Financial factors to weigh before cohabitation or marriage

By Joseph Mateja

The decision to move in together or get married depends on many factors, not the least of which are financial.

Either way, pooling your money in a two-earner relationship can be convenient, saving you on living expenses, paying off debt faster, and building up your group savings. But how much do you agree on financially? A shared mindset is important for the long-term success of the life relationship or marriage. We all know the story of how differences in money confuse couples and can cause them to break up.

Joseph Mateja

Some couples decide, whether or not they get married, to separate their finances. They can agree to contribute some expenses, but the rest of their individual income is at their discretion. Other considerations when choosing between marriage, cohabitation or living apart include the potential benefits of filing joint or separate tax returns as well as being covered by the other person’s benefits, which may or may not be offered to domestic partners.

If you are considering getting married or living together, it is important to discuss this with your partner. You may also want to consult with a financial professional, alone or together. One thing you need to keep in mind, no matter how optimistic you are about your relationship: what if it doesn’t work out? So what are the financial ramifications?

Whether or not you decide to get married, you both need to know where and how to invest, and whether or not to name each other as beneficiaries of investment accounts and insurance policies. Here are some other scenarios to think about:

Combine expenses — but not all finances — when you live together.

When an unmarried couple lives together and each partner works, combining household expenses and covering them together makes sense. Set up a monthly budget that includes household bills, such as rent, utilities, and food. But if there is a significant disparity in monthly income between the partners, say $500 to $1,000 or more, it is fair to allocate common household expenses according to the percentage of income each earns, rather than by equal amounts.

Other expenses such as each person’s individual obligations – car loan, insurance, student loan, credit cards, etc. – must be separated and paid by the person owning these invoices. This approach allows everyone to protect their credit. Combining finances can get complicated. An advisor can help you understand the many ramifications of consolidating finances and provide you with questions to ask yourself that you may not think about on your own.

Taxes: Penalty or marriage bonus?

The infamous “marriage penalty” tale is that a higher tax bill sometimes arises when a dual-income couple files jointly with the IRS, as opposed to filing as separate individuals. But in other cases, being married can yield a tax bonus, where couples pay less tax due to their marital status. This is especially true for couples with a stay-at-home spouse, or where there is a large disparity between the couple’s individual incomes and their combination on a joint filing may lower some of the income of the higher income in a lower tax bracket.

However, couples with one or more student loans may have to pay a higher monthly minimum if these borrowers are subject to an income-based repayment plan. For example, if you get married and file a joint tax return, your spouse’s income will be included in calculating the amount you owe. This could lead to a substantial increase in monthly student loan repayments. One option may be to file separately, but then you would lose the tax benefits of filing jointly.


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Too much debt: A potential deal-breaker.

Couples considering marriage may see one or both partners’ debt as too big of an obstacle to overcome without causing major stress. This is especially true if one partner brings a lot more debt than the other. But it can be comforting to know that any debt incurred before marriage stays with the original debtor and is not extended to the new spouse.

However, too much debt by one or both partners could get in the way of applying for a loan, such as a mortgage. Also, be aware that debt accumulated after marriage is considered shared debt in common property states (Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, and Wisconsin).

Impact on health insurance.

When you are married, the IRS does not tax your health benefits, or the benefits your spouse receives under your company plan. But if you provide your domestic partner with health care benefits, the portion that applies to that person may be taxable to you. So if each partner’s employers are paying for health coverage, they better keep their policies separate.

Financial protection.

There is more financial protection built into a marriage than when two people live together unmarried. If you divorce, a court or legal agreement divides the assets. Each party has some protection and a chance for a fair distribution of marital property.

But when two unmarried people living together separate, the legal process for dividing property is not so clear. A non-spouse would have no inherent right to the property of the other person. The exception to the rule are the few states that allow common law marriage.

Rent when your partner buys.

Unmarried couples considering living together should seriously consider the ramifications of one person landlord and the other landlord/partner tenant, in case the relationship does not work out. For example, if one partner buys a house, the other can probably pay rent for the mortgage (the rent they would otherwise pay to live apart). However, not only does the tenant have no right to the equity in the home, they also lack the protection of a tenancy agreement.

In other words, if the couple separates, the non-owning spouse is obviously the one moving out, but there should be an agreement on how long the tenant can stay there while looking for alternative accommodation. The landlord, on the other hand, may struggle to meet the mortgage payments without that extra rent money.

When unmarried partners buy a house together.

The house is owned by the person whose name appears on the legally registered deed, so make sure both parties are named on the deed. Co-ownership with right of survivorship and joint rental are the two basic ways to share a title with other people. If both partners apply for the mortgage, both are responsible for paying it even after a breakup. If both are on the deed as owners but only one is on the mortgage, that person remains responsible for the mortgage even though they have moved.

From a financial perspective, the best way forward is for couples to openly, honestly, and frequently discuss their financial concerns, obligations, and goals. Whether they decide to get married or live together, a good relationship is built on communication and trust.

About the Author: Joseph Mateja

Joseph Mateja is a Representative Investment Advisor for Rooted Wealth Advisors. He specializes in life insurance, retirement planning and corporate 401(k) contracts. He has worked in the financial industry for 12 years and has Series 6, 26, 63 and 65 exam certifications.

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