Financial Planning for Unmarried Couples: Navigating Legal & Practical Considerations

According to census data, 7.5 million unmarried couples were living together in 2010. While many of the relationships between these unmarried partners do not last or lead to marriage, it is becoming more and more common to see couples who are simply opting out of marriage, while keeping all the other trappings of a committed relationship.

Unfortunately, financial laws tend to favor married couples, so those who are going non-traditional when creating their families have a little more work to do in order to ensure that everyone will be financially taken care of.

Here are five ways unmarried couples can protect themselves and their families:

1. Taking care of taxes. Unfortunately, unmarried couples cannot file jointly, one partner cannot claim the other as a dependent, and only one unmarried parent can claim any particular child as a dependent. All of this not only means extra paperwork come tax time, but it can also potentially be more costly.

In addition, when a spouse dies, the transfer of marital wealth from the deceased spouse to the widow/er is completely tax-free. Unmarried couples do not have such a benefit, so estate taxes can often come as an unpleasant surprise on top of grief.

2. Estate planning is vital. Unmarried couples do not get the benefit of automatic transfer of assets, since domestic partners are not considered next-of-kin. To make sure that your family will be taken care of, be sure you and your partner specifically name each other as beneficiary on all pensions, retirement accounts, and insurance policies.

Drawing up a will is an important task for all adults, but especially for unmarried couples. It will ensure that your wishes are followed, rather than allowing your assets to pass to a parent, sibling, or other family member rather than your partner.

3. Who owns the house? If you do not properly title the home that you share, it could cause some serious issues if one partner dies. If the home is only titled in one partner’s name, that partner’s family could legally evict the other partner in the event of the owner’s death.

If both members of the couple have contributed equally to the purchase of the house, then it makes sense to title the house in both their names and add a joint tenancy with right of survivorship. If, on the other hand, only one person has paid for the house, s/he must put the other person in their will to ensure that they can stay there.

4. Retirement and unmarried stay-at-home-parents. Things get a little more complicated if one of the two unmarried parents is staying home to raise the kids. Contributions to IRAs must be made with earned income—unless your spouse is contributing to a spousal IRA because you do not work outside the home. However, there is no such allowable contribution for unmarried couples.

This is when it is very important for the working partner to do enough retirement saving and planning for two, and to be sure to name the non-working partner as their beneficiary. It’s also a good idea to consult a financial planner and potentially an attorney to be sure that the non-working partner will be protected.

5. Advance care directive and power of attorney. No one wants to think about the possibility of becoming incapacitated, but unmarried couples in particular need to make advance plans regarding these possibilities. Without specifically appointing your partner in writing as your power of attorney for managing your financial affairs or crafting an advance care directive so that your partner can manage your health care, then you might have a family member or even a state-appointed individual making those decisions for you.

The Bottom Line

Living together may seem like an easy option, but in order to maintain the life you both want, you will need to make sure that all of your financial ducks are in a row.

This is a guest post from One Smart Dollar, where Emily Guy Birken is also a contributor.