When it comes to living together without tying the knot baby boomers are leading the charge. According to a report from the Pew Research Center, the number of cohabiting adults age 50 and older grew 75 percent between 2007 and 2016, an increase that far surpasses any other age group.
One reason could be that the population bulge that brought “living in sin” into the mainstream has a much higher divorce rate than previous generations. That frees up more of them to set up house, and possibly more hesitant to marry. Many older couples, especially those with children from previous marriages or substantial assets of their own, find that the legal and financial downsides can overshadow the benefits of a marriage.
The issues for people eligible for AARP membership who want to live together are very different from those of their millennial children. Social security, homes, financial assets, employer benefits, children expecting inheritances, and other factors all come into play and complicate things. Decisions affect not only the couple’s finances but those of their families.
Love, of course, is the main reason people cite for marrying. Others include a desire to make a lifelong commitment and to solidify in stone an enduring companionship.
But there are practical benefits as well. Marriage clears the path to gaining access to government and employer benefits, such as health insurance. While some employer plans offer health insurance and other benefits to domestic partners, many do not. Those that do offer domestic partner benefits may require evidence of living together for a specified period of time, such as receipts, bills, or legal agreements.
Marriage also makes a new spouse eligible for pension benefits that unmarried partners might not be able to claim. It can also offer advantages when it comes to estate planning, including an unlimited marital deduction available to surviving spouses. If the marriage ends in divorce, or a spouse dies, the federal and state laws governing division of property are more clearly defined than those for unmarried couples.
For many mature couples, marriage can throw a wrench into financial plans and may have an impact on Social Security. For example, singles can have an income of up to $25,000 per year from wages, investment interest, and other sources without being required to pay taxes on Social Security benefits. That makes it possible for two individuals who live together to have up to $50,000 in income before Social Security benefits are taxed. A married couple can only earn $32,000 before their benefits become subject to taxes.
Another consideration is what happens to benefits upon remarriage. Spouses can elect to claim Social Security benefits based on the higher of their own lifetime earnings, or on half of their spouse’s Social Security benefit. Divorced spouses can collect benefits based on their old spouse’s record provided they meet a number of requirements, including being married for at least 10 years and being at least 62 years old. If they remarry benefits based on the old spouse’s record end, unless the new marriage terminates.
A divorce order may also cut off alimony when someone remarries. If one or both spouses are receiving public assistance, including benefits from Medicaid, those payments could end it their combined incomes put them over the threshold for eligibility.
Married couples can also lose big when it comes to long-term care. If one spouse has to enter a nursing home or long-term care facility, the other would be on the hook for related expenses that insurance doesn’t cover. By contrast, unmarried couples aren’t responsible for a live-in partner’s long-term care expenses (one exception may be when they have joint assets).
Instead of marrying some couples that choose to live together forge living together contracts, or cohabitation agreements, to establish financial and legal ground rules. Such agreements can be highly individualized and cover anything from major financial issues to who gets the dog in the event of a breakup.
While a cohabitation agreement is a good way to spell out each partner’s responsibilities, family members could decide to challenge it in the event of a death. For the surviving partner, defending the agreement could cost thousands of dollars in attorney’s fees.
For some individuals, the best way to help avoid complications is to maintain separate financial lanes to the extent possible. Measures that avoid co-mingling finances, such as having individual rather than joint accounts and making major purchases separately, could head off potential headaches down the road.
Cohabitating couples should also have honest discussions about finances between both themselves and family members, and define monetary and legal responsibilities before setting up house. Documents such as health care directives and durable power of attorney for finances are critical if you want to ensure that someone makes decisions for you. Without them, an unmarried partner, no matter how loving or dedicated, could face substantial roadblocks to handling financial and health emergencies down the road.
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