So you’re thinking about taking your relationship to the next level by moving in together. From a financial planning standpoint, this is a much bigger decision than agreeing on a place and comingling your possessions.
When living together, there is no family law to protect you and you are not afforded the same financial (and legal) protections and benefits as couples that are legally married. While you should consider talking to a legal expert to determine whether you should enter into any contractual obligations, here are a few financial issues to think about.
Determine how to deal with common expenses first. Consider keeping your bank accounts and credit cards in your own name but also establishing a joint account for expenses such as mortgage payments, household utilities, groceries and other essentials. Not all couples earn similar incomes, so think about what is equitable and what you are both comfortable with. Should you contribute toward joint expenses in proportion to your income or simply have a 50/50 split? Should you add money to the pot to include joint entertainment and dining and include a little extra for joint vacations? While this sounds like an unexciting exercise during an exciting time in your life, it is important as longer-term financial planning is often influenced by current cash flow issues. For example, if cash flow is tight, as it is for so many these days, the amount that you feel you should put away monthly for retirement could be reduced by the amount you want to save for that dream vacation or holiday home.
Reaching financial independence takes disciplined planning and this should now be done with both parties’ goals in mind. If one of you earns less and/or has put away less towards saving, yet you envision retiring together and living a similar retirement lifestyle, the partner who falls behind can derail both goals. Discuss when you want to retire, where you want to live and how you envision your retirement. If there are children involved, talk about how one or both of you would like to save and pay for college. Of course, these are not issues specific to same-sex partnerships, but typical for couples living without the legal protection that marriage brings.
Think about protecting yourself in other ways, too. For example, if you buy big-ticket items together like a house or car, speak to an attorney about the best way to title the property and think carefully before only one name is on the loan paperwork unless you have something in writing protecting you against the liability. If the relationship ends, the partner with the debt may be left with little or no legal standing if careful planning strategies have not been executed.
Protecting your income in the event one of you becomes disabled should be another consideration. If your current lifestyle and common long-term goals are contingent on both your incomes and a savings strategy, make sure that you have adequate disability insurance to replace lost income. Also consider how you want your partner to live if you die prematurely. If the partner with less assets or lower earning power is left behind, they will not be afforded the same benefits heterosexual married couples get such as Social Security and pension survivor benefits.
Discuss these issues with each other and speak to an insurance professional about obtaining the appropriate amount of life insurance to make sure you are both provided for. If you believe you will leave a large estate, your partner won’t receive your assets automatically and gift tax-free. Life insurance can help offset these potential inheritance taxes and estate taxes. There are other estate planning issues you should discuss with an attorney such as putting together and executing a will with the appropriate accompanying documents such as a living will and power of attorney.
So, when you are ready to take this big step, don’t forget to focus on your finances so you can move toward planning a financial future with your loved one.
This material is for informational purposes only and is not intended to act as specific advice. Please talk to a financial professional prior to investing and a tax adviser for tax advice. Benefit guarantees for insurance are subject to the claims paying ability of the insurer.
Terry-Ann Gardemal is a certified financial planner and financial adviser with Potomac Financial Management. She can be reached at 301-840-0770, ext. 110 or tagardemal@po- tomacfm.com.