First comes love, then comes marriage, then comes a baby. Well, not so much anymore. Nearly 8 million unmarried couples were living together in 2014, according to U.S. Census data, roughly 3 million of them with children.
Those people have deeply intertwined lives and finances, but they don’t enjoy the financial benefits that come with marriage, from potentially lower taxes to access to spousal Social Security benefits. Still, for many couples, marriage isn’t in the cards, at least not in the immediate future. Some live in states where they can’t get married. Others just don’t want to tie the knot.
Whatever a cohabiting couple’s reasons for not making their union official, that doesn’t mean that they should approach money matters as if they were unattached. Once people move in together, it affects their finances, often in some surprising ways.
There are the obvious perks, like saving money on housing and utilities. But sharing the same roof may also mean having to make some tough decisions, like whether you should open a joint bank account or take on debt together. Then there are the really big questions. How should you approach finances if you have a kid? Is it wise to buy a house if you’re not married? What would happen if one of you died?
Every situation is different. No one but you can decide if you want your live-in partner to be your power of attorney, or if you’re willing to take on a mortgage together. But you can make things easier on yourself by taking heed of these five common-sense money tips for unmarried couples.
1. Talk about money
“Many couples slide into a cohabiting relationship without discussing what it means” for their finances, Galena Rhoades, a marriage researcher and associate professor at the University of Denver in Colorado, told the BBC.
The best time to have the conversation about money is before you move in together. Sit down and talk about your income, your debt, how much you save, and your financial goals. It may turn out that while you’re perfect for each other in every other way, you have very different attitudes about money. That doesn’t mean the relationship is doomed. Rather, knowing your partner’s feelings about finances can help you head off problems before they become a romance-ending crisis.
2. Have a system
Come up with a plan for how you and your partner will deal with key financial responsibilities. For example, will you each send your landlord your share of the rent? Will you both be on the accounts for utilities? Do you need to buy renters insurance, and if so, who pays the premium? Who buys the groceries and other household items?
Many cohabiting couples prefer to keep their finances completely separate, splitting expenses as if they were roommates. Others open a joint bank account that they use to pay rent and other bills. Each option can work. The important thing is to figure out what approach makes sense for you.
Once you’ve hashed out a system for the household finances, consider putting together an agreement you both sign. “Clarifying your intentions in writing will help you to avoid misunderstandings and costly disagreements later. In most cases, your agreement will be enforceable in court,” says the Women’s Institute for Financial Education.
3. Don’t assume 50-50 is fair
Dividing financial responsibilities right down the middle often seems like the fair thing to do. It’s also the easiest. But a 50-50 split may not be right for all couples.
If one person earns a lot more than the other – and wants to maintain a lifestyle to go along with it – the other partner may end up feeling resentful if they have to live paycheck to paycheck to keep up. Alternatively, the better-off person might grow frustrated if the lower-earning half of the couple insists they live in a cheaper apartment or take less frequent vacations.
“[I]f the higher earner has more expensive tastes — for example, she wants to live in a bigger home or dine out more often — then it might be time for her to kick in more than a 50% share,” advised David Wilever of Money Under 30 in a blog post.
4. Think about the future
The longer you live together, the more enmeshed your finances will become. If you’re married in all but name, it makes sense to take some basic financial and estate planning steps to protect yourself and your partner. Durable powers of attorney for both health care and finances, medical directives, wills, and other estate planning documents are essential documents for couples in long-term, cohabiting relationships.
“[I]f an unmarried partner dies without a will, the survivor will inherit nothing,” notes Unmarried Equality, an organization that advocates for unmarried people. Without powers of attorney in place, you and your partner won’t be able to make financial and health care decisions for each other in the event of a crisis.
Advance planning is especially vital for unmarried couples with children. Fathers may need to take specific steps to make sure that they’re recognized as a child’s parent, while a non-biological parent will need to formally adopt their partner’s child.
Other steps to take might include buying life insurance that will provide for your partner after you’re gone and updating the beneficiary designation on your retirement accounts.
5. Have a break-up plan
Break-ups are ugly. If you and your live-in partner decide to part ways, you’ll find the process less contentious if you’ve prepared in advance. Taking the previous tips to heart will help, as will keeping good records. (You can make a stronger case that the big-screen TV is yours to keep if you can produce a receipt proving you paid for it.) Yet the best protection is a cohabitation agreement, sometimes called a “no-nup.”
“It’s essentially a contract that says, ‘This is how we plan to share our assets, debts and any property we have now or may accrue,’” attorney Stefanie Benson-Hebberd told CNBC. Those agreements can be particularly important if you share ownership of large assets, like a house or a car. It can also help you protect whatever you brought into the relationship, and even your future income.
“Not having a ring on your finger doesn’t prevent your partner from making legal claims against your property and your earnings,” said Linda Lea Viken, president of the American Academy of Matrimonial Lawyers.