Rosalind Evans
Are you part of the rising demographic of unmarried Americans cohabiting with a significant other? On the financial front, you’re likely reaping savings similar to married pairs – from sharing living expenses to consolidating bills (think one cable or Internet bill) and household purchases. However, missing out on marital financial perks can pose challenges. Here’s a deeper look:
Managing Finances
While it’s possible to have joint bank and credit card accounts, making everyday expenses easier and fostering unity, be cautious. If one partner has a low credit score, joining the other’s credit card can help uplift it. Plus, shared bank accounts offer immediate financial access to both parties in emergencies. Yet, should things end between you two, disentangling joint finances can be a hurdle.
Remember, excessively depositing into a joint account might necessitate a gift tax return. Each deposit gets split in half, with one half viewed as a gift to the other. Exceeding $17,000 in gifts within a year? Report it to the IRS, as amounts beyond this diminish the gift and estate tax exemption for the recipient.
Planning Your Estate
This is paramount for cohabiting couples. Without marriage, you’re typically not each other’s default beneficiaries and won’t be seen as family in medical situations. So, ensure you have current wills, lasting powers of attorney, healthcare directives, and named beneficiaries for retirement accounts, insurance policies, and trusts. Obtain basic documents from sites like Free Will, DoYourOwnWill.com, or MyDirectives. And if you’re contemplating professional legal advice, check if your employer offers prepaid or discounted legal services.
Still, there’s a caveat: you can’t combine inherited retirement funds to postpone taxes. Transfers upon death might not benefit from the unlimited estate tax exemption granted to married US citizens or from sharing unused estate tax exemptions. However, the current $12.92 million federal estate tax exemption will likely spare most from this concern. If in doubt, an estate planning attorney might be a wise choice.
Workplace Benefits
Typically, you and your significant other won’t qualify for workplace benefits like shared employer-backed health insurance, unless you’re recognized as domestic partners. Even then, the federal government taxes the benefit’s value. Some employers might foot this bill. If yours doesn’t, it’s worth evaluating whether to pay this tax or seek alternative insurance.
State Assistance
Joint tax filing, often a boon for married duos, especially with large income disparities or children, isn’t an option. As for adopting kids, it’s only permissible for domestic partners in certain states. Furthermore, federal authorities don’t acknowledge domestic partnerships. This means you can’t appeal for a non-citizen partner to stay in the U.S. or claim spousal or survivor Social Security benefits. The absence of these benefits might necessitate more life insurance, continuing into retirement.
Tying the Knot: Yay or Nay?
Clearly, foregoing marriage can mean missing out on certain financial advantages. Consider these when deliberating the question of marriage. Yet, marriage isn’t purely a financial equation – it has its own pitfalls, notably the possibility of divorce. Hence, choosing to wed should transcend mere monetary motives.
Choosing to cohabit without the formalities of marriage is a deeply personal decision, one influenced by emotional, social, and financial factors. It’s crucial for couples to understand the potential financial hurdles they might face and to make informed choices that reflect their unique circumstances and values. Armed with knowledge, cohabiting partners can build a solid financial foundation that supports their shared life journey, whatever path they choose.
