In 1972, the canton of Zurich voted to abolish a law that had long since ceased to reflect social reality at the time, but was still in force under threat of punishment: the ban on cohabitation, which prohibited unmarried couples from living together.
Cohabitation is not anchored in the Swiss legal system and enjoys contractual freedom. However, this form of cohabitation brings with it tax and legal challenges, as there is no comprehensive legal regulation. While cohabitation offers an alternative to marriage, it requires special precautions to protect the partners. In the following article, we will take a broad look at the areas of tax, inheritance law, pensions and property and identify individual issues.
Tax law aspects of cohabitation
The tax treatment of cohabiting couples differs fundamentally from married couples. Cohabiting partners are treated as independent taxpayers. Marriage can be advantageous for tax purposes if one spouse has significantly less income or no income at all, as the joint income can lead to a lower tax burden. However, if both partners earn similarly high incomes, joint taxation can lead to a higher tax rate, which is known as the "marriage penalty". This additional tax burden is mitigated by special tax rates and deductions for married couples.
Financial support payments to the cohabiting partner can only be recognised for tax purposes to a limited extent and under specific conditions. Careful documentation is required to enable tax recognition.
While spouses benefit from tax privileges in the case of inheritance or gifts, cohabiting partners are subject to inheritance/gift tax in most cantons.
Real estate for cohabiting couples
A joint property acquisition requires differentiated structuring in order to create clarity both when the partnership is dissolved and in the event of inheritance. The choice of ownership form is crucial. If only one of the partners is registered as the owner, this harbours considerable uncertainty for the other in the event of separation or death. In the case of co-ownership, both partners acquire shares in the property, which requires a clear contractual definition of the investments and rights of use.
Particular caution is required when compiling the own funds. If one of the two receives or acquires a gift/predeceased heir and the partner does not contribute any own funds but becomes a co-owner, this may be considered a gift to a third party, parents to a cohabiting partner are not relatives.
As cohabiting partners are not legally recognised as heirs, a testamentary right of residence or usufruct can be arranged to protect the surviving partner. A detailed agreement and documentation on ancillary costs, renovations and the whereabouts of the property in the event of separation can prevent later conflicts.
Inheritance law challenges in cohabitation
Under Swiss inheritance law, there are no statutory inheritance rights for cohabiting partners. A will, taking into account the applicable compulsory portions, is essential in order to appoint the partner as heir. Alternatively, an inheritance contract can create an even more binding arrangement, in particular to avoid conflicts with legal heirs and descendants.
A life insurance policy that explicitly favours the partner can provide tax-optimised protection. In most cases, it is preferable to separate the pension and insurance functions and not to combine life insurance with a savings option.
Pension provision - AHV and occupational benefits
The AHV does not provide any benefits for cohabiting couples. In the event of death, there is no widow's or widower's pension for surviving dependants. The occupational pension scheme also does not provide for automatic benefits for cohabiting partners. However, the vast majority of pension foundations allow this, provided that a corresponding beneficiary form is submitted. This form is essential for the provision of benefits. In pillar 3a, too, the Benefit options to note.
The cohabitation agreement as a preventive measure
To minimise legal uncertainties, it is advisable to draw up a written cohabitation agreement. This should regulate key aspects, in particular the distribution of current living costs, ownership rights to jointly acquired property and financial compensation arrangements in the event of separation. It should also contain provisions on parental custody and the maintenance of joint children as well as binding provisions in the event of death, particularly with regard to retirement provision. Particularly in the case of cohabiting couples with children, it is often forgotten that one of the couple will reduce their workload for a certain period of time and for the benefit of the child, which can lead to gaps in pension provision.
Conclusion
In the case of cohabitation, contractual and testamentary protection is recommended in order to avoid tax and inheritance law disadvantages. A cohabitation agreement, testamentary dispositions and optimised pension measures are essential to protect the interests of both partners in the long term and ensure security on both sides.
With the help of holistic planning, legal and financial uncertainties can be analysed and clarified. We will be happy to assist you with your individual questions and support you in implementing the precautions.