, , , ,

The Unique Financial Circumstances of Unmarried Couples

Happy unmarried couple

Tips for Navigating This New Financial Terrain

A lot has changed about marriage in America in the past few decades: millennials are marrying later in life, children are increasingly born to unwed parents and the rate of marriage itself is steadily declining. That doesn’t mean Americans are shunning committed relationships, however. Instead, more and more Americans are choosing to live together without putting the proverbial ring on it.

For example, take the fact that—in just 9 years—the number of cohabiting relationships rose 29%—from about 14 million in 2007 to 18 million in 2016. While the largest percentage of cohabiting adults falls between the ages of 25 and 34, they aren’t the only engine of change; the incidence of cohabitation among adults 50 and older increased 75% in those same 9 years!

Unfortunately, American legal and financial systems are slow to evolve along with them. As such, committing to a life together without a marriage license includes committing to a life characterized by unique financial circumstances. While not all bad, these do include a host of financial challenges—and these families feel it.

Financial challenges for unmarried couples

According to a 2014 study by Allianz, more families of cohabiting couples reported feeling financially insecure than did families of married couples. In fact, as the Pew Research Center reports, married parents are more likely to be financially better off. That fact is in part because cohabiting parents are typically younger and less educated. Still, there are many factors that make the financial circumstances of unmarried partners less favorable.

For example, unmarried couples are less likely to be covered under their partner’s employer-paid health insurance coverage. That means higher costs for both. Unmarried couples also are ineligible to receive survivor benefits from retirement plans or Social Security. When it comes to property, if one partner in a cohabiting couple dies, the surviving partner has no automatic rights. That means, if both names are on the title of their house, for example, the survivor will not automatically inherit their shared home. Even when couples are careful to designate one another as heirs, they may be dinged with estate and gift taxes that married couples don’t face.

Perhaps not surprisingly, taxes are a particular pain point for unmarried couples. While some states recognize domestic partnerships and civil unions, the federal government does not. Without such recognition, cohabiting couples must file taxes separately, forgoing any potential tax bonuses (for example, the ability to write off a spouse’s financial loss or high medical expenses).  If they have children together, only one parent can claim them as dependents.

…And a few financial benefits

The news isn’t all bad, however. Cohabiting couples may also enjoy a handful of financial benefits. Depending upon a couple’s financial arrangements, for example, should one partner die, the surviving partner may not be responsible for the other’s debt. Likewise, if one person’s credit is less-than-optimal, the other’s will not be affected.

This can be especially good news as people begin their lives together at more advanced ages. After all, past debt (including student loans) and separate career paths (and incomes) are likely to have set people up differently by the time they merge their paths.

Financial tips for unmarried couples

As with all personal financial matters, the key to financial security is to familiarize yourself with the ever-evolving ins and outs of your unique circumstances and to address any financial concerns before they become a real problem. Below are a few tips to start:

  1. Be open and honest when it comes to your finances. Nothing collapses a financial house faster than unrevealed debt or unresolved overspending habits. That’s an attitude we all can benefit from.
  2. Plan for your property. When buying a house together, decide up-front how the property will be dealt with if things don’t work out or if one partner dies. While both of your names may be on the title, for example, you’ll need to decide whether one of you will stay in the home or you’ll sell it to a third party within a certain amount of time.
  3. Think before you merge. While love and marriage may have once implied joint accounts, today unmarried couples would do well to consider what accounts really need to be shared. Decide in advance what expenses you will share—utilities? groceries? rent or mortgage?—and establish one shared account to which you both contribute.
  4. Seek guidance. Whether looking to untangle a particularly complex issue or just make the most of your investments, the reassurance that you’ve done due diligence will be worth the short-term fee from financial and legal professionals. As laws change, so will your financial circumstances. Financial counselors and even coaches can help you stay on track.

If you’re coupled but not married, navigating everything from shared property and child custody to life insurance and estate planning may require some fancy financial footwork that married couples don’t face. While the growing phenomenon of cohabiting adultsand unmarried parents—is not likely to change, financial structures surely will. Make sure you stay informed about the evolving laws, programs and financial advantages and disadvantages of being an unmarried couple.