Cohabiting: the financial consequences

Unless agreed otherwise, cohabiting couples usually keep their income and assets separate. If you don’t make any formal agreements on paper, your incomes will remain separate and you won’t be liable for each other’s debts.

Even then, it’s wise to make a record of some financial aspects, such as each partner’s assets and debts. It’s also a good idea to make clear agreements about shared expenses – you may wish to split them in proportion to your earnings. Opening a joint account on which you both deposit part of your income can help you keep track.

Each partner is entitled to the funds they have deposited themselves on the joint account – no more, no less. If a partner is in debt and their creditor wishes to recover that debt from them, the creditor may lay a claim on the assets in the joint account. However, that claim is usually limited to the assets of the partner who’s in debt.

What happens if you don’t formally record any agreements? And when is it sensible to make a formal written record? Here’s how you can record your agreements on cohabiting in writing.

Cohabiting without a cohabitation agreement

You may want to ‘take things slowly’, see how living together goes and record all your formal agreements at a later date. However, many couples never get round to recording a formal agreement. This can have nasty consequences if you decide to split up.

It’s important to remember that the Dutch Tax and Customs Administration (de Belastingdienst) considers cohabiting couples as tax partners, even if you haven’t registered as such. This may be because you have a child together or because at least one of you is registered for partner’s pension with the other partner’s pension fund. Read on to explore all the scenarios.

Cohabitation agreement

A cohabitation agreement lets you record agreements on many aspects of cohabiting and, in the worst-case scenario, what happens if you part ways. You may make agreements on how you split recurring expenses, manage your joint savings, who owns what and many other things. You might also decide to record what happens with your home and belongings if you split up and whether you’re entitled to spousal or child maintenance. Another option is to record what happens if one partner passes away and whether the other partner has a right to surviving dependants’ pension.

A cohabitation agreement doesn’t record your agreements on inheritance – you’ll need to record these in a will. This is particularly important if you have children.

Marriage

Marriage is the most comprehensive form of organising your cohabiting, life and financial arrangements. Your prenuptial agreement covers a range of aspects, from pensions to distribution of assets. However, if you wish to record how your inheritances will be distributed, you’ll also need to write a will.

Registered partnership

From a legal perspective, a registered partnership differs very little from a marriage – the only thing ‘missing’ is the wedding. Registered partners automatically inherit from each other, and each partner has a right to the other partner’s pension in the form of partner’s pension. Registered partnerships are also easier to dissolve than marriages (unless you have children), as you don’t need approval from the district court. You can also be registered partners even if you don’t live together.

Another important point: not all countries recognise Dutch registered partnerships. This may be something to consider if you intend to move abroad for an extended period or have already settled abroad.

Cohabiting couples aren’t automatically tax partners, which means they’re not automatically required to file a joint tax return. However, being tax partners does have benefits, mainly because you can divide your assets and deductions in a tax-efficient manner.

You’re tax partners if you’re married, registered partners or jointly own your home – just like in the previously mentioned exceptions. Remember that you can choose to be tax partners for a whole tax year and file a joint tax return even if you’ve been registered as tax partners only for part of that year.

Cohabiting couples don’t automatically have a right to each other’s pensions. To gain this right, you must register as partners with your pension funds, so that the surviving partner receives monthly pension payments. You must be able to provide proof, in the form of a notarised cohabitation agreement, that you were cohabiting.

If you keep a meticulous log of your finances, you shouldn’t encounter many problems. However, if it’s unclear who owns what share of the funds on your joint account, the situation might get tricky. The same applies to any home contents you’ve bought together, as well as any increases or decreases in the value of the property you’re living in (if the property is jointly owned or owned by just one partner). Basically, clearly recording your agreements in a cohabitation agreement can save a lot of hassle.

Cohabiting couples aren’t automatically entitled to each other’s estate – no matter whether you have a cohabitation agreement or how long you’ve lived together. If a partner dies, their inheritance will be distributed among their legal heirs: children (if they have any), followed by parents, siblings and other legal heirs.

If you wish to leave your estate to your cohabiting partner, you must explicitly set this out in a will. A partner may only inherit property if this is recorded in a will. A notary can advise you on the best option for you.

If you’re going to live with a partner who owns the house, you may want to pay towards the mortgage and bills. Agreeing on ‘rent’ could be a solution. You can use the points system at huurwaarde.nl to help you make a rough calculation of the amount. The ‘rent’ buys the partner the right to quiet enjoyment, and the homeowner pays no tax on the rent received.

If you don’t record any agreements, your income and assets will remain separate, as described earlier. You also won’t be liable for each other’s debts, such as any mortgage debt owed by the homeowner.

You may both wish to cash in on a potential increase in the home’s value at some point in the future. Read more about the ways you can do this.

• Cohabiting (whether or not you’re tax partners) may affect your rights to benefits, such as housing benefit, and tax credits. For more details, please check the website of the Dutch Tax and Customs Administration.
• You may also lose your right to any partner maintenance you’ve been receiving from a former partner, even if you’re not registered partners or don’t have a cohabitation agreement. Read more here.
• If you’re paying off student debt to the Education Executive Agency (DUO), be aware of whose income or assets are being used to make repayments. This should help to avoid disagreements if you split up. Another point to remember is that DUO may change your monthly repayment instalments based on your joint income. In light of this, it’s important to notify DUO of your plans to live with your partner.

As you’ve read, cohabiting can have many financial and tax implications. That’s why it’s always a good idea to record agreements in writing in a way that feels right for both of you.