Love and money: separate finances

Hi again, lovebirds! 

First, to my married couples: our post on married money is my best argument for why and how married people should fully combine their finances. I haven’t changed my stance – wildly successful financial collaboration is my hope for all of you. But I’ve gotten some respectful disagreement, and I want to acknowledge that married couples may currently have very good reasons (financial trauma, trust issues, shame, just too busy right now to deal with it) to opt out of fully combined finances. You may benefit from the suggestions we outline here – especially if money is a source of conflict for your household. (But please keep in mind that if you are married, keeping your finances separate may not protect you emotionally or legally from your spouse’s financial misconduct.)

And now… hello to my unmarried couples! Y’all living together, or maybe thinking about moving under the same roof in the near future? If so, you have my warmest wishes for your success, both personal and financial. Shacking up means you can share quite a few costs efficiently. There’s an interesting analysis here that estimates couples in Charlotte can save up to $455.19 per person per month by cohabitating. (A few other per-person-per-month numbers: $614.87 for DC, $447.15 for Richmond, $528.25 for Los Angeles, and a whopping $955.09 for San Francisco. Per person. Every month. I’m still not over that number.) 

The increased stability of a happy couple’s household can help each person better deal with some of life’s ups and downs – emotionally, logistically, and financially. Some companies even allow you to add your significant other to your benefits pre-marriage as a domestic partner, which is pretty awesome! (Hint hint, employers. I know it’s not legally required, but people really seem to like this one.) 

Yay! So does that mean we should share everything?

While we think jointly sharing expenses is great, we think that obtaining joint assets and debts before marriage is a bad idea. In the unfortunate event that things don’t work out, the law does not do a lot to protect unmarried cohabitants who break up. I don’t like to be pessimistic, but if you’re going through a painful breakup, do you really want to add huge money fights or unexpected financial hardship to the list? Let’s be honest, it can be hard enough to get your favorite hoodie back, nevermind half a house. 

A prenup, or prenuptial agreement, is “a legal agreement entered into between two people before they are married that can cover a wide variety of issues centered on property rights and assets.” It provides a settlement of assets in the event of a divorce that is different from what the law ordinarily provides. A postnup is effectively the same thing but happens after you are married. As unromantic as it once seemed to me, when two partners enter marriage with radically different assets, I understand the value of this type of agreement. An accountant, a lawyer, and a couples counselor can help you decide the right path forward if you’re considering a pre- or postnup. 

Although debts and assets should be kept separate, if you’re serious enough to live together, you should begin talking transparently about your respective money situations. This is even more true if you are engaged or thinking about it, because marriage will legally enmesh your finances together. (Unless you make a major effort to maintain scrupulous separation of those assets after marriage, which is not easy and will likely include a legal arrangement like a prenup). 

Hm. Ok. So how should I do this? 

Whether you plan to get married later or just want to cohabitate happily, remember that transparency + integrity = trust.  You and your partner don’t need to give each other access to everything, but you should both be honest and keep your word to each other — in your money and in the rest of your lives.

  • Start by consolidating the full picture of your own finances. I want everyone to know their Big Financial Picture — dating people, married people, independent people. Figure out where all your debts and assets and income streams and expenses live. Find all the accounts at all of the financial institutions, investment brokers, workplace retirement accounts from all the jobs you’ve had, lenders, store credit card issuers, etc. 

    As part of this process, both of you should pull your credit reports. Unless you pay for credit monitoring or you’re debt-free and have frozen your credit, doing this every few months is good financial hygiene for everyone. You are entitled to one free copy of your credit report three times a year – one each from TransUnion, Experian, and Equifax. You can go directly to the bureaus or use (and as of March 2022, the bureaus continue to offer free weekly online credit reports to ease the impacts of the pandemic).  

    This inventory stage is also a great time to figure out if you have any forgotten treasures like a long-lost 401(k)s from your old job or a dusty stack of savings bonds in your childhood desk. A recent client of mine had completely forgotten about a small stock inheritance that had been growing quietly in the dark for about seven years and was worth more than double what he thought. 

    Getting your full financial picture is an important exercise, and it’s the first thing I do with all my clients. And once you’ve done this, you should share it with each other — the good, the bad, and the ugly. You might wind up pleasantly surprised.
  • Agree on your ground rules for household money up front and together. How you divide up paying for things is really up to you. We don’t want any simmering resentment festering in the background if one person feels like they’re being taken advantage of, or any shame because one person feels like they’re not contributing enough.

    Some people with a big income disparity may choose to pay for things proportionally — if Jamie makes $50k and Taylor makes $150k, they might happily agree that Jamie will pay for 25% of the rent and Taylor will pay for 75%. Or Jamie and Taylor might agree to split the rent 50/50 because their rent is cheap and Taylor does all of the cooking and grocery shopping. Or Jamie might own the residence outright and tells Taylor not to worry about rent so Taylor can focus on paying down some monster student loan debt. 

    It doesn’t matter what anyone else thinks of how you divide the expenses – just that you and your partner both feel like it’s the right thing for your relationship, and that you each honor the agreement. Be sure to respectfully revisit it on occasion, especially if you bump into conflict or stress.
  • Make money an ongoing, expansive conversation. If you’re living together – married or unmarried – the happiest reason to talk about money is that you’re also talking about your values, dreams, priorities, and passions. Financial communication = a huge opportunity to get closer and love each other more!

    If you draw a line in the sand and agree on a 50/50 expense split and never discuss money again, you’re missing out on the chance to figure out what fun or meaningful stuff you can do that you might not be able to afford otherwise. What if you can take a big trip, or have a fancy dinner out someplace you’ve been excited about? What if you can afford to get a puppy or new porch furniture or season passes or concert tickets, or something else that you’ve both been dreaming of? What if you realize you can support your partner as they leave a soul-sucking job to start their dream business, or they can support you as you take a work sabbatical to care for an ailing parent? What if you can make a big fat donation to a cause that you both care passionately about? 

    There is some joyful, vital “yes” energy that opens up when you continually combine your powers, and you might just learn something new about your partner. (Like my friend, whose partner was gobsmacked to learn that she’d casually amassed a year’s salary in ordinary savings because she’s a quiet frugality powerhouse. He had no idea and was super impressed!) 
  • If you’re not married, don’t enter into joint debt or create joint assets. This means no co-signing on loans, no buying a house together, no getting a car or a car loan in both your names, no adding them as an authorized user on your credit card. If you’re married, the law can help you get disentangled if things don’t work out. If you’re just shacking up, you face a lot of obstacles in settling joint assets and debts fairly if you split. (Think of the hoodies, friends.) 

    The one exception here to “no joint assets”: if you would prefer not to be Venmo-ing each other back and forth every other day, it’s a good idea to create a checking account that you both pay into to cover joint expenses that are then billed out of the account. Person to person (P2P) transaction apps like Venmo can sometimes make it hard to remember that you’re still spending actual money. Also, these apps typically don’t offer the same protections against fraud or theft that a traditional FDIC-insured bank provides. In other words, if you’re hacked, P2Ps aren’t legally required to reimburse you, so Venmo’s not a good long-term piggy bank. 

    If you and your partner do open a checking account together, we don’t recommend keeping significant assets in that account beyond monthly bill money and a small cushion against overdraft. (P.S. if you want to stop worrying about overdraft fees altogether, quite a few banks have decided to start offering overdraft fee-free accounts.) 
  • Finally, and this goes for both unmarried and married couples, try not to “borrow” from each other. If you give money to your partner to help out with a debt or a purchase, please consider giving it as a gift, not as a loan with the expectation that they will pay you back. Your partner might choose to pay you back at some point (and there’s nothing wrong with that!), but if you can’t give the money without planning or expecting to get it back, it’s a recipe for financial and emotional stress… particularly if things don’t work out. 

Ok, I liked the communication and dreams stuff, but now you’re kind of being a killjoy. 

It may not be readily apparent to you, dear reader, but I am ridiculously, giddily enthused about people finding love together. I love love stories. And I want your story to have a mega-super-happy ending! 

These suggestions are all aimed at helping you strengthen your relationship while keeping yourself appropriately shored up against potential problems. A major part of our mission here is to build your financial resilience against life’s catastrophes. A non-marital cohabiting relationship is much easier to end than a marriage, and much harder to resolve in a fair manner if things head south. We take a hardline against joint assets and debts among unmarried folks because they lack the protections of marriage but still have the power to undermine your financial future. 

No matter what you do – and even if you don’t like all of these suggestions – the most important thing you can do is to improve communication and build trust through the practice of transparency and integrity. Your relationship and your finances will be stronger and happier for it, and I love that journey for you. 

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