Educational Employees Credit Union

Stepping Out of Legal Limbo: Key Points for Cohabiters

by Danielle Dresden / December 19th, 2011

You're living together, but you're not roommates. You're a whole lot more than friends, but you're not married. What in the world are you? You're part of a growing trend. The percentage of 30- to 44-year-olds living as "cohabiting couples" has more than doubled since the mid '90s, according to a 2011 Pew Research Center study. Most adults today have lived with an "opposite sex unmarried partner" at some point, according to the National Survey of Family Growth. These numbers, reflecting changes in American attitudes toward marriage and sex, have been linked to economic pressures, late-life couples avoiding marriage, and evolving notions about how we pair up. Although the reasons for a couple's living arrangements vary as much as their love stories, most share a common characteristic—they live in legal limbo. Rights and responsibilities aren't automatically assigned when couples move in together; it's important to consider how cohabiting affects your finances.

Savers, spenders, artists, and actuaries

Along with the romance, Debra A. Neiman, certified financial planner and co-author of "Money Without Matrimony: The Unmarried Couple's Guide to Financial Security," recommends that cohabiting couples start thinking about each other's "money personalities." That's how Neiman describes an individual's approach to finances. "It's most rooted in what you knew growing up," she explains. "Are you a spender or a saver? Often savers are attracted to spenders," Neiman notes. "You also see the artist and the actuary. One is grounded in logic. The other doesn't have a clue, doesn't want to have a clue." But couples can still find common ground.
Financial agreements can help prevent arguments, protect your credit, and strengthen relationships.
"You can discuss your financial goals," she says. "Couples will talk about whether they want kids or pets or if they want to live in the city or country, but what goes unsaid often has to do with finances." Marshall Miller, co-author of "Unmarried to Each Other: The Essential Guide to Living Together as an Unmarried Couple," says, "It's important to be really clear on why you're moving in together. Are you on the way to marriage or are you looking for a way to save on rent?" Diverging expectations do crop up, but Miller says it's more common that couples don't even have such a conversation.

Maybe you do need a piece of paper

Whether or not they're planning marriage, Miller says cohabiting couples are shifting from individual to shared expenses. Neiman says, "There are shared liabilities and responsibilities involved with living together. You become dependent on someone the minute you co-sign a lease." Establishing financial agreements can prevent arguments, protect your assets and credit rating, and strengthen your relationship. "It gives you a chance to say, 'What are our shared values?' " Miller says. The key financial issues for cohabiters are:
  • Day-to-day expenses—This includes rent, utilities, food, entertainment, and more. Do you split costs down the middle? Does one pay more because she or he makes more? "I'm a big believer in there's no 'right way,' " Neiman says. "Just be mindful of who is paying for what."
    Many unmarried couples live in legal limbo.
  • Separate or combined—Some experts recommend avoiding joint checking accounts or credit cards to protect individual finances and credit.
  • Property brought into the relationship—Does what was once "yours" become "ours"?
  • Property acquired during the relationship—Whether it's a toaster or a house, spell out ownership and maintenance, especially with items like cars or houses.
  • When it's over—It's hard to imagine endings during beautiful beginnings, but it will help, whether the end of life or love terminates your relationship. Specifying who gets what or lives where can ease breakups. Establishing health-care power of attorney and durable power of attorney for financial management will give you the legal authority to care for each other in emergencies. Writing a will helps you provide for your loved ones.
Writing it down is recommended, but you can make your "cohabitation agreement" as formal, or not, as you choose. Couples with ex-spouses, children, and more assets may need an attorney.

It's up to you

No matter how long you live together, your partner is legally a stranger to you, despite what Miller calls "the myth of common law marriage." The notion that cohabiting couples acquire legal standing after seven years is an urban legend.
A practical approach can help you implement personal choices.
Only 15 states recognize common law marriage, and they require couples to file joint tax returns, call themselves married, and more. "The good news is almost all the financial protections that come from being married, you can still have as an unmarried couple," Miller says. "You just have to work a little." Miller recommends drafting a cohabitation agreement, durable power of attorney for health care and financial management, and a will.

Complications and considerations

Cohabiters still can face challenges, especially with real estate and insurance. Neiman says a common problem develops when one partner owns a house, and the other moves in. "Only one person's name is on the deed. Who gets the mortgage deduction?" she asks. If the homeowner dies without a will, the surviving partner can get kicked out, and she's seen it happen. "But you can't just put someone's name on a deed without implications," she says. Professional help can address those risks. Health insurance also causes hassles, even with domestic partner benefits. While married people can simply add spouses to an insurance plan, unmarried couples can't. With cohabiters, the working partner gets taxed on what the company pays for the domestic partner. Married couples, but not cohabiters, receive survivor benefits from Social Security. "Certain companies mandate that a pension can only go to a spouse," Neiman notes. What's a couple to do? Same-sex couples can only marry in a few states, but some straight couples look at the complexities of cohabiting and decide to get married. Others still resist such formality. Ultimately, these decisions are personal, but keeping in mind the practical aspects can help you make your choices work for you.

NCUA Equal Housing Lender
Printed Tuesday, September 17, 2019

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