Money matters: Financial tips for live-in couples

The Supreme Court has held that live-in relationships are neither a crime nor a sin. It also askedParliament to frame law for protection of women in such relationships and children born out of it, according to a report in_ The Times of India_last week. A welcome observation, but as far as Parliament is concerned, there is no surety as to when it willframe the required laws. So it is imperative that until then, if you are in a live-in relationship, there are a few things you could do to ensure your financial well being in place. Hence, we bring to you a few tips on how to handle your finances if you are one such couple.

The dictionary defines live-in relationships as a living arrangement in which an unmarried couple lives together in a long-term relationship that resembles a marriage. And typically such a couple would be double-income earning, but God forbid, if thing goes wrong? Youwould notwant to continue with the arrangement. You have freedom to that extent. But this comes with a price. So here are a few

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Keep finances separate.

[caption id=“attachment_751953” align=“alignright” width=“380”]  Living together? Getty Images[/caption]

“As far as possible, it’s best that live-in-partners keep their basic finances separate,” saysSuresh Sadagopan, a Mumbai-based Certified Financial Planner.This means each has separate accounts and finances mingle only under certain circumstances. The basic logic here is that even if the relationship resembles amarriage from financial services point of view, there are a number of hurdles the live-in couple faces primarily due to social prejudices. The perception is that such relationships have a higher risk ofseparationthan a married relationship.

Risk protection: Live-in relationships may come with love, respect and certain amount of freedom, but that does not mean you can ignore your individual risk management needs. One mistake many live-in couple make is ignore protecting themselves against this risk as they believe there is always the partner to fall back on. But this is not always true.

Life insurance: Many live-in couples think that since both partners are financially independent, life insurance is not needed. “As of now insurance companies allow only spouse or blood relatives as nominees on life insurance policies,” saysPankaj Mathpal, a Mumbai-based Certified Financial Planner.Even if an insurers allow you to be beneficiaries on each other’s insurance policies, making a claim will be an uphill task, unless you have a solid will in place. “Assigning a policy in the name of the live-in partner is not a great idea either. Once you assign the policy, you have no control on the policy at all,” says Mathpal. You may not want to buy a life insurance policy, both if you are financially independent, but if there is a child as well out, you could buy a policy and name the child as a beneficiary.

Health insurance:“Buy two separate medical policies. You can’t get a typical family floater,” Sadagopan says. Make sure that you get an individual medical cover of at least Rs 3-5 lakh or more. And if you are in the higher income bracket and around 45 years of age and an urbanite, a Rs 10 lakh medical policy should be okay. “If there’s a kid or two, make sure they are adequately covered too,” he says.

Home loan: Getting a joint loan is technically not possible**.**“We don’t want our loans to go bad, in live-in relationships there is lack of commitment, … not many banks would take the risk of lending in such cases. After all, if the relationship does not last whom do we run after,” a banker we spoke to said. Some planners we spoke to said that one partner could actually take a loan and the other could share the EMI burden. But in that case tax benefits for one partner could surely be an issue.

Investments:“You should keep your investments separate. But if there is a child involved, open aseparateaccount in the child’s name and both partners should route investment for the child through that account. Open a child PPF account. There are many children MFs out there where you could invest and only the child can access to those funds when he becomes an adult,” Mathpal said. These should be in keeping with your individual risk profile and financial goals. Have a healthy mix of debt instruments such as fixed deposits, bonds, equity-oriented mutual funds, balanced funds and the like. You could choose to nominate you partner on your investments as well.

Retirement:“When it’s a married couple, theretirement is planned for the couple. But, in this case, plan your individual retirement amounts, instead of clubbing it together.“The same old, strategy of employees’ provident fund, and the public provident fund, works well along with your individual investments.

Estate Planning: This is the most important bit for live-in-couples. After you, other family members could make lifedifficultfor your partner, when you go up there. Hence, we suggest you make a proper will with the help of a legal professional.

Most important tip: When it comes to sharing monthly house hold expenses betweencouples, Firstpost has always suggested a percentage strategy. In fact, when it comes to live-in-couples we recommend it doubly so. So, what’s this percentage strategy?

Let’s say your household monthly expense is Rs 30,000 and you both contribute towards it on 50:50 basis. This means, you pitch in Rs 15,000 while your partner also puts in an equal amount.

But if your partner’s salary is Rs 1,50,000 a month and he/she contributes Rs 15,000, it is actually just 10 percent of the salary towards the expense. If your salary is just Rs 60,000, contributing Rs 15,000 means 25 percent of your salary. So, ideally, both the partners should be contributing equal percentage of their salary towards the expenses.

In the above mentioned example, ideally your partner, who earns Rs 150,000 should contribute around Rs 22,000 and you around Rs 8,500 (around 14 percent of your respective salaries). This would be the right way to contribute towards the expenses in a 50:50 ratio. Of course, this is as per our example, you will have to do your own numbers. This strategy works well for live-in couples, where financial commitments are not official on paper.

Of course, we are no way suggesting that live-in couples lack commitment, but until the law and financial services change to meet the needs, it’s just wiser to keep your individual financesseparate.