1. Try the solution mentioned by LongZheng in this threadThanks for doing all that leg work. But it didn't work for me. Running Big Sur on 2018 Mac Mini with series 3 watch on 7.1 and iphone 12 on ios 14.2.1. I also reset my AppleID password, as well as the watch passcode. I keep getting the error message that my computer can't communicate with my watch. View attachment 1681001
2. Reboot all the devices, including Apple Watch and your computer
3. Change the Login password of your computer, no need to change the AppleID password (at least in my case)
4. Try again in "Security & Privacy" to let Apple Watch unlock you computer