You’ve been dating for some time now, and the relationship is going well—so well, in fact, that you decide living together is better than living apart. Cohabitation before marriage, risqué in the '60's, has become mainstream for couples these days. According to US census data from 2012, 7.8 million couples are living together unmarried, compared to 2.9 million in 1996. Seventy percent of women between 30 and 34 have lived with a male partner, according to data from a survey by the US Centers for Disease Control and Prevention.
While this can be a romantic and exciting time in couples’ lives, it can also have consequences—both financial and for the relationship—for couples who don’t have guidelines in place. Here, we compiled financial advice from experts Jonathan Clements, author of Jonathan Clements Money Guide 2016 and former personal-finance columnist at The Wall Street Journal, and David Weliver, founding editor of MoneyUnder30.com.
Try before you buy
“There is no need to intertwine your finances more than you have to,” notes Clements. While home ownership can signify living the American dream, buying a place together can end the dream pretty quickly if the relationship doesn’t pan out. Weliver cites this as the biggest mistake couples can make, noting issues around mortgage payments and legal ownership if the couple separates.
He suggests renting, if possible. Clements advises couples to consider places one person could potentially handle on his or her own if the relationship doesn’t work out. No one said this would be a romantic discussion, but it can make things easier down the road. If you do decide buying a home makes the most sense, Weliver suggests that you create an “explicit agreement,” not unlike a prenuptial agreement, to protect yourself.
Let's be honest here: Have full financial disclosure
Thirty years ago, it was taboo to discuss religion, politics, sex or money at the dinner table, notes Clements. Now? He says the only topic we’re avoiding—money—is the one that we should be talking about. Clements advises discussing with your partner how much they earn, and how much they may have in savings and in debt.
Yet don’t dismiss your significant other too fast if he or she is sitting on a mountain of student debt. A study by the Institute for College Access & Success discovered that in 2014, close to 70 percent of students graduated with average student loan debt of $28,950. This number has climbed 56 percent from average debt of $18,550 in 2004. As student loan debt increases, it is much more likely your boyfriend or girlfriend will have loans to repay, so factor this in when discussing rent and bills.
While you’re disclosing all, you may want to put your credit score out there too. A study published by the Federal Reserve in 2015 titled "Credit Scores and Committed Relationships” found that a couple’s credit scores, at the time the relationship is formed, are highly indicative of the couple’s future (or lack thereof). The survey, based on the results of nearly 12 million people over 15 years, discovered that the greater the difference between their credit scores, the less likely the couple was to stay together. Why? A poor credit score can cause financial distress, which is "correlated with relationship dissolution.”
How do you feel about money, honey?
It’s presumed you’ve spent a good deal of time together before the move-in rolls around, so what is your partner’s attitude towards money? Is your girlfriend quick to take on credit card debt? Is she late to pay her bills, or unable to pay them in full? This could be a warning sign, and Weliver advises addressing any concerns up front. Clements suggests taking note of your partner’s parents’ attitude towards money as well. Along with a host of traits children inherit from their parents, they often unconsciously acquire their financial mindsets as well.
Divide and conquer
More likely than not, one person in the relationship will make more than the other. Discuss upfront what your portion of rent will be. While you’re on the subject, you should also determine who is going to pay the bills. Both parties should be aware of what the rent and bills total each month, but while you may love your partner, you may not love the late payments that come along with the cable bill when she is in charge. Clements suggests that the more financially responsible of the two should be in charge of making monthly payments. When in doubt, be open and communicative about these decisions, and who knows, maybe it’s living together that makes the heart grow fonder.