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Un-Married Couples

Cohabitation Issues Continued
Jan L. Warner & Jan Collins

More reasons, if you need them, to plan your relationship should you decide to cohabit rather than marry.

A growing number of individuals decide not to marry for many reasons, most of them economic. For example, each may have a home and either not wish to sell it or not want to worry about how to sell both homes and take advantage of the capital gains exclusion. Each may have children to whom they want to make sure their assets pass at their death. Neither may want to risk responsibility for the otherís medical and nursing home expenses.

Because each situation is different, because unmarried co-habitants have many issues to consider, and because no one document can solve your problems, we recommend that you take a coordinated approach to the planning process. With todayís cost of health care and long-term nursing home care reaching astronomical heights, you and your partner must also plan for potential health care and long-term-care situations. Without filling in all of these important pieces of the puzzle, the rest of your planning strategy may be wasted.

Taxation questions for cohabiting couples can be much more complicated than those of married couples. For example, if one of the cohabiting partners is not employed and performs all household services, and the other pays all expenses, the unemployed person might have taxable income -- even though the homemaker in a marital relationship would not be taxed.

And, when both are employed, unmarried couples may choose to pool their income and resources to pay for all expenses. But because unmarried couples canít divide their income for tax purposes and canít file joint tax returns, the person with the lower income receives the economic benefit of sharing the higher wage earnerís income. That economic benefit may be treated as either income or a gift to the lower income wage earner.

Because of special tax rules, exchanges of assets between husband and wife at divorce are generally not taxable. But this rule does not apply to division of assets between unmarried cohabitants at separation, so there are very subtle, yet potentially important, distinctions about planning for (1) equitably dividing the property as it is acquired, (2) equitably dividing assets at separation, and (3) planning what will occur at the first death. Because the potential for gift tax liability exists when asset transfers are made between co-habiting unmarried persons, it is essential to review your plans with a qualified tax expert before you make final decisions.

For all of these reasons, we strongly suggest that those who donít intend to marry enter into cohabitation agreements and sign supporting documents that clearly state and delineate their intentions. In this way, cohabiting couples can make definite arrangements about how they will pay expenses and share assets acquired during the relationship, and how assets will be divided if they separate or when the first one dies. Without such an agreement, the aggrieved partner may find himself or herself involved in a court proceeding, seeking a fair division of assets and, in some instances, support.

Thatís why, in addition to the cohabitation agreement itself, we suggest the execution of appropriate durable powers of attorney, health care powers of attorney, and wills.

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Today, more than 36 million Americans are age 65 or over. There are more than 22 million family-member caregivers. Then there are the Baby Boomers. All are grappling with the major decisions that accompany the latter stages of life. This book is for them. Written by two experts with decades of experience between them, it is a comprehensive guide that instructs readers about how to create a plan to deal with all aspects of aging, helps maximize options and ensure wishes are carried out.

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