Americans nowadays get to enjoy a refreshing amount of diversity. Interracial couples, domestic partnerships, and same-sex marriage arrangements offer unique financial planning challenges compared to traditional approaches. If this is you, embrace your diversity, and don’t let discouragement hinder planning. Prepare to pay more for niche benefits that help synergize your planning and mitigate the deficiencies in your planning. Don’t be afraid to hire the appropriate professionals to help you avoid the unknowable pitfalls and mistakes (and expect to pay more). It’s also important to respect and embrace those unique and differentiating cultural factors and attitudes toward money. When challenged by traditional norms, find your way around the planning roadblocks to develop your non-traditional, ‘perfect in its own way’ financial plan.
#1 Check Property Ownership
Property, such as real estate titling, should be one of the first times to consider when developing a non-traditional financial plan. How ownership is titled will determine who will legally have ownership of the asset. Titling can go awry when the title owner suddenly passes away, and the non-traditional partner is unaware they have no right to ownership. The default caselaw often will not consider unmarried partners as having many, or any rights, to property ownership.
Assets must specifically title under individuals or clarify using a formal written agreement. Who and under what circumstances must all be detailed to ensure that assets properly transfer without needing probate to be involved. Not only does having your legal ducks in a row ensure the property transfers outright, but it will also save a lot of time for your intended beneficiaries. Read more about the art of estate planning.
A lack of clarification regarding property ownership can significantly affect the viability of the non-traditional family plan. To be sure the planning needs of loved ones are taken care of and the property goes to the beneficiaries intended may require additional due diligence. Sometimes, a ‘cohabitation agreement’ or ‘palimony agreement’ is often a perfect solution. They offer written clarification for those who have decided not to marry. Or, in some cases, cannot marry. The agreement, similar to a ‘prenuptial agreement,’ will precisely state the terms as to how property divides. The agreement generally covers ownership of a couple’s property during the existence of the relationship. It will also detail the distribution of that property if the relationship ends or if one of the partners passes away.
#2 Put it in writing
I have found these agreements most applicable to couples with specific personal or tax-related reasons not to be married. However, not marrying does present other complexities. Some examples include missing out on richer social security benefits or utilizing other planning coordination techniques. There often is no perfect solution; a couple may marry later to capture benefits or avoid estate tax by maximizing the unlimited marital deduction.
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Same-sex couples, domestic partnerships and other types of nontraditional family arrangements can be clarified with an ‘cohabitationagreement’ Sometimes its as simple as just getting things written down on paper and taking that to a qualified estate planning attorney. The validity of your wishes will be recognized by most states. Yes, it’s added complexity and cost – but trust me – it’s well worth it.
#3 Understand Cultural Differences
Certain cultures will have an affinity toward specific types of investments. Examples include copious amounts of cash, gold jewelry or art, and rental real estate. While diversification among tangible and intangible is a cornerstone of successful advice-only financial planning, respect an individual’s experiences and personal comfort levels. Plenty of people have been financially successful with an overweight in tangible investments, and as a result, cultures strongly believe this is the “right” way to invest.
Try to understand how cultural differences developed and can even lead to unexpected opportunities within communities. Who knows, you may become a believer. Keeping an open mind to differentiating viewpoints toward investing will make you a better investor. As a team, you’ll gain experience weighing the pros and cons of a decision more collectively. You’ll find the solution you’ll both be comfortable with the process. It’s not a problem to knowingly break the rules and overweight your plan in a particular asset class. Just make sure it’s ultimately a collective and informed decision.
#4 Talk About Who’s Paying for College
Deciding to have or not have children is often one of the most significant decisions a couple can make. Non-traditional families are no exception, and they frequently include considerations about adoption, raising children from a previous marriage, and agreements covering college costs.
Paying for college for children, not yours by blood, is a common topic in non-traditional relationships. Typically at least one spouse will come to the relationship with existing assets and income. There should be a discussion and understanding about what amount of support, if any, will be provided for college.
When applying for financial aid, unmarried parents living together are evaluated by FAFSA. Depending on the student’s relationship with the parents, both parents may need to report their assets. This can affect a student’s eligibility for loans and grants. If the student lives with their parents, then the assets of both parents may need reporting. This is regardless of the parents being married.
#5 Together is usually better
One of the most powerful benefits of developing a perfect financial plan coordinated with your significant other is the opportunity to offset weaknesses and leverage each other’s strengths. When married or even in a partnership, there are very few situations where the financial plan should not be in coordination among couples. But non-traditional financial techniques, at times, by nature, have fewer options for coordination. Sometimes cultural or one spouse’s personal preferences can stand in the way of bringing two plans together. It’s impotent to respect an individual’s feelings toward money.
#6 Plan with a Team Mentality
Even if not mathematically, the best way to plan, look for common ground, build an understanding, and voice specific concerns starting with the bigger, more significant issues. Communicate the importance of flexibility through coordination and how it allows the couple to adjust in unexpected situations. Ultimately if the plan is to stay together, it should be a ‘team mentality.’ A plan lacking specific flexibilities is more likely to have exposure to problems as unexpected events occur. Generally, making adjustments in the moment or after something happens is not ideal. There could be a unique vulnerability that might otherwise be ordinarily preventable.
If in a situation where one spouse prefers to keep money in a private account. Just understand that as a relationship solidifies, so will the desire to unify planning. We all have trust issues and ingrained money behaviors. These can significantly influence our desire for better control over money (and feel comfortable). Do not take it personally. However, most ultimately prioritize efficiency over inefficiency. That’s because efficiency always means having more money to spend. Coordinating planning techniques for maximum efficiency will win in time; just be patient and empathetic. Try to focus on critical, more consequential decisions that can impact the sustainability of the overall plan.
It almost always makes sense to plan together.
One exception is when divorce is a consideration. Even if still married, but the plan is to ultimately separate, then the individual should start to think about what financial life will be like without the spouse – and plan separately. I recommend couples considering divorce find different professionals from their spouse to work with. Anything to do with money is a trust relationship so the individual needs to know that they have a person squarely in their corner.
#7 Avoid Unintentional Disinheriting
Avoiding unintentional disinheritance is, unfortunately, a common enough occurrence in non-traditional estate planning. Disinheritance can occur in many ways, but often with children born outside the traditional legal relationship. Avoid the chance of unintended disinheritance. A trust, Will, or life insurance document should recognize children – and directly identify them as beneficiaries.
Selecting a beneficiary for your various employer-sponsored plans, IRAs, and other accounts is extremely important. Account beneficiary forms are generally easy to obtain and submit – and are ironclad in court. Assume that whoever is on the record is getting the money. Beneficiary forms can greatly simplify things for a non-traditional plan or be a disaster if incorrect. Keep documents up to date and properly list who will receive the money. If not, the court must decipher it; generally, caselaw will not recognize unmarried individuals. The court may give the money to ‘next of kin,’ leaving non-traditional loved ones disinherited.
Editor’s note: This blog offers informal investment and financial planning advice. We know nothing about your unique financial situation. The buying and selling any financial product or security should only be considered in context. If appropriate, seek the counsel of experienced, ideally objective, financial, tax, or estate planning professionals. Past performance is not indicative of future performance.