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Relationships and Money, Part I: Unmarried Couples

Finances for unmarried couples

New couples are busy enjoying learning about each other and sharing parts of their lives with one another. Very often an important aspect of sharing a life that gets ignored is discussing your values surrounding financial matters. Things such as financial goals to credit card debt can bring a host of challenges to the relationship. Having open conversations about navigating each partner’s financial situation as well as their feelings on various financial matters is key to helping you build a strong financial foundation in your relationship.

Items that should be discussed as a relationship becomes more serious are amounts of debt, feelings about carrying debt, spending and saving habits and goals for the future. The more open and honest you are about these topics the less they can affect your relationship as things become more serious. Additionally, maintaining continual conversations about finances should be a large part of any healthy relationship. In this 3-part series we will explore the top personal financial concerns for different circumstances couples may find themselves in.

Part 1 – Unmarried Couples

Inevitably, one of the first questions of a couple is whether or not, or how to combine accounts and expenses. There is no right answer here, but one that is decided upon together and makes each partner comfortable. Merging assets doesn’t have to be an all or nothing strategy. Couples can use a multitude of ways to share financial responsibilities. Three methods that are common are the Proportional Method, the Straight Contribution Method, and the Complete Commingling Method. The Proportional Method allows each partner to contribute an amount ‘proportional’ to their income level. The Straight Contribution Method requires that each partner contribute the same straight dollar amount toward household expenses. Lastly, the Complete Commingling Method combines all aspects of the couple’s finances. In any case, the couple should discuss their options and come to a consensus together on what is fair for both parties and best for the household.

Additionally, big ticket items will need to be discussed in detail. When unmarried couples buy a home together for example there are complicated legal issues involved and the titling of that asset needs to be designed to protect the interests of both parties. Titling will determine the disposition of the property at the death of one of the partners. Also, how you title assets can have repercussions during life in terms of ownership rights, tax implications and claims of creditors of your partner. Careful consideration must be taken to ensure that this is completed properly.

As an unmarried couple you will continue to file your taxes separately, but you should be aware of different ways to take advantage of certain deduction opportunities. One of the partners should be able to claim ‘head of household’ (if there is a dependent) which allows the earned income credit and child and dependent care credits. Additionally, if you pool your money to share household expenses with your partner (non-taxable sharing) there are ways your accountant can take advantage of this fact. Also, if you own joint property together an accountant could be a smart idea for you as these tax situations can become complicated.

Health-Related issues can have major financial implications for unmarried couples. Experts agree that estate planning and medical surrogate documents are essential for a properly financially planned couple. Durable power of attorney and health-care proxy are among the documents which can allow unmarried partners make financial and medical decisions for each other. Moreover, items such as child custody, life insurance and beneficiaries should be major considerations for unmarried couples. Many unmarried couples fail to address these concerns and are blindsided when the ‘unexpected’ occurs.

It is strongly suggested that unmarried couples consult various professionals in order to properly plan for their financial and legal needs. The financial planner can help you identify your needs and steer you in the right direction, providing sound advice and help you effectively deal with financial issues.

Stay tuned for part IV, coming soon! Also check out part II and III of this series.



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Saturday, 02 March 2024

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