Financial security for unmarried couples
Money is one of the biggest issues couples fight about. It's also one of the most important areas for clear communication. After all, money touches every aspect of our lives.
I've written before about the importance of having good financial communication with your spouse. It's doubly important to communicate well with your partner if you're not married. Many of the financial advantages married couples enjoy are available to unmarried partners — but they're not automatic. For unmarried partners, it takes careful planning and legal documentation to create the kind of benefits married couples get the moment they say, “I do.”
Money Without Matrimony
To get a sense of the challenges and opportunities facing unmarried couples, I turned to financial expert Debra Neiman. Neiman is a Certified Financial Planner and co-author of the book Money Without Matrimony, a primer for unmarried couples setting up house together. I also spoke with two other, more personal experts on unmarried partnership: my friends John and Sarah. John and Sarah are living together and raising their daughter living together as unmarried partners.
According to Money Without Matrimony, there are three core groups of people who choose unmarried partnerships:
- same-sex couples who can't legally marry
- younger couples who don't feel ready for marriage or aren't interested in marrying
- older couples who have financial disincentives to marry because of their existing benefits.
John and Sarah fall squarely into Neiman's middle camp: a couple in their mid-30s who enjoy their unmarried partnership and aren't interested in marriage, but do want to share a life together. They've been together four years, and have a daughter.
“We have no plans to get married in the future,” Sarah says. “We're happy being unmarried to each other. Right now I feel like the most likely reason for us to get married would be if we had no other way to achieve some critical benefit associated with marriage, like if we had to get married to get our daughter health insurance. But so far nothing like that has come up.”
Sarah says they manage their household finances through a joint account, but each maintain individual accounts. “I think we'd probably manage day-to-day expenses roughly the same if we were married to each other,” she says. They've just recently made the transition from graduate student income to a professional salary, so they're facing some new decisions about how to handle savings and long-term plans.
Five Keys to Financial Success
Regardless of why you're not married, or what stage of life you're at, Neiman says there are five things every unmarried couple must do to safeguard themselves and each other as they approach their financial life together:
- Document. Put your wishes in writing. This means all the basic estate planning documents, which are doubly important for married couples. If you die without a will, or fall ill without a health care proxy, and you're married, your spouse has certain automatic legal rights to make decisions on your behalf and dispense with your stuff. Your unmarried partner, on the other hand, is legally a stranger to you. Without these documents, your loved one will have no rights to care for you or inherit from you. You'll want some additional documentation as well. Neiman says it's a good idea to write down your basic ground rules for how you'll share household expenses, and to document what you want to have happen if the relationship dissolves.”It's important to do this while you're in love,” Neiman says. I'd add that those kinds of informal process documents are a good plan for all couples — married or not.
- Insure. Some federal protections don't apply to unmarried couples, such as social security benefits. That makes it vital to have adequate life insurance protecting each other in the event of a tragedy. “If these two people are relying on each other's income, they need to insure to protect themselves,” Neiman says. She encourages unmarried couples to carry enough term life insurance to replace some income streams, such as the social security benefits they don't qualify for.
- Instruct. Instruct your trustees as to your wishes. If you are providing for each other in the event of something happening, make sure that you list your partner as beneficiary. Be sure you've done all the appropriate paperwork for this, since — as mentioned above — it won't happen automatically.
- Ownership. Make sure that assets are owned properly. “This is where things get really sticky for unmarried couples,” Neiman said. Unlike married couples, unmarried couples cannot share property indiscriminately; property transfers between partners may be subject to gift taxes. On the other hand, unmarried couples do not have to share in each other's debts or faulty credit. Indeed, one reason couples sometimes choose not to marry is to avoid mingling one partner's pristine financial history with the other's spotty one.
- Inform. Inform family members of your intentions or wishes. Neiman says this is especially important if you expect family members to be difficult about choices you've made. If your family doesn't approve of your relationship, they may resist your wishes to provide for your partner. Better to have your plans known ahead of time than to have them mount a surprise contest against your will after you're gone.
These steps are all, obviously, good ideas for any couple. The better you plan ahead of emergencies and the eventual end of your life, the smoother the process will be for your loved ones. They're essential for unmarried couples, though.
Neiman says not getting all the requisite legal documents in place is the top mistake unmarried couples make. Money Without Matrimony contains many troubling stories of couples whose failure to plan ahead caused catastrophe for one or both of them.
More Than Money
It's not just about the disposition of substantial assets. Neiman asks couples to think about what will happen to their most personal items. What will happen to your journals? Any art you've created? Your pets? If you're not married and you want your partner to have those things, you need to say so clearly in writing.
Once you have your documentation in place and have agreed on how to share your household expenses and long-term plans, keeping it running smoothly isn't that different than it is for married couples. It requires the same commitment to clear communication and responsible use of resources.
My friend Sarah cites getting to write their own agreements about money as one of the best things about having an unmarried partnership. “The other side of that coin is having to work out our own agreements, rather than letting the government make decisions for us,” she says.