Whether you said “I do” at the altar, entered a common law marriage, are in a domestic partnership or cohabit with your significant other, the laws about your financial rights and obligations vary by state, and sometimes even by city.
To understand how your relationships status and living situation impacts your legal rights and obligations, consider consulting with reputable financial, legal and tax professionals in your area. With that in mind, here are some important things you should know:
• Only select states recognize common-law marriage. One of the most common myths about common-law marriage is that if you live with someone for a certain length of time—often believed to be seven years—you are considered married under the law. This is not true everywhere in the U.S. In the states that do allow common-law marriage the circumstances vary, as do the financial implications. If you think you may be eligible to enter a common-law marriage, do some research to see if it applies to you in your state and what the implications may be.
• Since most states don’t recognize the rights of unmarried couples that cohabit, many couples enter cohabitation agreements. Designed to protect couples from an unfair distribution of assets and property, these agreements describe individual financial and household responsibilities and assign debt to one or both individuals. They are also becoming increasingly popular among cohabitating elderly couples who want to define their financial responsibilities for their partner’s medical care and other expenses.
• If you live in a common-law marriage state and don’t want to be legally married, document your intentions. Meet with your lawyer to create a written record of your desire to remain independent from each other. If you don’t take this step and your living situation meets your state requirements for common-law marriage, you are considered legally married in every way. For example, if your relationship ends, you are required to get a divorce. Or if one of you dies, your assets automatically pass to the other.
• Domestic partnerships may occur between same-sex or opposite sex couples. Again, the definitions and rights vary by state or even by cities within a state. Even if your state doesn’t recognize domestic partnerships, your city may have ordinances that allow domestic partners who meet certain criteria the opportunity to secure voluntary employer benefits and a limited form of legal recognition to protect their families.
Once you become familiar with your legal rights and obligations as an unmarried couple, you can take steps to financially protect yourself—and your partner. Start by discussing:
• Whether your assets will be shared or separate—Couples who live together face financial vulnerabilities that married couples do not when it comes to shared checking accounts, credits cards and other investments. Often it’s easiest—and smartest—to keep your assets separate and split bills and other joint expenses down the middle. But regardless of how you choose to manage your finances, documenting your decisions with a written legal agreement is the best way to protect yourself—and your credit score – if the relationship doesn’t stand the test of time.
• Who will pay for property purchased together—Before you buy a home, decide if you will be joint tenants in which ownership is equally shared or tenants in common in which you each have a distinct percentage of ownership. Unlike joint tenancy, if your co-owner dies, you don’t have rights to their share of the property. Instead, their share becomes part of their estate and their will or state intestacy laws will determine how it’s distributed. Also consider who owns what when making other big purchases together like a vehicle or small business.
• Who will inherit assets in the event of death—As an unmarried couple, your assets don’t automatically pass to your partner in the event of your death. If you have assets you want your partner to inherit, properly document your intentions in writing to help ensure your wishes are carried out. If you don’t, state and federal laws will dictate who gets what—and typically it’s your next of kin or your estate. Also, if your significant other is the desired recipient of your retirement funds and life insurance policies, be sure to list him or her as the beneficiary. Keep in mind that your beneficiary designations override the directives of your will, so it’s critical to keep them current.
Again, since the legalities governing marriage, common-law marriage, cohabitating and domestic partnerships are complex and vary by state, please consult reputable legal, tax and financial professionals in your area for more information on how to protect yourself, your significant other and your assets.
A Northeast Berks Chamber of Commerce member, Allan W. Cornman, CFP is a financial advisor and certified financial planner practitioner with Ameriprise Financial Services, Inc. in Reading and Schuylkill Haven. He specializes in fee-based financial planning and asset management strategies and has been in practice for 16 years. Call 610-926-6649, ameripriseadvisors.com/allan.w.cornman.
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