Sharan Chaggar, a 23-year-old public relations executive from north London,
has just found out there is a third party involved in her relationship with
Tim Roberts, her 25-year-old boyfriend. The intruder is the Law Commission
and it is about to make Chaggar’s and Roberts’s romance – they have been
living together for two years – a lot more complicated.
Later this summer the commission, the government’s legal reform body, is due
to publish new proposals that are expected to give divorce-style rights to
nonmarried couples if they break up. Some of the details were leaked last
week. For Chaggar and Roberts the proposals could mean one of them having to
write out a cheque to the other.
“Couples living together is something the government should keep out of,” said
Chaggar last week. “It should be up to individual couples to decide how
formal to make their relationship.
“If you want to make a bigger commitment you get married – the advantage of
cohabiting is that it’s a less formal arrangement.”
The Law Commission’s proposals, experts predict, will see judges and lawyers
poring over the bank statements of unmarried cohabitees who break up, even
if they have no children. The guiding principle is expected to be that if
one person has benefited financially from the relationship – for instance by
building their career while the other looks after the home – the richer
party will have to compensate the poorer one.
The legislation has been proposed to protect women’s rights in an age where up
to 2m established heterosexual couples live outside the protection of
marriage. But unlike the “gay marriage” legislation introduced in 2005, the
new law would bite even where no ceremony had taken place.
All this, believes Robert Whelan of Civitas, the centre-right think tank, will
ultimately mean fewer people pairing off. “It’s a complete disaster – it
will just put people off forming relationships. I think it will just end up
with more people living on their own,” said Whelan.
What is puzzling about the government’s urge to become even more intimately
involved in the lives of lovers is that its track record in the area is
patchy at best.
Last week Frank Field, the Labour MP and expert on welfare reform, produced a
new analysis of how the government’s complicated tax credits and benefits
system affects different types of family.
Field found that the system “brutally discriminates against two-parent
families”. Startlingly, Field showed that while a lone parent with two
children has to work 16 hours a week on the minimum wage to earn £487, a
couple with two children would have to slog away for 116 hours.
“I can’t believe the government, when it set out, thought this would be the
effect,” said Field, adding that there is now a “huge disincentive” for
single parents to find another partner, because to do so would incur a large
drop in income for both of them.
“There is also a disincentive for two-parent households to tell the truth,”
said Field, noting that last year it had emerged that the government was
paying tax credits or welfare benefits to 2.1m lone parents – 200,000 more
than its own official figures said exist.
While people in receipt of benefits might find it useful to pretend they are
not part of a couple for tax reasons, others further up the income scale are
still finding plenty of reasons to get married – both financial and
emotional.
For Eleanor Lock, a 36-year-old media executive, the divorce of her parents
had made her firmly antimarriage, but five years after moving in with her
boyfriend she decided to marry him.
“When I was pregnant with my first baby,” said Lock, from London, “I realised
the financial and legal complications of not being married. It dawned on me
that if I died, my partner would be left with an inheritance tax liability
and might not even win the right to look after our kids.
“Now I think it’s wonderful that we’re married. It’s like all the options are
closed off, but that’s a good thing.”
There is general consensus that children have far better chances in life if
they are brought up by two parents. But organising the tax, benefits and
divorce system in a way that encourages lasting unions while remaining
cost-effective is fraught with problems.
The system we have now is clearly inconsistent. The question is: how best
might it be reformed?
If Tony Blair and Gordon Brown have done little to support marriage, neither
have their predecessors in recent decades. Back in the late 1980s Nigel
Lawson, the then Conservative chancellor, decided to remove the single most
obvious tax incentive for marriage – the married person’s tax allowance,
which applied to married men only.
Lawson initially planned to replace the allowance with a transferable tax
allowance that would end discrimination against women, as under the new
scheme, unused allowances could be transferred between spouses. However,
after Lawson had axed the existing scheme, the recession intervened and the
new proposals were never enacted.
Whether Lawson’s transferable tax allowances could have done much to stem the
decline of marriage is debatable. The law reforms in 1969 had already made
divorce much easier.
As Graeme Cooke, of the Institute for Public Policy Research, the centre-left
think tank, puts it, even when marriage was “privileged through the tax
system, divorce rates went through the roof”.
In the early 1970s, 68% of the population was married, but by 2001 this had
dropped to 54% and is projected to decline to 41% by 2031. Nearly 50 years
ago, 90% of children were still living with both their parents at 16; now
about one in three experiences the separation or divorce of their parents
before that age.
After such a profound change in the kind of commitment that parents show each
other – and their children – many, such as Iain Duncan Smith, the former
Conservative leader, have linked this to wider social problems.
“Family breakdown is one of the great drivers for underachievement in
children,” said Duncan Smith. His think tank, the Centre for Social Justice,
has produced figures to back up his claims: children who have experienced
family breakdown are 75% more likely to fail at school, 70% more likely to
be a drug addict and 35% more likely to be unemployed.
Labour’s strategy has been to take a “relationship neutral” approach and
concentrate benefits and tax breaks on the poorest families with children,
without regard to the marriage status of their parents.
This strategy has had perverse effects, largely because the poorest children
tend to belong to single-parent families.
“There are now no poor children in single-parent households where the mother
works full-time, but in two-parent households, where at least one adult
works full-time, there are 1.2m,” Field noted last week.
Despite the lack of an income tax break to make marriage more attractive for
these lower income groups, there are still financial benefits to marriage
for the middle classes.
Inheritance tax does not apply on transfers to widows and widowers, but kicks
in at 40% above a £300,000 threshold for the unmarried on bequests from a
companion. Pension rights also tend not to be as generous for unmarried
couples and unmarried fathers do not have automatic rights of access to
their children.
Next month Helen Westwell, a 42-year-old marketing executive, is set to marry
her companion with whom she has been living for 23 years. The couple have
four children.
“We met at university, moved in together and just never felt the need to get
married – we are not religious and never felt the need for the legal
status,” said Westwell.
“The reason we are doing it is basically financial. If one of us were to die,
the other would be left with an inheritance tax liability.” Does she welcome
the new proposals that would give cohabiting couples divorce rights? “No,
because they miss the point. One of the nice things about not being married
is that there is no one to interfere in your relationship. You can split big
things like property ownership anyway.
“The problem is the inheritance tax issue and the new proposals don’t tackle
that.”
The details of the proposals will reveal how many couples will be caught by
its provisions. It is expected that settlements will be larger when children
are involved. A key question is how long a relationship will need to have
lasted for a dumped person to apply for money.
The Law Commission’s aim, believes Jill Kirby, an expert on family policy with
the Centre for Policy Studies, a right-wing think tank, is to give redress
to those who mistakenly believed that a live-in relationship gave them
rights upon a break-up: “But from a legal point of view it’s a very
unattractive path to follow, because it imposes a contractual obligation on
parties who have not freely entered into it.”
More broadly, Kirby believes that “just as smoking is a bad thing and should
be highly taxed, marriage is a good thing and should be lightly taxed”.
Little can be expected from Brown in that regard, but David Cameron has
hinted that he may pledge practical support for married couples.
For his part, Field insists that he does not want to see benefits and tax
credits taken away from single parents to correct the bizarre anomaly he has
found. Instead he wants new money to flow to poorer households where both
parents work: “All I’m saying is that we should have equality for two-parent
households.”
THE UPSIDE AND DOWNSIDE OF GETTING HITCHED
PROS
Asset transfers between spouses are exempt from inheritance tax and capital
gains tax. An unmarried couple would have to pay tax at 40% on all assets
above the first £300,000 in the event of one of them dying.
Many company pension schemes favour married couples. For instance, most
schemes will pay a regular “widow’s” pension to the husband or wife of an
employee who dies, but some will not make payments to unmarried partners
however long they have been together.
Divorce laws give strong financial protection to nonworking spouses. The
starting point on divorce is that jointly accumulated assets should be split
50/50. The courts can also distribute future income.
Married couples are more likely to stay together. Nearly one in two cohabiting
couples split up before their first child’s fifth birthday, compared to one
in 12 married parents. It’s not clear if this is a function of the
institution of marriage itself or the circumstances of many unmarried
parents.
CONS
Married couples can only have one “principal” and untaxed private residence –
unmarrieds can have two, and thus enjoy twice the tax advantages.
For those at the bottom end of the income scale, the tax credit and benefits
system means there are clear financial incentives for living alone. A lone
parent with two children has to work 16 hours a week on the minimum wage to
earn £487, a couple (married or not) with two children would have to work
for 116 hours.
The average cost of a wedding is now around £20,000, according to figures
compiled by Wedding Magazine.
Students with divorced or separated parents may be able to engineer things to
get larger grants and loans. This is because the level of awards is decided
on the income of the parent with whom they are living.
The very wealthy complain Britain’s divorce laws can be too generous and
encourage gold digging.
