Back in the day, it was scandalous for couples to live together before they walked down the aisle. These days, living together before marriage, or deciding not to get married at all is the new normal. According to the National Center for Family and Marriage Research, 66% of women cohabitate with their partner before getting married. If you are thinking of shacking up with your someone special, it’s important to lay out ground rules before you bust out the packing tape and moving boxes. One of the most important topics to discuss is money.
Marriage conveys a certain amount of financial protection to both spouses. They each become entitled to a portion of their shared marital property. Those protections don’t exist when you merely cohabitate with your partner, which makes it all the more important to iron out financial details before you say, “I do,” to living together.
Here are five tips to ensure that finances won’t disturb your new domestic bliss.
Talk About Money
Most of us have been raised to think that discussing money is impolite. That can make it difficult or awkward to come clean about our finances with our partner. However, it is imperative that you are both on the same financial page before you make a big decision like moving in together. First, you should each be aware of the others’ finances. What is your partner’s income? What are their debts and savings? Don’t be afraid to dig deeper. Ask them about their attitude toward money. Are they a spender or a saver? Do they budget? What are their short-term and long-term financial goals?
This conversation may be awkward, but it will highlight any big red flags before you make the big move. It will also help you negotiate who is going to pay for what when you know how much income, debt, and other financial obligations each partner brings to the table.
Create a Relationship Agreement
You don’t need to have a relationship agreement quite as detailed and nuanced as Sheldon and Amy from The Big Bang Theory, but it will be extremely helpful to put an agreement into writing on what each partner’s responsibilities will be when you move in together.
Use your relationship agreement to determine how you’ll split costs. Will you each pay half of the mortgage or rent each month, or will you use a percentage system based on each person’s income? Who will pay for the utilities? How about grocery costs, furniture, repairs, and eating out?
Writing a relationship agreement may seem overly formal, but it’s important to work these things out in the beginning instead of fighting about them later.
Be Careful About Mingling Finances
You may be in love, but that doesn’t mean you should risk your stellar credit rating on your new partner. When you first move in with your partner, there’s no need to add them to your checking account or share a credit card. Just think about the damage they could do if they go on a spending spree, or if they wipe out your checking account after a big fight or a breakup.
Some couples decide to open a joint checking account and each will put money in it every month for shared bills like the rent or mortgage. If you decide to go this route, we encourage you to still maintain your own personal checking and savings accounts.
Discuss Joint Property
What if you or your partner wants to buy a house? What if one of you already owns a home? Should you pay rent to your boyfriend or try to get on the deed? These are tricky questions. If your partner buys a house and doesn’t put you on the deed, then they can sell it whenever they like and keep all the money from the sale regardless of whether or not you thought you were building equity by helping them pay the mortgage each month. On the other hand, if you put your partner on the deed of your home and sell the house, they will be entitled to half the profits even if you paid the entire down payment and made all the mortgage payments alone!
Be very careful about adding your partner to your deed, especially if you are paying the majority of the housing costs. Even the best relationships can fizzle, and that could end up being a big financial loss. Here again, a partnership agreement can help you define an ownership and equity arrangement in the house that you both feel is fair.
Write a No-Nup
You’ve almost certainly heard about the pre-nup that couples sign before they get married, but have you heard of a no-nup? These days, more older couples are cohabitating together and bringing significant assets into the relationship. Things can get tricky when a couple buys property together and mixes their finances. A no-nup works just like a pre-nup. It lays out how property will be divided if a couple should decide to break up.
It may seem silly to create a no-nup for a relationship when you are not even married, but it can actually save you a huge amount of hassle if your relationship doesn’t work out. A no-nup can help you determine how much equity in the home each couple owns, who gets the pet dog after a breakup, and even how child custody will work if you have children together.
It is a good idea for both partners to work with their own attorneys when devising a no-nup.
It’s easy to get swept up by the excitement of moving in with someone you love, and it may seem unromantic to talk about things like partnership agreements and no-nups. But if you don’t do some commonsense planning before the big move, you could be creating an unstable financial foundation for your new life together.