Financial planning for unmarried couples is a strenuous exercise in creating solutions for financial security that are called workarounds. They are workarounds because little of the planning is easy, but it is all vital if unmarried couples want to create the financial safety and security that smart married couples undertake to put in place. Married couples have the force of state and federal law allowing them to plan for retirement, risk management, and estate planning far more easily. Unmarried couples must work much harder to set up the same protections.
The “must haves” for financial and estate planning for unmarried couples can be accomplished methodically. The strategies include the following:
Unmarried couples need to create legal agreements, primarily contracts, that document the financial arrangements they will abide by during their relationship as well as after the relationship ends. Some of these documents include domestic partnership agreements, pre and post nuptial agreements, wills, trusts, health care proxies, do not resuscitate orders, and living wills. Powers of attorney are now being written to require accountability, by an accounting firm or attorney so a third party can keep an eye on the spending decisions of the power of attorney. This way, assets that are supposed to be managed appropriately for the long term cannot be raided by greedy friends or relatives with the power of attorney and no regard for the wishes of the deceased.
Unmarried couples do not automatically benefit Federal and state law that reduces the tax burdens at the time of transfer of assets from one partner to another. They must become creative to pass a house from one partner to another with minimal gift taxes for example, as well as to offer the larger income earner the greater tax benefits for income tax planning. There are benefits in Roth conversions for partners who earn under the $90,000 Roth limit.
Unmarried couples, like all married couples, must integrate their long-term goals with their investment strategies. Depending on the different tax brackets of the couple, different strategies may apply. It is crucial that the couple coordinate between the two partners 401(k) plan options reducing duplication or investment gaps for a well rounded portfolio.
Unmarried couples need to understand how difficult it is to make certain that their wishes are carried out after their partner's death. There are egregious examples of partners intending support for survivors, but not putting the proper paper work together to make that happen. Beneficiary designations are key, as are wills and trusts that determine how assets are transferred and cannot be abridged by unhappy relatives. Anything not controlled by a will or a will substitute may end up in probate, where many relatives can stake claims on assets never intended for them.
Unmarried couples who adopt must make certain that they follow the letter of the law to protect the parenting rights of a surviving partner. The parenting rights and guardianship for an adoptive child must also be planned should there be a dissolution of the relationship.
Every state is different regarding rights for unmarried couples. Make it your business to check out your state law regarding common law for unmarried gay couples, as well as state views on domestic partner agreements or gay marriage (CA and MA only). If you don’t have estate planning documents in place, and proper titles on assets, they may not go where you want them to go when state law takes over. You must know what is legal for your state.
Unmarried couples, in fact, all couples, married or not, need to pay particular attention to health, life, disability, and long term care insurance. Future support for children, adopted children, and partners of young children can be greatly enhanced by proper life insurance. Disability insurance covers current income and living needs, but will not cover long term care needs such as nursing home care. Most couples say they cannot afford disability and long term care insurance. In truth, it is a major risk if left untended. Most unmarried couples cannot afford to ignore these large risks.
Retirement planning requires a financial plan and discussion of your goals and dreams for retirement. You must plan now to maximize your 401(k) contributions every payday, and understand the payout you will be receiving from pension plans.
Unmarried couples frequently have strong feelings about organizations they wish their estates to support. That will only happen with appropriate planning. If you are still struggling with whether or not you have enough for retirement, you can make charitable decisions that only get implemented after your death and that of your partner.
Mark your own calendar even if your financial planner does not. Every two years check in. Every five years have your estate plan reviewed for changes in the law. A good financial advisor will initiate these calls, often frequently during the year. Any major changes such as new marriages, sale of a business, or death of a partner should be immediately shared with your financial advisor because of the impact those changes can have on your overall financial strategies.