More and more couples are choosing to live together without the benefit of a marriage license—and many of them have no intention of making it official.
According to the Pew Research Center, it’s now slightly more common for couples to cohabitate without getting married. 59% of people surveyed between 18 and 44 have lived with a partner at some point in their lives, but only 50% have ever been married. The number of married folks dropped from 60% in a similar study conducted in 2002, while the number of partners who live together has risen from 54%.
While there are benefits and drawbacks to both marriage and long-term cohabitation, we don’t often talk about the challenges of sharing finances with a partner rather than a legal spouse. Some of the following principles apply to all couples regardless of status, but unmarried partners face a different set of challenges.
If you’ve been talking about moving in with your partner—or if you’re already living together but struggling with how to share your finances without a fight—then read on to discover expert tips on managing your money without marriage.
Your Partner Is Not Your Roommate
When you share an apartment or house with roommates, the duties and responsibilities are usually pretty clear-cut. Each person pays rent—either split evenly or proportionate to the size of their room. Utility bills are divided between everyone equally, as are chores to maintain the common areas of your shared space.
But when you live with your significant other, things aren’t always so simple. You might be comfortable with tracking every sent and settling your accounts so that both of you pay the same amount, down to the penny. That’s not how things tend to work with a partner, though. You’re much more likely to make a mess of your finances as you get into the habit of shopping for two instead of one.
Regardless of how you decide to manage your finances together, you’ll need to make a commitment to open, honest conversation. Financial intimacy is just as important as any other type of intimacy in a relationship. While some people are squeamish about discussing money, that’s just something you’ll need to get over if you’re going to build a healthy, functional life together.
Should You Share a Bank Account?
In many ways, it’s so much easier to share a bank account with your partner. You can easily pay for shared expenses, such as groceries, without worrying about paying each other back. However, there’s a lot of trust—and risk—involved in combining finances. Some couples prefer to combine all of their money in one account and then allow each partner a set amount of discretionary income with no strings attached. If that works for them, then great! However, there are alternatives.
You might be better off contributing an agreed-upon amount into a joint account to cover household expenses rather than depositing your entire paycheck. Set a budget together—including your savings goals—and then allow each partner to keep the rest of their paycheck to do with as they will. This is more equitable, but it does allow for the possibility of resentment or jealousy. If one partner earns more than the other or has more lavish spending habits, the other may feel frustrated or left out.
Finally, you could decide to keep your finances completely separate. Managing your finances individually allows each person to have more freedom. Some couples might feel that it’s unnecessarily stubborn to refuse to combine finances, but others may find that it makes the most sense for them. Splitting the bills—either equally or proportionate to income—and always paying for your own food and entertainment isn’t how most romantic partners choose to manage their finances. That doesn’t mean it won’t work for you.
Read More: Best Budgeting Apps for Couples
What Happens When One Partner Makes More Than the Other?
If both partners made roughly the same salary, then it would make sense to split everything equally. However, if there’s a discrepancy between the two incomes, then an equal split isn’t fair—especially if the higher earner also wants a higher standard of living.
Let’s say that Bob and Howard have decided to move in together. Bob makes $90,000 a year, but Howard only earns $30,000. (We won’t worry about taxes for this thought experiment.) Together, they bring home $120,000, and therefore they can theoretically afford to rent an apartment for $4,000 a month. But if they both pitch in $2,000 a month, then Howard would be spending 80% of his income on rent while Bob would only be spending about 27%. That’s hardly fair!
If both partners contribute 30% of their income toward housing, then Bob would pay $2250 while Howard would pay $750. That allows them to rent a place for $3000 a month without either partner having to struggle. Bob and Howard could then decide whether to split utilities down the middle or agree to a percentage based on each man’s income. If Bob prefers to splurge on the occasional date night at a fine dining restaurant, while Howard is more comfortable budgeting for a home-cooked meal, then they’ll need to figure out how to balance and compromise. In that way, sharing finances isn’t so different from any other aspect of a relationship.
What About Stay-at-Home Parents?
When partners each bring home a paycheck, splitting the bills proportionately isn’t that difficult. But what happens when you can’t just compare paystubs? When one partner chooses to stay home to raise their children, it’s all too common for the partner who works outside the home to forget about the value of that unpaid labor.
If you calculated the cost of full-time childcare, either at a daycare or with a nanny, as well as house cleaning and meal prep services, you’d see that the stay-at-home parent is contributing a tremendous amount of value. In addition, they may be sacrificing their own potential future earnings, as it is more difficult to return to the workforce after taking time away to raise children. That’s especially true for women, who already earn $.84 for every dollar earned by men.
Gender pay gap aside, it’s vital that the partner who works outside the home acknowledges the value of the stay-at-home parent. Just because they aren’t earning money doesn’t mean they aren’t contributing. Couples who decide to follow this path should keep an open line of communication and commit to financial transparency.
Tax Issues for Unmarried Couples
Taxes aren’t easy for anyone, but couples who live together without getting married have to go through a different set of hurdles than everyone else. Attorney Melissa Heinig explained, “When an unmarried couple cohabitates, both partners will need to file an individual tax return at the end of the year. Historically, unmarried couples pay less in taxes because their individual incomes put them into a lower tax rate bracket than if they were married.”
Thankfully, a 2019 tax law changed things so that married couples who file jointly aren’t penalized for their combined income. The option of filing a joint tax return offers married couples tax breaks, especially if they share children. It also allows the higher-earning partner to qualify for more deductions than they might otherwise since the income thresholds are higher for married couples who file jointly.
In some states, registered domestic partnerships or civil unions allow couples to file jointly. A handful of states also permit common-law marriages, as long as the couple meets a certain list of requirements. Most of the time, though, unmarried couples who live together will need to file individual tax returns. If you share children, you’ll need to coordinate which person gets to claim “head of household” in order to claim the kids as dependents.
Things get even more complicated if one partner owns the home you both share. Let’s talk about the potential drawbacks and pitfalls of homeownership for unmarried couples.
Don’t Make This Major Mistake
There’s one thing that unmarried couples shouldn’t share—at least not without very careful consideration. Buying a home together or moving into a residence that’s in one partner’s name can spell disaster. It’s one of the biggest commitments you can make, and for unmarried couples, it’s also one of the biggest risks.
If you decide to buy a house together or refinance, the couple who has the best credit score and highest income should take the lead. You’ll have a better chance of getting a favorable interest rate that way. Some lenders allow unmarried couples to apply for a shared mortgage, but if one partner has bad credit or a poor income-to-debt ratio, it can tank your chances.
The question of equity shouldn’t be ignored as you consider sharing a home with your partner. Rocket Mortgage explains a few ways to structure ownership and tenancy:
- Sole Ownership
- Joint Tenancy
- Tenants in Common
- A Living Trust
Before you sign on the dotted line, you need to figure out how the ownership will be structured and how you’ll share your expenses. While no couple wants to contemplate what would happen if they broke up, you also need to draw up an agreement about dividing assets in the future. Getting a lawyer involved isn’t a bad idea at this point. Having a plan in place for different contingencies is important to protecting your future.