Living Together? Set Up Boundaries

By Laura Cohn

Selma Berger says she likes to keep things "very simple." Berger lives with her companion, Jack Leopold, but has no plans to marry him. Having been with Leopold for seven years -- and a widow for 12 years -- Berger prefers not to mix her finances with his. So the two keep separate bank accounts, maintain their own investments and manage their own properties. "It works out very well," she says. "This way, I'm very independent."

The two split their time between her apartment in Pittsburgh and his place in Hollywood, Fla. In general, she says, they share their dining and entertainment expenses. "If it's just a bite, he pays, but if we go to the theater, we each buy our own ticket," she says. "I don't want to ask him for money."

Subscribe to Kiplinger’s Personal Finance

Be a smarter, better informed investor.

Save up to 74%

Sign up for Kiplinger’s Free E-Newsletters

Profit and prosper with the best of expert advice on investing, taxes, retirement, personal finance and more - straight to your e-mail.

Profit and prosper with the best of expert advice - straight to your e-mail.

Sign up

When it comes to medical decisions, Berger, 87, relies on her two adult children instead of leaning on Leopold, 89. "I'm used to it that way," she says.

The couple's arrangement is a good model for retirees who live together but don't want to marry. Of course, not every unmarried couple may wish to arrange their finances and medical affairs the same way. But at least Berger and Leopold have set boundaries on who pays for what, and they have an agreement about who makes health-care decisions.

In many cases, family lawyers and estate planners say, retirees start sharing a roof without discussing any of these details. Such neglect could have unintended consequences. If one person becomes ill, a domestic partner, unlike a spouse, has no legal rights to make medical decisions. Also, cohabitants do not have inheritance rights, as married couples do. A partner could end up in financial straits, perhaps losing the house the couple shared for many years, if the other dies without making arrangements beforehand.

"People should think about the entanglements they're creating," says Gaetano Ferro, president of the American Academy of Matrimonial Lawyers, a Chicago-based trade group. "If you're not married and living together and the estate wasn't done properly, the cohabitant will be left out," says Ferro, who practices family law in New Canaan, Conn.

The issue is growing in importance as more unmarried retirees move in together. The Census Bureau estimates that from 2001 to 2006, the number of unmarried opposite-sex couples older than 55 sharing a household rose by 61% -- to 549,000, up from 340,000.

Many retirees decide to stay single in order to maximize Social Security benefits and save on taxes. If you divorce after ten years of marriage, you can collect Social Security benefits on your former spouse's record if you are at least 62; if you remarry, you generally can't collect benefits on your former spouse's record. If your first spouse dies, you can't receive survivor benefits if you remarry before age 60.

On the tax side, two unmarried earners may be able to dodge the alternative minimum tax, or at least save one income from the AMT, says Connie Boysen, a lawyer at Boysen McEachen, a law firm in Overland Park, Kan. "Tax advantages for staying single but cohabiting as if a married couple can be considerable," she says.

Get It In Writing

Still, marriage provides many legal rights, so experts advise unmarried couples to go to extra lengths to create protections. Because there's always a chance that you and your companion will break up, it's a good idea to sign a "cohabitation agreement," a prenuptial agreement of sorts for those who don't want to tie the knot. Each person should hire a lawyer to ensure that the agreement is fair -- and easy to enforce.

Make sure the agreement lists both parties' assets and liabilities. That way, neither companion can later claim ignorance of the other's financial worth. Consider giving your partner a financial power of attorney, so he or she can sign your tax return if you become incapacitated. Randall Kessler, a partner at Kessler, Schwarz & Solomiany, in Atlanta, suggests providing only limited power, perhaps setting a one-year time period and a monthly ceiling on the amount that can be withdrawn from an account. If it's unlimited and you break up with your partner, you'll have to remember to undo the power of attorney.

The cohabitation agreement should lay out who gets any property if you terminate the relationship. If one partner owns the house you're living in, you need to specify living arrangements if the partnership ends. Without an agreement, the owner of the house can legally evict the other if there's a nasty breakup, Kessler says.

An agreement could also protect a companion who needs to continue living in the house after a partner dies. "You need to make arrangements beforehand so the adult children don't come in and say, 'It's been great you've taken care of Dad, but you've got 24 hours to get out,'" says Kyle Krull, an estate-planning lawyer in Overland Park.

A cohabitation agreement is separate from a will, which protects your heirs when you die. For example, you can note in your will that your children will get the house after your companion dies. Keep your estate planner informed so that the agreement doesn't conflict with your will.

You'll also need to address medical issues. Otherwise, you or your companion may be left out of the decision-making process if a crisis occurs. Robert Bullock, a partner of the Elder & Disability Law Center, a law firm in Washington, D.C., advises that you draw up an advanced medical directive, which enables your partner to make health-care decisions. Also, you could qualify for health insurance as a domestic partner if your companion's employer allows it.

Figuring all this out can be difficult, particularly when adult children from two separate families are involved. "It's like talking about sex with your kids," says Lorna Jorgenson Wendt, founder of the Equality in Marriage Institute. "But it will make your relationship better if you talk about things up front."

The institute closed in 2006, but you can still visit its Web site (www.equalityinmarriage.org) and download The Commitment Conversation, a guide for couples to discuss goals, lifestyle and finances.