Financial tips for unmarried couples

by Erin Lowry

Cohabiting before marriage is becoming more common, with the number of unmarried partners living together in the U.S. nearly tripling from 1996 to 2017. That was before potential isolation during a pandemic followed by wild inflation and skyrocketing rent made it even more practical to move in with a partner prior to saying “I do.”

The shift raises a question: How should unmarried, cohabitating couples navigate shared — but not exactly joint — finances?

The childhood truism that the fairest way to split anything is 50-50 simply doesn’t hold when it comes to balancing a household budget. One partner may drastically outearn the other or have significantly less debt or receive family money. One partner may have a taste for luxury in a way the other doesn’t. One partner may need financial support because she’s going back to school or has experienced job loss.

There are so many shades of gray with what is fair and equitable in a romantic relationship, especially when it comes to money. The one certainty is that it’s time for those who consider a 50/50 split as the best way to handle finances to instead infuse the conversation with nuance to determine what feels best for the ecosystem of the relationship.

Just like in marriage, the two main considerations should be financial goals and lifestyle. Are the two of you compatible when it comes to the type of life you want to live and how you want to achieve your goals? It can be particularly trying when one partner makes substantially more and expects the other to keep up. Should you want to live in a significantly more expensive apartment or house, then the rent needs to be prorated in a way that acknowledges your partner’s income and individual financial goals. It never hurts to draw up a cohabitation agreement so that you can go back to a written document that outlines what you’ve both agreed to.

The next step is to discuss how you want to handle your finances as a couple. Joint is often seen as the default in marriage, even though it shouldn’t be, and joint is rarely the right move for unmarried couples. This isn’t because the relationship is less serious without a marriage license, but simply that there are parameters dictating how marital assets are divided in a divorce.

Things aren’t quite so cut-and-dry in a breakup, especially with a joint account. In the case of an acrimonious split, an ex could drain a joint account and the recourse would be somewhat minimal. Sure, you can go to small claims or civil court, but that could take a lot of time and money. For cohabitating couples, joint accounts should only be for the bare minimum needed on shared expenses like rent and utilities.

Joint credit cards should be avoided as well because that’s essentially co-signing on a loan and could impact your bank account and credit score. An authorized user is easier to remove from your credit card, but a joint credit card typically needs to be fully paid off to remove a card owner. It might sound untrusting, but it’s usually in your best interest to keep most of your financial assets separate.

Speaking of financial assets, what happens if you plan to move into your partner’s home that she owns?

Creating a dynamic in which one partner is both lover and landlord is setting you up for a potentially disastrous power imbalance. It’s completely unfair for the non-owning partner to pay rent, especially market-rate rent, without the protection of a lease agreement. You’re helping someone else pay off a mortgage and you’re vulnerable to an eviction should the relationship go south.

This is a situation in which nuance and discussions of what feels fair to both of you is critical. Splitting the mortgage costs down the middle when one person is building equity and the other has no legal claim to the property may seem unjust. But one person paying the full cost when utility costs and wear and tear are likely to increase with another inhabitant isn’t exactly fair, either.

You could prorate the mortgage costs so the partner moving in is paying a modest amount that feels reasonable. Non-owners could cover a portion of utilities and another shared expense like groceries. Non-owners should never be responsible for the cost of home repairs like a new roof or HVAC system unless they directly caused damage that resulted in the necessary repairs.

The other uncomfortable calculation for an unmarried couple is to determine just how much to invest in a partner. No, I don’t mean emotionally. Financially, how much are you willing to invest when you’re unmarried?

Unmarried partners must consider the cost-benefit analysis of how much they’re willing to help support each other financially. Will one partner be resentful about carrying the bulk of housing costs while the other went back to school? How about paying most living expenses so the other can pay off debts faster? Much like loaning money to a loved one, this sort of support should only be provided if it can truly be framed as a gift — meaning you feel emotionally and financially comfortable with never being repaid.

Financially supporting a partner has the potential to massively pay off for you both and increase your emotional bond — but there does need to be a frank conversation about how you both feel and what feels equitable.

We don’t like to frame our romantic relationships through a practical business lens, but partnerships do have such elements. The person with whom you end up is one of the most important financial decisions you’ll make in your life. Of course, life is about more than just money, but it’s also important to set yourself up to minimize resentment and regret.

Erin Lowry is a Bloomberg Opinion columnist covering personal finance. She is the author of the three-part “Broke Millennial” series.