Unconscious Coupling: The Financial Hazards of Shacking Up Later in Life

I once had a client who, almost the moment her divorce was finalized, told me she had gotten engaged and was about to move in with her new boyfriend. "Are you really sure this is going to last?" I asked her (for reasons I will explain in a moment). "Are you really, really, really sure?" Yes, she said. She moved in.

Two months later, they broke up.

This wasn't just an emotional setback for her; it was a financial one, too, and catastrophic at that. Under the terms of her divorce, the alimony she was receiving terminated upon her cohabitation -- that is, living with -- her boyfriend. The upshot: Fifteen years of alimony payments down the drain.

She had never held a job in her married life. Now she has to work in sales.

So is it dangerous for divorced adults to move in together later in life? Sometimes yes, sometimes no. What's certain is that staying unmarried later in life, even once you've found a new partner, is more popular than it has been in the past. The number of men and women over 65 living together without benefit of marriage has doubled over the past decade.

What stops many from remarrying is the threat of financial loss and disapproval from adult children. Remarriage may mean giving up a former spouse’s pension, Social Security, and other benefits to which a person may be entitled. Remarriage may also increase tensions with a person's children from a prior marriage.

So people just move in together without marrying -- a process I like to call "unconscious coupling." Yes, it has its advantages:

• If you want to apply for Social Security benefits based on your ex-spouse's record, you have to be unmarried.
• You can't be held liable for your new partner's debts, if you don't co-sign any loans or open joint credit cards. (If you jointly own assets, however, it's possible that creditors could get at them.)
• Should you want to leave your estate to your children from a prior marriage (or other relatives) and not your new partner, it's easier to do so if you're not married. (State laws vary.)
• Unmarried, you won't get hit with the infamous "marriage penalty," the higher taxes that often hit dual-earner couples.

On the other hand, living together and not getting married has its disadvantages, too. Among them:

• As illustrated by my client's story, if you receive alimony, the payments probably terminate with cohabitation (state laws and individual agreements vary). You must analyze whether you'll be able to replace lost income.
• Not all employers offer benefits to unmarried partners. If you are dropped from your ex-spouse's health insurance policy as a result of your divorce, for example, you could be ineligible for coverage under your new partner’s insurance unless you marry.
• Should your new loved one need medical or long-term care, you may not be able to tap into his or her assets to cover these expenses.
• Adult children may choose to not to honor any oral or informal agreements their parent made to an unmarried partner -- for example, the right to live in the house owned by the partner after his or her death.

Estate planning for unmarried partners is a must. Without it, neither partner will inherit from the other — and neither of them will have a say in the other’s end-of-life medical care. I have seen cases in which adult children have refused requests from their parent's partner to spend money on their parent's care; the children wanted to preserve the assets for themselves.

There are hurdles with cohabitation but they are not impossible to deal with successfully. People need to consider both of their financial situations and what will happen if the living arrangement fails or if one of them dies.

Older adults moving in together may or may not be planning for a wedding, but they are planning for their future.

----------------------------------------

Vasileff received the Association of Divorce Financial Planners’ 2013 Pioneering Award for her public advocacy and leadership in the field of divorce financial planning. Vasileff is president emeritus of the ADFP and is a member of NAPFA, FPA, and IACP. She is president and founder of Divorce and Money Matters, serving clients nationwide from Greenwich, Conn. Her website is www.divorcematters.com.