Many unmarried couples who live together opt for a strict his/her money system, splitting bills, checking accounts, and other joint expenses down the middle.
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It might not be the most romantic approach, but personal finance advisers say it's the smartest. Couples who live together without first walking down the aisle face financial vulnerabilities that married couples do not. 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 made the first 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.)
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, co-founder of the nonprofit Women's Institute for Financial Education.
The 10 Commandments of Money author Liz Pulliam Weston says credit checks are in order for couples at this stage. "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 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. If one person pays more upfront than the other, Garrett says, couples can either agree to prorated ownership percentages or a schedule for the other person to catch-up by paying the monthly mortgage bill. (Aside from the issue of fairness, Garrett adds, if one person provides the "gift" of a downpayment, it may be subject to gift taxes.)
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Differing monetary contributions underscore the need for a written agreement about what happens in the event of a dispute. "Sometimes people argue that they contributed more to a downpayment. In some states that may make a difference, but not in others," says family law specialist Michele Lowenstein.
The bottom line: Couples without the legal protections of marriage need to protect themselves financially, just in case the relationship goes south.