A Money Guide for Couples Who Are Totally in Love… but Never Want to Marry

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Love and marriage don’t always go hand in hand these days.

You’ve probably heard all the reports about how fewer people are marrying — even after the 2015 Supreme Court decision that gave couples of all genders the right to marry.

About 18 million people in the U.S. are cohabiting with someone they’re not married to. And it isn’t just young couples shacking up to test the waters before marriage. About 1 in 4 of the 18 million cohabiters in the U.S. are 50 or older.

You don’t need a marriage certificate to prove your love for your partner.

But here’s the problem: The government doesn’t care how in love you are, which means financial and estate planning for unmarried couples is extra important.

Why Financial Planning Is Tough for Unmarried Couples

One thing that marriage has going for it is that it’s a legal contract. That means certain rights and obligations are defined by law.

That also means there’s an established process for ending that contract. It’s called divorce.

When a married couple parts ways, their assets are usually divided by a court. But when you part ways with your long-term partner, things can get messy. For example, if you lived in a house owned solely by your partner but contributed to household expenses, you’re likely to walk away with nothing.

And when one of you dies, your commitment won’t matter to the probate court that’s distributing the dead partner’s assets.

“Most states do not recognize a long-term relationship, so absent a will or the appropriate beneficiary designations your next of kin would receive your assets — not your long-term partner,” said Mary Kate D’Souza, an elder law attorney and chief legal officer at Gentreo.com, a subscription-based service that lets you prepare estate documents online.

Social Security is another big issue for unmarried couples, according to Jacob Sadler, certified financial planner and associate financial advisor at Woodstone Financial LLC in Asheville, North Carolina.

Married people who didn’t work enough to be eligible for full benefits on their own can qualify based on their spouse’s record. You can even get benefits based on the earnings of a deceased spouse or someone you’ve divorced. That’s not the case for unmarried partners,

“Benefits paid through Social Security that are paid typically to wedded spouses will not be paid to unmarried partners,” Sadler said. “This can potentially have a significant impact, especially if between the two partners one was a high earner and the other a lower wage earner over time.”

What to Do When You Combine Households

In the early stages, you and your partner probably had that oh-so-awkward “define the relationship” talk. Now, guess what?

If you’re combining households, you need to have an even more awkward conversation where you define the end of your relationship. Then, you need to spell all that out in a contract.

“Although it’s never pleasant to think about, one of the top concerns when it comes to financial planning for unmarried couples is what happens if the relationship ends,” said Matt Frankel, CFP with The Motley Fool’s The Ascent. “Who gets to continue living in the home you bought together? Who is responsible for debts accumulated during the relationship? It’s smart to have open conversations about who is responsible for what and can also help to put these things in writing through a domestic partnership agreement.”

You can find online templates, but ideally you’d each be represented by an attorney when you create an agreement, particularly if significant assets are involved.

If you’re considering a joint home purchase, make sure your ownership is structured appropriately for both of you. The two most common ownership structures for unmarried couples are:

  • Joint tenancy with rights of survivorship (JTWROS): You both have equal rights to the property, even if one of you paid more. If one partner dies, their share goes immediately to the surviving partner and doesn’t pass through probate.
  • Tenancy in common: You both own the property, but you can own unequal shares. So you could own 65% of the property, while your partner owns 35%, for example. If one partner dies, their interest goes through probate and will eventually go to the heir they named in their will. If the person doesn’t have a will, their share is distributed according to their state’s law and will likely go to their next of kin.

Misty Weltzien, CFP and managing partner with Pacific Advisors in Newport Beach, California, suggests choosing JTWROS.

“This will ensure that the asset passes directly to your partner and your family doesn’t try to stake a claim on your half of the asset, should you pass away first,” Weltzien said.

3 Money Moves Longtime Unmarried Couples Need to Make

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The following steps are essential if you’re in a committed long-term relationship, both to protect your rights but also to make sure your partner is protected if you were to die or become incapacitated.

1. Review Your Beneficiary Designations

If you bought a life insurance policy years ago or you have an old 401(k), you may have forgotten to update the beneficiary, i.e., the person who gets the money if you die.

Beneficiary designations supersede wills. That means that the person listed as your beneficiary would get the money from the policy or account, even if your will says you want your partner to get everything. It doesn’t matter if the designated beneficiary is an ex-spouse or a now-estranged family member.

Make a habit of reviewing your beneficiary designations at least once a year. Don’t stop at life insurance policies and retirement accounts. Take a look at any bank and brokerage accounts, as well.

“Even if you’ve put your partner in your will as the recipient of all of your financial accounts, the hands-down most efficient way to transfer these upon the account owner’s death is to have your partner named as the beneficiary,” Frankel said.

2. Update Your Will and Other Vital Documents

You need an estate plan that covers not only what happens when one of you dies, but also what happens if one of you can’t make decisions for themselves.

“It is critical that long-term unmarried couples create their estate planning documents to make sure that their partner is legally empowered to make their important health and financial decisions in the event of incapacity or death, D’Souza said.

Long-term partners need the following documents, according to D’Souza:

  • Will: This allows you to name who you want to receive your assets and manage your estate.
  • Health care proxy form: A document you use to designate who should make medical decisions for you in the event that you’re unable to.
  • Power of attorney form: A document you use to designate who should make financial decisions for you if you’re incapacitated.

3. Invest in Your Shared Future

We’ve talked a lot about how to prepare for breakups, sickness and death. But you should also have a plan for what we hope are many healthy and happy years ahead.

“Consider combining your long-term financial planning,” Frankel said. “While retirement accounts like IRAs are by definition owned by each individual, a joint brokerage account or joint savings account can help you get on common ground when it comes to planning for future expenses.”

Robin Hartill is a certified financial planner and a senior editor at The Penny Hoarder. She writes the Dear Penny personal finance advice column. Send your tricky money questions to [email protected].