Many couples are moving in together before they get married. Deciding to live together is a big step in any relationship. It generally means you’re seriously thinking about commitment, but you want to do a little more investigating before taking the plunge.
Though it can seem romantic to merge your finances as you merge your closet space, it’s probably too early to consolidate your assets. Keep your money separate-maintain a checking account and credit cards in your name, and manage your own investments — at least until you’re ready to take things to the next level.
Set a Positive Precedent
Living together is a trial run at marriage, so start establishing good financial habits for a successful long-term relationship. Here are five steps you can take to build a solid foundation for the future:
- Decide whether you will share expenses such as rent, utilities and groceries 50/50 or divide them proportionately, based on your incomes.
- Once you determine how much each of you will contribute, create a household budget, and decide who will monitor the budget.
- Decide which expenses you’ll each be responsible for. For example, you may decide that your partner will mail in the rent check every month and pay the utilities, and you’ll do the grocery shopping.
- Open a joint account for larger shared expenses, like a trip to Hawaii. Discuss how much each of you will contribute and exactly how the funds will be used.
- If one person bends the rules, for example, your partner dips into the vacation fund to buy a big screen TV-sit down and calmly discuss the issue. We understand that you’ll be seething and feel betrayed. But rather than hurling accusations, review your shared goals and responsibilities, and see if you can get back on track. If this happens repeatedly, it is a sign that your partner has unresolved problems handling money, and this could foreshadow financial problems you’ll have if you continue your life together.
Put Your Plans on Paper
Before you become intertwined financially, write down the terms of your living arrangements. Unfortunately, documenting your arrangements in a contract isn’t very romantic. We may remember our first date, our first kiss, and the first night we spent together, but no songs have been written in tribute to the first contract we signed.
At the very beginning of a relationship you might find it inappropriate to think about such an agreement, but once the relationship becomes more stable, you will need to come to an understanding about these matters with your partner and document them legally, to protect both of you, no matter what.
We know that talking about money is hard — a good knockdown fight is easier-but over time, you’ll get the hang of it.
A written living-together agreement will make it very clear what was intended if your relationship disintegrates later. Each of you should keep an original signed copy in your files or safe deposit box in case a dispute arises later. Your agreement should specify:
- Who owns what
- How property will be divided if you separate
- Whose debts are whose
- How household expenses will be split while you are living together
- Whose name(s) should go on the rental agreement or lease, and the rights of either party if you break up and one of you moves out.
Warning! We’ve seen too many women fall into the joint credit trap, forgetting that credit and financial institutions are not bound by their private agreements. If you have both signed on a credit card, you are both 100 percent responsible for the charges made. If you share a single bank account and the IRS seizes your partner’s funds for back taxes, your money will disappear along with his.
Excerpted from the book It’s More Than Money-It’s Your Life: The New Money Club for Women by Candace Bahr, CEA, CDFA and Ginita Wall, CPA, CFP