When Clients Cohabitate, It's Time For "The Money Talk"

Every advisor has seen it. A client announces the great news: he or she is moving in with a “significant other” and the couple can’t wait to begin a new life together.

And yet, in most cases, while your client has already looked at all the advantages of this next step, the one thing that probably hasn’t happened yet is “the money talk.” Young or old, never married, divorced, or widowed, it’s all too easy for someone planning a live-in partnership to neglect the financial details of what can be a tricky arrangement—both emotionally and financially.

As an advisor, it’s your responsibility to act in your client’s best interest. In this case, that means bringing up the elephant in the room and sitting down to discuss the practical arrangements that should be in place to help protect your client’s assets—no matter how the new living arrangement plays out in the end. It’s wonderful to share your client’s joy and excitement, but then roll up your sleeves and help your client focus on the business side of this new partnership using these guidelines:

Make financial planning a priority.

In traditional marriages, most couples comingle their finances, which simplifies the process of budgeting and bill paying. Unmarried couples are more likely to maintain separate accounts, which makes financial planning particularly critical. Be sure your client and his or her partner are clear on how household expenses will be split and have agreed on a fair method of managing joint expenses. Suggest the couple come in together for a financial strategy meeting to discuss income, expenses, and financial planning, including:

  • Life insurance. It’s just as important—if not more so—for unmarried couples to provide for their surviving partner. As long as there is an “insurable interest,” unmarried individuals can purchase a life insurance policy naming their partner as beneficiary.
  • Retirement planning. Spousal benefits from Social Security can provide thousands of dollars each month in retirement income, but this benefit is not available to unmarried partners. Discuss the options for supplementing retirement savings to make up the difference.
  • Asset management. Encourage your client to maintain their individual investment accounts rather than co-mingling all assets to help maximize savings and income sources. While no one plans for a relationship to end, planning for the unplanned will help protect your client in the event that the partnership doesn’t work out.
  • Tax planning. With marriage comes certain tax benefits, but unmarried couples may find themselves at an advantage. Not being able to jointly file income taxes will avoid the marriage tax that many couples experience, but be sure your client understands the need for each partner to maintain individual tax planning strategies that support their joint planning goals.
  • Draw up a formal living together agreement.

    There are laws to protect married couples in the event of a breakup or death, but unmarried partners do not have the same rights. Be sure your client is aware of the risks involved, and work together to reduce those risks as much as possible. Create a contract that formally defines each person’s rights, safeguards their assets, and provides each partner―and any children―similar protections as found in a traditional marriage. Be sure the agreement spells out:

  • How the couple will handle assets they brought into the relationship, as well as those acquired afterwards.
  • How joint expenses like rent/mortgage, utilities, repairs, and décor be managed.
  • Specific responsibilities regarding child care and support will be shared.
  • How individual and joint financial accounts will be managed and how assets will be divided if the relationship ends.
  • Who will remain in the house—and who will move—in the event of a breakup.
  • Like prenuptial agreements, a court can decide to override a cohabitation agreement. While not absolutely necessary, it’s always a good idea to have the contract reviewed by an attorney, have it signed by the couple in the attorney’s presence, and keep a copy on file in your office.

    Related: Your Clients Need More Than a Robo-Advisor!

    Review estate planning documents.

    While a cohabitation agreement is important, it does not take the place of a Will or Powers of Attorney that grant decision-making powers to your client’s new partner. Schedule a time to review your client’s existing estate planning documents and discuss the implications of any changes. Include these points in your discussion:

  • Does the existing Will need to be changed to name your client’s partner as an heir? Be clear about the long-term impact of such a change—especially if the relationship is relatively new.
  • Should your client’s partner be granted power of attorney over medical, legal, and financial decisions? If not, are the existing Powers of Attorney still appropriate?
  • Will the current beneficiaries on life insurance, retirement accounts, and financial accounts be changed? Should any children remain as the primary beneficiary and the new partner as the secondary?
  • Does any property ownership need to be restructured to allow it to pass directly to the new partner?
  • Discuss the importance of managing these details now to protect your client’s wishes in the future. It’s not uncommon for new partners to be financially neglected after a death because estate planning documents were never updated, or for a significant other to realize they have no Power of Attorney in the face of an urgent crisis.

    As a trusted advisor, you play an important role in helping every client achieve financial peace of mind—whether they have exchanged rings with their current partner or not. Whenever a client makes the move to cohabitate, have “the money talk” and work together to develop the strategies they need to maximize income, minimize taxes, and protect what matters most.

    Disclosure: The information and opinions herein are for general information use only. The opinions reflect those of the writers but not necessarily those of New York Life Investment Management LLC (NYLIM). NYLIM does not guarantee their accuracy or completeness, nor does New York Life Investment Management LLC assume any liability for any loss that may result from the reliance by any person upon any such information or opinions. Such information and opinions are subject to change without notice and are not intended as an offer or solicitation with respect to the purchase or sale of any security or as personalized investment advice.
    Neither New York Life Investment Management LLC, nor its affiliates or representativesprovide tax, legal or accounting advice. Please contact your own professionals.
    All investments are subject to market risk, including possible loss of principal. Diversification cannot assure a profit or protect against loss in a declining market. There can be no guarantee that any projection, forecast, or opinion in these materials will be realized.