Don’t make any moves before consulting your finances.
Millions of Americans in romantic relationships move in together as an alternative to tying the knot. But while money or debt can drive couples to shack up, a new study published in the Journal of Financial Planning suggests that cohabitation has long-term financial implications: People who cohabited had less wealth than those who’d never lived together before marriage. And people who were single but had previously lived with someone more than once had even less favorable financial outcomes.
One-time cohabiters had $26,927 less net worth than those who never cohabited, the study revealed, and cohabiters who’d lived with someone two or more times were worth $33,809 less. Meanwhile, married people who had cohabited once had $16,340 less, and married people who’d cohabited two or more times were out $18,265.
The number of U.S. adults in cohabiting relationships hit 18 million in 2016 and about half of cohabiters are younger than 35, according to a Pew Research Center analysis.
So why can cohabitation be the kiss of financial death? There’s often instability and lack of legal protection when an unmarried couple resides together, the study suggests. Iowa State University researcher Cassandra Dorius concluded in the study that cohabiters tend to engage in short-term relationships in contrast to married couples who, if and when they do split, benefit from legalities that split assets equally.
“One possible way to help cohabiters feel more confident about growing wealth with their partner is to develop cohabitation agreements, similar to prenuptial agreements, that outline who the couple will divide their assets should the relationship end,” Dorius told Moneyish.
The study also outlines how cohabiting and married couples spend their money differently: While married couples are more likely to invest in real estate and retirement, cohabiters tend to spend on things like furniture, cars and boats. “We tend to spend money on things that bring joint utility, like vacations, boats, furniture and artwork,” Sonya Britt-Lutter, an associate professor of personal financial planning at Kansas State University who co-authored the study, told Moneyish. “When we leave the relationship, it’s normal to purge and start fresh, so it’s hard to come out ahead financially from a cohabitation that’s ended.”
Robin Lalley, a family law attorney at Sodoma Law, advises couples to have a real conversation and answer the tough financial questions, like “Can I afford life on my own without this other person?” She also suggests exploring a cohabitation or prenuptial agreement.
For Lindsay S., a 27-year-old in Los Angeles, a cohabitation agreement would’ve come in handy when her boyfriend of two years moved out without notice. “We had been splitting the rent, but because he made more money, he paid for the utilities and for our dog’s daycare twice a week,” said Lindsay, who asked not to be identified by her full name. Once he left, Lindsay was forced to pay the rent in full and had to ask her parents for help. “I spent about $5,000 for a storage unit, to ship his stuff across the country, and pay the full rent the month he broke up with me,” she said.
When 33-year-old Michelle S. broke up with her boyfriend of nearly a decade, she moved out of the apartment they shared and left all furniture and household items behind. “The guilt of the breakup cost me financially because I felt like I couldn’t break up with him and take the bed, even though it was originally mine, since I was the one leaving,” Michelle told Moneyish.
Elizabeth S., 34, has lived with two different boyfriends in the last decade. “My first ex was less than thrilled when we broke up, so when I gave him his space to move out, he basically took everything,” Elizabeth said. The first year was financially challenging because she had to take on the full rent and buy a new TV, bed, couch, rug and more, she said, estimating that the breakup cost her about $25,000.
The second time around, Elizabeth’s breakup was mutual and the move-out was financially respectful. “We decided together what he would take, and he paid his share of rent for the next month,” she said. “I spent about $7,000 on a couple months of unanticipated double rent, a few new pieces of furniture and art.”
To avoid getting yourself into a financial pickle, Britt-Lutter said, “Don’t spend all of your resources on current needs and wants. Even if you aren’t contributing to a joint financial goal, make it a priority that you’re both allocating resources to each of your long-term financial goals, most notably retirement.”
Even though Elizabeth has been burned in the past, she’s still thinking about moving in with her current boyfriend. If there’s anything she’s learned from her past experiences, she said, “I’d say overall, don’t split costs on any physical things. If you like it, you buy it. And then you get to keep it post-breakup.”