• hello@bbfinance.co

BlackBird Finance

Financial Planning for Cohabitating Couples - BlackBird Finance

A cohabitating couple holding each other near a window discussing financial planning.

Financial Planning for Cohabitating Couples



Cohabitation, the act of living together as a couple without formalizing the relationship through marriage, has become increasingly prevalent in modern society. While cohabitating couples enjoy many of the same benefits and challenges as married couples, they often face unique financial planning considerations. From estate planning to health care decisions, cohabitating couples must safeguard their financial well-being proactively. This article aims to inform readers about the essential aspects of financial planning for cohabitating couples, highlighting the importance of legal agreements, estate planning, and gifting strategies.


Planning for Incapacity or Health Care


One of the critical aspects of financial planning for cohabitating couples involves preparing for potential incapacitation or healthcare emergencies. Unlike married couples, cohabitating partners may not automatically have the legal right to make medical decisions or access each other’s medical information. They are not considered family members typically under the law.


To address this, cohabitating couples should establish a durable power of attorney for health care. A durable power of attorney for health care designates a trusted partner as the decision-maker for medical matters if one becomes incapacitated. It would also allow the partner to execute the living will (health directives).


And no matter what category(s) you fall into, cohabitating partners, individual, non-traditional marriage, or a married couple, a living will should be in place. A durable power of attorney can also include funeral and burial rights to grant the partner the right to carry out funeral arrangements. A testamentary will typically include the details or wants and wishes regarding funeral arrangements.living will document for financial planning with a cohabitating couple


What is a living will exactly? A living will is also known as advanced healthcare directives. A living will, will outline the individual’s wishes regarding life-sustaining treatments, organ donation, and other crucial medical decisions. This ensures that the partner’s desires are respected, avoiding potential disputes or stress during already difficult times.


Related: Health and Wealth

Unmarried Couples and Cohabitation Agreements


Cohabitating couples, just like married couples, can benefit from establishing a cohabitation agreement. This legal contract sets out each partner’s financial rights and responsibilities during the relationship and in the event of separation or death.


In a cohabitation agreement, couples can address various financial matters, including property rights, shared expenses, and the division of assets in case of a breakup. This agreement can provide both partners with a sense of security and transparency about their financial relationship, potentially reducing conflicts in the future.


While cohabitation agreements are not required, having one can offer vital protections and clarity, especially if the couple’s jurisdiction does not recognize common-law marriage. To ensure the agreement is legally enforceable, each partner must seek independent legal counsel during its creation. Learn more about a Cohabitation Agreement.


Related: The Conversation Every Couple Should Have


an unmarried couple standing next to each other smilingEstate Planning for Transfers at Death


Estate planning is a fundamental component of financial planning for any couple, but it becomes crucial for cohabitating partners. The surviving partner may avoid significant challenges during a grieving time. It can be tough to see a long-lost relative that barely knew the individual making decisions about transferring the deceased estate. Whereas a loving, long-term partner might be better suited to understand your funeral arrangements or where possessions should go.


First and foremost, cohabitating partners should create valid testamentary will for each person. A testamentary will allows each partner to designate beneficiaries for their assets, including financial accounts, real estate, and personal belongings. Without a will, the laws of intestacy in their jurisdiction will determine how their assets are distributed, which might not align with their wishes. Laws of intestacy most often grant parents, then siblings, then other relatives the right to handle an estate before considering someone else.


In addition to wills, establishing a revocable living trust can benefit cohabitating couples. A living trust allows assets to be transferred to the designated beneficiaries without probate, a time-consuming and costly legal process. By avoiding probate, the surviving partner can gain quicker access to assets, reducing the financial strain during an already emotionally difficult time.


Another crucial aspect of estate planning for cohabitating couples is to review and update beneficiary designations on retirement accounts, life insurance policies, and other financial instruments. Failing to update these designations after a significant life event, such as the birth of a child or the dissolution of a previous marriage, can lead to unintended consequences and conflicts among beneficiaries. In addition, by having beneficiaries and transfer on death on these types of accounts, you can avoid probate court. What is probate court? Read This


Financial Planning for Cohabitating Couples when it comes to Gifting With the Annual Exclusion


For cohabitating couples looking to support each other financially during their lifetimes, gifting with the annual exclusion can be a valuable strategy. The annual exclusion allows individuals to give a certain amount of money to another person each year without incurring gift taxes or reducing their lifetime estate and gift tax exemption.


As of 2023, the annual gift tax exclusion was $17,000 per recipient. This means that each partner in a cohabitating couple could gift up to $17,000 to the other partner each year without triggering gift taxes. By taking advantage of this exclusion, couples can transfer wealth and assets gradually over time, potentially reducing their taxable estate and benefiting from the appreciation of gifted assets.


Let’s Wrap Up Our Conversation On Financial Planning for Cohabitating Couples


Financial planning for cohabitating couples is a complex and multifaceted process that requires careful consideration and proactive decision-making. From planning for incapacity to estate planning and gifting strategies, cohabitating couples must take proactive steps to protect their financial well-being and ensure their wishes are honored.



Creating a durable power of attorney for healthcare, and living wills can provide protection during healthcare emergencies. Cohabitation agreements offer financial clarity and security in the event of separation or death. Estate planning through wills and living trusts ensures that assets are distributed according to their wishes while updating beneficiary designations ensures a seamless transfer of assets.


Finally, utilizing gifting with the annual exclusion can be an effective way for cohabitating couples to transfer wealth during their lifetimes, potentially reducing their taxable estate. By taking these steps, cohabitating couples can navigate the complexities of financial planning and build a secure foundation for their future together.


As always, laws and regulations may change over time, and couples need to consult with financial and legal professionals who are knowledgeable about their specific circumstances. BlackBird Financial Planning can navigate you around estate planning strategies. We prepare young families and generations x,y, and z for the unthinkable. Find a time to tell us about your situation and see if we are a good fit to help you in your pursuits for financial prosperity. Discovery Session


cohabitating couple downtown smilling and looking at a phone

Related: Financial Planning For Young Families



This articles Source(s):

Garber, J. (2022, November 1). How much is the annual gift tax exclusion?. The Balance. https://www.thebalancemoney.com/annual-exclusion-from-gift-taxes-3505637

Kaplan (2022). Estate Planning. Kaplan Professional Education. https://bookshelf.vitalsource.com/books/9781078818056

Leave a Reply

Your email address will not be published. Required fields are marked *