4 Things to Consider Before Moving in Together
More and more couples are choosing to move in together without saying “I do.” The number of unmarried couples living together topped 8.3 million in 2015, according to the U.S. Census Bureau—a 30 percent increase in just the last decade.
The trend toward cohabitation poses a distinct set of challenges for unmarried couples, particularly when it comes to money matters and planning for the future. Because they’re not necessarily entitled to the same legal and financial protections as their married counterparts, experts say it’s especially critical for couples who are committed but not married to take financial and estate planning seriously.
“If you’re unmarried, you have to think about the worst-case scenarios and plan for all possible outcomes,” said Dan McLennon, advanced planning attorney at Northwestern Mutual. “Because if something unexpected happens to either of you, there will be very little legal clarity around your rights as a partner when it comes to making financial or medical decisions for your significant other. And if the two of you split up, there may be ambiguity and disagreement over who gets what.”
With proper planning, however, unmarried couples can take steps to establish their rights, protect their individual assets and ensure that their wishes are known and honored.
Here are four things committed, unmarried couples need to consider:
The Money Question: Should You Commingle Your Accounts?
It’s not unusual for unmarried couples to establish a joint account for paying routine household expenses like rent, utilities and groceries. For everything else, however, McLennon recommends keeping separate accounts.
“If you start combining all your accounts, there is no legal process for how those assets will be divided if the two of you split up,” he said. “When married couples go through a divorce, a judge will ensure that financial and other assets are distributed equitably. There is no such process for unmarried couples—no guarantee that you’ll leave the relationship with your fair share.”
The Living Arrangements: Should You Buy a House Together?
Because the commingling of money has the potential to be problematic if you and your partner ultimately decide to part ways, you’ll want to consider making major purchases—like buying a house—very carefully.
The most important consideration is this: Who will legally own the house? You, your partner or both? It’s not uncommon for one person in a committed relationship to purchase (or already own) a home on his or her own, with the partner informally helping to make the mortgage payments. But that’s risky, according to McLennon.
“There’s no protection for the person who contributes to a mortgage but whose name isn’t on the deed,” he said. “This person can’t legally lay claim to the house, and it would be very difficult to recover the contributions he or she has made if the couple splits or the homeowner dies.”
To avoid potential problems, you could have a legally binding partnership agreement drafted that spells out how the mortgage and property taxes will be paid and what happens if the relationship ends. Another option is to consider titling the property in both of your names, giving each of you equal (and legal) ownership of the property.
It’s also critical in this situation to consider what will happen if your significant other dies. You won’t automatically own the home outright. (See more in this article.)
Long-Term Financial Planning: Should You Invest as a Couple or Individually?
When it comes to saving and investing for the future, there’s a good chance one of you feels more comfortable with risk (and invests more aggressively) than the other. For married couples, this can actually be an advantage. Having complementary strategies helps to minimize overall risk as a couple; if one person’s investments do poorly one year, the other’s investments may do well. And if the married couple eventually divorces, the proceeds from both their investments will be equitably divided between them. They collectively share in the gains and losses; this is not so with unmarried couples.
“If an unmarried couple splits, each person walks away with his or her own individual investment portfolio,” said McLennon. “So if one of them deliberately took on greater risk because the partner invested more conservatively, for example, each person may leave the relationship with a disproportionate amount of high-risk or low-risk investments. And you don’t want to end up with a one-sided portfolio.”
Instead, McLennon says, you may want to consider investing as if you were on your own, with a mix of diversified assets in your individual portfolio—based on your personal goals and tolerance for risk—regardless of your partner’s investment strategy. But before you make any long-term financial planning decisions, talk with a financial professional about the pros and cons of investing individually or as a couple.
Imagine for a moment that you became seriously injured in an accident and couldn’t speak for yourself, and doctors needed to know how far they should go to keep you alive.
If you were legally married, your spouse could make those kinds of medical decisions on your behalf. If you’re unmarried, however, your partner is not likely to have decision-making rights, even if that’s what you would have wanted.
To avoid unintended outcomes, get the following estate planning documents in place. These documents are important for married couples, too. While spouses do have some automatic rights and benefits under the law, having estate planning documents in place provides additional guarantees that a married person’s wishes will be honored.
1. A living will. Sometimes called a health care directive, a living will is a legal document that states your preferences for medical care if you’re unable to make decisions for yourself.
2. A durable power of attorney for health care. A power of attorney for health care would give your significant other (or someone else) the authority to make health care decisions on your behalf if you’re unable to do so.
3. A durable power of attorney for finances. A durable power of attorney for finances allows another person (your significant other or someone else) to handle your personal financial affairs, like signing checks and preparing tax returns.
4. A will or trust. A will or trust specifies who gets what after you’re gone. If you die without one and are not married, there’s no guarantee that your assets will pass to your significant other. You could name your partner as your beneficiary on assets such as bank and investment accounts or a life insurance policy, but to ensure all your wishes are honored, work with an estate planning attorney to have a will or trust, a living will and powers-of-attorney documents legally drafted.
There may always be some degree of legal “gray area” for unmarried couples. So if you’re involved in a committed relationship but aren’t planning to take a walk down the aisle, take steps to get as much clarity as possible around your rights, protect your assets and ensure your wishes are known and honored. Work with an estate planning attorney to get must-have documents in place. And ask your financial professional to help you establish a financial planning strategy that addresses the unique needs and challenges of unmarried couples.