By Peter Mastrantuono
The rise of unmarried couples living together has widened the wealth gap among young adults. Marriage, it appears, has a positive influence on financial stability and net worth.
According to an analysis by the Federal Reserve Bank of St. Louis, married couples have higher home ownership, are less encumbered by student debt and have a net worth 4.5 times greater than unmarried couples (ages 25 to 34).
It’s difficult to pinpoint the exact reasons for this. One possible explanation is that marriage encourages a long-term perspective that fosters planning for the future.
Whatever the case may be, unmarried couples aren’t fated to falling short of their married peers financially; it just may require taking a different path to getting there.
6 Tips for Achieving Financial Stability
One of the advantages of marriage is that it is a legal contract, backed by a wide number of federal and state protections as it relates to retirement, inheritance and asset and income division in the event of a divorce. Few if any similar protections exist for unmarried couples living together, and that’s one reason why financial stability may be at risk for one or both unmarried partners.
There are six important steps unmarried couples can take to build wealth together and protect that wealth in the event of the dissolution of their relationship.
- Consider a domestic partnership agreement. A domestic partnership agreement (DPA) is a legal contract that spells out property rights, decides whether debt brought into the relationship remains separate or becomes shared, defines asset division if the relationship ends or one partner dies and sets support obligations for children. (A DPA may be equally important for older couples that wish to protect their adult children’s inheritance.)
- Have a plan for paying the bills. Not every couple can afford or wants to consult a lawyer to draw up a DPA, but at the very least there should be a conversation around how the bills will be paid.
- Decide how assets will be held. Will savings and checking accounts be held in joint name? Will the home be owned jointly? Will jointly owned assets be titled as Joint With Rights of Survivorship (each owner has equal rights to the asset and has survivorship rights) or Tenancy in Common (share ownership is passed to a beneficiary of the owner’s choosing when one owner dies).
- Have an estate plan. This includes a will, living will and power of attorney for finances and health care to protect the partner’s right in making decisions about financial and health matters related to his or her partner.
- Save separately for retirement. Since unmarried partners do not enjoy the tax benefits of premature withdrawals due to a divorce, retirement savings should be pursued independently. Unmarried couples may have to save more for retirement since they won’t receive the spousal benefit of Social Security or an employer’s pension plan.
- Purchase sufficient life insurance. Life insurance will financially protect the surviving spouse and children, ensuring that they will be able to stay in their current home and fund college.
An experienced financial advisor can be a valuable resource to unmarried couples in helping them create a financial and investment plan that reflects their special circumstances and helps them achieve their important financial goals.
Peter Mastrantuono is a contributing writer to MyPerfectFinancialAdvisor, the premier matchmaker between investors and advisors. Peter worked for over 30 years in the wealth management industry, focusing on retirement planning, investing, asset allocation and financial planning.
