Living together is increasingly common in the United States. In 2010, unmarried couples comprised 12% of heterosexual couples who cohabitated, a level 25% higher than in 2000, per the U.S. Census Bureau.
And the trend is even more prevalent in the over 50 crowd. The number of people over age 50 jumped to 2.8 million in 2010 from 1.2 million in 2000. Interestingly, many older couples view living together as a permanent state as opposed to younger couples who view cohabitation as a transition step on the path to marriage. (And, of course, non-heterosexual couples are restricted by whether or not their state of residence allows same-sex marriage.)
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Regardless of a couple's marital status, managing a household's financial affairs is complex, and even more complex for non-married couples living together. Unmarried cohabitating couples do not have the same legal protections that married people do if the relationship ends or when one partner dies. Therefore, it is important that couples create some of those protections themselves and ask a few key questions before moving in together, including the following.
Ask how you want to handle household expenses. It's usually best for unmarried couples to keep their checking accounts separate and to create a joint account for common expenses, such as groceries or utilities. Ideally, the amount that each partner contributes to the joint account is equal, but in case one partner makes a significantly higher salary than the other, a proportional contribution might be more fair. Remember that one partner can clean out a joint account, and you have no legal recourse, so keep as little as practical in the account. Separate accounts are even more important for debts, especially if one member of the couple has had credit issues in the past.
Ask how you want to handle the purchase of a home. For each partner's financial protection, non-married couples should avoid contributing capital to the purchase of a significant asset, like a home or car, unless the asset is titled in both partners' names. Consult an attorney regarding the best way to title real estate as the way that property is held determines how that asset passes upon the death of the property owner. Similarly, you will want to consult an attorney about beneficiary designations on life insurance and retirement accounts.
Ask each other how you want to handle end-of-life care. While everyone should have an up-to-date estate plan that reflects her wishes, it is especially important for each partner of a non-married couple to discuss how she wants to handle end-of-life care issues and to document her choices.
There are two key documents that address end-of-life care: a durable powers for health care and for financial affairs. A durable power of attorney for health care is the document in which one partner would give his partner the authority to make health care decisions for him in the event that he is unable to do so. Likewise, a durable power of attorney for financial affairs gives a designated person the authority to manage financial affairs in the event of a person's incapacitation or incompetence.
Given the complexity of -- and nuances related to -- a financial partnership between an unmarried couple, creating a legal agreement between the parties is probably wise. This domestic partnership agreement details each partner's financial responsibilities and obligations in case of a “divorce” or death.
Does the partner with a substantial income agree to pay a certain amount of maintenance to his partner for a specific period of time in the event of a breakup?
Who lives in the jointly owned house after a breakup?
It is important to hire an attorney to draft this agreement as the laws that related to unmarried couples differ from state to state.
Kimberly Clouse, is chief client advocate for Covestor, a registered investment adviser and online investing marketplace.