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Unmarried couples should be aware of the following three unforeseen financial traps before getting married:
Experts say that you should plan for the future if you’re living together before you get married or if you’re in a long-term relationship without plans to get married. If you don’t, you may have problems in the future.
Many couples don’t get married because “they don’t see the benefit,” according to Michelle Petrowski, a certified financial planner at the Phoenix-based financial firm Being in Abundance.
“From a financial point of view,” she said Monday at the Financial Planning Association’s annual conference, “it can be both a blessing and a curse.”
Data from the Pew Research Center shows that over the past 20 years, more and more American couples have moved in together before getting married.
The number of married adults in the U.S. has gone down from nearly 60% in the 1990s to less than 50% in 2019. During the same time period, the share of 18–44-year-old U.S. adults who lived with a partner rose to 59%.
Petrowski said that some couples choose not to get married because of money, but they might not know what the problems are. “We always think there won’t be an emergency.”
Here are some financial surprises that unmarried couples need to think about.
1. You can’t get Social Security benefits based on the work history of your partner.
If you’ve been married for at least 10 years, you may be able to get Social Security benefits based on the work history of your spouse or ex-spouse, such as spousal or death benefits.
But unmarried partners can’t get these payments together or after a breakup, even if they’ve been together for more than 10 years.
Petrowski said that a strategy for getting Social Security benefits can be helpful for spouses who leave the job market for a long time to care for children.
2. Individual retirement accounts that are passed down may have “unintended consequences.”
Petrowski said that it is also harder for unmarried couples to inherit an individual retirement account.
The Secure Act of 2019 says that some heirs, including non-spouse beneficiaries, must spend down retirement accounts they inherited within 10 years. This is called the “10-year rule.” Before, beneficiaries who were not married could spread out their payments over their whole lives.
“That could have unintended results,” Petrowski said, because a higher income over the next 10 years could affect college aid, Social Security taxes, or Medicare premiums.
3. If you die, your partner may be “left with nothing.”
Whether you keep your assets separate or buy property together, Petrowski said that unmarried partners need help with the right titles and legal documents to protect both of them.
She said you should think about what will happen if you die while your partner is still living in your home.
Petrowski said, “If you die without a will and without making plans, that person’s whole life is shattered.”
The property usually goes to your biological or legal heirs through the laws of your state.
You can choose a cohabitation agreement, which is like a prenuptial agreement for unmarried couples, or a will to say what happens to property if one partner dies. Petrowski said that you should talk to an estate planning lawyer in your area because the laws are different in each state.
She said that your partner might be left with nothing, so it’s important to plan for the worst-case scenario ahead of time.
