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Living together: What it means for your personal finances

At a glance:

  • Living together: Sharing and co-mingling money, assets, and expenses

  • Buying a house when you're single and living together

  • Taxes for unmarried couples

  • Estate planning and related issues for single people living together

  • Summary of what living together means for your personal finances

In recent decades, the number of unmarried people living together has increased dramatically.

Folks of all ages live together rather than marry for a variety of reasons. They might feel no need for state or institutional recognition of their mutual commitment.

Alternatively, they might be uncertain themselves over the future of the relationship, and therefore unwilling to incur the obligation to support or share property with each other.

Whatever their reasons for living together rather than marrying, many couples fail to recognize or plan for the financial relationship they are undertaking.

Marriage — which now includes same-sex couples — involves a legally defined set of rights and obligations, but unmarried cohabitation does not.

This lack of legal structure might sound appealing to some, but the lack of clear legal rules and built-in protections can result in unexpected and unwanted consequences in the event of a breakup, serious illness or death — unless some planning is done.

Let’s examine some issues you ought to think about.

(Photo: William Thomas Cain/Getty Images)
There are some financial considerations when it comes to unmarried couples living together. (Photo: William Thomas Cain/Getty Images)

Living together: Sharing and co-mingling money, assets, and expenses

First, be realistic right from the start.

Sharing is part of a loving relationship, but relationships end all the time. Avoid becoming so financially dependent on your partner that you would be financially ruined if the relationship ended.

The alternative to that situation can be one in which the less well-off partner feels compelled to remain in a soured or even abusive relationship.

Think long and hard if your partner encourages you to quit your job and promises to take care of you and perhaps the child you plan to have together.

At a minimum, get any such promise in a formal written agreement.

Consider keeping assets separate

Especially in the early stages of your cohabitation relationship, consider the wisdom of keeping your assets separate.

This will avoid property disputes in the unfortunate event that you quickly find that living together just isn't working out.

For more seasoned relationships as well, many people find it a good idea to keep separate checking accounts, even if they also use a joint account to pay household expenses.

This allows each partner to maintain a sense of independence and freedom from hassling over how they spend their discretionary dollars.

Financial experts recommend the exercise of caution when it comes to the joint ownership of property.

Many advise against it at all, but all of them warn partners to never contribute money to the purchase of a major asset (e.g., a house or car) that is legally owned only by one partner.

If an asset belongs to both of you, it should be formally titled in both of your names.

Get it in writing

If not before moving in together, then not long after, it's wise to draw up an agreement that addresses each partner's financial responsibilities.

Such an agreement ensures that both partners are on the same page regarding things like contributions to the household budget.

In that regard, some couples agree to a fifty-fifty split, while others find it more appropriate to apportion contributions in proportion to each partner's income.

There is no right or wrong way to handle finances — as long as there is an understanding of how things will work.

You want to avoid the situation where resentment quietly simmers in one partner's mind because he or she perceives — correctly or not — that household expenses are not shared fairly.

Few things cause more arguments among married couples than money matters, and this is equally true of cohabiting partners.

The agreement should also specify what will happen to your assets if your relationship ends. You should document who brought what (e.g., furniture, art, vehicles) into the relationship, and (usually) agree that whoever brought an item in will take it out in the event of a split-up.

Even if this doesn't seem necessary when you first move in together, it's a good idea to start writing things down if and when you begin to accumulate joint property.

Being realistic

You can do this with or without a lawyer.

True, planning for a breakup is not a very romantic endeavor, so just do it and get it over with!

It should be easy when you're on good terms. If it isn't, that's an early red flag that financial turmoil is likely to occur, probably sooner rather than later.

Buying a house when you're single and living together

Because of the size and importance of this investment, this topic deserves special consideration.

It is probably a bad idea to buy a house together unless you have a degree of commitment on the same level as marriage.

The simplest option, at least at first glance, is to have the house paid for and owned by only one partner. In that event, the issue of rental payments or some other form of contribution from the non-owner partner should be considered.

If the two of you decide to buy a house together, however, in most cases fairness will dictate that both of you should be responsible for the mortgage loan.

Of course, both names should be on the deed as well. But it's not quite that simple.

How should the two partners appear on the deed? There are two very different options: joint ownership with right of survivorship and tenants in common.

Joint ownership with right of survivorship

Joint ownership with right of survivorship means that if one of you dies, the other automatically becomes sole owner of the property, regardless of whatever the deceased partner's will might say.

This is the way married couples typically take title to their homes.

The downside is that the joint owners really are joined at the hip, with respect to this major asset. Neither partner has the option of selling his or her share or leaving it to someone other than the surviving partner.

Tenants in common

Being tenants in common means that each of you owns half of the house.

If you die, your share will go to the person or persons indicated in your will, or to your next of kin under state law if you don't have a will.

This method of ownership allows for owners with unequal equity. For example, you may own 75% of the house and your partner may own 25%. Each of you can sell or give away your share or leave it to one or more individuals of your choice, such as children from a previous relationship.

Having a will is critical if you own property as tenants in common.

As a practical matter, of course, unless the house is sold and the proceeds divided, having a fractional interest in the property will not be worth much to anyone but you two partners.

In other words, no third party would actually pay anything close to $100,000 for a fifty percent stake in a $200,000 house that is co-owned and occupied by a stranger.

Get it in writing

With either form of ownership, it is crucial for both partners to have a written agreement as to what will happen if you break up.

Remember, you won't have access to the divorce court to decide what is fair and equitable.

The agreement should take into account the various scenarios, and specify who gets the house in the event both partners want it. There should be provisions for a buyout of one partner's interest by the other.

Otherwise, how will you decide who goes and who stays?

If the partner who is to remain buys out the partner who's leaving, how is the buyout price to be calculated?

If one of you pays for and makes improvements to the property, how will this be taken into account?

Again, don't expect the court to settle these issues for you in the absence of a written agreement.

Consider getting a lawyer

The bottom line when it comes to buying a house together is definitely to seek the advice of a lawyer.

The investment is large, and the myriad contingencies and consequences involved are simply too complex to think through and deal with on your own.

Taxes for unmarried couples

Unlike married couples, unmarried couples can't file joint returns, but this is usually not a disadvantage due to the "marriage penalty."

Prior to the recent tax law, the standard deductions and tax brackets for married folks were larger than, but not double, the single filers' deductions and brackets.

That meant that they would have to pay more than double the taxes they would owe if they were two single filers. The tax law taking effect changed this for all but the two highest tax brackets.

However, it should be noted that the law is scheduled to revert back to its early form in 2026.

Claiming head of household status

If you live with your single partner, you may also claim "head of household" filing status if you support a child.

This allows you to take child and dependent care credits. See IRS Publication 17 for information on the "head of household" status and to see if you're qualified to claim it.

If your income is below the limit, you can also take the earned income tax credit, which offsets your income tax liability and can sometimes supplement your income by allowing you to get back more than you actually paid.

Note that your partner can be claimed by you as a dependent, if you provide most or all of his or her support and if he or she meets the criteria for being a "qualifying relative."

In other words, it's possible to be considered a "relative" without an actual blood or familial relationship.

Who gets the deductions?

If you and your partner have bought a house together with a mortgage loan, you will face the issue of who will get to claim the deductions for interest and property taxes.

To do this you must itemize deductions.

One option is to split the deductions in half.

The other option is to allow one partner to claim all the deductions.

This will usually make more sense for the household as a whole if one of you has a significantly higher income, because the deductions will create more tax savings for the one with the higher tax rate.

Estate planning and related issues for single people living together

Single people living together face the same questions and issues as do married folks when it comes to the disposition of their estates upon death, and the management of their financial affairs in case of disability.

This is also true when it comes to healthcare decisions and end-of-life planning.

The only additional obstacle facing unmarried couples in their planning is that in most states the law does not provide the same rights and benefits that spouses enjoy.

Not to worry, however. If you draft your important documents and arrange your affairs appropriately, you can achieve whatever outcome you wish.

Retirement and life insurance

First, consider your retirement accounts and life insurance policies.

A person's will does not generally control these assets.

So who are the designated beneficiaries?

If you want those payouts to go to your partner, then simply request that the financial institutions involved make him or her the designated beneficiary.

If you want others to receive some or all of those benefits (e.g., your children), then simply fill out your beneficiary forms accordingly.

Likewise, most bank accounts and certificates of deposit (CDs) can be arranged so that they are payable on your death to whomever you specify. It's all really just that simple.

Don't dispose of every last dollar this way, however.

Do make sure that sufficient cash is left available to your estate to pay your final expenses.

Make a will

Secondly, make a will to distribute the rest of your property that is not disposed of by beneficiary designation forms, e.g., house, vehicles, jewelry, household furnishings, etc.

This is called "probate property." The will also names an executor, who takes the will to probate court.

Once formally appointed, the executor serves as the official "wrapper-upper" of your affairs and supervises the distribution of property as the will directs. Unmarried couples should give the selection of this person a great deal of thought.

Should the executor be your partner, or a family member such as a child?

If you have done your will and arranged your accounts and affairs appropriately, probate is typically not the nightmare that some people fear.

But there is a certain amount of legwork involved. Who can you count on to get things done?

Think of family

Perhaps more important, consider the relationship between your family members and your partner. If there is ill-will, proceed with caution.

Whoever is executor should honor your wishes and do the job fairly. But whom can you trust to actually do so?

Think about it and do some heart-to-heart communicating with all concerned parties once you have made a decision.

Contrary to what many people believe (especially same-sex partners), your will and beneficiary designations are extraordinarily difficult for hostile family members to successfully challenge in court.

But the police don't monitor these things. Choose the wrong person as executor, and you are asking for trouble.

Two final things …

Thirdly, prepare a durable power of attorney to allow someone to act as your agent to manage your financial affairs in case you are disabled. (Note that a power of attorney becomes invalid upon death.)

Again, consider who is best suited--family or partner?

Finally, prepare an advance medical directive. This document goes by different names, but its purpose is twofold: to indicate your preferences for care and treatment in end-of-life situations, and to name a medical decision-maker in the event you are not capable of doing this yourself.

Summary of what living together means for your personal finances

Single people living together face many of the same issues and problems that married couples so.

But they do so without the legal structure and protection that the law provides for married couples.

With thought, however, singles can properly plan and prepare documents to ensure that their affairs run smoothly, even if the relationship ends, or in the event of their disability or death.

This content was created in partnership with the Financial Fitness Group, a leading e-learning provider of FINRA compliant financial wellness solutions that help improve financial literacy.

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