Retirement and estate planning for unmarried couples
Executive Director, Wealth Planning and Advice
- The number of unmarried couples living together in the U.S. has more than doubled since 1990.
- These couples need to take extra precautions with retirement and estate planning, as laws are far more tailored to those who are married.
- Even with precautions, some financial risk can remain without the legal protections of marriage.
As times have changed, so has the American perspective on marriage. Fewer couples feel pressured to get married before they’re ready, with some choosing to live together and even have kids without tying the knot. In fact, the number of unmarried couples in the U.S. has more than doubled since 1990.
While this decision may have its advantages – including avoiding the legal process of divorce – there are some financial drawbacks to remaining unmarried. This is especially true as it relates to retirement and estate planning.
Still, there are ways unmarried couples can address these challenges. Let's take a closer look.
Common-law marriage may not make a difference
Some unmarried couples may forgo marriage because they believe they’re in a “common-law marriage,” a status recognized under certain circumstances in some states. However, not all states recognize it, and those that don’t generally won’t provide legal protections similar to marriage.
It is possible for couples to build a successful retirement and estate plan while unmarried, but long-term partners should be aware of the risks and benefits they may not have. If they’re set on remaining unmarried, they can help reduce risk by consulting an attorney (and, as needed, a tax professional) and applying certain considerations to their financial planning process.
Protect your legacy with a trust
Explore self-directed investing and managed trust account options with J.P. Morgan Wealth Management to help you distribute your assets according to your wishes and make your estate planning easier.
Retirement and estate planning challenges for unmarried couples
Unmarried couples face more challenges than their married counterparts when it comes to planning for retirement and arranging for what will happen with their assets when they pass away. In many cases, marriage provides default protections that can be hard to replicate. Here are the main challenges to consider for couples who are not married:
- Members of an unmarried couple have no automatic right to their partner’s assets should one of them die.
- The legal view is also murkier on shared property.
- If an unmarried couple separates and there’s no mutual agreement, division of assets will be left to civil court (which can be slow and expensive).
- Generally, healthcare or end-of-life decisions automatically go to next of kin, which is likely not the unmarried partner.
- As a non-spouse beneficiary, an unmarried partner who inherits an individual retirement account (IRA) may have fewer options and may face faster withdrawal requirements, which can affect taxes.
Benefits not available to unmarried couples
Although actions can be taken to mitigate an unmarried couple’s financial risk, there are still some benefits that are just not available to people without being legally married. These include:
- Social Security spousal and survivors benefits, which an unmarried partner generally isn’t eligible for.
- Income tax benefits, particularly when it comes to inheriting tax-deferred retirement accounts. An unmarried partner generally can only transfer the assets to an inherited IRA and may be subject to required minimum distributions and the 10-year distribution rule, depending on their circumstances.
- Avoidance of estate and/or gift tax. These taxes can hit an unmarried partner hard if their loved one dies, especially if that estate is large. In some situations, additional transfer taxes may apply depending on how assets are passed and to whom.
Steps unmarried couples can take to secure their finances
Fortunately, there is legal recourse to address some of the challenges. Here are steps unmarried couples can take to secure their finances with the help of attorneys and trusted advisors:
- Name each other in wills, trusts and powers of attorney so that your partner becomes the executor/beneficiary rather than the legally determined next of kin, and consider living wills or advance directives that describe wishes for end-of-life care.
- Title valuable assets – and especially shared assets – in joint names, where appropriate, with rights of survivorship.
- Create a property co-ownership agreement that keeps track of who contributed what to a property (down payment, mortgage, maintenance, etc.) and lays out how the property would be divided in case of separation.
- Similarly, establish a cohabitation agreement that sets parameters for how all financial assets would be divided upon separation.
To learn more, read our white paper on financial planning for unmarried couples (PDF).
Invest your way
Not working with us yet? Find a J.P. Morgan Advisor or explore ways to invest online.
