Financial Issues for Cohabitating Couples

Many people, at all ages, choose to live together without getting married. Unmarried partners do not qualify for joint income tax filing or the estate tax spousal exemption. Rather, they are treated as single individuals. In other areas of personal finance, however, they operate like married couples. For example, there are economies of scale (e.g., one cable bill instead of two) and the need to jointly pay household expenses. The longer a couple lives together, the more likely they will need to jointly make important financial and legal decisions. Below are five financial recommendations:

• Develop a Method for Bill-Paying- Consider holding separate credit cards and bank accounts and divide household expenses evenly or proportionate to each partner’s income. Keeping assets separate avoids the problem of becoming liable for a partner’s debts.
   
• Know the Law- Check with an attorney about the impact of cohabitation on alimony and child support from a previous marriage. State laws vary. Social Security benefits are not affected, however, which is why some retirees choose to live together but not marry so they won’t suffer a reduction in benefits based on an earlier marriage.
  
  

• Consider Purchasing Joint Property Coverage- Find out if this is an option. Insurance companies may allow this if both partners have an ownership interest in property being insured. Many insurance companies also allow someone with renters insurance to add a partner for less than it costs for two separate policies. Consider increasing the coverage, however, to reflect the increased value of both partners’ possessions.
   

• Understand the Fine Print- Be aware that, if both partners sign loan documents, an apartment lease, or a contract with a utility company, both are legally responsible for payments, even if one partner moves out.
   
• Consider Beneficiary Designations- Consider naming an unmarried partner as a beneficiary on retirement plans (e.g., IRAs) and/or a life insurance policy in the case of long-term relationships. Ditto for a will. Unlike surviving spouses in a married couple, unmarried partners will not inherit anything automatically through state intestacy laws if a partner dies without a will. Instead, surviving blood relatives will receive the deceased partner’s property.