How to have and to hold the financial benefits of marriage

There has been a striking decline in the number of people in the UK getting married over the past half-century. According to the Office for National Statistics (ONS), there are around half as many marriages today as in the post-war peak of 1972. 

However, the number of second marriages has been increasing. ONS figures report that the number of brides and grooms aged 65 and over increased by 46 per cent over the decade to 2014, 92 per cent of whom were divorcees, widows or widowers. Civil partnerships, which were introduced in 2005 for same-sex couples and since 31 December 2019 have also been possible for opposite-sex couples, are also on the rise. The main difference between a marriage and a civil partnership is that the former includes vows, but for tax and financial purposes they are treated the same. 

The financial implications of getting married or entering a civil partnership are huge, especially if it is for the second time. So if you do this plan your finances carefully. Make sure that you and your partner disclose all your assets and liabilities to each other, including ones from previous marriages, review each other's credit scores and bank accounts and discuss any concerns. 

Key questions to address include whether to have joint or separate accounts, share income, property and bills, and which assets to hold jointly, says Scott Charlish, chartered financial planner at wealth manager Brewin Dolphin. The decisions you and your future spouse make about how to handle money will have long-term repercussions for both of you, whether you combine some or all of your finances, or keep things separate.

Financial benefits

When you are married, you can pass assets to each other free of tax. This can save you a significant amount of money, if you want to sell assets that would incur capital gains tax (CGT). The CGT allowance in the UK is currently £12,300 a year, but splitting or co-owning an asset with your partner would double the tax-free portion in the event of a sale. 

If you are the stronger financial party, you could contribute to your spouse's pensions and individual savings accounts (Isa) to make your combined portfolio as tax-efficient as possible. You could do this if you were not married, but if you separated you would not have any claim on each other’s assets. You would also miss out on the marriage tax allowance, which lets you use up to £1,260 of your husband, wife or civil partner’s personal allowance, if they earn less than the value of the personal allowance and you are a basic-rate income tax payer. The personal allowance is £12,570 for the 2021-22 tax year.

Marriage can also make succession planning more tax-efficient, notes Connie Atkinson, partner at law firm Kingly Napley. Assets can be passed on to spouses free from inheritance tax (IHT), and you can transfer unused portions of your IHT allowance, which is currently £325,000, to your spouse. But you cannot share it if you are divorced, and if you have been married multiple times you can only benefit from one additional nil-rate band. 

If you have children from a previous marriage, marrying again can help to ensure that your partner can continue to live in your house after you die, with the house passing to your children after your spouse’s death. This can be achieved by setting up a life interest trust, which can be created in advance or written in your will and triggered on your death. These are known as immediate post-death interest trusts. If you are not married or in a civil partnership when you die your partner may have to pay tax on the property as it would form part of your estate. 

However, Charlish says that if, for example, a husband dies and leaves the right of tenure to his wife, after which the house passes to his children, the capital value of the house could be charged to the wife’s rather than the husband's estate when she dies. This means that her beneficiaries could end up being liable for IHT on an asset that they will not receive.  

When you’re married, you may be entitled to your spouse’s state pension after they die, depending on their level of National Insurance contributions. If your partner had an additional state pension, which is available to men born before 6 April 1951 and women born before 6 April 1953, the terms are more generous. The amount you will receive varies depending on when your partner was born. You can find more information on this at www.gov.uk/additional-state-pension.  

If you want to keep things separate

If you want to keep certain assets separate from each other it's a good idea to draw up a prenuptial agreement. While there is no guarantee that this will be bound in court, there is an assumption that it will be upheld, unless there is a case of material need for the financially weaker party or relevant details were withheld from them when the arrangement was set up.

Liz Wyatt, partner at Anthony Collins Solicitors, says that prenuptial agreements are more likely to be upheld if certain conditions are met: if both parties have had legal advice, a full disclosure of assets has been made, the agreement was made more than six weeks before the marriage and it appears fair for the law to uphold it.

Not many couples have made prenuptial agreements but they are becoming more popular, particularly with international couples, people marrying for the second time and couples with a large difference in family wealth. Atkinson recommends also considering a post-nuptial agreement signed after your marriage to reconfirm and add to the strength of the prenuptial agreement, especially if that was signed shortly before you got married. 

Keeping things up to date

When you marry, your previous will becomes invalid so you need to write a new one. If you don’t, your entire estate will automatically be left to your spouse and could mean that your children, including any from previous relationships, don’t receive any inheritance. If, for example, you want to create a deed of trust for the way a property is held, this should be stated in your will. 

You must also revise defined-contribution pension expression of wishes forms, which dictate to whom the benefits go after your death. This is because they are not invalidated after you get married. So, for example, if you marry a second time and don't change the expression of wishes form, your first spouse could inherit your pension.    

If you are an unmarried couple who live together, consider making a cohabitation agreement that sets out how you'll divide your finances if you separate, including joint bank accounts, your home and any other assets. It can also cover financial arrangements during the relationship, such as how you’ll share the rent or mortgage and bills. This can help you to agree financial arrangements fairly and avoid unnecessary stress and costly disputes. For example, if an unmarried couple have lived together for over five years both partners may have a financial claim on the property – irrespective of who owns it.