Unmarried couples face special financial situations
By Jay MacDonald • Bankrate.com

Everyone knows the financial perks and pitfalls of saying "I do." But what awaits you financially if you say "I don't"?

According to the 2000 U.S. Census, some 11 million Americans are living together unmarried. The reasons vary widely.

Some want to test drive cohabitation before marching down the aisle. Others don't like the marriage odds; statistically, half will end in divorce. Often, it's economic; they don't want to lose alimony, pension payments or survivors' benefits by remarrying. And some couples are prohibited by law from marrying.

Married or not, money troubles are the No. 1 cause of household fireworks. However, without the tie that binds, you could find yourself burned when the romance cools.

"The problem with unmarried couples is they're in love," says Steve Rhode, president of Myvesta, a nonprofit debt-education organization. "Sometimes love and credit do not operate well together.

"Some people are very manipulative in relationships. What I see are people who get together and feel it would be very insulting to talk about money or look at each other's credit report or not trust the other person."

If marriage isn't for you, here are some ways to protect yourself financially.

Strangers by law
Without a wedding ring, your rights and responsibilities in a relationship are far different than those of your married coworkers and friends.

In a nutshell, you and your partner are considered legal strangers with no more rights to or responsibility for each other's assets and liabilities than two passersby. Financially, that can be variously a good thing, an inconvenience or grossly unfair.

You may pay less federal income tax, a good deal. But you won't be able to file jointly, kind of a hassle.

You won't be liable for your partner's debts, another good thing. But if you apply for credit together, you will be penalized for your partner's poor credit rating, and that's definitely bad. And if your partner abuses your joint account, your credit rating will be dragged down, too.

You won't be responsible for your partner's doctor bills, whew! But neither will you automatically inherit anything as next of kin or have any legal rights regarding children in your partner's custody, unless legal provisions have been made to entrust them to you.

Your finances remain your business alone until you open a joint bank account, apply for a credit card together (or add your partner as a co-signer on an existing card) or take out a home loan together. At that point, you each become legally liable for the entire amount of the total debt, regardless of who caused it.

And although things are slowly changing, chances are you won't be eligible for most spousal benefits. This includes Social Security survivors' benefits, pensions, gym memberships and second-driver status when renting a car.

One bright spot is health coverage. Dorian Solot, an advocate for unmarried couples, says that thanks in part to the activism of gay and lesbian groups, about one in four Americans now works for an employer that extends group health insurance to domestic partners. Inroads also are being made in other areas such as tenant and car insurance. You can even obtain joint homeowners' insurance today.

"If you shop around, you can find a company that will insure you together," she says. "Sometimes the most helpful insurance agencies are ones that cater to the gay community because they have a lot of experience working with two partners that are not married to each other."

Documenting your relationship
But in most instances, there is no official acknowledgment of an unmarried partner or that person's rights in a relationship.

That's why unmarried couple Dorian Solot and Marshall Miller, founders of the Alternatives to Marriage Project and co-authors of Unmarried to Each Other, recommend couples draft four legal documents:

• A will to ensure your partner inherits what you wish to leave him or her.
  
  
• A cohabitation or domestic-partner agreement to set out the rules of your relationship.
  
  
• Durable power of attorney for financial management so that you will be able to pay bills, deposit checks and collect benefits for you if you become incapacitated.
  
  
• Health-care proxy that will allow your partner to make decisions about your health care in case of emergency.