Personal Finance Tips for Those Couples Who Live Together But Aren't Married
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Moving in with your partner is as much about creating a home together as it is about working towards shared financial goals. Before taking this big relationship step, couples need to discuss how they’ll manage their finances together.
“Think with your brain and not with your heart,” says Randy Kessler, founding partner of Kessler & Solomiany in Atlanta. “It’s easier to prevent problems than to escape them. Hesitate and don’t rush in, but think and consider the worse case scenario and what happens if anything goes wrong. Love makes you do things you don’t always think through.”
Married or not, finances are one of the top reasons couples break up. Talking about budgets and shared financial goals on a regular basis can reduce the conflict and tension that money causes.
“The earlier and more transparent people are about money, even if they respectfully disagree and learn to adjourn and come back, the better it is,” says Gemma Allen, partner at Ladden & Allen in Chicago. “The romance and your relationship will be better.”
Every couple is unique, and while there are no set rules, each has to figure out what works best for their relationships. As you start to build a life together with your partner, here’s what to consider:
1. Disclose your finances.
Talk about your income, debt, savings, assets, obligations, financial goals and everything else except what you spend on your partner’s birthday present.
“There are a few reasons not to disclose what you have, but you can set yourself up so you’re not sharing all your money,” says Tracy Stewart, certified public accountant and personal financial specialist in College Station, Texas. “If you have a need to protect your finances from a person you’re moving in with, then don’t move in with them.”
Your attitudes towards money and spending habits may be different, so find a common ground. Also, share your credit report with your partner before you move in and every year after.
“The more open and honest you are while you’re in the relationship, the more likely it will continue for a long period of time,” says Mary Ellen Garrett, senior vice president at Merrill Lynch Global Wealth Management in Atlanta.
2. Share your home.
Whether renting or owning your shared home, talk about leases and ownership, as well as how you’ll split expenses. When you and your partner have different incomes, decide to live somewhere both of you can afford or if you’ll split housing costs in proportion to your incomes.
“As your salaries increase and your relationship grows, you can reassess how much each is paying for things every few years,” Stewart says.
Include both names on any leases and all utilities so that both of you have rights to the home.
“If something happens, you could be independently liable for both of your bills and you’ll have no place to go if you break up,” says Marcy Keckler, vice president of financial advice strategy at Ameriprise Financial in Minneapolis.
If you move into a home your partner owns and you put money towards the mortgage, talk about what you’ll get in exchange for that, which could be money or an ownership stake.
“If you pay a portion of the mortgage, you get credit if you’re married,” Allen says.
3. Split bills where it makes sense.
To keep your relationship as blissful as possible, talk about how you’ll split expenses such as rent, food and utilities, along with unexpected items such as car repairs or if a baby comes along.
Consider opening a joint bank account in addition to your regular accounts to pay for shared expenses. You may not want to split every expense either, so decide what will be kept separate and if you’ll want to discuss individual purchases over a certain dollar limit.
Since you may cohabitate for a long time or eventually marry, talk about short- and long-term financial goals.
Think about the financial impact of these goals and how you’ll work together to achieve them,” Stewart says. “Save for shared goals in separate accounts and contribute the amount that you agree you can each afford.”
Have quarterly or monthly check-ins to make sure you’re financially on track as a couple. Share your statements with each other so that you know if you’re making progress towards your goals.
4. Keep debt separate.
“Never commingle your debt,” Stewart says. “Do not merge [your significant other's] college loans or credit card debt with yours to create joint debt.”
Maintain your own credit identity and history. A partner’s debt will affect your finances as a couple.
“If one person has debt and the other is debt free, they have a different situation when it comes to their financial obligations, which has an affect if they contribute to other joint goals or household expenses,” Keckler says.
5. Check your alimony status.
If you’re divorced, moving in with your new love may terminate any alimony or spousal support, which may cause you to have to replace this income.
“You want to make sure you’re not completely dependent on these payments,” says Brian Blitz, principal at Berger Schatz in Chicago.
Check your state laws and alimony status if you move in with your partner to make sure you won’t forfeit these payments. If you’re not divorced yet, consider structuring a settlement so that these payments don’t terminate early.
6. Put it in writing.
If you’re not married, a cohabitation agreement lets you define the rules since you don’t benefit from the protections that marriage affords you. Cohabitation agreements are similar to prenuptial agreements as they include details about how you’ll pool money, pay bills, who’s name is on the lease, how to split ownership of real estate and everything else related to your financials. Your partner’s student loan or credit card debt will affect their ability to pay bills, and this needs to be included in the agreement.
“Relationships end and you don’t have to hope for the ending, but you should probably think about some insurance about the ending just in case,” Allen says. “No one wants to gets in a car crash, but we get insurance.”