A defining moment in your relationship was likely the day your partner gave you the keys to the apartment (or house). As you grasped that magical key in your hands, your thoughts drifted to the wonderful future you would have. After living together for a while, your partner would see what a perfect match you are and you would get married and have children, live in a big house, and work at amazing jobs.
Then you broke up. Your perfect little dream, not to mention your heart, is now shattered in a million pieces. You not only have to heal emotionally, but you also have to make sure your finances are in order before you fully move on. The Cheat Sheet spoke with Colleen Carcone, a wealth planning specialist at TIAA-CREF, to learn more about what happens when two people with significant financial assets break up after living together. Here’s what we learned.
Living together doesn’t automatically guarantee certain legal rights
Just because you lived together for a certain amount of time does not mean you will automatically be entitled to some of your partner’s assets. Know that not all states recognize common-law marriage.
“A popular misconception is that if a couple lives together for a certain length of time, they will be guaranteed certain legal rights when it comes to asset distribution. In fact, unmarried couples will be treated as two separate individuals, which means that bank and savings accounts, and any other assets will remain in the ownership of whoever’s name they are in. And if that person dies without a will, his assets will pass according to state law, which does not recognize that relationship. In some states, common-law marriage — a legally recognized marriage between two people who have not purchased a marriage license or had a ceremony — may be recognized. However, common law marriage rules vary between the few states that do recognize them,” said Carcone.
You may want to consider a cohabitation agreement
Particularly in cases where you share an asset (for example, you purchased a home together), you may want to think about drafting a cohabitation agreement. This will help decide beforehand who gets what in the event of a break-up or death. This type of agreement can help alleviate some of the stress that comes with unexpected life events.
“Even if you live in a state that recognizes common-law marriage, it is important to take extra care when it comes to your affairs. It is important for unmarried couples to set up proper legal safeguards to ensure their assets and interests are protected in the case of a break-up, death or incapacity. You could consider a cohabitation agreement, spelling out how property will be distributed in case of a break-up. Planning for death can be done through establishing your estate plan, which includes a will, durable power of attorney, and health care proxy, as well as coordinating asset ownership and beneficiary designations,” said Carcone.
If you don’t own the home, you’ll have few rights to the property
Be prepared with a back-up plan when it comes to having a place to stay. Carcone says your rights may be limited as far as how long you can stay in the home until you get settled somewhere else. This is also why it’s important to have a healthy emergency savings account. This way, if you need to move in a hurry, you’ll already have enough saved for the security deposit and the first few months of rent. If you’re really in a pinch, you can also stay with friends until you are back on your feet.
“If a couple chooses to separate and one partner owns a residence, the other individual may have few rights when it comes to staying in the residence until they can find a new home. Any time property is purchased with your partner, it’s crucial to document how the asset was purchased, how much each party contributed, and what will happen to the asset if the couple breaks up, passes away or becomes incapacitated,” said Carcone.
Draft an estate plan
Most complications can be avoided with an estate plan. If you die without an estate plan, your assets may be distributed in a way that you would not have wanted. Make sure to outline your wishes in advance.
“As many couples choose to remain unmarried, it is crucial to understand the financial implications of this decision. Unmarried couples must take additional efforts to ensure they are protecting their legal and financial rights and wishes. Asset titling — the name in which the asset is purchased, and whether the property is titled as joint tenants with rights of survivorship or as tenants-in-common — is key to ensuring your wishes are adhered to. While every couple’s situation is different, the best advice for an unmarried couple is to consult with a qualified financial advisor and estate planning attorney to determine how to best protect their assets,” said Carcone.