Some couples choose not to marry. They may have had previous unhappy marriages or long term relationships.
Their parents may have had an unhappy marriage that broke up (or should have.) They may still be married but do not wish to divorce their previous partner.
They may not believe in lifetime, monogamous arrangements or each partner may be financially independent and doesn’t feel a legal arrangement is necessary, (even if there are children).
Some couples decline to marry because the one who has greater value assets that they bring to is afraid that they will be financially disadvantaged in the event of a legal separation or divorce.
And some couples just never get around to formalising their relationship…until it’s too late.
A reader who contacted me recently is at just such a risk: “My partner and I have been together over 30 years and are in our early 60s. We both work but have no children. We own property in Ireland and France that is worth at least €500,000 and is mortgage-free.
“He earns twice what I do, we are not taxed jointly, and still don’t have any wills. We manage our household bills and purchases jointly and amicably but I really don’t know exactly what he earns, his investments, whether he has any death in service insurance, the size of his pension, etc. The years have passed without there being much need to know this as I am financially independent and we have no children.”
“I know this sounds ridiculous, but we have never discussed our finances in any serious way, but I am increasingly concerned about what happens to us if either partner dies, tax and inheritance-wise.”
This reader has good reason to be concerned. There is a provision under Capital Acquisition Tax rules that allows someone who is not legally married or a civil partner to inherit a shared family home on condition that the beneficiary has lived for at least three continuous years with the owner, owns no share of another property and keeps the property for at least six years after the owner’s death.
It means that children (or a sibling, other relative or friend) can inherit the home they share with the parent entirely tax-free. In this reader’s case, however, she (and he) would not be able to inherit their partner’s property tax-free because they each have an interest in another property – in France.
With two properties, jointly owned and worth €250,000 each (for the sake of argument) this means that should one or the other died, and they were willed the other partner’s half share, the survivor would face a tax bill of €77,527.
This is worked out by taking €250,000 (€125,000 x 2 properties), subtracting the tax-free threshold of just €15,075 between “strangers” and applying the current 33 per cent CAT tax to the balance of €234,925. The net inheritance is €157,400.
If a will is not made, the surviving partner is not entitled to their partner’s half share of the properties and the Succession Act 1965 directs that the deceased person’s estate be distributed, first, to surviving parents and they are not alive, to siblings and then to their children (if there are no surviving brothers or sisters.)
The current tax-free threshold between a child and parent is currently €225,000 and is just €30,150 between siblings/ nieces/nephews.
Since this is a well-off pensionable couple and perhaps own other assets like cash deposits, investment funds or shares, cars, valuable furniture or art, it isn’t unreasonable to assume the rest of their estate could be worth €100,000 or more, depending on the value of their pension funds.
Pension fund trustees (and the state itself) usually award widow(er) pensions only to named, legal spouses/civil partner or dependents.
The balance of assets, if they are left in a will to the person who is not a legal spouse or civil partner would be subject to full CAT at 33 per cent, presuming that the value of the family home and other property has already absorbed the €15,075 worth of their tax-free threshold.
It is not unusual, in my experience, to come across for couples – married or not – to have never formally discussed how much they earn, the value of their separate assets or pensions. Marriage and civil partnerships protect them against their own inertia or negligence.
The Succession Act protects them against being disinherited. (A spouse inherits everything where there are no children and two thirds where there are. Even if you write a will a spouse must receive half your estate – tax free, of course.)
It’s never too late – hopefully – for this couple to sit down and discuss their marital status, if only on financial grounds. Contesting a will (or the fact there is no will) can only be more distressing.