Legal consequences of a civil partnership

It’s not an excuse for a party! There are also some important legal considerations…

What if it goes wrong?

Without wishing to rain on the proverbial parade, before committing to a civil partnership, it is as well to consider for a moment the consequences if things do not go as planned. As with marriage, you cannot legally walk away from the relationship. For it to be ended formally it is necessary to go through a process that is almost identical to divorce.

Divorce need not, though, be nasty and litigious. Very often it is quite amicable and very rarely ends up in a courtroom battle. Sensible lawyers can often make the process that much simpler and easier, putting some distance between the two parties and giving them each a more objective opinion on the best way to proceed and what they can ultimately expect to receive.

When two people dissolve their civil partnership they can agree financial terms between themselves and ask the Court to approve this. If the parties cannot agree, the Court can decide. The Court has power to order regular maintenance payments, a lump sum payment, the sale of property and the sharing of pensions, to name but a few powers. It can also make a whole host of decisions relating to any children.

Increasingly people seek to protect themselves financially by signing pre‐registration agreements before entering into their civil partnership. This attempts to set out in advance of anything going wrong exactly how the parties would wish their assets to be divided.
Pre‐registration agreements (and pre‐nuptial agreements for married people) are not contractually enforceable in England and Wales.

However, if drawn up properly, they can prove persuasive to the Court. To maximise the chances of a pre‐registration agreement being successful, each party will need to give full financial disclosure to the other and will need to make the provisions of the agreement fair. The document should be prepared well in advance of the registration, and each party should also be advised by a separate lawyer who is well experienced in such matters.

For further information about any of the matters discussed above, please feel free to telephone Richard Hogwood or Christopher Butler of Speechly Bircham on 020 7427 6400 or e‐mail [email protected]. Alternatively, visit the Speechly Bircham website by clicking here.

To the best of our knowledge and belief this guide correctly states the law and practice as at 1 June 2006. It is however written only as a general guide and therefore specific professional advice should always be sought before any action is taken. Speechly Bircham LLP is a limited liability partnership registered in England and Wales (Registered number OC321620) and is regulated by the Law Society. © Speechly Bircham LLP 2006.

As well as being an important public occasion recognising your relationship, entering into a civil partnership also has important legal consequences, some good and some bad. It is not possible to consider all of these in detail, but some of the key points to consider are as follows.

Tax

For tax, you will be treated the same as a married couple. This means that you can pass assets between each other without triggering capital gains tax. In this way you can make better use of each other’s annual exemptions, saving tax when you dispose of assets which have gone up in value since you acquired them.

Be careful, though, if you have more than one property between you. Once you have a civil partnership you can only together have one house that benefits from the “principal private residence” exemption from capital gains tax. You could therefore face a tax bill on selling any other properties. With some advance planning, though, you can go some way to minimising this problem.

If one of you dies, the other can inherit assets free from inheritance tax. This opens the door to much more sophisticated inheritance tax planning than was previously available, which could enable you to save tens of thousands of pounds for the benefit of your family and friends rather than the tax man. We are experienced at preparing special tax‐efficient wills that, relatively simply and cheaply, can enable significant sums of inheritance tax to be saved.

Wills and Intestacy

Once you have a civil partnership, if one of you dies without a will in place, the other will still inherit some assets (although not necessarily all of them). Before having a civil partnership, the survivor would not automatically have received anything.

Of course, it is always best to have a will in place, even if it is not a tax‐efficient will. It makes dealing with your affairs much easier and quicker after your death, and also means that you can decide who receives what, rather than relying on the quirks of the legal system to decide.

Remember, though, that unless your existing will makes clear that it will continue to be effective after your civil partnership, it will automatically be revoked once you sign the civil partnership schedule. It may seem like yet another thing to worry about, but it is critical that you think about this when planning your big day.