[Editor's Note: I received what now appears as the Pro section of this piece as a guest post from George Diaz, who blogs at SobreDinero.com, a Spanish language personal finance blog. George is obviously bilingual and sent a nice post reflecting on some of the lessons learned as he and his girlfriend moved in together. However, I felt like there was something missing from the post, and since Pro/Con posts are very popular around here (and usually controversial) I thought it would be a good time to jot down a few of my thoughts on the subject. So I did the Con section. We have no financial relationship.]
Cohabiting Has Numerous Financial Benefits – George Diaz
If you're in a formal relationship and you've been thinking about living with your partner, it's important to take into account some important points before you make the plunge. To give you some context, I had been with my girlfriend for nearly eight months when she proposed the idea of living together. Now, you may be thinking that eight months isn't a long time, but we live five minutes away from each other currently, and spend time with each other at least five days a week. From an informal poll of about 5 couples I know, this is higher than average, so I figured eight months is almost the equivalent of a two year relationship in terms of time spent.
Anyway, I was pretty sure she was “the one” and we even discussed the idea of marriage at that time, but both agreed that it's probably was too soon. (Though we were well into our 30s). So although she asked me to consider moving in with her, I told her I needed more time before making a decision of this magnitude and I took the following issues into consideration:
More Time Spent Together
Now, again, we had spent an inordinate amount of time together already, but being around someone first thing in the morning, and last thing at night 24/7 is something we rarely did. On one hand, we enjoy each other's company so I don’t anticipate the increased time spent together being an issue.
Trial Run For Marriage
On the other hand, there may be a couple of minor things that irritate me now, and vice versa, and I wondered if these minor issues would now become major ones. For example, I snore. She hates it. She's an early riser and doesn't require a lot of sleep but will it make her resent me if she doesn't get enough sleep? Conversely, she is in the bathroom seemingly forever. I like to get plenty of sleep and can usually be ready for work in 30 minutes or less. I figured that my routine was sure to get disturbed if I'm waiting an hour for the bathroom to be free every morning.
Now this may ultimately be a good thing as this can serve as sort of a trial run for marriage, as we experience each others' quirks and good/bad habits over an extended period of time. Neither one of us have offended each other egregiously and would probably never do so, but who knows? Time would tell if the little things become big or if our respective love for each other can look past seemingly minor inconveniences. Either way, it's better to know now before you exchange wedding vows.
Now, this will obviously vary from couple to couple, as both partners may not be working full time. In all likelihood, one person is going to make a bit more than the other, or in some cases drastically more than their partner. I make a bit more than my girlfriend, but she is more frugal and so it balances out. I also have considerable debt from grad school so technically; she is worth far more than I am.
We have an agreement that we should contribute towards expenses in proportion to the amount of income we generate. In other words, if I make 30% more than she does, then I should pay 30% more of the expenses. We like this rule because it deals with proportions rather than absolutes. Rather than being tied to a number, we are holding each other to percentages, proportions, ratios etc. Therefore, if either one of our incomes dramatically decreases due to job loss, or conversely, increases, we will always be carrying our fair share of the weight.
Half The Cost, Twice The Fun!
With that being said, since our respective incomes are relatively equal, I am looking forward to the potential savings! If you've ever traveled with friends, you know the feeling of being able to split up costs of hotels, dinner, and even activities among several participants rather than having to foot the bill yourself. This is exactly what should occur in a fairly equitable partnership.
Both of our rent contributions will dramatically be reduced as we can consolidate our living accommodations under one roof. Now, we still had to figure out whose place we're staying in because we both loved our respective apartments but I'm sure we'll come to a compromise. This could be a huge point of contention if either one of us owned our respective apartments. Worst-case scenario, both partners are under a mortgage they can't easily get out of. This is just one of the reasons why I don’t believe in home ownership unless certain conditions are met but that's for another article like this one.
Now, with that important caveat aside you should expect savings on rent, groceries, commuting, appliances, electricity, phone, cable etc…Depending on your current expenses, the savings could potentially be enormous.
Do Great Minds Think Alike?
While the savings benefits are certainly excellent, you have to now be mindful of the fact that you are making decisions for two. Legally, you are not sharing half your assets and liabilities just yet (unless you plan to sign a prenup), but you should certainly be in the mindset of thinking for two. After all, poor financial planning can end up being an enormous burden on your marriage as issues like poor credit, overspending, or personal debt can come back to haunt a marriage for many years to come and breed resentment.
I won't get in to details but just keep in mind that now is a good time to get in the habit of learning to compromise as there will inevitably be disagreements on your respective needs vs. wants. For example, she loves antique furniture and expensive artwork. I would much rather spend the money on a leather couch and a giant TV. Let's just say we had to compromise. I got my leather couch, but she got artwork. Again, won’t go in to detail but check out some unique perspectives from WCI forum participants on engagement finances.
Now I have so far painted a pretty rosy picture of what to expect. It's not all fun and games to be sure. The change I noticed after several months together was that our sex life had become somewhat stale. We would find that we were either too tired from work, not in the mood, or too busy to have sex whenever we saw each other. This is obviously understandable as the frequency with which we interacted certainly increased, but the drop off in how frequently we had sex was considerable.
It took both of us realizing that we still needed to find ways to keep a spark in our relationship in order to keep things fun. For example, we have date night at least 2x/month where we will get dressed up and have a night out on the town. We also do staycations in the city if we can’t afford to travel, but want to get out of the house. Inevitably, there will be certain aspects of your lives that will now become routine, but the point is that it's important not to get lazy and to mix things up so as to ensure that your relationship remains strong.
These are just a few of the considerations to keep in mind as you transition from lovers to “livers,” and perhaps even decide to one day marry each other. It has certainly been worth it and I have no regrets about living together as it is excellent preparation for marriage. After all, if you're planning on spending a life together, what better way to really get to know someone? Let us know your thoughts and personal journeys in the comment section!
Stop Playing House – WCI
There is no doubt that I am a traditionalist, a conservative, even a curmudgeon on this subject. I'm certainly an advocate of marriage, and not just for personal, religious, and cultural reasons. Studies show married people have a higher net worth (at least if you stay married, and of course correlation is not causation.) However, as I read the above article I had several very non-P.C. thoughts run through my head-
“Why buy the cow when you get the milk for free?”
“Stop playing house!”
“Yea, having a roommate helps you save money.”
As you can tell, I'm not a fan of cohabitation, but that rests primarily on the moral implications of it. This is not really a religious or a political site though, so I'm going to do my best to point out only the financial implications of both short term and long term cohabitation. We probably also ought to limit the discussion in the comments section to financial topics only.
Cohabiting Only Saves Money Because You Didn't Have a Roommate Before
Let's start with the obvious. The only reason there is a big cost savings with cohabiting is that neither George nor his partner were “doing it right” previously. If they each had a roommate they were already splitting costs with, there would be no additional savings by swapping roommates. Many of the economies of scale available to cohabiting partners and even married couples are no different from that experienced by roommates. Yup, now you have two incomes to pay the rent, utilities, maintenance, and furnishings. Plus, you can ride together when you go places. I guess partners get to sell one of their beds and they don't have to pay the transportation costs to go see one another, but that's about it.
You Don't Have To Live Together To Plan A Financial Life Together
George makes a big deal out of planning their financial life together. I think it is great that he is having these discussions with his partner. I think they are very important discussions. We had them also before marriage. But we didn't have to be under the same roof or even in the same bed to have them. “Practicing” this stuff before marriage is overkill. It isn't that big of a deal to meld your finances once you are married. Like a prenuptial agreement, the main purpose of any financial agreement prior to marriage is to protect the interests of each partner from the other partner!
Pregnancies Have Profound Financial Implications
Probably the biggest financial issue with cohabitation doesn't even require cohabitation-having children. Now, kids are great; we have four little rug rats ourselves. But I've got news for George- your lifestyle barely changes when you get married. You want a big change? Have a kid. Now you have a “roommate” that is not contributing to “the pot,” who carries all kinds of additional expenses, and not only reduces the amount of time and energy you have for “productive economic activity,” but also profoundly affects the relationship between partners. In addition, you have legal, financial responsibilities after having a child that last for the next 18 years. No matter what happens with the relationship, you're going to be paying for that kiddo for the next couple of decades. Now, I know that people get pregnant without living together, that same sex couples generally don't get pregnant unintentionally, and that birth control exists and is reasonably reliable. But I think it is a very small step to go from being a “roommate with benefits” to being a “parent without benefits” (i.e. the legal protections of marriage.) This is obviously less of a big deal in a short-term cohabitation situation where you get married eventually than it is in a long-term cohabitation situation or one in which the relationship breaks up after pregnancy occurs.
[A brief side note: The whole “milk/cow” thing, while meant to be a clever and lighthearted way to deal with an awkward subject is probably offensive to many. It really refers to the fact that a relationship break-up after pregnancy has more of a financial impact on the person who is actually pregnant- she has insurance co-payments, she is the one on maternity leave, she is the one more likely to miss a promotion/hit a glass ceiling, she is the one who has to either breastfeed, pump, or (potentially) feel guilty about not doing so etc.]
Finances in Limbo
Another major financial issue with an extended cohabitation period is that the period of time in which your finances are in limbo between totally separate and fully joined is prolonged. I think in marriage it is a mistake to have “his money” and “her money” (or these days, “his money and his money” etc.) Once you're married and committed, it should be “our money.” Now, it's fine (and recommended) to have some sort of allowance where you can spend a certain amount of money without having to justify it to your partner, but all the income goes into one pot and all the expenses come out of that same pot as the two of you agree. But when you're cohabiting, you're in this limbo land. You're kind of committed to each other, but not really. And your finances tend to reflect that. You come up with some kind of agreement like George's, or one person pays the rent and the other buys the food or whatever. It ends up being kind of weird and often leads to resentment that the other person either isn't earning enough or isn't contributing enough to the household, especially when other problems in the relationship crop up. Long term relationships are hard enough without financial issues. It is best to get rid of as many financial issues as possible and that means getting out of limbo land ASAP. If you REALLY want to “play house,” have completely joint finances.
Just kidding, don't do that- the risks are simply too high. I mean, if you have joint financial accounts, that partner can clean you out and disappear, taking all the assets and leaving the debt and there is little you can do about it. It's a bit like buying a house with someone you're not married to. The transaction costs on that are way too high for such an unstable social situation. Wait until you're married before buying a house together. If one of you owns a house, just have the other partner pay them rent and keep all finances separate. Of course, have a written, signed, enforceable, “renter's contract” (sounds romantic huh) as to who pays what and how that might change if incomes change. You don't have to enforce it, of course, but if you need to, you can. If you want a joint checking account for convenience, fine, but maintain your own separate ones and have your paychecks deposited there.
Long Term Issues
There are a few more issues that come up when it comes to long-term cohabitation. First, beware if you are in a state with common law marriage. (AL, CO, DC, IA, KS, MT, NH, RI, SC, TX, UT and if it has been a very long time, GA, ID, OK, PA.) Contrary to popular belief, living together for seven years doesn't necessarily make you “married.” You actually have to hold yourself out as married by telling people you are, sharing a name, filing joint tax returns etc. But you can think of a scenario where a previous partner decided to take you to court over this. One way to protect yourself is to both sign an agreement that states something like “Jane Smith and John Doe agree as follows: That they’ve been and plan to continue living together as two free, independent beings and that neither has ever intended to enter into any form of marriage, common law or otherwise.”
Next, realize that you lose the legal protections of marriage. That includes in most states the right to make decisions for your incapacitated partner as the next of kin, but you can get around that with a health care power of attorney and a “regular” power of attorney. You also don't qualify for alimony when/if you split up, no matter what career sacrifices you made for the relationship. Divorce is financially devastating, but splitting up a long-term cohabiting relationship, especially with children, isn't usually significantly better.
There are estate planning implications also. You don't get to use your spouse's estate tax exemption for instance. You'll also need to have a will/trust specifying that your partner gets your stuff (and kids if they're from a previous relationship) if you die, otherwise your next of kin may be in charge.
There are asset protection issues as well. In my state, your homestead exemption doubles if you're married. In other states, married couples qualify for “Tenants by the Entirety” titling of their property.
Social Security also treats cohabitating couples differently. You can forget about survivor's benefits and spousal benefits.
In summary, cohabitation is a risky financial endeavor, not some financial windfall. Protect yourself accordingly.
What do you think? What financial tips do you have for cohabiters? What is the best way to arrange financial affairs for short-term and long-term cohabitation situations? Comment below!