Monday, January 31, 2011
The Financial Case for Marriage
Two of the seven Kay kids are married and loving it. We've always believed that marriage is the best option from a spiritual perspective and I'm often asked about how it stacks up from a financial perspective. Recently, on ABC news I addressed this issue from the viewpoint of a financial expert.
According to the Census Bureau, the number of opposite sex couples living together jumped 13% this year to 7.5 million. Demographers attribute the increased number to a post recession economy and increased unemployment which has forced many young adults to share living quarters. Older adults who have previously been married may view living together as a way to avoid the issues often associated with the end of a marriage. But if you and your partner share property, a breakup could be even messier than a divorce.
Q. Ellie, while there are economic reasons that account for the increase in the number of couples living together, there is also a broader societal issue involved as well. What are some other reasons for these new statistics?
ELLIE: While the downturn in our economy is certainly the top reason that more people are choosing to postpone or forgo marriage, there are other factors as well. Researchers estimate that more than half of married couples live together before they get married. Only 38% of Americans believe that unmarried couples living together is bad for society; half said it doesn’t make much difference, according to a Pew Research Center survey.
Q. What would you say is the biggest financial issue that unmarried couples face?
ELLIE: Without a doubt, I would say it’s the issue of “yours, mine and ours.” A legally binding marriage is a system that organizes the landscape for you. If you had it before, it’s yours. If you earned it while you were together, it’s ours. But when there is no marriage contract, there’s nothing in place that legally defines this landscape and it’s all up in the air.
Q. The first area you say is a drawback for unmarried couples is when buying a home. Isn’t it enough to assume that your partner wants to put both parties names on the title and that will take care of it?
ELlIE: Unlike married couples the courts won’t assume you have equal ownership of the houe in the event of a breakup. The house will go to whoever is on the title, even if one partner puts 75% of the money into the home and the other only antes up 25%, it will be an equal divide. So if you break up two years later, and you’ve put in more, you’ll take a significant loss on your investment. Furthermore, I know relationships are all about trust, but you can’t assume your partner will put your name on the title unless you see it first in writing.
Q. What issues do couples who are living together face in regards to estate planning and why is it especially important if you are not married?
ELLIE: Personally, I believe that everyone should have an estate plan but for unmarried couples, it’s essential. If you die without a will, your estate will be divided according to state law, which usually doesn’t recognize domestic partners or common law spouses. Family members that you don’t even like could end up inheriting everything you own. But even if you have a will, your partner could still be forced to sell the home to pay federal and state estate taxes. Whereas a surviving spouse can inherit an unlimited amount of assets, tax free. This makes a strong case for marriage, especially for those couples who are planning to stay together a lifetime.
Q. The final area we want to consider is health care. Most large companies let their employees add domestic partners to their health insurance so why is this a financial matter differ for those who are living together?
ELLIE: The main reason is that while benefits to spouses are tax free, the IRS doesn’t recognize domestic partners. Consequently, the benefits provided to your partner are treated as taxable income. This is a huge tax hit which makes extending group coverage to your partner more expensive than just buying an individual policy. If you’re both employed, then keep your separate plans, unless you get married. If your partner is a legal dependant, then that would be the other exception. However, getting legal dependency declared is very difficult. You should draw up a durable power of attorney for health care and make sure you’ve drawn up advanced health care directives. Without one of these, hospitals and doctors don’t have to give you information about your mate.
Q. My girlfriend and I are getting real serious and thinking of living together or getting married. With so many things going on, Ellie, tell us where you can start when it comes to dealing with money before you live together. Submitted via online – Ted from Thomasville
ELLIE: The most important financial merger of your life requires hard work—but it’s worth it. COMMUNICATION is the key to dealing with money in marriage. According to a 2009 study conducted by California State University, 21% of couples fight over money daily or weekly. 10% fight monthly and 46% put on the gloves every few months. So start talking about money matters to include: expectations, budgets, long term planning, goals.
Q. My boyfriend and I decided not to live together before we get married. We’re engaged and have set a date for next spring. What steps should we take to make sure we start off on the right foot when it comes to our finances?
ELLIE: I think it’s critical for couples to get premarital counseling that specifically deals with money matters. Each partner comes to a marriage with different money management styles. For example, I was a born saver (big surprise) and my husband, who had a good work ethic from the time he was a child was a born spender. In fact, his money never say the inside of his pocket! Consequently, I recommend date nights should be set aside monthly (if not weekly) to regularly talk about your financial progress with your mate. Spouses-to-be who discuss their views of money and work together on how to use their financial resources may discover that they actually like the process.
Q. My parents argued about money so much it led to their divorce. What are some specific topics I should learn to talk about with my girlfriend before we make any kind of long term commitment? Greg submitted via facebook
ELLIE: There are some basic topics that all couples should cover as they talk about financial matters
• Long Term Financial Goals (buy a car, home, have kids, vacations)
• Spending Plan
• Saving Plan
• Debt Management
• Short Term Financial Goals (new furniture, trip to Europe)
America's Family Financial Expert (R)