The legalities of living together

Before Alan Stewart and Sandy Overton moved in together, in September 1998, they carefully discussed finances. They decided to keep everything separate, as if they were roommates rather than lovers. She chips in on groceries and utilities, but each partner maintains a checking account and pays income taxes individually. Overton even kept her house on the south side of Indianapolis, leasing it out after she joined Stewart. He continues to pay his own mortgage, just as he did before they met.

"Finances aren't a fight for us," says Stewart. "I can't complain about the cost of a haircut when it's her money."

It's almost the perfect setup, say financial experts who deal with the intricacies of cohabitation arrangements. For starters, should this couple decide to move to any of the 14 states that confer common-law marriages on similar arrangements, there's no danger they'll make a slip that slaps on a label they didn't choose. And that's just the start of the curiosities couples living together need to navigate.

The widely-held belief that states consider a couple married after seven years together is pure baloney. In 14 states (Alabama, Colorado, Georgia, Iowa, Kansas, Montana, Oklahoma, Pennsylvania, Rhode Island, South Carolina, Texas, Utah, New Hampshire, and Washington, D.C.) couples must follow these four steps to label themselves as married, whether or not they walk into city hall:

1. Live together.
2. Present themselves as a married couple -- e.g. use the same last name, refer to each other as husband and wife, file a joint tax return or establish joint bank accounts with the same last name.
3. Live together a significant period, although the law doesn't specify exactly how long.
4. Intend to marry.

"Yet, specific as these requirements are, some folks in New York who own second homes in Pennsylvania woke up one morning to find themselves unintentionally married in the eyes of the Pennsylvania courts," says Donna LeValley, contributing editor of J.K. Lasser's "Your Income Tax 2005." "After all, they met all four criteria during the summer months they spent in that house. I call it married by adverse possession," she says.

Other legal minds, such as Marshall Miller, co-founder of the Alternatives to Marriage project, recommend that couples living together in these 14 states draft a signed, dated agreement saying they agree to live together as two independent beings, who have no intention of being married by any means. After all, the financial consequences for a misunderstanding can be severe.

Tax concerns
Take the IRS, for instance. It's illegal to file a joint tax return unless you're married or in a common-law union. Most folks who overlook this detail quickly find themselves agreeing to this status as opposed to admitting tax fraud. In Overton and Stewart's case, it's much cheaper for each to file as single, so a mistake here could prove costly. The real kicker is: Once you file as a common-law household, you must then fill out those subsequent returns as married filing separately or married filing jointly. Declaring yourself single lands you in hot water as well, LeValley says.

Once you say you're married, a breakup is no longer confined to moving vans and hurt feelings. Common-law marriages require dissolution by a divorce court, complete with attorneys fees and property laws. On the up side, divorces are heard in a court where judges are sensitive to relationship squabbles. "Unmarried couples who require legal intervention wind up in civil courts, where the robes behind the benches aren't as well versed in the details," says Emily Doskow, editor of "Living Together: The Legal Guide for Unmarried Couples."