The Top Personal Finance Concerns for Unmarried Couples

a couple reviewing monthly bills
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The number of unmarried partners who live together almost tripled between from 1997 to 2017. The number continues to grow with 14% of couples who live together today being unmarried and the majority of couples who are getting married having chosen to live together first.

Perhaps most interesting is how diverse the population of cohabitating unmarried couples is. But even with their diversity, these couples have a tendency to share at least one habit in common: they are less likely to plan for their financial futures than married couples.

In reality, cohabitating unmarried couples face unique money issues and decisions when it comes to managing personal finance. Here are the top three personal finance issues facing unmarried couples today:

Joint or Separate Accounts and Asset Issues

Most financial experts advise that in the early stages of a relationship in which unmarried couples first decide to live together it's best to keep assets separate to avoid property disputes later. Separate accounts are perhaps even more important for debt like loans or credit cards.

In the end, if both names are on an account, both of those people have a legal right to the assets in the account, which can be a good or bad thing depending on the situation.

This is also the case for jointly titled assets like cars or houses. It can be tempting to mingle your assets and open a joint account when you have joint expenses like rent, utilities, or groceries. But until you've made a long-term level of commitment to the relationship (whether or not that ultimately includes marriage), it's best to keep most assets separate.

Here are a few tips for managing joint finances while keeping the majority of your money and assets initially separate:

Bank Accounts

Maintain separate checking accounts for the majority of your separately earned income, but open a joint checking account to which you both contribute equally or proportionately to pay for common expenses.

Or, maintain separate checking accounts, but move them to the same bank with free online banking features that make transferring money to each other's accounts easy.

Joint Property

Own as little property as possible jointly. Never contribute money to the purchase of a major asset, such as a house or a car that is held only in the name of your partner.

While you might make financial contributions, the asset will not legally be yours. If an asset does belong to both of you, it should be in both of your names.

If you do decide to buy a house together, you'll have to decide between "joint ownership with rights of survivorship" or "tenants in common."

Under joint ownership, if one of you dies, the other inherits the property in its entirety. This makes the transfer of property simple but can have serious estate tax implications if you don't keep proper records.

Under tenants in common, you each own half of the home and if you die, your share will go to whoever you specify in your will or to your next of kin if you die without a will.

Financial Independence

Some people allow themselves to become financially dependent on their partner such that they could be financially devastated if the relationship were to end.

If you and your partner make a decision together that significantly impacts your individual financial situation (like quitting your job), make sure that you both have thought through the financial implications of the decision and have a legally enforceable written agreement the outlines the details.

In fact, as the relationship grows and your income and assets begin to increase, you may want to hire a family lawyer to draw up a domestic partnership agreement that addresses what will happen to your assets if your relationship were to end by choice.

You should both also have a will that outlines your wishes for your assets should you pass.

Income Tax Issues

From a federal income tax perspective, unmarried couples can make out better than married couples. Though there are certainly tax benefits to being married, while some married couples receive what is commonly known as the marriage tax bonus, others suffer the marriage tax penalty.

It is estimated that some married couples could pay a "penalty" of up to 1.4% of their joint income if they fall on the wrong side or sides of a series of determining factors like whether they have children together, how disparate their incomes are, and if they itemize their deductions.

If you are part of an unmarried couple, you will continue to file your income taxes separately, so be sure to take advantage of the larger deductions and opportunities to minimize your tax burden:

  • If you live with your partner, but remain unmarried, you may also be able to claim the "head of household" filing status if you support a dependent. This filing status allows you to take the earned income credit if your income is under the threshold and allows you to take child and dependent care credits.
  • If you pool your money to share household expenses, this is usually regarded as a non-taxable sharing of resources. Be sure to check with your accountant about how to take advantage of this fact.

Health and Health-Related Financial Issues

Other money issues for unmarried couples are actually health-related but have major financial implications for both parties. Personal finance experts agree that estate planning and medical surrogate documents are essential for everyone, including unmarried couples and domestic partners.

The question of how certain decisions will be made and how assets are to be handled when one partner passes away or becomes disabled should not be left to question.

In order to be prepared for these possibilities together, cohabitating couples should consider consulting an attorney and preparing the following documents:

  • A durable power of attorney allows your partner to make decisions—financial or otherwise depending on the language of the document—for you if you're unable to make them yourself.
  • A health-care proxy (or durable power of attorney for health care) allows a non-relative to make medical decisions for you if you become incapacitated.

Of course, there are other considerations for which you and your partner may need to prepare depending on your personal situations like child custody, life insurance, and even designated beneficiaries on retirement accounts.

Talk to a financial advisor to sort out these complex financial issues and avoid putting extra strain or uncertainty on your partnership.