Money Matters for the Unmarried

Be sure you make the right legal, financial decisions to protect your assets

Even though you haven't tied the knot, you and your significant other have made a commitment to each other by deciding to live together. Taking steps to protect your individual and shared assets should be a top priority. Doing this can help preserve the long-term financial and emotional health of your relationship.

The decision to combine or not combine finances is a tricky one and shouldn't be taken lightly.These living arrangements are increasingly common for those of you who are 50 and older — especially when you or your partner have been through a divorce or want to avoid jeopardizing financial or medical benefits.

Here are four things you need to know to protect yourself, your partner and your assets when you buy a home, open joint accounts or make other financial moves with a live-in love.

1.) Create a Living Together Agreement

The most important thing for unmarried people to know is that there is no financial or legal protection for them under federal law. The burden is on you to take specific action — such as proper estate planning — to handle your financial affairs. The first step in protecting all parties involved is to create what some financial experts call a "Living Together Agreement."This document identifies "the current status of the relationship, and identifies what will happen should either of you become disabled or die, or should the relationship unravel," says Debra Morrison, a certified financial planner. 

The best time to draw up this agreement is at the beginning of the relationship, while love is still in the air. Each of you should get separate legal counsel. As part of the agreement, or as an attachment to it, include a Statement of Asset Ownership in which you describe what you each own separately or jointly.

2.) Express Your Wishes in Writing (and Video)

Just like married couples, it's important for people living together to draw up a number of personal, legal and medical documents — preferably by appropriate professionals, such as tax experts, attorneys or estate specialists. Examples of the documents you may need include a power of attorney, a medical directive (such as a living will or health care power of attorney), and a last will and testament.

For older couples, if one or both of you has already experienced health issues, it's vital to think about whether you're comfortable giving your partner health care power of attorney. If you decide your partner shouldn't be your power of attorney, you can make arrangements for a health care proxy instead.

You should videotape your desires, stating that you are of sound mind, and indicating the date of the recording. If there is any doubt about your wishes or your competency, a videotape could help to blunt any questions or legal challenges that may arise among health care professionals, family or friends, according to legacy attorneys Danielle and Andy Mayoras, authors of Trial & Heirs: Famous Fortune Fights.

3.) Think Twice About Co-signing Any Loans

If you co-sign on any loans — from credit cards to automobiles to mortgages — you are legally liable for the entire debt. This is particularly a sore point if the relationship ends and the debt still remains.

Even if you and your significant other part ways with an agreement saying one of you is solely responsible for certain bills, if those obligations go unpaid, creditors can still go after each of you to collect any debts for which you both co-signed. So be cautious about co-signing. In the event of a breakup, be prepared to work out a deal to pay off joint debts as quickly as possible to avoid potential damage to both of your credit ratings.

With a car, consider what would happen if either of you got into an accident and someone was hurt. Since car ownership dictates liability, it's "cleanest for each car to be insured by each car owner for liability purposes," Morrison says.

If you plan to buy a home together, tread carefully financially. Take extra precautions to get much-needed paperwork in order.

Avoid buying an overly expensive property that requires two incomes or pensions to pay the mortgage. If one of you moves out, the party remaining in the house may not be able to pay a hefty house payment. Additionally, should the relationship fizzle, you don't want to have to sell at a loss if you're forced to unload your home in a down real estate market. 

Creating a written property agreement is prudent for unmarried people buying a house together. That agreement should clearly indicate what percentage of the house each of you owns, what happens to the house if you break up and how the title of the house should be listed on your deed. Ideally, your property agreement will also include a buyout clause, which specifies how the home will be appraised and how long one party has to come up with the money to buy the other person out, should you separate.  4.) Be Sure to Title Assets Properly for Joint Accounts  For major purchases, such as a house, if you both are responsible for paying the mortgage, then both or your names need to be on the deed/trust.  Experts also suggest using a living trust to make sure that, if one of you passes away, the other gets the home. "Your partner could have the house held in a living trust that would provide for your rights if he/she is disabled or dies before you," Morrison says.  For assets that you both want split evenly — from bank and investment accounts to real estate — it's best to title those assets as joint tenants with rights of survivorship (JTWROS). This ensures that if one of you dies, the entire asset passes to the other joint owner.  By contrast, one of the quickest ways to start a potential family feud is for unmarried people to hold assets as tenants in common.  This is where a portion of an asset (generally 50 percent, unless there's documentation to illustrate a different ownership percentage) passes to the deceased person's stated heirs or beneficiaries. This means that if you're the original joint owner, you now share 50-50 ownership of that asset with the decedent's family members or other heirs. With such important issues hanging in the balance, it's worth it to hire competent estate planners and other professional advisers to make sure your wishes are carried out.

Lynnette Khalfani-Cox is the author of Perfect Credit: 7 Steps to a Great Credit Rating. You can friend her on Facebook or follow her on Twitter @TheMoneyCoach.