Living Together While Keeping Money Unmarried

Separate accounts and simple documents can protect partners.

Matthew Krise and Pasha Carroll have clear rules on handling finances.

Matthew Krise and Pasha Carroll have clear rules on handling finances.

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Corrected on 4/21/08: A caption accompanying an earlier version of this article misspelled Matthew Krise's name.

Pasha Carroll and her boyfriend, Matthew Krise, follow a strict his/ her money system: The Chicago couple split rent and groceries down the middle and pay credit card debt separately. He pays for dinner when they eat out, and she cooks. As they consider the next step—buying property together, which they plan to rent out—they will probably form a corporation first to help keep their investments and rental incomes separate.

What makes the arrangement so great, says Carroll, a 27-year-old freelance writer, is the fact that their cash flows are so clearly delineated. "We never have to squabble," she says.

While Carroll and Krise's approach may not be the most romantic, personal finance advisers say it's the smartest. Couples who live together without first walking down the aisle face financial vulnerabilities that married couples don't. Investments in shared assets, such as a home or car, can be lost during a messy breakup if only one person's name is on the title. Money or labor that went into redoing a former partner's kitchen may never be recouped. And while details vary by state, even assets such as joint savings accounts can go to the person who is first to make the withdrawal.

That's why experts recommend clear communication and even written agreements along with individual accounts and credit cards. "It's easier to protect yourself at the beginning, instead of the end, of the relationship," says Marcia Brixey, author of The Money Therapist.

While unmarried couples with children or significant assets should probably hire a lawyer, says Sheryl Garrett, founder of the Garrett Planning Network and coauthor of Money Without Matrimony, most people can simply write a one-page document that answers the big questions: In the event of a breakup, who will stay in the apartment or house? If it's a jointly owned home, how long does the remaining person have to refinance the mortgage in his or her own name? Who keeps the car? Websites such as Nolo.com sell agreement forms that can help. "It's like a prenup," Garrett says. She says such clarity is particularly important for unmarried couples, because "when you're not legally married, there is no divorce court." (Laws related to civil unions and domestic partnerships vary by state.)

Watch that toothbrush. In addition to lacking legal claims to each other's assets, another challenge for unmarried couples is how quickly the relationship can develop. "Some people leave their toothbrush at their partner's one night, then a few changes of clothes, and before you know it they've moved in, and they have never had a discussion about leases or household expenses," says Candace Bahr, cofounder of the nonprofit Women's Institute for Financial Education.

Easy Money author Liz Pulliam Weston says credit checks are also in order. "If you're sleeping with somebody on a regular basis, it's time to pull your credit reports," she says. Even couples who keep separate bank accounts will be jointly affected by a $30,000 credit card debt or poor credit score, she says.

Maintaining separate accounts and ownership can also protect those credit scores down the road. "The thing I hear more about is 'My girlfriend and I broke up, she's not making any payments on the car, and it's about to be repossessed,' or 'I wanted to help my boyfriend get a better credit score so I added him to my credit cards, and now he's running up debt,'" Weston says.

On the other hand, large purchases such as homes or cars require a joint commitment—and both names on the title or lease—to ensure that both partners have a claim to their fair share. When Janet Parkinson, 41, and her boyfriend decided to buy a condo together in Boston 10 years ago, they invested similar amounts, put both names on the title, and gave each other the right of survivorship, which means that if one person dies, the other gets to keep the house. Then, they took turns making payments on the mortgage, as well as on their joint credit card.