Unwed couples need to take financial steps


ONE STRIKING trend recently revealed in new U.S. Census Bureau's data: More unmarried couples are living together.

Over the past decade, the number of unmarried couples cohabiting grew 72 percent to 5.5 million couples.

Some of that increase may come from "echo boomers," a large generation now entering its early 20s, choosing to share a household with a mate rather than marry, says the Census Bureau's Martin O'Connell. Divorced baby boomers, too, are opting to live with a partner before embarking on a second marriage, he says.

Lawyers and financial planners say their unmarried clients also include gay couples and elderly couples worried about losing benefits if they tie the knot.

What all these couples have in common is they don't have the same financial protections as their married counterparts. For instance, when a married person dies, the spouse may be eligible for survivor's benefits under a pension or Social Security. Those benefits would not be extended to an unmarried mate.

That means if unmarried couples want to protect their interests, they need to take some financial steps. And the first move, experts say, is for partners to discuss financial expectations and what will be "yours, mine and ours."

"What happens is people, while they are happy together, allow things to be ambiguous," says Frederick Hertz, an Oakland, Calif., lawyer and author of "Living Together: A Legal Guide for Unmarried Couples." That can lead to disagreements later, he says.

Tom Flynn, 45, and Sue Gibbons, 43, of Buffalo, N.Y., have lived together for 13 years and say they developed a financial strategy early on that works for them to this day. They keep their finances simple and separate.

"I've seen too many people fight about money," which contributes to breakups, says Gibbons. "Once everything becomes joint, it opens the door for a lot more discord in the relationship."

The couple split basic household expenses 50-50, and each contributes to the rent based on income. Each year the couple review their rent contributions.

Blake Humphreys, 30, and Paul Larsen, 30, of Washington find that combining finances works best for them. The couple bought a house together a year and a half ago and have joint savings and checking accounts.

"We basically share everything," says Humphreys, director of Free State Justice, a Maryland civil rights group for gays and lesbians. "Once a month, we both sit down at the table and pay our bills together. That's the way my parents did it. That's the way I'm doing it."

Experts recommend unmarried couples consider these other financial steps:

Powers of attorney: If one partner becomes incapacitated, the other will need power of attorney to handle the ailing partner's finances.

Each partner also will need a health care power of attorney to make medical decisions for an incapacitated partner. This document also may be needed to protect a partner's right to make hospital visits, says Mary Agnes Sheehan, a Bethesda estate planning lawyer who often advises gay and lesbian couples.

Because hospitals sometimes allow only one visitor, Sheehan recommends including specific language in the health care document "giving the power of attorney the right to visit and to determine who gets to visit."

Will: Die without a will and state law determines which relative gets what. "If you die without a will, your unmarried partner will inherit nothing; only legal relatives will," Hertz says.

Letter of instruction: Disputes can arise at death between a surviving partner and family members about burial, and particularly about cremation, Sheehan says. In a letter of instruction, you can list your wishes and name someone to make funeral decisions on your behalf.

Beneficiaries: Individual retirement accounts, life insurance policies, 401(k) accounts and even some stock options allow you to name a beneficiary.

To avoid confusion and ensure your assets go to the desired heir, make sure your beneficiary designations are in sync with your will and property titles, Sheehan says. Beneficiaries named on an account or policy override a will, she says.

Cohabitation agreement: Married partners have divorce laws to protect their interests on how assets are divided in a breakup. Unmarried couples don't. A cohabitation or domestic partnership agreement, though, can spell out how assets will be split when a couple parts, whether mediation will be sought, or if one partner will receive financial support.

"The purpose of a domestic partnership agreement is to create the rules of divorce," says Harold Lustig, a San Francisco financial planner and author of "4 Steps to Financial Security for Lesbian and Gay Couples." "There is no element of built-in protection unless they put this in a contract," Lustig says.

Estate planning: A husband or wife can leave unlimited assets free of federal estate tax to the surviving spouse. Unmarried individuals, on the other hand, can leave up to $675,000 to a nonspouse or other heirs tax free. Be aware, Marylanders also will pay a 10 percent state inheritance tax on assets left to an unrelated individual, Sheehan says. Those with sizable estates will need to do some estate planning to avoid hefty estate taxes. That may include buying life insurance to pay potential estate or inheritance taxes, experts say.

Titling property: For unmarried couples, property ownership basically will be determined by how assets are titled, Sheehan says. Partners need to weigh the pros and cons of how they title their property.

Joint tenants with rights of survivorship, for instance, means that when one partner dies, the other automatically becomes sole owner. That's one advantage. A drawback for someone with a high net worth is that at death the full value of the house will be considered part of the federal taxable estate.

Retirement planning Because unmarried couples won't be eligible for survivor's benefits from Social Security or traditional pensions, they must set aside additional assets for retirement, says Gay Abarbanell, a financial planner in Culver City, Calif.

Do you have a personal finance issue of general interest that you would like to see addressed in this column? Contact Eileen Ambrose at 410-332-6984 or by e-mail at eileen.ambrose@baltsun.com.

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