Pension

Cohabitation & pensions: what you need to know

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More than a million Swiss cohabit, but only few are aware of the legal situation of this kind of relationship - are there financial advantages or disadvantages? For example when it comes to pensions? What are the rules on inheritance? And what should unmarried couples with children bear in mind? Our glossary contains all the important information about being an unmarried couple.

OASI

Couples in a "common law marriage" make provision for their retirement independently. As such, both also receive the OASI pension at retirement age if they were both previously employed, whereas married couples receive a maximum of 150 percent of the full pension.

To ensure that the sums add up in retirement for unmarried couples, it's important for both to always pay their OASI contributions. If you or your partner cannot make provision or can only do so to a small degree due to childcare duties, you should discuss at an early stage whether the person who earns more should cover the other person's OASI contributions on a joint and several basis.

Occupational pension provision

Even occupational benefits deal with unmarried couples separately. As soon as retirement age is reached, the retirement assets in the pension fund are either paid out as a pension or as a single capital lump sum. But what happens if your partner doesn't reach the reference age, for example, due to death? In some pension funds, there's the option to protect your partner with the corresponding retirement assets. You must therefore always check whether your pension fund does this too. If so, pass on your partner's name, so that this problem with your pension fund is solved.

Checklist

Cohabitation has advantages and disadvantages. On the one hand, there are no obligations whatsoever, but on the other, your partnership does not have any legal protection. For all those who would like a bit more commitment, there's our practical checklist: it provides an overview of the life areas where binding agreements make sense.

Pillar 3

Pillar 3 pension products make a great deal of sense for cohabiting couples, as they provide the best protection in worst case scenarios. The Pillar 3a tied pension provision gives you the option of nominating your partner as a beneficiary in the legally prescribed sequence - biological children always take priority - in case anything were to happen to you. You can also save tax with this 3a tied pension provision.

The flexible Pillar 3b pension offers even better protection for unmarried couples, in that you are free to choose who the beneficiaries are down to the compulsory portions. This is regardless of whether you make provision with savings, life insurance, bonds, money market investments, shares, securities funds or home ownership.

Heirs

Do you know who inherits your estate if you're unmarried when you die? It primarily depends on your family situation: your parents or children are entitled to a compulsory portion if you die, but your nearest and dearest would receive nothing under the law unless you have specified testamentary beneficiaries or beneficiaries in advance under a contract of succession.

It's important to remember that legacies between unmarried couples are always subject to inheritance or gift tax. However, some cantons have reduced the assessment basis for inheritance tax for cohabiting couples who have lived together for at least five years. Find out early what the situation is in your place of residence.

Vested benefits

Vested benefits are funds you receive without a benefits case occurring. For example, if someone takes a break between two jobs or gives up working to bring up children.

Such vested benefits are also ideal for financially protecting your partner, should anything happen to you. But even here, unmarried partners can only benefit after distributions of statutorily defined compulsory portions have been made under inheritance law and if the individual beneficiary wish was communicated to the vested benefits foundation in advance.

Joint children

If you're not married, many automatic legal procedures relating to parenthood do not apply. By law, the child's father is not automatically the father. This is because for unmarried parents, paternity must be officially recognized at the registry office where, additionally, you both have to declare joint parental care.

If you're not married, you should also make arrangements for what would happen if you as parents were to separate. Who would the children live with? Who would pay how much maintenance? And how would access be arranged?

Incidentally, cohabiting couples cannot adopt children together - only the individual adoption of a child is possible by one person. In other words, by you or your partner.

Marriage penalty

The marriage penalty means the tax discrimination of married couples over unmarried ones. This mainly affects double-earning married couples with high salaries, in that their income is assessed jointly and taxed more severely due to progressive tax schedules.

Even OASI pension payments are combined for retired married couples, which means that they receive no more than 150 percent of the maximum OASI pension rather twice the amount.

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Inventory

Mine? Yours? Or ours? An inventory list helps separating cohabiting couples avoid disputes about joint possessions.

This avoids rancorous disputes - make a list at any early stage of items and assets that you or your partner brought into the relationship, acquired together or are in a joint account, and don’t forget to keep the list updated.

Legal protection

Married couples have legally protected rights and obligations, but this is not the case for unmarried couples. As the law contains almost no rules for cohabiting couples, you must yourselves specify the required obligations in your relationship and decide how they should be organized,

including complex subjects such as home ownership, joint children or anything to do with financial protection and retirement provision. Always seek legal advice, for example, from a notary.

Cohabitation agreement

A cohabitation agreement is the proven and straightforward way of recording individual arrangements. This agreement can be used to govern all points that are important to you and your partner. For example, how you divide household bills, who can remain in the shared home if you separate or how custody rights for joint children would be handled.

The agreement gives clarity in the event of separation, but it's also evidence of your relationship– for pension institutions for example. Read the legal blog on myright.ch to find out how to draw up a cohabitation agreement properly

Life insurance

If one partner dies, the surviving one may quickly fall into financial difficulties, but in legal terms, no kind of claim can be made in a cohabitation arrangement. Life insurance can help limit the financial damage, and it also makes sense for inheritance law and inheritance tax. You should therefore insure each other to protect your partner financially in the event of death.

Rent

Many unmarried couples also don't want to make a commitment when it comes to living arrangements and they therefore live in rented accommodation. This is ideal until things go wrong, as it can lead to problems, mainly if both have signed the tenancy agreement. They are jointly and severally liable to the landlord and can only terminate the tenancy together.

It's easier if one of you is the lead tenant and the other is officially a sub-tenant. But you shouldn't do this either without having first agreed contractually what would happen if you were to separate.

Name

What's the situation about unmarried couples naming their joint children? The rule of thumb is that if both parents have joint parental custody, they must choose from either name and register this at the registry office. If one parent has sole care, then the child bears that parent’s last name.

Open relationship

Cohabitation can in no way be compared to an open relationship. The term describes more the relationship between two people who feel spiritually, emotionally, physically and financially committed to each other. How open or tolerant the couple in question practice this relationship is purely a matter for them.

Living will

If you don't want to miss out on the support of your better half in a medical emergency, you should record this in a living will. Because without one, doctors are not allowed to give unmarried people information about their partner’s health condition or accept instructions in respect of medical measures. You can download for free sample copy of a living will from myright.ch.

Qualified cohabitation

From a legal perspective, there are various stages to cohabitation. But the actual classification of the partnership is only important if specific legal questions have to be clarified, such as if you or your partner asserts maintenance claims against a former spouse. These are irrelevant as soon as your current relationship is regarded as qualified cohabitation, which is when cohabitation is seen as a household sharing accommodation, table and bed.

Legal nature

Cohabitation has so far not been legally regulated, although this form of civil partnership represents a legal reality which, in its stable form, can also have legal consequences.

Tax

Unlike married couples, unmarried ones who live together have to complete separate tax returns. Their income and assets are taxed individually which can often mean a particular advantage in terms of direct Federal tax compared to married double-earners, as tax progression has less of an impact.

Separation

For unmarried couples, separation is not a major issue in legal terms. Ultimately you have not entered into any legal obligations with your partner and you can go your separate ways at any time.

But the reality is often different, as the longer and more binding the relationship was, the greater the problems. For instance, if one person has reduced their working hours to look after the family and household. That person is therefore financially worse off, which compromises their own retirement provision. Or if there are joint children who still need to be cared for. Unmarried couples should therefore always make an agreement that fairly governs what happens in the event of separation and its financial consequences.

Accident

No-one is immune from misfortune such as an accident or disability as a result of illness. It is that much more important for cohabiting couples to protect themselves against financial difficulties: protect yourselves against occupational disability.

Power of attorney

If you have a medical emergency and you’re not married, you cannot automatically count on the support of your partner. This is because without the express release from the duty of confidentiality, doctors are not allowed to give out information to unmarried couples or grant them visits to intensive care.

Cohabiting couples should therefore make a declaration, giving each other visiting rights, releasing doctors from their duty of confidentiality and allowing their partner through a living will to represent them in terms of medical measures. An advance directive and disclosure authority for dealing with authorities, insurance companies and banks are also advisable.

Home ownership

If you buy a home together as an unmarried couple, we also recommend that you seek professional advice and have everything defined contractually. What happens to your own four walls if you separate or someone dies? Who pays the interest? And what happens if this exceeds your own financial possibilities at some stage?

Future

Today, over 20 percent of Swiss couples live together without being married, and this constantly increases the pressure on politicians to modernize family law and eliminate the legal discrimination against unmarried couples. Vision for the future: civil partnerships following the French model where the Pacte civil de solidarité has been in place for more than 20 years, making things easier in tax and inheritance matters as well as for support and information rights.

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