Estate Planning for Unmarried Couples

 A couple 

IN THIS POST:

• The Issues of Shared Property Ownership 

• The Consequences of Inaction

• The Importance of a Proper Estate Plan

• Planning for Peace of Mind

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The lawmaker’s job is to keep up with what’s important to their constituents.  When laws don’t keep up with reality, judges step in and try to apply the principles behind the law to the cases in front of them.  While this is great, involving the Courts is not only expensive, but unpredictable at times, too.

Look at the rise of cohabitation and situationships. In 2010, there were 6.8 million unmarried couples living together in the U.S. That number became 9.5 million by  2022 (The Census Bureau). While there are many valid reasons why the couples do not formally tie the knot, the reality is that they do not get to have certain benefits and do not get certain protections that married couples have.

Back when I was getting my Masters in Tax Law, I attended an impressive brainstorming session on the property rights of same sex couples.  This, of course, was before the monumental case Obergefell v. Hodges, 576 U.S. 644 (2015), a decision that federally legalized same sex marriages. Prior to that decision, same sex couples did not have numerous benefits afforded to the rest of the families (i.e. Estate Tax exemption). Dozens of attorneys got together and developed strategies for advising same sex couples on how to establish their households in order to get the most favorable estate and tax treatment of their estates. 

There are similar brainstorming sessions happening now to develop strategies to assist unmarried couples. It is not the purpose of this article to pass judgment on how people live their lives.  I hope that this article gives you some food for thought and helps you weigh your options.  Keep in mind that our system of laws is based on precedent, the application of laws to prior cases.  There are hundreds of years of precedential decisions on how to distribute property of married couples if something were to split them apart.  The cases for dealing with property of unmarried partners, compared to the rest of the couples, are fewer and typically tricker.

Without being legally married, couples end up being treated as business partners when it comes to dividing their estate. Tax free division of pension plans and 401(k) is also not clear.  Marital exemption doesn’t exist because, evidently, it’s not a legal marriage. In this article, we'll examine potential issues of owning property as an unmarried couple and offer key steps to protect your interests and to ensure that the estate plans are carried out as you want them to be.

The Issues of Shared Property Ownership 

While owning property with someone might seem easy, it can be very complex for unmarried couples. Here are some major  issues to consider:

1. No Automatic Inheritance: Couples are not able to inherit each other’s property like married couples or families can. Without a proper estate plan, the partner’s share may not be given to the other, leading to potential legal disputes with family and many avoidable issues.  

2. Survivorship Rights and Tenancy in Common: Unmarried couples have to decide between joint tenancy and tenancy in common when purchasing property. Joint tenancy includes the right of survivorship, meaning the property will be given to the other partner if something were to happen. This can simplify things, but it might not reflect the deceased partner's wishes and intentions, especially if they have other family. On the other hand, tenancy in common allows each partner to own a specific percentage of the property, which can be given to beneficiaries, providing more flexibility and peace of mind, but also leaves room for possible issues and disputes.

3. Financial and Legal Vulnerabilities: Without the legal protection married couples have, unmarried couples may find it difficult to prove their ownership, finances, and contribution. If a breakup or legal issue were to occur, this would become even more difficult and may end with one or both partners losing their investment and likely facing expensive legal fees.  Ultimately, if each of the unmarried partners has kids from prior relationships, the person who outlives their partner is in a much better position to get more from their partner’s estate.

The Consequences of Inaction

If unmarried couples do not take measures to protect themselves and their property, serious consequences can occur. Every married couple has a rudimentary estate plan prepared by the state that they live in.  It’s known as the “intestacy” law.  The intestacy law sets forth (1) who has the priority to become a personal representative; and (2) who gets the decedent’s property after death. Married couples have the option of coming up with their own plans but at the bare minimum, they have something. This plan doesn’t always work well with blended families or where there is a substantial disparity of income, but it’s better than nothing.  

Currently, the unmarried couple is treated by the probate court as two strangers, or, at best, as business partners. There is no equitable distribution in divorces.  There is no elective share in estate planning.  There really isn’t much there to protect the surviving partner.  If the couple has kids, it gets a little easier but there’s nothing created by default when unmarried.

With proper estate planning, however, the unmarried couple get to designate their wishes and plan their estates properly and exactly how they want it.

The Importance of a Proper Estate Plan

To navigate the hefty potential challenges, unmarried couples should make sure to create a comprehensive estate plan. As there is no default (intestate) plan, an estate plan for a couple at a minimum must include:

1. Wills which spell out the property distribution upon death and the parties’ preference for who should be the guardian(s) of their children if they are minors;

2. Property Agreement(s) spelling out the parties’ respective contributions to their valuable property and their wishes for its disposition.

3. Power of Attorney and Health Care Directives: In addition to protecting property, it’s essential to appoint a power of attorney and health care proxy. These legal documents grant the adult of your choosing (in this situation, your partner) the authority to make financial and medical decisions for you, if you are no longer able. Without these documents, your partner will not have a role in making life-changing choices for you when you need them, because the financial or medical institutions cannot take directions from a boyfriend or girlfriend.

4. Beneficiary designations on various financial accounts.

Planning for Peace of Mind

Finding someone to share your life with is not easy.  By taking steps to create a comprehensive estate plan, you can protect your assets, specify your wishes, and ensure peace of mind for both you and your partner.

To avoid all issues that can arise from unmarried property ownership, contact us today to schedule a consultation and ensure the protection of your future together.

By: Nicholas S. Ratush, Esq. and Rebecca Viknyanskiy, intern.