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Non-Traditional Financial Planning

Americans nowadays get to enjoy a refreshing amount of diversity. Interracial couples, domestic partnerships, and same-sex marriage arrangements all offer unique financial planning challenges compared to traditional approaches. If this is you, embrace your diversity and don’t get discouraged by the additional due diligence that is required. Be prepared 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 to do so). 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 own way around the planning roadblocks to develop your nontraditional, ‘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 nontraditional financial plan. How ownership is titled will determine who will legally have ownership of the asset. This most notably goes awry when the title owner suddenly passes away and the nontraditional 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 be titled under individuals or must be clarified by some kind of formal written agreement. Who and under what circumstances must all be detailed out to ensure that assets are properly transferred without the need for probate to be involved. Not only does having your legal ducks in a row ensure the property is transferred outright, but it will also save a lot of time your intended beneficiaries. Read more about the art of estate planning.

Lack of clarification in regards to property ownership can greatly affect the viability of the nontraditional family plan. Extra precautions must be taken to be sure the planning needs of loved ones are taken care of and the property goes to the beneficiaries intended. In some cases, a ‘cohabitation agreement’ or ‘palimony agreement’ is oftentimes a perfect solution for those that require additional clarification, but have made the decision to not marry (or cannot marry). The agreement which is actually similar to a ‘prenuptial agreement’ will put in writing precisely the terms as to how property is to be divided. 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.

I have found these agreements to be most applicable to couples that have specific personal or tax-related reasons not to be married. However, not marrying does present other complexities; such as missing out on richer social security benefits or utilizing other planning coordination techniques. There often is no perfect solution and a couple may ultimately choose to marry later to capture benefits or to avoid estate tax by maximizing the unlimited marital deduction.

Recommendation: The Best Way to Start Creating a Personal Financial Plan

Same-sex couples, domestic partnerships and other types of nontraditional family arrangements can be clarified with an ‘cohabitation agreement’ 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.

#2 Understand Cultural Differences

Certain cultures will have an affinity toward specific types of investments. Examples include copious amounts of cash on hand, gold jewelry or art, and certainly rental real estate. While diversification among both the tangible and intangible is a cornerstone of successful advice only financial planning, be respectful of 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, there is a strong belief among cultures that 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 in a more collective way. You’ll find the solution you’ll both be comfortable within the process. Just know at the end of the day, 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.

#3 Talk About Who’s Paying for College

Deciding to have or not have children is often one of the biggest decisions a couple can make. Nontraditional 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 who are not yours by blood is a common topic in nontraditional 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 as if they are married. Depending on the student’s relationship with the parents, both parents may be required to report their assets which can affect a student’s eligibility for loans and grants. In general, if the student is living with their parents, then the assets of both parents will likely need to be reported regardless of if the parents are actually married.

#4 Plan with a Team Mentality

One of the most powerful benefits of developing a perfect financial plan, coordinated with your significant other, is the opportunity to offset weakness and leverage each other’s strengths. when married or even in a partnership, there are few situations where the financial plan should not be coordinated. But nontraditional financial plans at times can naturally be separated. Sometimes cultural or one spouse’s personal preferences can stand in the way of bringing two plans together. It’s impotent to respect and individual’s feelings toward money and 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 consequential 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 then it should be a ‘team mentality.’ A plan that lacks specific flexibilities is more likely to be exposed to problems as unexpected events occur. Generally making adjustments ‘in the moment’ or after something happens is not ideal and can possibly create a vulnerably to risks normally easily prevented with traditional planning techniques.

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 our trust issues and ingrained money behaviors which greatly influence our desire to control our money (and feel comfortable). Do not take it personally. However, everyone I have ever met ultimately prioritizes being efficient over being inefficient. That’s because efficiency always means having more money to spend. Coordinating planning techniques for maximum efficiency will win in time – just be patient, empathetic, and focus on the important more consequential decisions which 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.

#5 Avoid Unintentional Disinheriting

Avoiding unintentional disinheritance is, unfortunately, a common enough occurrence in nontraditional estate planning. There are many ways this can occur, but typically it’s with children born outside of the traditional legal relationship. To avoid the chance of an unintended disinheritance, children should be clearly recognized under the trust, will, or life insurance documents – and directly named as a beneficiary.

It is extremely important to select a beneficiary for your various employer-sponsored plans, IRAs, and other accounts. Account beneficiary forms are generally easy to obtain and submit – and are ironclad in court. Assume that whoever is listed on the form is getting the money. Period. This can make things very simple for a non-traditional plan or can be a disaster if neglected. Keep forms up to date and properly list who is supposed to receive the money. If not then the court will have to decipher it you and generally caselaw will not recognize unmarried individuals and may be required to give the money to ‘next of kin’ leaving nontraditional loved ones disinherited.

Further Reading