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SEATTLE — In the event you’re residing collectively earlier than marriage or dedicated long-term with out plans to tie the knot, you will want to organize for the longer term — or you could face challenges later, consultants say.
There are “rising charges of cohabitation,” with many {couples} skipping marriage as a result of “they do not see the profit,” stated Michelle Petrowski, an authorized monetary planner on the Phoenix-based monetary agency Being in Abundance.
Financially talking, “it may be a blessing and a curse,” she stated, talking on the Monetary Planning Affiliation’s annual conference on Monday.
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Over the previous 20 years, American {couples} have more and more moved in collectively earlier than marriage, in accordance to data from the Pew Analysis Middle.
The share of married U.S. adults declined from almost 60% within the Nineties to lower than half in 2019, analysis reveals. Throughout the identical interval, the share of U.S. adults ages 18 to 44 cohabitating with a companion elevated to 59%.
Whereas some {couples} decide out of marriage for monetary causes, they could not perceive the pitfalls, Petrowski stated. “We all the time suppose an emergency won’t ever occur.”
Listed below are some surprising monetary points single {couples} want to contemplate.
1. You possibly can’t declare Social Safety advantages based mostly in your companion’s work historical past
In the event you’re married for a minimum of 10 years, you could be entitled to collect Social Security benefits based on your spouse or ex-spouse’s work history, including spousal or death benefits.
However, unmarried partners don’t have access to these payments together or after a breakup, even if they’ve been together for more than 10 years.
Petrowski said that Social Security benefit claiming strategy can be valuable for spouses who leave the workforce for years to care for children.
2. Inherited individual retirement accounts may trigger ‘unintended consequences’
Inheriting an individual retirement account also becomes more complicated for unmarried couples, Petrowski said.
Thanks to the Secure Act of 2019, certain heirs, including non-spouse beneficiaries, must deplete inherited retirement accounts within 10 years, known as the “10-year-rule.” Previously, non-spouse beneficiaries could stretch distributions over their lifetimes.
“That could have unintended consequences,” Petrowski said, as higher income during the 10-year period may affect college financial aid, Social Security taxes or higher Medicare premiums.
3. Your partner may be ‘left with nothing’ if you die
Whether you keep assets separate or purchase property together, unmarried partners need guidance on proper titling and legal documents to protect both parties, Petrowski said.
For example, you’ll need to consider what happens if you pass away while your partner is living in your home, she said.
“If you die without a will and you don’t plan, that person’s whole life is blown apart,” Petrowski said,
The property typically passes via state intestacy laws to your biological or legal heirs.
You may opt for a cohabitation agreement, which is like a pre-nuptial agreement for unmarried couples, or a will to cover what happens to property if one partner dies. You’ll need to speak with a local estate planning attorney since the exact laws vary by state, Petrowski said.
“Your partner may be left with nothing,” she said, so it’s critical to plan for worst-case scenarios in advance.
