Till Death Do Us Part... Or Not: Financial Planning for Unmarried Couples

July 26, 2024

Jennifer and David had been together for eight years. They owned a house, shared a dog, and were talking about starting a family. To all their friends and family, they were as good as married. But legally? They were just two individuals sharing a life.


One day, David was in a severe car accident. As he lay unconscious in the hospital, Jennifer was shocked to discover she had no legal right to make medical decisions for him. Their shared house? It was in David’s name only. Many of their utilities and credit cards were also in David’s name, so the companies wouldn't speak with Jennifer when she called them about their bills.


These are just a few examples of the unique challenges unmarried couples face. While love may not need a marriage certificate, your finances might appreciate one. You're not alone if you're in a committed relationship without plans to tie the knot. According to the Pew Research Center, the number of U.S. adults in cohabiting relationships has steadily increased in recent years. 


Without the automatic legal benefits that come with marriage, unmarried couples need to be proactive in protecting their financial interests and ensuring their future together is secure.


The "What If" Conversation: Preparing for the Unexpected


It's not the most romantic topic, but it's crucial. Sit down with your partner and discuss what would happen if one of you became incapacitated or passed away. Who would make medical decisions? Who would inherit your assets? Without legal protections, your partner could be left out in the cold.


Being prepared for the unexpected starts with: 

  • Creating a durable power of attorney for healthcare decisions. 
  • Drafting a living will outlining your end-of-life care preferences. 
  • Determining a regular power of attorney for financial decisions. 
  • Signing HIPAA authorization forms to allow the release of medical information to your partner.


Joint Finances: Financial Planning for Unmarried Couples


Navigating financial life as an unmarried couple presents unique challenges and opportunities. From buying a home together to planning for retirement, every decision requires careful consideration and clear communication. 


Below are some tips on how to protect your assets, increase your communication, manage your estate, plan for retirement, and understand the implications of taxes and insurance. 


Protect Your Home Sweet Home


If you're buying a home together, think carefully about how you'll hold the title. Options include:

  • Tenants in Common: You each own a specific percentage of the property. If one partner dies, their share goes to their estate, not automatically to the other partner.
  • Joint Tenants with Right of Survivorship: You both own the entire property. If one partner dies, the other automatically inherits their share.


Consider a cohabitation agreement that outlines how you'll handle the property if you split up. It's like a prenup but for unmarried couples.


Have the Money Talk


How will you handle your finances? Some couples keep everything separate, while others combine everything. Many find a middle ground works best. You might consider:

  • A joint account for shared expenses, with individual accounts for personal spending. 
  • A detailed budget outlining who pays for what. 
  • Regular "money dates" to discuss your financial goals and progress. 


Remember, without the legal protections of marriage, it's crucial to keep clear records of who contributes what to shared assets.


Plan for Retirement 


Unmarried couples miss out on some of the retirement perks that come with marriage. For example, you cannot claim Social Security benefits based on your partner's work record. But there are still ways to plan for a comfortable retirement together:

  • Max out your individual retirement accounts.
  • If one partner earns significantly more, consider gifting money to the other to invest (up to the annual gift tax exclusion limit).
  • Look into domestic partner benefits offered by your employers.


Review Insurance Matters


Review your insurance policies to make sure your partner is protected:

  • Health insurance: Explore options for domestic partner health insurance coverage, which some employers offer.
  • Life insurance: Name your partner as the beneficiary to provide financial protection if something happens to you.
  • Disability insurance: This can replace a portion of your income if you're unable to work due to illness or injury.


Plan Your Estate


You might think estate planning is just for the wealthy, but it's crucial for unmarried couples. Without a will, your assets will be distributed according to state law, which often favors blood relatives over unmarried partners.

Consider creating:

  • A will that clearly outlines your wishes.
  • A living trust to avoid probate and provide more control over asset distribution.
  • Beneficiary designations on retirement accounts and life insurance policies.


Explore Tax Implications


When it comes to taxes, unmarried couples face a different landscape than their married counterparts. While you might miss out on some benefits, there can also be advantages. Let's break it down:

  • Filing Status: As an unmarried couple, you'll each file as single or, if you have dependents, possibly as head of household. This means you can't take advantage of the married filing jointly status, which often results in a lower tax bill.
  • Income Thresholds: On the flip side, staying single for tax purposes can be beneficial if you both have high incomes. Married couples sometimes face a "marriage penalty" where their combined income pushes them into a higher tax bracket.
  • Deductions and Credits: You cannot both claim the same child as a dependent, but you might alternate years if you're co-parenting. Only one can claim mortgage interest and property tax deductions if you own a home together. Education credits, like the American Opportunity Credit, can only be claimed by one person for each student.
  • Gift Tax Considerations: Unmarried couples must be aware of the annual gift tax exclusion (currently $18,000 in 2024) when transferring money between partners. Exceeding this amount could require filing a gift tax return.
  • Health Insurance: If one partner covers the other on their employer-provided health insurance, the value of that coverage is often taxable income for the covered partner. Married couples don't face this issue.
  • Selling a Home: If you sell your primary residence, each unmarried partner can exclude up to $250,000 of gain, potentially allowing for a $500,000 exclusion — the same as a married couple.
  • Retirement Account Contributions: You can't contribute to an IRA for your partner like married couples can. However, this also means you're not limited by a non-working spouse's income regarding Roth IRA contributions.
  • Estate Taxes: Unmarried partners can't take advantage of the unlimited marital deduction for estate taxes. However, with proper planning, you can still transfer significant assets to your partner tax-free.
  • State Taxes: Remember to consider state taxes, which can vary significantly. Some states recognize domestic partnerships or civil unions, which might affect your state tax situation.


Remember, tax laws are complex and change frequently. Working with a qualified tax professional who can help you find the most advantageous approach for your situation is crucial. They can help you identify opportunities to minimize your tax burden while ensuring you're fully compliant with all relevant laws.


At Five Pine Wealth Management, we work to ensure our clients' financial plans are tax-efficient. We can help you understand the tax implications of your financial decisions and develop strategies to optimize your tax situation as an unmarried couple.


Protect Your Business


Written agreements are crucial if you and your partner run a business together. Consider creating:

  • A partnership agreement outlining roles, responsibilities, and profit-sharing. 
  • Buy-sell agreements in case one partner wants to leave the business. 
  • Succession plans for what happens to the business if one partner dies or becomes incapacitated. 


Take the Next Step Together With Five Pine Wealth Management


Remember Jennifer and David from our opening story? After David’s accident, they realized how unprepared they were. They worked with a financial advisor to create a comprehensive plan that protected them both. Now, they know that they're financially prepared no matter what life throws their way.


Financial planning requires careful consideration and proactive steps for unmarried couples. You can build a secure and prosperous future together by addressing the unique challenges and leveraging the opportunities.


If you and your partner are navigating financial planning without the legal framework of marriage, we’re here to help. At Five Pine Wealth Management, we specialize in helping couples — married or not — build strong financial foundations for their future together. We understand that every relationship is unique, and we're here to help you create a plan that works for you.


Ready to take the next step in securing your financial future together? We'd love to chat. Visit us at Five Pine Wealth Management, call 877.333.1015, or email us at info@fivepinewealth.com.


Remember, love may not need a piece of paper, but your finances might appreciate some documentation. Let's work together to ensure your partnership is emotionally and financially protected.


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