Living Together but Not Married? 5 Important Things to Know

As marriage rates have fallen, cohabitation relationships have increased. However, I suspect that many unmarried couples haven’t considered the financial ramifications of living together.

That’s a mistake, because cohabitating couples are not afforded all of the same protections and advantages that married couples receive.

Many young couples who break up have faced the issue of “this is yours, that’s mine” — regarding such things as books, music, furniture and even pets. But living together as you get older (and hopefully wealthier) can pose additional challenges.

It’s essential to remember that when it comes to money, the law doesn’t fully recognize relationships not officially documented on paper. Here are some important things to know before you decide to live with a significant other.

Be careful when buying a house

Unmarried couples may decide not only to move in together but also to buy their own place. This could be a great move, but be aware of potential problems.

Keep this in mind: The house belongs to the person whose name appears on the legally recorded deed. It doesn’t matter what verbal agreements were made or who paid the mortgage. So, make sure both parties are named on the deed.

The two basic ways of sharing a title with other people are joint tenancy with right of survivorship and tenancy in common. The difference is that with right of survivorship, your interest in the property automatically transfers to the other owner when you die. With tenancy in common, it doesn’t.

If you both apply for the mortgage, you’re both responsible for paying it — even after you break up. If both parties are on the deed as owners, but only one is on the mortgage, the one responsible for the mortgage remains responsible, even if that person has moved out and moved on.

Another common scenario: John already owns a house, then Jane moves in. Because she makes more than John, Jane proceeds to make the monthly mortgage payments.

Is Jane then entitled to any of the equity she’s creating by paying down John’s mortgage? No. Absent a legal document to the contrary, it’s John’s house and his equity.

So, if you’re thinking of buying a house together — or taking on the responsibilities of someone who already owns a home — go into the transaction with your eyes open. The steps are simple:

  1. Think it through.
  2. Talk it out.
  3. Draw it up.
  4. Have a lawyer look it over, then have it notarized or recorded.

Make sure you have a will

It’s bad enough when married couples don’t have a will, especially when it’s so easy to do. But even without a will, the law won’t leave a surviving spouse high and dry, thanks to another piece of paper — a marriage certificate.

However, if there’s no paper, as far as the law is concerned, you are strangers even if you have shared a bed for 20 years.

If you are married and die without a will, your estate will eventually go to your spouse because, according to the law, your spouse is your next of kin. If you’re unmarried and die without a will, your estate still goes to your next of kin — but that’s not your partner. If you don’t relish the idea of a parent, sibling or some distant uncle inheriting everything, get a will.

Something else to consider: If you’re rich — say, with assets exceeding $5 million — you could have estate tax issues that wealthy married people don’t. So, talking to an estate attorney is a good idea.

Watch out for health care taxes

Many big companies and government agencies will extend health insurance coverage to unmarried couples. While it may not matter to your employer if you’re hitched, it does matter to the IRS.

When you’re married, the IRS doesn’t tax your health benefits, nor does it tax the benefits your spouse receives under your plan. But if you’re providing your domestic partner with health care benefits, the portion applying to that person could be taxable to you.

In other words, if John covers Jane as a domestic partner under his employer-sponsored health plan, John could be taxed by Uncle Sam for any benefits extended to Jane.

Why? Federal tax law specifically excludes employee benefits received by spouses from taxation, but Uncle Sam doesn’t recognize domestic partners. Thus, if John’s and Jane’s employers each pay for health coverage, they’re better off keeping their policies separate.

If John has coverage and Jane doesn’t, they have to make a calculation: Do John’s extra taxes exceed what it would cost Jane to get a private health insurance policy? The correct path will depend on John’s tax bracket and Jane’s cost of health insurance.

Look into an advance health care directive

If one partner has a medical emergency, absent paper to the contrary, the other has no legal right to be given information or to make decisions about care.

The solution to this problem is for each to name the other in an advance health care directive, which allows each of you to legally make decisions if the other is incapacitated. It also allows hospitals to share information usually reserved for spouses.

Like a will, these directives aren’t hard to get. Your hospital or county health department can give you the form, or you can download one online.

Know if common-law marriage is recognized in your state

There is one situation in which a couple living together can enjoy the rights of marriage without getting hitched the traditional way: They can claim a common-law marriage, which is recognized by law in many states.

But if you think a common-law marriage is created simply by living together, you’re wrong. According to Nolo.com, these couples must do a few things, including:

  • Live together for a significant period of time (not defined in any state).
  • Hold themselves out as a married couple — i.e., share a last name, refer to each other as husband and wife, and file a joint tax return.

Keep in mind that the burden of proving you’re a common-law married couple will fall to you — it’s not automatic. Once you’ve proved it, you’ll then have the privileges of married couples — including the privilege of going through a legal divorce if you break up.

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