Today, it’s common for unmarried romantic partners to live together. Some people even insist that this “trial run” is the best way to get to know a potential life partner before committing for the long haul.
In fact, the number of American adults living with their unmarried partner is on the rise, increasing by 29 percent since 2007 to reach 18 million in 2016, according to Pew Research.
Some cohabitors may view living together as a way to save money, reduce rent and pool incomes, but their living arrangement may not work to improve their financial health, according to a recent study from Iowa State University published in the Journal of Financial Planning.
“Cohabitors are accumulating less wealth,” says Cassandra Dorius, the study’s co-author and assistant professor of human development and family studies at Iowa State.
The research, which analyzed data from the 1997 cohort of the National Longitudinal Survey of Youth, found that cohabitors have lower net worth and have accumulated fewer financial assets than married couples who’d never cohabited, with the gap in wealth increasing with the number of times a person has cohabited.
When compared with married, never-cohabited respondents, first-time cohabitors had $26,927 less in wealth, according to the survey. Serial cohabitors had $33,809 less wealth than those who were married and hadn’t cohabited. Married people who had cohabited two or more times before marriage had $18,265 less in wealth.
Dorius notes that unmarried couples living together may focus their financial energies on accumulating nonfinancial assets, such as furniture, boats, artwork and cars, perhaps to build a home together. Married couples, on the other hand, accumulate more financial assets, such as stocks, bonds and a primary residence, improving their net worth.
[See: 7 Signs Your Romantic Partner Is Financially Unstable.]
While these findings look bleak for unmarried, live-in couples, experts say they shouldn’t dissuade you from living with a partner outside of marriage.
For one thing, the financial outcomes of cohabitation are impacted by a range of factors: the reason you’re living together, your financial health pre-cohabitation, your family’s financial background. “We don’t really know from this one snapshot in time if cohabitation makes people poorer or if poorer people are drawn to cohabitation,” says Amanda Miller, co-author of “Cohabitation Nation: Gender, Class, and the Remaking of Relationships” and associate professor of sociology at the University of Indianapolis. “We definitely can’t talk about cohabitors as a monolithic group because they’re not.”
Dorius agrees. “People cohabit for very different reasons, and those would have direct implications for their financial well-being,” she says.
For example, Miller notes, moving in with someone you eventually marry as a way to save money for a down payment on a house has different financial repercussions than moving in with someone out of economic necessity, say, because you lost a job and can’t afford your rent.
The takeaway? In order to limit any financial downsides to cohabitation outside of marriage, it’s important for couples to take stock of their reasons for moving in and keep an eye on their financial behaviors as they shack up with their partner.
Here’s how experts recommend protecting your finances when cohabiting.
[Read: 3 Financial Challenges of Having a Child Outside of Marriage.]
Have an honest conversation about your finances. Cohabitation is common these days, but it doesn’t mean you should move in together without carefully considering your long-term future and financial compatibility, experts say.
Before they move in, lovebirds need to know the same financial statistics about their partners that they would note if they were getting married, says Stephanie Genkin, certified financial planner and founder of My Financial Planner LLC in Brooklyn, New York. Does this person carry lots of credit card debt? Do they budget or are they spender? Consider whether these characteristics will be helpful in your own financial life. “You have to be aware of who you’re moving in with,” Genkin says.
You should know your potential cohabitor’s salary, his or her student loan debt and typical monthly expenses, not just so you can divvy up living expenses fairly, but because you need to make an informed decision about your living situation.
“Before you sign that lease together, decide exactly and specifically how you’re going to divide things up,” Miller says. “Equal might not be fair.” For example, a high earner may opt to shoulder more of the rent than a low earner.
Keep an eye on your long-term financial priorities. Your relationship may not last, but that doesn’t mean you shouldn’t plan for life beyond it, experts say. Uncertainty about long-term plans may be a reason cohabitors invest less in nonfinancial assets such as stocks and bonds or a primary residence. They may also be unsure of how they’d split those assets if the relationship were to end. “Cohabitors may feel more uncertain about the future, so it may make them less incentivized to invest in it,” Dorius says.
Don’t let the excitement of building a home with your honey cause you to lose sight of your long-term financial plan. And don’t overspend on furniture, decorations and other cozy comforts at the expense of your retirement account. Check in with your financial advisor, Dorius says. You can let him or her know about the change in your living situation and devise a plan to maintain a focus on your financial future, no matter the outcome of the relationship.
[See: 10 Ideas for Dating on a Budget.]
Keep your finances separate. Don’t feel the need to start combining finances and co-financing big-ticket items. “Don’t merge your finances, even if you’re madly in love and going to be together forever,” Genkin says.
In today’s world of Venmo, PayPal and other digital bill-splitting resources, Genkin says, there’s little reason to start opening up joint accounts. As the relationship progresses, some couples may choose to share a checking account from which they pay shared expenses, such as utility bills, rent payments and food purchases, Genkin says, but combining retirement accounts, debt payments and primary bank accounts is a move best left for when you’re married or more formally committed.
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How Living Together Before Marriage Impacts Your Finances originally appeared on usnews.com
