By John Drachman
As the number of adults aged 18 to 44 in domestic partnerships finally surged past marriages in 2017, according to Pew Research, two main reasons were cited for their lifestyle switch: finance and convenience.
“About three-in-ten cohabiting adults… cite their partner’s or their own lack of financial readiness as a major reason why they’re not engaged or married to their current partner,” Pew Research reported.
Cohabitation has its financial advantages. Partners can avoid the vaunted “marriage tax penalty”—the situation that befalls couples who earn roughly the same and then get dinged at tax time because they’ve been moving up the tax bracket at roughly the same pace. Cohabiting partners though are still subject to the same ups and downs as married folks when it comes to adjusting to a new financial relationship.
New domestic partnerships can get off to a smooth start by sticking to a few dos and don’ts:
- Cohabitation? There’s an agreement for that. Just because you’re not married, doesn’t mean you can’t benefit from a little helpful paperwork. Findlaw.com offers a number of free templates to the unmarried to help them get finances sorted to sidestep misunderstandings – or palimony suits.
- Hold your own titles: Resist the urge to mingle your assets and accounts from the get-go. Better to wait until you’ve made a stronger level of commitment to the relationship. Titles for major purchases should be in the name of owner.
- Separate recordkeeping: Keeping finances distinct from the beginning avoids the potential for heated disputes later. Joint purchases, however, should be in the names of both parties.
- Record transactions: Money still flows back and forth between people who are living together. Keep accurate records of contributions to any property held by your partner while writing “gift” or “loan” on checks written to your partner. If you buy a house together, decide between “joint ownership with rights of survivorship” or “tenants in common.” Under joint ownership, if one dies, the other inherits the property.
- What about the “young ones?” From the law’s perspective a never-married parent is subject to the same child support obligations as a once-married parent.
- Beware of shared debt: Only co-sign or guarantee debts that are incurred by your partner if you intend to be equally responsible for paying the debts back – even if it’s splitsville.
Domestic partnerships are supposed to be about maintaining mutual independence. Unlike divorced couples in which one spouse may have given up a lucrative career to be a stay-at-home parent, cohabitants do not have a clear obligation to support each other if they separate.
Living together and planning: The right combination
Before hanging up the curtains, consider talking to an estate planning attorney or financial advisor to clarify the ground rules around your new live-in relationship. Personal finance experts agree that estate planning and medical surrogate documents are essential for everyone, including unmarried couples and domestic partners. Family law attorneys are particularly well prepared to answer questions and protect your financial interests. Questions surrounding issues such as how assets are to be handled if one partner passes away or becomes disabled are best not left to chance.
John Drachman is a contributing writer to MyPerfectFinancialAdvisor, the premier matchmaker between investors and advisors. John is an IABC award-winning writer, who applies his 30 years of financial marketing experience toward advancing the dialog between investors and investment professionals.
