These days, living together as an unmarried couple – also known as cohabitation - is far from unusual. In fact, a study outlined in Psychology Today estimates the percentage of American adults who have lived together before marriage is at an all-time high, topping 70 percent.
Because many couples move in together partly for economic advantages, it’s wise for would-be cohabiters to have open and honest discussions about how their finances will be handled — especially if that cohabitation is seen as a precursor to marriage.
“Money is a top reason married couples divorce, but financial problems can cause friction between unmarried couples too,” advises Geoff Williams on Money.USNews.com. “You may have different expectations of each other than you would if legally bound. (But) very few people probably say to a significant other ‘Hey, let's move in together, but first, let's carefully consider all of the financial implications and issues.’”
Some suggestions of financial issues to iron out before committing to living together:
- Financial histories. Now is not the time to hide massive student debt, a past bankruptcy, or an abysmal credit rating. Starting a future together means being transparent about past mistakes and moving forward as partners with a solid financial plan.
- Bill paying. List all household expenses that affect you both, including rent or mortgage payments, utilities, groceries, veterinary expenses, internet subscriptions, and more. Determine whether they should be split equally or pro-rated by your different incomes. How will home repairs be financed? Will the bill payment itself be automatic or manual, and which of you will be responsible for confirmation?
- Legal responsibility. Whose name(s) will go on the lease, mortgage and/or utility agreements? Be aware that if you’re the sole signee, you’ll be responsible for 100 percent of costs in the event of a breakup. Your financial contribution to a mortgage could also be questioned if your name isn’t on the mortgage contract. Consider having a lawyer draw up a formal agreement that includes an exit plan, especially if property ownership is involved.
- Checking and savings accounts. In general, experts recommend maintaining separate accounts until marriage. The exception may be a joint account established for agreed-upon shared expenses, with extra deposits added by both parties to fund household emergencies.
- Funding of major items. You may wish to alternate the purchase of high-ticket items such as furniture, appliances, lawn equipment or vehicles so ownership is crystal clear in the event of a breakup.
- Personal goals. Be open about your plans and dreams and how they’re likely to affect your finances. For example, your significant other should know if you prefer to spend money on travel instead of material goods such as furniture or real estate. If you’re planning a career change or return to school, your partner should be clear on pending changes in your income.
- Contingencies. Consider the most likely financial scenarios if some element of your cohabitation plan goes wrong. What if one of you loses your job or gets hurt and can’t contribute to expenses? You might also wish to update your estate plan so it financially protects your significant other and gives him or her power of attorney.
If you’re considering cohabitation, you’re likely excited about how that will impact your daily routines and your relationship itself. Just remember to take a practical look at the financial implications to avoid misunderstanding or resentment as you move forward.