Smart Financial Steps for Unmarried Couples

U.S. Census Department figures show a recent increase in unmarried couples living together, possibly due in part to job loss or other consequences of an uncertain economy. No matter what brought them together, cohabiting couples have unique financial considerations, according to the California Society of CPAs (

Know Your State’s Laws

Common law marriages, in which some cohabiting couples have rights similar to those of spouses, are recognized in fewer than 20 states. (Common law marriages are not recognized in California.) If you don’t live in one of these states, or if you don’t meet their requirements, you are not considered married, no matter how long you live together. In addition, the District of Columbia and 12 states, including California, offer some form of civil union or domestic partnership with varying types of rights. Start out by finding out your state laws.

Divorce Laws Don’t Apply

Next, consider what will happen if your relationship ends. When a marriage breaks up, divorce laws can help determine tough issues such as how the marital property will be divided, who will continue living in your home, who’s responsible for outstanding debt and how custody of any children will be handled.

Depending on your state’s laws and the form of your relationship, there will likely be no similar rules for an unmarried couple. That’s why you may want to consider creating a cohabitation agreement, much like a prenuptial agreement before marriage, to lay some ground rules that may come in handy later.

Look Before You Leap Into Home Ownership

For example, real estate prices remain at historic lows in many places, and home ownership is still considered a good long-term investment. But before you chip in together to buy a home, keep in mind that just because you live together, and perhaps make equal payments on the mortgage bill, a court may not automatically consider you equal owners of the home if your relationship breaks up. In all likelihood, the property would belong to the person named on the deed, even if you have both contributed to the down payment or mortgage bills.

Pros and Cons of Joint Tenancy

A cohabitation agreement can identify issues such as who gets the house. There are also other options for unmarried couples, such as a joint tenancy with a right of survivorship, in which you both own the home and the property passes to the surviving partner if one of you dies.

The downside is that under this arrangement you also take responsibility for any debts associated with the home. That means that if one partner stops making mortgage payments, the other will be stuck with the entire bill. You will also need your partner’s agreement to sell the house, since you don’t own the property outright.

Estate Planning Is Critical

If unmarried partners don’t have wills, their assets generally go to other family members since most states don’t recognize an unmarried couple’s inheritance rights. In addition, while surviving spouses don’t face estate taxes on their inheritance, a domestic partner may be forced to sell a home or other assets to pay the estate taxes on them. A will can identify your intended beneficiary and a proper estate plan can minimize the estate tax burden on your partner.

Your CPA Can Help

Your local CPA can provide advice to help you address the complicated concerns for unmarried couples and keep your relationship on the right financial footing. Turn to him or her with all your financial questions.

Copyright 2011 American Institute of Certified Public Accountants.

The Money Management columns are a joint effort of the AICPA and the California Society of CPAs as part of the profession’s nationwide 360 Degrees of Financial Literacy program.