Making the leap from dating to moving in with a romantic partner is a big step emotionally, legally — and financially. And since disagreements about money are a leading cause of breakups, it’s important for cohabitating couples to set expectations and think ahead as much as possible.
If you’re a committed couple that wants to stay together, here are three common mistakes to avoid:
1. Not having an exit agreement.
Talking about splitting up isn’t very romantic. But it’s important to have a verbal or written agreement about what would happen in worst-case scenarios, such as a breakup, serious illness or death.
Couples who plan to marry can create a prenuptial agreement, known as a prenup. If you don’t plan to marry, you might opt for a “nonup,” which explains how your assets and debts will be handled if your relationship ends or you experience a major life event.
You and your partner should think about what would happen to your lease, home, financial accounts and even pets if you break up or need to relocate for work or family. Getting as much clarity as possible about these difficult issues is especially important if you merge your personal finances.
Unmarried couples don’t have as many legal protections as married couples, which makes it even more important to have key financial concerns in writing if you don’t plan to tie the knot. Creating an agreement can seem like a hassle now, but it could help you part ways in a caring and less stressful way.
You can create a prenup or a nonup using a DIY legal site, such as LegalZoom, or by consulting an attorney who specializes in family law in the state where you live.
2. Not creating a spending plan.
How you plan to share expenses such as housing, utilities and food can be tricky for couples. Is it better to split bills 50-50 or by a percentage of income? Come up with an equitable spending plan as soon as possible and make adjustments if you find it isn’t working.
Cohabitating couples also need to consider if they should merge their money in joint accounts, such as bank accounts, investments, credit cards and loans. This is a big step with far-reaching legal consequences that affect both your credit scores.
Uniting your finances makes managing money easier because you have fewer accounts and administrative tasks to handle. Plus, working as a team is the best way to overcome challenges and to accomplish your shared long-term financial goals.
But the downside to tying a financial knot with someone is untwisting it can be difficult if the relationship ends. Another problem is some couples may never agree on certain issues, such as budgeting or how much debt they should carry.
If you’re certain your financial philosophies will never jive, it may be wise to split up your finances — or at least a portion of them.
3. Not communicating about money regularly.
Communication is the cornerstone of a successful relationship. But when it comes to money, many couples don’t talk about it until after they’re in financial trouble or have serious gripes. Regular and honest communication about money is the best way to improve your financial health and stay on the right path.
You might set a stress-free time to talk on a weekly or monthly basis about following a spending plan, paying bills and debts, and your financial goals. Maybe it’s while you take a walk or go out for a nice dinner together.
If talking about money with your partner seems too difficult or causes you to end up in an argument, you may need to seek help from a couples’ therapist or a financial advisor.
There are many resources to find a certified financial professional including the National Association of Personal Financial Advisors at NAPFA.org and the Certified Financial Planner Board at CFP.net.
Financial troubles only get worse over time if you don’t tackle them as a team. Take time to make sure you and your partner agree on where your relationship and your finances are headed.