by Samantha Pahlow, CTFA
Senior Vice President
Have you been hit by Cupid’s arrow but you’re not ready to tie the knot? An increasing number of couples are moving in together before marriage, or don’t plan on getting married for any number of reasons. What many couples who move in together don’t realize is that their assets could be at risk in ways they don’t imagine.
Although not typically considered romantic, it’s important to discuss finances and establish a plan for how assets would be divvyed up if a relationship ends, or if something happens to either person.
The truth is many relationships end and dividing assets or agreeing on custody of children or pets can get ugly and expensive; especially when laws are unclear and attorneys may get involved. Even in happy and successful relationships, there is always the possibility of injury, illness … or unexpected death.
When these unfortunate things happen, married couples enjoy certain rights and protections under the law that unmarried couples don’t. Examples include access to healthcare information, ability to make healthcare decisions and spousal inheritance rights. Also, for married couples who split, well-established divorce law helps ensure a fair division of assets, custody of children or support payments upon separation. Without such protections, unmarried couples may find themselves dealing with unjust and potentially heartbreaking outcomes if things go wrong. Therefore, proactive planning is vital to protect themselves and each other.
An important starting point when an unmarried couple moves in together is to sign a cohabitation agreement. This is a legal document that outlines the rights and obligations of each partner. A cohabitation agreement can help avoid conflict during the relationship and, more importantly, clarifies how the relationship would be unwound upon separation. It should be customized to fit each couples’ needs and can define such things as: which assets each person brings to the relationship; how household expenses will be shared; how assets acquired during the relationship would be divided and more.
Cohabitation agreements are recognized in most states; however, the requirements for legal execution can vary. It is important to consult an experienced attorney to craft one appropriate to each couple’s unique situation. A cohabitation agreement can be prepared any time, even after moving in together, and should be reviewed and revised as the relationship evolves.
In addition to a cohabitation agreement, couples should consider executing healthcare documents and complete an estate plan.
Without healthcare documents, such as advance directive and healthcare proxy, most unmarried couples are unable to obtain information from healthcare providers or discuss treatment plans, much less make decisions about their loved one’s care.
Estate planning is always important to properly distribute assets to the intended parties; however, due to lack of inheritance rights, it is particularly necessary for unmarried couples who wish to provide for each other. Couples should have a recently updated will or trust and regularly review their asset titling and beneficiary designations (including insurance policies) to ensure that all assets will be distributed in accordance with their wishes.
Although planning for unpleasant events such as a breakup, incapacity or death is never fun, it is an incredibly important process to ensure the protection of loved ones.
This area of law is complex, evolving, and varies by state, including the recognition of domestic partnerships and common law marriages. Therefore, couples should consult with a qualified and experienced estate and family law attorney regarding their personal circumstances.
It is also important to notify your financial and tax advisors when a new estate plan has been prepared so that they can help ensure implementation of beneficiary designations and proper account titling.