Friday, September 18th, 2020
If you’re in a committed, long-term relationship, you likely face the same financial challenges as married couples. This is especially true if you are living together.
However, as an unmarried couple, you fail to receive some legal advantages that married couples get due to your relationship status. Here are a few tips for you and your partner to ensure financial security.
Discuss your finances
Couples need to discuss their finances. An ongoing discussion might include a conversation about their feelings about money, how they prefer to budget, and their comfort level in splitting or sharing expenses. Talk to your partner and decide whether you want to deal with your finances together or individually. Discuss each other’s financial priorities, values, goals, and concerns thoroughly. Discussing your preferences can help you avoid arguments about money, which plague both married and unmarried couples.
If it is better for both of you, you might choose to keep your finances separate to avoid a joint account’s liabilities. However, many couples prefer to pay household expenses together, like how married couples usually do when it comes to convenience. Keep in mind that maintaining a joint checking account may hold both of you accountable for all the money drawn or overdrawn from that account.
Some couples decide not to go all-in on sharing all their assets and choose to only pool some of their funds. This allows people to share household expenses but keep a portion of their income separate for personal use. Having a joint account never stops you from maintaining individual accounts, even when you’re married.
In joint credit cards, you can have joint accounts or add your partner as an authorized user. With a joint account, you both will be 100% liable for all charges on that card, including what expenditures your partner has made.
Talk about retirement
Though planning for retirement is a bit different for unmarried couples, you shouldn’t give up planning for retirement. Without being married, you aren’t qualified for spousal benefits from key retirement sources, including traditional pension plans, social security, retirement benefits, etc.
You can still take simple steps today so you can set yourself up to retire together, with sufficient funds, in the future. These steps include:
• Make your partner the beneficiary of your retirement accounts such as a 401(k) or IRA.
• Boost your savings so that it can replace spousal benefits that your partner won’t get from your pension plans and Social Security.
• You can think about a life insurance plan to fund your partner’s retirement by designating them as a beneficiary.
• Life is unpredictable, so remember that you can make changes to your beneficiary designations at any time.
Decide how you’ll plan your estate
Unmarried couples must have a comprehensive estate plan in place. Unmarried couples should take these steps to protect each other’s financial futures because some laws that protect married couples do not apply to them. If you don’t have adequate protection and one of you dies, the surviving partner may be forced to vacate a home that you share, and your next of kin may dispose of the estate in whatever manner he or she determines.
Your partner can also be left out of medical and financial decisions if you become incapacitated or critically ill. Ensure your estate is handled by someone you trust to make decisions aligned with your wishes. This person may or may not be your partner. You may want to consider proactively planning your estate. There are several steps you can take to get started:
• Talk to an estate planning attorney about how to protect your partner and your assets after death.
• Seek durable power of attorneys for healthcare and financial authority.
• Designate the person you trust most as your representative.
• At the very least, execute a will to ensure financial security for your partner.
• Think about signing a domestic partner contract. It won’t replace a trust or a will, but rather support to ensure your partner’s right to joint properties.
Consider tax implications
Although there are tax benefits to being married, many unmarried couples make out better on taxes than married couples in the same financial situations. Depending on your incomes, children, employment status, and how you itemize your deductions, it might make more sense to file your federal income taxes separately even when married.
Additionally, there are some tax benefits that unmarried couples can take advantage of. You may want to discuss the head of household filing status with your accountant or financial advisor if you have dependents. Additionally, if you have children, you may want to explore the child and dependent care.