5 Tips on Financial Planning for Unmarried Couples

5 Tips on Financial Planning for Unmarried Couples

Marriage equality and planning have become easier now but there are still some differences. At least these days, depending on how you plan, you are always given a choice. You will face a wide array of challenges and complexities if you choose to be in a long-term relationship and not get married. Below are the things you should deal together, hand in hand.

1. Communication

Marriage is what society always encourages. Married couples are always what comes in the mind first whenever talking about laws governing everything from insurance to living together and to estate planning. Federal laws that apply to married couples only were over 1000. Default rules for how the relationship works is set in the legal contract marriage has. Legal protections of assets involved in a divorce, and also guidelines for child support and alimony are some things many states offer. To those whose spouses die without a will, there are also default protecting the surviving one. 

To unmarried couples, these rules don’t apply. Rules stating rights, expectations, and obligations of each partner should be created on your own. Without conversing with each other, then you can’t do that. A conversation about your goals, values, financial needs, and your relationship -- these could either a long or series of conversations. Talking about money is somewhat unacceptable in many families but you and your loved ones should take a great deal of risk if you are in an unmarried partnership. 

2. Raising Children

Unmarried couples are at a disadvantage when talking about family law. This is actually a fact especially to couples where maternity or paternity rights is not assumed such as same-sex couples. To help you set expectations for each parent and protect you and your children, tools like a declaration of paternity, second-parent adoption or co-parenting agreements can help. Always be vigilant about what you sign since the possibility that a legal obligation for yourself will be enforced in a possible scenario. And it is best to find lawyers whose expertise focuses on unmarried couples or LGBTQ+. 

3. Taxes 

Depending on the disparity between partners’ income and the deduction taken, unmarried couples often pay lower taxes than their married counterparts. Good news, isn’t it? When spouses have similar income and file a joint return, they pay more tax than they should as a single individual -- and that’s a marriage penalty. Married couples with disparate incomes file a joint return will have the marriage bonus. However, if one person of the couple itemizes, the other party should do so too if they’re married and filing separately. But with an unmarried couple, this is not the case. 

You may be able to save more on your taxes if one of you is able to take the standard deduction and the other claims the itemized deduction. You should have a good understanding of each person’s marginal and effective tax rates, to list the appropriate person first on different assets, and to prove your strategy should you get an audit after keeping proper documentation.  When it comes to claiming mortgage interest and real estate taxes, the rules get really tricky so it is best to consult a tax and/or financial advisor before concluding a decision. 

4. Retirement Planning

Investing in a way that allows both people to take advantage of their best accounts especially if they are in a situation like one spouse has great retirement benefit but a so-so health plan and the other has excellent medical coverage. Assets can be legally divided without incurring early withdrawal or tax penalties if for some unknown future reason this needs to happen. Sadly, this benefit will not be enjoyed by unmarried couples. The best thing to do for them is to save for their retirement separately in a fair and timely manner for both of them. 

In your IRA 401(k) or proceeds of any insurance policy, you should always make sure you name exactly who you want to inherit the given asset, so better review your beneficiary designation. Make sure it is correct and current since beneficiary designations take precedence over the terms of your will. 

5. Life Insurance

Make sure your partner is protected just in case something happens to you and you have combined assets and liabilities. Life insurance is the best thing to consider in this situation. You should ask these following questions around:

  • In losing one source of income, how much would it affect the surviving partner?
  • Is there any inheritance or estate taxes?
  • If the partner dies, would the surviving partner want or even be able to work?

Always make sure to protect your family with proper insurance because the death of a loved one is tough enough.

Contact This Member