By: Kory Gildea
Frequently in modern society we’re seeing couples who choose to avoid the institution of marriage while maintaining a long-term, committed relationship with their significant other. If you’re a member of this demographic, it’s important to plan accordingly, especially when living with your partner. In the eyes of the government, a long-term partner is not the same as a spouse, and as such there are a number of planning topics that require extra consideration. For those couples cohabitating with a partner, let’s review a few steps that can be taken to help get your affairs in order.
When living with someone outside of a marriage, the easiest place to start is to form a cohabitating agreement (property agreements or living together contracts may also fit your needs). This is a legal agreement formed between an unmarried couple which protects the interests and assets of each individual while in a relationship. These agreements can be as broad or refined as the couple would like.
What a cohabitating agreement does:
- Spells out who pays which bills
- Lists who owns which property going into the relationship and what happens to property acquired during the relationship (think large purchases, pets, etc.)
- Identifies arrangements related to the living situation
- Lists what happens in the event of a breakup as well as how disputes will be resolved
- Determines custodial rights and costs when children are involved
- Settles other matters couples would like noted when in a serious relationship
It’s important when creating a cohabitating agreement with your partner that you ensure the document will be enforceable in the event of a separation. To do so, the contract should be in writing and signed by both parties. The contract should also be reviewed by each party separately, with best practice being to review individually with a lawyer (this could also be a good time to discuss estate planning). It’s important to note that if children are involved in the relationship, the document should be in the best interest of the children. To do otherwise would increase the chances a court would intercede. Should you and your partner elect against forming a cohabitating agreement, it becomes even more important to have a continuous open dialogue on matters which impact the other person.
If it hasn’t already been a topic of discussion, it’s important to get comfortable talking to your partner about financial matters that impact one another. This doesn’t mean running every purchase by your partner, but the two of you should be on the same page as it relates to general spending habits, your respective financial goals, and how bills and expenses are to be managed. You should also discuss how accounts are to be titled. Each party should be aware of the other’s financial history, and whether a partner’s debt or bad credit could end up impacting them. Lastly, it may be beneficial to discuss tax filing strategies with your partner and a professional to minimize taxes to the best of your abilities.
Under this same umbrella are financial arrangements if you are living together. Splitting rent can typically be handled with relative ease, but things get more complicated if you or your partner intends to purchase a home, or if you’d like to purchase a home together. The main factors to consider when discussing this with your significant other is what percentage of the home each of you will own, and whether or not a person’s ownership is transferrable to someone outside the relationship. The three most common forms of ownership are:
- Sole Ownership – One partner owns the home outright and determines what should happen to the home in the event of a breakup or death, which would be addressed in the will.
- Joint Tenancy with Rights of Survivorship (JTWROS) –Each party owns 50% of the home and is unable to sell or leave their share in the house to anyone besides their co-signer should something happen to them.
- Tenancy in Common – This is a less cohesive form of ownership than JTWROS. Either party may own any percentage of the home as agreed upon and may exit the agreement by selling their ownership percentage in the house. Should something happen to either party, their ownership percentage in the home will pass to their estate or as their will directs.
If, as a couple, you elect to proceed with purchasing a home together, it’s important to have a plan in place if the relationship doesn’t work out. You should also have a general idea of how furnishing costs and future house and property expenses will be split (think property agreement in this case).
How you and your partner approach your respective insurance needs is another important matter to discuss. Insurance carriers of all kinds have come a long way in their coverage of unmarried partners, and now tend to offer comparable products and services as they would to married couples. See below for how most carriers handle some common types of insurance for unmarried partners, and remember that best practice is always to consult with your local insurance agent:
- Life Insurance – Unmarried couples can obtain life insurance on one another if each has their partner’s consent and has an insurable interest.
- Homeowner’s Insurance – There should not be any issues acquiring joint homeowners insurance when both individuals own the home. If only one party owns the house, you should confirm whether your partner’s belongings are insured in the event that something happens to the home (i.e., a fire, flood, etc.). This may require obtaining a renter’s insurance policy.
- Auto Insurance – Most insurance companies offer the ability to share a policy with a partner either through a domestic partner insurance policy or through practices such as adding your partner to your plan as a qualified driver. A shared policy may not be in both party’s best interest depending on each driver’s driving records, the types of cars they own, or other influencing factors.
- Health Insurance – Many companies and health insurers now offer coverage to domestic partners of the insured. It is important to discuss with your HR representative or the insurance company directly to determine whether any additional action or documentation is needed. It should be noted, if your partner is insured through your company and you’re fired they will not be covered by COBRA as a typical spouse would.
Whether married or not, it’s always important to have the not-so-fun conversations with your significant other and plan for all situations. The difference is, when you’re not married you typically don’t have the law working in your favor. Take time to talk with your partner and financial advisor about ways in which your relationship differs from that of a married couple, and make sure you’re prepared for situations which may arise.
About Homrich Berg
Founded in 1989, Atlanta-based Homrich Berg is a national independent wealth management firm that provides fiduciary, fee-only investment management and financial planning services, serving as the leader of the financial team for our clients, including high-net-worth individuals, families, and not-for-profits. Homrich Berg manages over $9 billion for more than 2,000 family relationships nationwide.
*Homrich Berg does not provide legal or tax advice. Please consult your attorney or CPA for opinions on any such matters