Mine, Yours and Ours: Guidance for Unmarried Couples on Joint Banking Accounts, Co-Signing Loans and Buying a House

Unmarried couples face unique money issues and financial planning opportunities. For example, how do you own your assets?  There’s a shared joy from living together and a temptation to own things “together.” There are going to be expenses – some shared and others where you find yourself saying, “I’m not paying for that!”

Here are three financial planning areas for unmarried couples.

  1. Are we ready to have a joint bank account? Most individuals will find it safer to maintain a “what’s mine is mine and what’s yours is yours” attitude early in the relationship – keep your bank accounts, investments, credit cards and debt separate. Uncertainty and finances create stress in relationships. Until you develop trust, are comfortable in talking about goals and expectations, and work closely as a team, it makes sense to keep financial accounts separate. Even after the relationship blossoms and you’re finishing each other’s sentences, having separate bank accounts can save you from squabbles.

    An important discussion is deciding how to split joint expenses and who pays the bills. Some couples split expenses 50/50. Others pay for things in proportion to their income – I’ll pay A and C and you’ll pay B and D. It becomes a matter of communication and compromise. However, in other cases it may make sense for couples to contribute monies to a joint account to pay certain bills.

    The key advantages about joint accounts are convenience and building trust about your shared finances, spending and saving habits. However, there are disadvantages. There’s a loss of privacy – you both see what the other is spending. Second, your finances could be at risk if one partner is financially irresponsible. If one has debt problems, his or her creditors could go after a joint account regardless of who contributed funds. And third, either party can clean out that account without the other’s permission. You may want to limit the balance of that account to a month or two of expenses.

  1. Thinking twice before co-signing on a loan. This includes co-signing a lease, applying for a joint credit card, or taking out a mortgage as an unmarried couple. It might sound like a good idea to help out your partner with bad credit. However there are many reasons not to co-sign a loan per Bankrate.com. It’s high risk and low reward. The individual with a bad credit score has little to lose and you assume all the risk if the loan isn’t repaid timely. Your ability to get credit when needed may be restricted due to excessive credit. And life happens – what if the other party loses their job or you break up? The banker’s not going to care, and you’ll get a call. There’s a reason why a 200-ton sculpture of black marble at the Bank of America Plaza at 555 California Street in San Francisco is also known as “The Banker’s Heart of Stone.”
  2. Purchasing a house. Weigh your options before making the plunge in three primary areas. First is title of ownership. It might be single ownership simply because one party has more substantial assets; or it can be joint tenancy or tenants in common (TIC). A major distinction upon death – if joint then the other party inherits, and if TIC the decedent’s ownership will pass by his or her will or trust. Second is how you split the costs including down payment, closing costs, utilities, taxes and repairs. If it’s single ownership, why would the other party pay property taxes? In that case, he or she pays “rent.” And finally, negotiate and write down your break–up plan for the house. Who gets to keep the house? And what are the buyout terms?

As young relationships blossom, we hope couples grow together personally and financially. However, life throws curve balls. Plan accordingly. It may be prudent to have written agreements, and get legal advice, especially when the stakes are high.

Good luck.

You can also view this article on Reno Gazette Journal.

About Brian Loy

Brian Loy writes insightful and inspiring articles about the ever-changing world of personal finance and the global trends that affect the risk and return on investments and shape the financial- and retirement-planning process.
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