The money guide for unmarried couples
Couples are taking a lot longer to walk down the aisle these days — if they do it all.
In 1960, 72% of American adults were married. Around half are married today, according to the Pew Research Center. More people are co-habitating with their significant others and raising children outside of marriage.
Marriage offers some legal protections over finances in the case of a split. While that’s no reason for couples to decide to say “I do,” experts recommend unmarried couples be careful when it comes to their finances.
“Just in case it doesn’t work out, you need to protect yourself,” said Katharine Perry, a certified financial planner at Fort Pitt Capital Group.
Talk honestly about money
It might be uncomfortable, but partners should have detailed — and frank — conversations about their finances.
Keeping secrets about money can stir up trouble in a relationship.
Break down how much money you earn and spend, and make sure you’re honest about any debt you have, suggested Perry.
“If you are hiding any credit card debt, now is the time to tell them,” she said. “Look at what is coming in and out each month and then discuss who will be responsible in regards to bills.”
Don’t open a joint account
Anyone named on a bank account can withdraw all the money and never be seen again — and that’s perfectly legal.
“A lot of people don’t worry about a bank account,” said Chicago divorce attorney Andrew Vaughn. “But if you set up a joint account, either person who is on it can take all of the money out.”
He worked with a professional athlete who lost $700,000 in a joint bank account to his girlfriend after they broke up.
So unless you’re confident both of you are in this for the long haul, it’s best to consider keeping your bank accounts separate.
If you still want to open a joint account with your significant other, experts recommended keeping the majority of your earnings in your own account and a limited amount — about one month of expenses — in the joint account.
“This way your real risk is a month’s worth of financial exposure,” Vaughn said.
Be smart about buying a house
Buying a home with someone who isn’t your legal spouse can expose all sorts of issues, warned Vaughn. For instance, will both names be on the title? How will the mortgage be paid each month? What happens to the house in the event of a breakup?
He suggested creating a contract that details exactly how the home will be handled if the owners go their separate ways.
“The optimal way is doing a pre-purchase contract,” he suggested. That document could specify who would get the home in a separation, how long the new sole owner would have to pay off the other owner, or how sale proceeds will be split.
A rental lease can also get complicated when a couple splits. If only one person is listed on the lease, it can leave the other out in the cold.
“Every time you get into a fight and you aren’t on the lease … they can kick you out and you have [limited] rights of recourse,” said Vaughn.
On the other hand, if both names are listed on the lease, it’s a good idea to have a plan on who is going to move out if the relationship ends, he added.
Think twice before co-signing a loan
So maybe your partner has bad credit, and needs to use your good name to secure a loan. Think twice before agreeing.
Co-signing means you are equally responsible for paying it back. A bank doesn’t care if your girlfriend cheated on you or your boyfriend disappeared without a word. You will still be on the hook for the debt — even if you are no longer together with the debtor.
“If you co-sign on a loan, you have to trust that person to not screw you over, to not tarnish your debt or stick you with debt if you break up, said Perry. “Don’t put your name on something that you are not willing and able to be 100% responsible for.”
Keep your credit cards separate
Adding your partner’s name to your card might seem like a simple way to handle shared expenses, but credit card companies aren’t likely to sympathize if you’re dealing with a break up.
“It is a horrific idea, because someone can really impact your credit and ruin a big chunk of your life going forward,” said Vaughn. “After you break up, what incentive does the significant other have to behave in a responsible way?”
CNNMoney (New York) First published January 30, 2018: 11:01 AM ET