For some couples, moving in together before marriage is a no-brainer.
But the 8.3 million unmarried couples living together, according to 2015 Census data, face a distinct set of challenges, particularly when it comes to money. Because they’re not necessarily entitled to the same legal and financial protections as their married counterparts, experts say it’s especially critical for these couples 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,” says 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.”
Here are considerations committed, unmarried couples need to take into account:
SHOULD YOU COMBINE BANK ACCOUNTS?
It's not unusual for unmarried couples to establish a joint account for routine household expenses. 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 says. "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."
SHOULD YOU BUY A HOUSE TOGETHER?
Consider making major purchases — like buying a house — very carefully.
The most important consideration is who will legally own the house: you, your partner or both? One person purchasing (or already owning) a home on his or her own, with the partner informally helping to make the mortgage payments, is 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."
So consider having 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. Also consider titling the property in both of your names, giving each of you equal (and legal) ownership of the property.
It's also good to know that, if your significant other dies, you won't automatically own the home outright.
SHOULD YOU INVEST AS A COUPLE?
"If an unmarried couple splits, each person walks away with his or her own individual investment portfolio," says 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, consider investing as if you were on your own, with a mix of diversified assets in your individual portfolio, 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.
WHAT HAPPENS IF YOU BECOME INJURED, DEVELOP AN ILLNESS OR DIE?
If you're unmarried, your partner is not likely to have medical decision-making rights, even if that's what you would have wanted. So it's important to get the following estate planning documents in place:
- 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.
- 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 healthcare decisions on your behalf if you're unable to do so.
- 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.
- 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. To ensure all your wishes are honored, work with an estate planning attorney.
If you’re unmarried, you have to think about the worst-case scenarios and plan for all possible outcomes.
There may always be some degree of legal gray area for unmarried couples, so if you aren't planning to walk down the aisle, 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.