Financial planning is crucial for unmarried couples – Wealth and asset management

When it comes to financial planning, couples have certain advantages. For example, if they divorce and do not enter into a prenuptial agreement, state law provides for an equitable division of their assets. Likewise, if one spouse dies intestate, state law usually provides that the surviving spouse inherits a portion of the assets.

Despite these protections, couples must have a plan in place to ensure that their wishes are carried out. But planning is
very important For unmarried couples, who could face dire consequences if they separate — or if one person dies — without making a plan. If you and your partner are not married, here are some issues to consider:

Tax planning opportunities

Married couples generally file joint income tax returns, which can be an advantage or a disadvantage. Single-income families and families in which one spouse earns significantly more than the other generally pay lower taxes by filing jointly. However, couples with similar incomes — especially those with higher incomes — may pay higher taxes than unmarried couples with similar status.

Unmarried couples may also have some tax planning opportunities that are not available to married couples. For example, if there is a large discrepancy in the partners’ incomes, it may be preferable for the partner with the higher income to pay deductible expenses (such as mortgage payments or charitable contributions). This is because these deductions are usually worth more on the tax return of higher earners. It may also be possible to reduce taxes by owning investments or other income-producing assets in the name of the lowest earner. However, note that gifts between unmarried individuals are reported and amortized gift tax credits.

Breakage protection

Without the protection of divorce laws, you should consider signing a cohabitation or domestic partnership agreement to provide for a division of assets in the event of a separation. This is particularly important if the assets are held in the name of one or another partner for tax planning purposes.

Joint ownership may also be an option for some assets, such as real estate and bank or brokerage accounts. Keep in mind, however, that this type of ownership may raise gift or income tax issues. In such circumstances, speak to your tax advisor.

Retirement planning

When planning for retirement, keep in mind that single couples are often at a disadvantage when it comes to government and employee benefits. For example, couples who have been married for at least ten years can collect Social Security benefits based on their spouse’s (or ex-spouse’s) work history. This can be a huge advantage for couples who leave the workforce for a while to raise children. In addition, in the event of the death of one spouse, the surviving spouse and other family members may be entitled to Social Security survivor benefits.

Unmarried partners are not entitled to these benefits. However, some employers provide survivors’ benefits in a pension plan for the unmarried partners of deceased employees. Therefore, it is important to do your research and find out what retirement benefits will and won’t be available. You may need other savings or life insurance to make up for any shortfalls.

Related reading: Spouses benefit from Social Security, too

Estate planning

When married couples neglect to prepare an estate plan, state law provides one. Unmarried couples have no such backup plan. Therefore, unless each of you carefully indicates how he wishes to distribute the assets, the surviving partner may not be left with any of the assets in the name of the other. Take advantage of tools such as wills and trusts, strategic ownership of property (eg joint ownership), and appropriate beneficiary designations in retirement accounts and life insurance policies.

You also need to set up health care advance directives and financial powers of attorney if you want your partner to have the power to make health care decisions or manage your finances if you become incapacitated. Legally, unmarried partners are considered unrelated, so in the absence of these documents, they have little or no right to participate in health care and end-of-life decisions.

Related reading: Trust can be a great financial bulwark

Put it in writing

Unmarried couples can achieve many of the same financial and estate planning goals as married couples. But ensuring your wishes are carried out requires careful planning — with the help of financial and legal professionals — and thorough documentation. If you don’t have a plan ready, contact your advisor.

The content of this article is intended to provide a general guide to the subject. It is advised to take the advice of specialists in such circumstances.