Happily Unmarried: What Are the Financial Issues?

Carrie Schwab Pomerantz
Posted: Dec 06, 2012 12:01 AM

Dear Carrie, I'm 34 and thinking of moving in with my boyfriend. We're committed to each other and both want children, but we don't plan to get married. From a financial point of view, what do we need to know? --A Reader

Dear Reader, It's good that you're asking this question now, before moving in together. A committed emotional relationship soon evolves into a financial relationship as you start to share the costs and concerns of everyday life, whether you're married or not.

However, handling day-to-day living expenses is the simple part. It's when you get into things like large purchases, buying a home, insurance, retirement and estate planning that it gets more complicated. And let's be honest -- many of the financial concerns have to do with what happens if you break up.

There's no clearly defined legal structure for the division of property for unmarried couples. So it's up to the two of you to figure out what's fair to you both and create some guidelines, realizing that as your relationship grows, your decisions may evolve. I think it's best to start with some honest discussion, a commitment to complete disclosure and a look to the future.

Consider a domestic partnership agreement

To help keep money misunderstandings to a minimum, I always suggest putting things in writing. A domestic partnership or cohabitation agreement is like a prenuptial agreement. It specifies roles and responsibilities, what you'll share, what you'll keep separate and how assets will be distributed should your relationship end.

You don't need a lawyer to do this. The important thing is that you agree on what's fair now -- and write down your agreements -- to hopefully avoid problems later.

Decide what you'll share-and what you won't

Moving in together doesn't necessitate complete financial togetherness. A "yours, mine and ours" approach is often the best and fairest. Start by deciding which expenses you'll share (for example, rent, groceries, utilities, joint entertainment and travel), and which you'll pay for separately (such as clothes, individual car expenses, haircuts and solo entertainment).

If one of you makes more money than the other, the higher earner would contribute more to the communal pot. That way, you can each have a fair amount of money for discretionary spending.

To keep things simple, maintain your own checking and savings accounts, as well as credit cards. Open a joint account for shared expenses and possibly a joint savings account for mutual goals.

Agree on big-ticket purchases

Give some extra thought to big purchases like a car, computer or flat-screen TV. If you pay for expensive items like these together, you'll want to make sure your agreement mentions dividing things equitably in a break up. Or you could agree to buy these things separately -- and still enjoy them together.

Be careful when titling property

Property that involves a title, such as a car or a house, can get a bit trickier. Titling a car is pretty straightforward, but there's more to consider with a home. If only one of you buys the house and has sole title, the other could be left with nothing. If you both contribute to the purchase, both your names should be on the title.

You can purchase a house either as joint tenants with the right of survivorship or tenants in common. As joint tenants, you each own half the property and inherit the other half if one of you dies. As tenants in common, you can each own any percentage of the property and sell or pass it on to whomever you wish.

If you contribute unequally, and decide to take title as tenants in common, be sure to keep careful track of each person's contributions to ongoing improvements and maintenance. I highly recommend consulting an attorney to make sure you both understand the implications of your decisions.

Think about taxes

As an unmarried couple, you can't file a joint tax return. But if you have children, one of you could file as "head of household." This would allow that person to have a higher standard deduction, an extra personal exemption and potentially lower tax rates. It generally makes the most sense for the higher earner to do this.

Safeguard your present -- and your future

From health insurance to saving to retirement planning, there's a lot you can do to protect yourselves and each other.

Here's where to get started:

--Health insurance: First, if either of you lacks health insurance, check with your employers to see if domestic partner coverage is available.

--Savings: Then you should each focus on saving, both in short-term emergency funds and in long-term retirement accounts.

--Beneficiaries: As your commitment grows and strengthens, you can consider making each other the beneficiary on your retirement and other investment accounts.

Other safeguards to put in place as time goes on, especially if you have children, are:

--Will: Specify the distribution of financial assets and personal possessions and the guardianship of young children.

--Durable power of attorney: This is so you can make financial decisions on each other's behalf should either of you become disabled.

--Medical powers of attorney: This is so you can make medical decisions for one another.

Be flexible

At this point, you can keep things simple. As your finances -- and your family -- grow, you can always make modifications. In the meantime, coming to some initial financial agreements, and putting them in writing, will provide a solid financial foundation on which to build your life together.

Carrie Schwab-Pomerantz, CERTIFIED FINANCIAL PLANNER(tm), is president of Charles Schwab Foundation and author of "It Pays to Talk." You can e-mail Carrie at askcarrie@schwab.com. This column is no substitute for an individualized recommendation, tax, legal or personalized investment advice. To find out more about Carrie Schwab-Pomerantz and read features by other Creators Syndicate writers and cartoonists, visit the Creators Syndicate website at www.creators.com.