Amid the brouhaha about same-sex marriage over the past several years, a more widespread phenomenon has slipped past the attention of most Americans: cohabitation of unmarried couples, which the U.S. Census Bureau says increased tenfold between 1960 and 2000.
Nearly 7% of households were headed by unmarried opposite-sex couples in 2015, according to the Census. When same-sex couples are included, that adds up to more than 12 million unmarried partners.
This may not seem like a huge group compared to the estimated 120 million married spouses. But cohabiting is also the first step toward marriage for many couples, which makes unmarried partners a market segment for financial advisors to consider cultivating. However, the standard financial planning for married couples doesn’t always work for their unmarried peers.
Why They Don’t Marry; Why They’re Good Prospects
“There’s a lot of good reasons not to get married,” pointed out Sheryl Garrett, founder of the Garrett Planning Network. “Especially among younger couples, living together is very common and rapidly growing.”
Some couples say they can’t afford to get married. For some couples, tying the knot can mean losing valuable benefits. Or a couple may simply want to use the money that a wedding would cost to pay off debt or help buy a house.
For most, however, living together is a way to test-drive a relationship to see if it works. The couple wants to feel emotionally and financially secure before making a more permanent commitment.
In particular, as men’s education levels and earnings decline while women’s rise, women are feeling less financial pressure to marry. According to the Centers for Disease Control and Prevention, nearly two-thirds of 15- to 44-year-old women have cohabited at some point, up from 41% as recently as 2002.
The increase in cohabiting has been “most pronounced for those having some college experience,” said Wendy Manning, a sociologist at Bowling Green State University, in a Nov. 17, 2016, Wall Street Journal article. College-educated couples are historically more likely to marry than those with less education, but Manning found that 58% of women with at least four years of college have lived with a domestic partner at some point.
These better-educated couples aren’t just eking out a living. When adjusted for size of household, cohabiting college graduates aged 30 to 44 have higher median household income than their peers who are married, according to a 2011 Pew Research analysis of U.S. Census data.
But there are many complicating factors with these couples, including their offspring.
Some 39% of cohabiting opposite-sex households include children under age 18, according to the Census Bureau. In fact, about one-quarter of births to women aged 15–44 occur in a domestic partnership, double the rate from the early 2000s and higher than the rate for single mothers.
If these couples split up and subsequently have children in new relationships, the legal and financial complications can be mind-bending. Child custody and support payments, along with estate planning for stepchildren and half-siblings, may lead serial cohabiters — like serial spouses — to seek an advisor’s help.
Pioneers in Serving Unmarried Couples
Before same-sex marriage equality was upheld by the Supreme Court in 2014, several advisors had begun looking for ways to help these couples in committed relationships. “There were nuances that opposite-sex couples didn’t face,” said Debra Neiman, a CFP and principal at Neiman & Associates in Arlington, Massachusets, who dealt with a number of unmarried couples in her practice. “For example, a lesbian client refused to name her partner as the beneficiary of her life insurance and retirement plan at her employer because she didn’t want the folks at work to know her business.”
In addition, the lack of flexibility in financial planning programs bothered her. “I saw discrepancies in software programs that made assumptions as if all couples were married,” she said. “But these assumptions didn’t hold true [for unmarried couples].”
In 2005, Neiman collaborated with Garrett to publish “Money Without Matrimony: The Unmarried Couple’s Guide to Financial Security.”
The two authors wrote the book with full awareness of the legal and social differences faced by domestic partners. “If you’re a couple, whether same-sex or not, it can make a huge difference if you’re unmarried,” Garrett said. “You might be estranged from your family for ‘living together in sin.’”
She strongly suggests that advisors discuss three domains in depth with unmarried client couples: expense sharing, individual insurance for household effects, and a domestic partnership agreement.
Then there’s the question of who pays for what.
“Young couples living together unmarried have issues with whether or not to merge any of their money,” Garrett said. As they’re sorting out their feelings about sharing intimacy versus maintaining autonomy, unexpected differences of opinion can lead to grueling conflict.
In Olivia’s experience as a couples therapist, a good solution is often for each partner to contribute to shared household expenses while maintaining some separate funds. However, each couple needs to find an arrangement that’s comfortable for them both.
The Unique Insurance, Legal and Financial Issues
Unless an unmarried couple jointly own their home, homeowners insurance doesn’t automatically cover them both. “Some homeowner policies allow you to include a long-term guest,” Garrett noted. But if one person owns the residence, the other generally needs to get rental insurance to protect his or her belongings.
This has the potential to be a touchy issue if, say, the woman owns the property and the man finds himself legally viewed as a renter. “Psychologically, this can affect the status of the relationship,” she commented. One solution would be to re-title the home (if the owner is amenable) and add both names on the insurance policy.
When a couple decides to form a long-term committed relationship, a domestic partnership agreement should set out the legal and financial rights and responsibilities of each partner: how they will live together, share income, share assets, hold bank accounts, own property and pay for expenses. Prepared with the help of an attorney or a do-it-yourself legal guide, the agreement also assures some of the same legal protections provided when a marriage is terminated.
Otherwise, there are no rules to encourage a fair and equitable division of assets when a domestic partnership breaks up. “Either the more forceful personality or the one who feels most guilty may have a greater influence on how the settlement goes financially and logistically,” Garrett explained.
“Deb [Neiman] and I strongly recommend a domestic partnership agreement for anyone in a committed relationship,” she added. “One of the reasons is that it helps clarify whether the couple are compatible enough to have a long-term future.”