Having a baby, but not married? Some financial advice

Q. I’m having baby. We’re not married yet, but I think we will be in the next year or so. What documents do I need to make sure I have so that I know the mother of the baby will get my stuff if something happens to me since we’re not married yet? Then when do we need to change when we get married?
— Thinking

A. Congrats on your baby!

You’re smart to consider this question now. The rights of unmarried couples are different than those for married couples in most states, including New Jersey.

Proper planning becomes even more important when minor children are involved.

Even if your intentions are to be married or you are engaged to be married, you cannot receive the same rights and benefits of married couples until the legal union is completed, said Andrew Novick, a certified financial planner and estate planning attorney with The Investment Connection and Brookner Law Offices in Bridgewater.

You need to consider not only death, but what could happen if you and your partner split up.

In relation to a minor child, child custody issues are the same whether you are married or unmarried, Novick said. The courts make arrangements that are in the best interest of the child.

“The surviving parent will be the default guardian, but if you both die, there could be trouble if you don’t have a will and nominate an alternate guardian,” Novick said.

The distribution of property is very different between married and unmarried couples that break up.

Novick said almost all property is subject to equitable distribution and alimony can be awarded when a married couple gets divorced. This contrasts to when unmarried couples split up, where individual property is retained by the original owner and only jointly-owned property, such as a home with both names on the deed, is split between the parties.

Additionally, he said, neither party of an unmarried couple is entitled to alimony. However, both of these issues can be addressed by an unmarried couple if they sign a Cohabitation Agreement.

Along these lines, the laws in most states treat married and unmarried couples differently if you die without a will.

When you die without a will, you are subject to the intestacy laws of your home state.

In New Jersey, property generally goes to a surviving spouse. Otherwise, there is a default pecking order — including children, parents and other relatives — as to who inherits your assets.

“If you are not officially married, a surviving partner is merely considered a `friend’ and is not entitled to anything,” Novick said. “Note that there is also no common law marriage in New Jersey, which is when a couple holds themselves out as married and wants to be treated as a married couple even though they are not officially married.”

If you have a will, you can specify who inherits your assets, so this will rectify the problem, Novick said. Additionally, it is easy to address some items that aren’t controlled by intestacy laws or a will, such as retirement accounts and life insurance. These items are controlled by beneficiary designations, which can generally be changed at any time to any person. Similarly, you can add a Transfer on Death feature to certain financial accounts, Novick said.

There’s more to consider, such as federal and state estate taxes, also known as “death taxes.”

Planning for the tax-efficient transfer of assets at death for an unmarried couple, especially a high net worth unmarried couples, is much more difficult than planning for a married couple, Novick said.

“No estate tax will be due no matter how much is left to a surviving spouse due to the unlimited marital deduction, but this deduction does not apply to the survivor of an unmarried couple,” Novick said.

And New Jersey is one of the few states that has both an estate tax and an inheritance tax. Novick said if you’re not married, you have to pay whichever tax results in a greater amount.

“There are different tiers to the inheritance tax depending on the relation to the deceased,” he said. “A surviving spouse is exempt, but a survivor of an unmarried couple is in the tier with the highest inheritance tax rate.”

And if you’re not married, there is no spousal or survivor benefit when it comes to Social Security.

You also need to consider who can make decisions about your final wishes. If you’re not married, this can be more difficult.

“Unless you specify otherwise in your will, New Jersey law dictates that a surviving spouse control everything from the funeral to the disposition of your remains,” Novick said. “If there is no spouse, the closest surviving adult family members get to decide these sensitive issues.”

This is also an important issue when you’re still living but unable to manage your affairs. If you don’t take action, the person you want to make decisions on your behalf may be not able to.

“You also should also name an agent to help with financial matters and with your health care in case you are incapacitated,” Novick said. “Neither party in a married couple or unmarried couple situation is entitled to act for the other unless they are named as your agent in a Durable Power of Attorney and Advanced Healthcare Directive.”

Now is a great time to see an attorney who can help you draft a Cohabitation Agreement, Will, Durable Power of Attorney and Advanced Healthcare Directive. Also speak to a financial planner to help coordinate the titling of your assets and beneficiary designations and to make sure you have a proper amount of life insurance for your significant other and child.

Once you are married, all of these items should all be reviewed, but before you tie the knot, you don’t want to leave any of these issues without a plan.

Email your questions to Ask@NJMoneyHelp.