6 Key Financial Considerations for Unmarried Couples

As many committed couples are choosing to forgo marriage, it’s becoming more common for wealth advisors to receive questions on the financial planning implications. According to the U.S. Census Bureau’s America’s Families and Living Arrangements study, the number of unmarried couples has grown from 4.1% in 2001 to 8% in 2021.

Despite this increase, our legal and financial systems are set up to protect couples who are married. If you and your partner don’t intend to legally marry, it’s important to consider how you will handle financial matters and what issues the arrangement may raise.

Planning without legal protections

Unmarried couples are not legally bound to provide for one another, and they are not required to have a joint financial plan. But they will have to decide how to split expenses, and they may develop shared financial goals. It’s important to understand the risks when you share financial goals but your accounts and assets are technically separate.

To illustrate the possible risks, here’s the story of Joe and Jane. A happily unmarried couple, they decided to buy a house together. Joe’s mother helped them buy their home with a down payment, but because Joe did not have a good credit score, they decided to apply for the mortgage in Jane’s name only. Years later, Joe’s mother passed away and left Joe money, which he used to pay down the loan and renovate the home. Unfortunately, they later ended their relationship, and because the home was only in Jane’s name, she kept the home and did not offer Joe any financial recourse. Joe lost his investment because he had little protection under the law.

What can unmarried couples do to plan?

Joe and Jane’s story is an extreme example, but it is also a reminder of the harsh reality for unmarried couples who do not plan carefully. The good news is there are strategies that can help couples manage their finances effectively without the legal protection marriage offers.

1. Communicate how you would like the financial arrangement to work.

It may seem simple, but the key to a successful financial arrangement with your partner is communication. You’ll need to clearly lay the groundwork and be fully transparent because you do not have the same legal obligations and protections as a married couple. The first place to start is how you will handle finances. Do you intend to manage your funds jointly or separately? This will depend on the couple’s preference, but it’s helpful to consider your income, goals, comfort level and what each person came into the relationship owning. The key is to come to an agreement early on.

2. Decide how to share day-to-day expenses.

Do you plan to combine income, assets or both? This is a personal choice. If you live together or own a home together, you likely have many shared expenses. Will you keep your checking and savings accounts separate or set up a joint account? Often, couples find it helpful to have one joint account in which each person contributes a set amount each month that is used solely for paying shared expenses. Outline specifically all the shared expenses and those that you will be responsible for individually. How much you contribute to the joint account is up to you. Some like to do an even 50/50 split while others who have a big gap in incomes may decide to divide expenses proportionately. It is also important to factor in the debts of each person.

3. Set clear expectations about handling the unexpected.

No one wants to imagine their relationship ending, but for unmarried couples, it’s necessary to plan for. Make sure that you are on the same page so that finances are not a point of contention. It is much easier to figure out the details in times of happiness and bliss than at the end of a relationship when you might be acting from a place of anger or hurt. It may be a good idea to draft a domestic partnership agreement with an attorney that spells out the legal and financial responsibilities of each partner and how you would split anything jointly owned or paid for if the relationship were to end.

4. Review your long-term financial plans together.

You can absolutely plan for your financial future together while keeping accounts and assets separately titled. Setting shared goals can be wise. You can each have separate investment accounts, make your own investing decisions, and set your own risk tolerances, while at the same time ensuring that your individual plans are working together to achieve your shared long-term goals. Keep in mind, you will likely have different tax situations since you are paying individually, and you’ll need to plan accordingly.

5. Don’t forget about estate planning.

This is a very important step for most people but especially for unmarried couples. Unlike married couples, you will not be granted the same legal rights to financially assist your partner in the case of incapacitation or to make medical decisions. That’s why it’s critical to have the proper estate planning documents in place stating that you would like your partner to have these roles and responsibilities. If you wish for your partner to inherit your assets and any joint assets, you’ll need to make this clear in your will and set beneficiary designations accordingly.

6. Remember the gifting rules.

Money can freely move between spouses without tax consequences. However, if you are unmarried, you’ll likely owe a gift tax if you transfer more than the annual gift tax exclusion limit, which in 2023 is $17,000. You could also accidentally trigger a gift tax issue by retitling an individually owned asset to include your partner (for example, on a home or investment account). It’s always smart to consult an accountant before making such decisions.

Every couple is unique, and your financial planning opportunities and goals will be, too. These are just a few financial considerations for unmarried couples to get the conversation started. It may be helpful to turn to a wealth advisor who has experience working with unmarried couples to review your plans and help guide conversations.

For informational and educational purposes only and should not be construed as specific investment, accounting, legal, or tax advice. Certain information is based on third-party data and may become outdated or otherwise superseded without notice. Individuals should consult a tax professional based on his or her own circumstances. Neither the Securities and Exchange Commission (SEC) nor any other federal or state agency have approved, determined the accuracy, or determined the adequacy of this article. R-23-5761