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Friends with (financial) benefits? Marriage vs. cohabitation

A friend of ours loves to tell the story of her grandfather's funeral. Her grandparents lived, for the most part, on the income from a trust set up by his parents years before. The trust stipulated that when her grandfather died, her grandmother would get the same income, and she could stay in the house. There was a condition, though: Her grandmother would lose everything if she remarried. Well, then, she said, I'll just have to shack up with the guy.

Maybe you had to be there, but her family laughed hard at the thought of the 72-year-old cohabiting with someone at all, much less for financial reasons. It was the '80s, too, so the whole living together thing was a little more risqué.

Things really have changed. Research shows that more and more heterosexual couples over the age of 50 are opting to cohabit rather than marry. According to some sources, the vast majority -- as much as 90 percent -- of these people are separated, divorced or widowed.

The decision not to marry is often tied to finances, including alimony or retirement benefits that would terminate with remarriage. Another consideration is the tax hit, or "marriage penalty." Married, the couple will be taxed at a higher rate than if they were single.

Each partner's assets could be vulnerable, as well. Married, one spouse's assets could be tapped to pay for the other's medical care or long-term care. Maintaining individual ownership doesn't always help here.

And, of course, there are the children from the earlier marriages. Children may feel their inheritance is threatened when a new spouse comes along.

Shacking up, as my friend's grandmother called it, isn't without its own issues. A quick look at the issues faced by domestic partners or same-sex couples can offer a few lessons. At the top of most lists? Health care decisions. Without a health care power of attorney, a partner will likely be denied access to medical information if the other is in the hospital or somehow incapicated.

This, of course, raises the question of employment benefits. Not all employers offer insurance coverage to domestic partners. A partner covered by his ex would be dropped from her policy and wouldn't be eligible for his new partner's coverage. And pension plan survivor benefits are sometimes only available to a surviving spouse.

There are hurdles, certainly, but they aren't insurmountable. When you're deciding between marriage and cohabitation, consider both of your financial situations, including any real property. Think about what will happen if the arrangement fails or one of you dies.

Even if you're not planning a wedding, you should still plan for your future.

Source: Seacoastonline.com, "Financially Speaking: Marriage or cohabitation later in life?" Elaine B. Morgillo, 03/06/11

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