Smart Financial Steps for Unmarried Couples

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Chicago U.S. Census department figures show a recent increase in unmarried couples living together, possibly due in part to job loss or other consequences of the economy. No matter what brought them together, cohabiting couples have unique financial considerations.

Know Your States Laws

Common law marriages, in which some cohabiting couples have rights similar to those of spouses, are recognized in fewer than 20 states. If you dont live in one of these states, or if you dont meet their requirements, you are not considered married, no matter how long you live together. In addition, 12 states and the District of Columbia offer some form of civil union or domestic partnership with varying types of rights. Start out by finding out your state laws.

Divorce Laws Dont Apply

Next, consider what will happen if your relationship ends. When a marriage breaks up, divorce laws can help determine tough issues such as how the marital property will be divided, who will continue living in your home, whos responsible for outstanding debt and how custody of any children will be handled. Depending on your states laws and the form of your relationship, there will likely be no similar rules for an unmarried couple. Thats why you may want to consider creating a cohabitation agreement, much like a prenuptial agreement before marriage, to lay some ground rules that may come in handy later.

Look Before You Leap Into Home Ownership

For example, real estate prices remain at historic lows in many places, and home ownership is still considered a good long-term investment. But before you chip in together to buy a home, keep in mind that just because you live together, and perhaps make equal payments on the mortgage bill, a court may not automatically consider you equal owners of the home if your relationship breaks up. In all likelihood, the property would belong to the person named on the deed, even if you have both contributed to the down payment or mortgage bills.

Pros and Cons of Joint Tenancy

A cohabitation agreement can identify issues such as who gets the house. There are also other options for unmarried couples, such as a joint tenancy with a right of survivorship, in which you both own the home and the property passes to the surviving partner if one of you dies. The downside is that under this arrangement you also take responsibility for any debts associated with the home. That means that if one partner stops making mortgage payments, the other will be stuck with the entire bill. You will also need your partners agreement to sell the house, since you dont own the property outright.

Estate Planning Is Critical

If unmarried partners dont have wills, their assets generally go to other family members since most states dont recognize an unmarried couples inheritance rights. In addition, while surviving spouses dont face estate taxes on their inheritance, a domestic partner may be forced to sell a

home or other assets to pay the estate taxes on them. A will can identify your intended beneficiary and a proper estate plan can minimize the estate tax burden on your partner.

The information contained in this column is a joint effort of the American Institute of Certified Public Accountants (AICPA) and the Illinois CPA Society. It is not intended as legal advice but is part of the professions nationwide 360 Degrees of Financial Literacy program. For help with a specific legal question, please consult your lawyer.

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