Smart Financial Steps for Unmarried Couples

U.S. Census Bureau figures show a recent increase in unmarried couples living together, possibly due in part to job loss or other consequences of an uncertain economy. According to the New Jersey Society of Certified Public Accountants (NJSCPA), no matter what brought them together, cohabiting couples have unique financial considerations.

Know Your State’s Laws
Common law marriages, in which some cohabiting couples have rights similar to those of spouses, are recognized in fewer than 20 states. If you don’t live in one of these states, or if you don’t meet their requirements, you are not considered married, no matter how long you live together. In addition, 12 states and the District of Columbia offer some form of civil union or domestic partnership with varying types of rights. Start by finding out your state laws.

Divorce Laws Don’t Apply
Next, consider what will happen if your relationship ends. When a marriage ends, divorce laws can help determine tough issues such as how the marital property will be divided, who will continue living in your home, who’s responsible for outstanding debt and how child custody will be handled. Depending on your state’s laws and the form of your relationship, there will likely be no similar rules for an unmarried couple. That’s why you may want to consider creating a cohabitation agreement, much like a prenuptial agreement before marriage, to establish some ground rules that may come in handy later.

Look Before You Leap into Home Ownership
Real estate prices remain at historic lows in many places, and home ownership is still considered a good long-term investment. But before you chip in together to buy a home, remember that just because you live together and perhaps make equal payments on the mortgage bill, a court may not automatically consider you equal owners of the home if your relationship ends. In all likelihood, the property would belong to the person named on the deed, even if you have both contributed to the down payment or mortgage bills.

Pros and Cons of Joint Tenancy
A cohabitation agreement can identify issues such as who gets the house. There are also other options for unmarried couples, such as a joint tenancy with a right of survivorship, in which you both own the home and the property passes to the surviving partner if one of you dies. The downside is that under this arrangement, you also take responsibility for any debts associated with the home. That means that if one partner stops making mortgage payments, the other will be stuck with the entire bill. You will also need your partner’s agreement to sell the house, since you don’t own the property outright.

Estate Planning Is Critical
If unmarried partners don’t have wills, their assets generally go to other family members, since most states don’t recognize an unmarried couple’s inheritance rights. In addition, while surviving spouses don’t face estate taxes on their inheritance, a domestic partner may be forced to sell a home or other assets to pay estate taxes. A will can identify your intended beneficiary, and a proper estate plan can minimize the estate tax burden on your partner.

Your CPA Can Help
Your local CPA can provide advice to help you address the complicated concerns for unmarried couples and keep your relationship on the right financial footing. Turn to him or her with all your financial questions.

If you don’t have a CPA, you can easily locate one online using the NJSCPA’s free, online Find-A-CPA service. Just go to findacpa.org, and in a few clicks you can locate a highly qualified professional who can assist you.



Copyright ©2011 The American Institute of Certified Public Accountants