almost no rights, but this changed under the aptly (and awkwardly) named ‘Civil partnership and certain rights and obligations of cohabitants Act 2010’ this changed.

A cohabiting couple normally has a few criteria to meet, that they are cohabiting for at least five years, or for two years if they have children together, but if one of you is married (separated but not divorced) you can’t be a cohabitant until you have been doing so for four of the previous five years.

So imagine you break up with your spouse, we’ll throw in some scandal, lets say you were banging the Postman/postwoman on the side. You father or have their child the following year, even in year three you are still not a ‘cohabitant’ – were you single from the outset you would have been.

If you are a qualified cohabitant, you may apply for orders such as maintenance, property rights, and pension adjustments and related orders such as attachment of earnings orders. You may also apply for provision to be made from the estate of a deceased cohabitant. You don’t have any automatic right to them but the court may make such orders if it is satisfied that you were financially dependent on your cohabitant partner.

In this vein a family home something I get asked about. This was legislated for since the year 2000 Finance Act which gave a special exemption for ‘family home relief’, to qualify you had to have occupied the property as your main home for three years prior to the inheritance and for six years afterwards.

But that doesn’t mean it’s all hunky-dory, what if a person didn’t qualify as a cohabitant at the time, so say they buy a house for €200,000 and in the second year one of them dies leaving their share to the other, what then?

A mortgage protection policy will clear the debt, but 50% of the pay-off is liable to tax! So €100,000 is the gain (because the first €100,000 is the survivors portion), less the €16,750 exemption leaving €83,250 taxable at 30% (which would mean almost €25,000 of a bill shortly thereafter!).

You can either increase the cover by €25,000 or opt for a ‘life of another’ policy which is where the first person takes out a policy on the second one and the first person pays the premiums and is the owner of the policy.

If you just had life cover and no house and took out a ‘joint policy’ then the percentage paid by each person would apply, so let’s say that the couple paid 50% of the cost each, then the survivor would be taxed on the remaining 50%.

Is this confusing? Damn right it is! Who would have thought something as complex as love could be made more complicated by how it is dealt with in financial and taxation terms!

So don’t get caught out, because death is destructive enough on it’s own without giving yourself a tax liability where a good deed was intended (to leave a nest egg for a survivor).

And frankly, that is why it is so much easier if you just follow Beyonce’s advice, if you like it then ‘put a ring on it‘, marriage automatically resolves most of these complications; and before I get accused of pushing people into matrimony, I’ll add that if you aren’t inclined to settling down then you could scrap Beyonce’s advice and opt to listen to Iron Maiden who famously advised people to ‘run to the hills, run for your life!’.

(taken from our article in the Sun on Sunday, 2nd December 2012)

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