Moving in together is a major step in a relationship, but it’s hard to figure out how to handle the money issues that go along with cohabitation.
It might seem simpler to just avoid talking about money when you move in with your sweetheart. After all, frank money conversations aren’t very romantic. But dodging the tough money talks is a good way to derail your relationship, since fights about money are the biggest predictor of a future split.
Before you hire a moving van or sign the lease, make sure you and your partner have gone over the financial dos and don’ts on your moving-in-together checklist.
Do: discuss how you will split bills
The bill-splitting discussion is usually the beginning and end of the financial conversation for couples who are moving in together, but it’s a deceptively complicated subject. Determining a fair way to split bills is a delicate topic, especially if you have disparate incomes.
Many couples decide to split bills 50/50. That’s what Rebecca Goodman and her boyfriend decided to do when they moved in together.
“We’d been dating for two years already when we decided to move in together, and we’d already discussed how much we each made. We decided to each pay half of every bill and every repair,” she explains.
For Goodman, this seemed like the fairest way to handle their shared expenses. For other couples, however, income differences make a 50/50 split too onerous for the lower-earning partner.
In that case, it might make sense for you to determine what percentage you each make of your combined income, and commit to paying that portion of the bills. For instance, when my husband and I first moved in together, I earned about $35,000 per year to his $65,000, so I paid 35 percent of our bills and he paid 65 percent.
Don’t: rush to open a joint account
Erika Plank Hagan and her fiance Andrew decided to create a yours-mine-and-ours system for dealing with their shared expenses when they first moved in together.
They opened a joint checking account for shared bills, into which they each transferred money every month. They contributed what they could to the shared account, while still maintaining independent finances.
Such a system can work well for couples who know they’re in it for the long haul. Erika and Andrew were married within a year of when they moved in together.
But if you and your sweetheart have not already committed to each other — whether or not you plan on making it official via marriage — then opening a joint account could be a bad idea. It only takes a few minutes to open a joint account, but disentangling finances at the end of a relationship is much more difficult.
If you have any doubts about your relationship, protect yourself by keeping your accounts separate.
Do: understand the legal details of owning a home together
If the home you share belongs to one (or both) partners, that makes your legal situation much more complex. If the home is only titled in one partner’s name, that partner’s family could legally evict the other partner in the event of the owner’s death.
According to lawyer Nathan Weinert of Najjar Denaburg, if you and your partner jointly own a piece of real estate together, you should make sure you have a partnership agreement that specifies joint tenancy with a right of survivorship. At the very least, you need to have some accurate language in the deed reflecting this agreement.
This can help prevent ugly fights if you and your sweetheart break up after purchasing a home together.
“Do the partners know how they can best get any equity out of the property? Will they sell it or have one partner buy out the other?” Weinert asks.
“What if they can’t agree on an amount or even the best way to appraise the property? What if the partners disagree about how much money and sweat equity they each put into the property? These are issues you can avoid if you draw up a partnership agreement at the time of purchase,” he adds.
Goodman experienced the complexity of buying real estate with a partner first-hand. She bought a townhouse solely in her name while living with her boyfriend.
“We decided we would keep splitting costs halfway. He wanted to put in a brick patio, which was going to cost around $500 for all the materials. We broke up as he was working on it, and I felt obligated to pay him for the labor, as well as the materials. I was a graduate student making $12/hour at the time, so it was financially painful.”
Since Goodman and her boyfriend did not have a partnership agreement, her financial obligation to him for the patio work was unclear and anxiety-inducing.
Don’t: cosign a loan
If you’re sharing your life and your expenses, it’s natural to be tempted to help your sweetheart out of a financial jam by cosigning a loan. But cosigning is almost never a good idea — even when you live together.
That’s because cosigners share the full responsibility of the loan with the primary borrower. If you cosign, your liability for the loan can keep you from accessing other credit, since the cosigned loan appears on your credit report.
Furthermore, if the primary borrower does not make consistent payments on the loan, the late or defaulted payments will negatively impact your credit score. The effects of cosigning a loan with your live-in partner can last for many years — even if you break up, you would remain financially tied to your ex.
When moving in together, keep finances separate
It may not sound romantic, but the best way to keep your new live-in relationship on an even keel is to maintain independent finances and keep the channels of communication open.
Money may be a major relationship stressor, but it doesn’t have to be if you enter into cohabitation with your eyes open and your expectations clearly spelled out.