I once heard it said that if marriage is like a freeway, then domestic partnerships are like the toll road. They both take you to the same place, but with domestic partnerships, you have to make a few stops and decisions along the way. Below, guest contributor Stacey Hunt guides us through those stops and decisions so that you can be in control of that journey.
Handling personal finances: separately or as a couple
As unmarried partners, you get to decide whether to handle your finances separately, together, or in some combination. If you decide to combine finances, you should proceed with caution only because your relationship lacks many of the legal safeguards of marriage. If the relationship ends, no divorce courts or uniform guidelines exist to separate your shared assets and some ex-partners could drain the funds from a joint account. Also, like legally married couples, if you incur joint debt, you are each fully responsible for the entire amount. So, while times are good, have a frank discussion of your financial values, priorities, and goals. Estimate your net worth separately and also as a couple. If you plan on pooling your financial resources, decide whether you’ll handle household finances through joint or separate bank accounts.
Developing a budget
The thought of developing a budget intimidates many people. Don’t let that happen to you. A mutually agreed-upon budget helps to keep finances straight and avoid arguments over money and bills. Begin by agreeing on which expenses you’ll share and which you’ll keep separate. For shared expenses, decide whether you’ll split them equally or in proportion to your income or net worth. Include your share of household expenses as a fixed cost in your budget so you don’t forget to set aside funds to cover it.
Planning for retirement: separately or as a couple
When planning for retirement, you need to decide whether to plan separately or as a couple. As unmarried partners, you’re not eligible for spousal benefits of traditional marriage: Social Secu- rity and defined benefit pension plans. Unless you have a written agreement or an irrevocable trust in place that will withstand a permanent separation, it may be best to consider yourself a single person and plan for your own future. You should also keep in mind that it’s always possible that your relationship could end before retirement. If you decide to plan for retirement together, there are some approaches you can take:
- Investigate the availability of joint and survivor benefits for your partner.
- Increase your level of savings.
- Use life insurance to fund your partner’s retirement.
- Designate your partner as the beneficiary of your qualified retirement planestimating your net wortH: separately and togetHerYour net worth is simply your assets minus your liabilities, or all that you own less all that you owe. With periodic updating, your net worth statement presents a picture of your progress in meeting your long-term financial goals and the basis of a sound investment strategy including your insurance, retirement, and estate needs.You should consider calculating your net worth both separately and jointly. In calculating your net worth separately, account for only your individual portion of jointly owned assets and shared li- abilities. For a joint net worth statement, put both your names on it and don’t include any separately owned assets.
Paying expenses from a joint bank account
If you decide to combine bill paying, one approach is to open a joint checking account for shared bills, while keeping separate checking accounts for personal expenses. You can avoid problems by clearly defining the expenses your joint account will cover. Joint expenses generally include housing-related costs, such as mort- gage or rent, utilities, household insurance, property taxes, and food. Personal expenses typically include clothing, car expenses, personal insurance, personal debt, and individual hobbies or inter- ests. You can categorize expenses in whatever way works best for you. You can begin the process by following these steps:
* Forecast your annual expenses. Once you’ve identified your joint expenses, forecast them for a year, being sure to include those that come due monthly, quarterly, semi annually, and annually. Divide the yearly total by 12 to get an average monthly cost.
* Decide how you’ll split these costs, either equally or ap portioned in some way. If you decide to apportion your expenses, net worth is a better basis for apportioning them than income. Every month, you each deposit a check from your personal account into the joint account to cover your share.
While joint accounts make sharing expenses easy, there are some big drawbacks to consider. Once you open a joint bank account, you’re each responsible for all checks drawn on that ac- count, plus all bank charges. Record keeping can become a night- mare, especially if you’re both simultaneously withdrawing funds. Creditors can seize the funds in a joint bank account to satisfy one partner’s obligation. If your relationship ends, verifying your contri- bution to the shared expenses may be difficult. One of you can drain the funds in a joint account, while the other may find it difficult to find a means to prevent this. Or, one of you could simply clean out the account and walk away with the funds. You can protect yourselves by setting up a joint account that requires both signatures for withdrawals.
Material discussed is meant for general illustration/informational purposes only and is not meant as tax, legal or investment advice. Although the information has been gathered from sources believed to be reliable, note that individual situations vary. Therefore, the information should be relied upon when coordinated with individual professional advice.