Before Moving In Together, Have a Money Talk

Considering living with your significant other? Make sure you’re both on the same page financially before signing on the dotted line.

Whether you're making the move to cut down on high living costs or to take the next step down the path of a long-term commitment, you should have a serious discussion about your finances before sharing a residence with your significant other. A frank conversation about both of your financial situations and how you will divvy up monthly expenses and share major purchases can help alleviate hesitation a couple may have about merging their lives physically and financially -- or bring to light some red flags, such as bad credit, suggests Marshall Miller, co-author of Unmarried to Each Other: The Essential Guide to Living Together as an Unmarried Couple.

Here are several expert tips on how to address these key issues with your boyfriend or girlfriend before moving forward.

Assess Each Other’s Spending Habits

Moving in together and commingling funds is a serious decision that can have potentially damaging effects on your credit should a breakup occur. For example, if your ex stops paying his half of a bill that your name is attached to, it could show up on your credit report and lower your credit score if it goes to a collection agency. That’s why it’s important to be aware of your partner’s spending and saving habits before moving in together, says Debra Neiman, a certified financial planner based in Arlington, Mass., and co-author of Money Without Matrimony: The Unmarried Couple’s Guide to Financial Security.

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If your mate has some money habits you can't accept, it's better to find out about them sooner rather than later, such as after you're living together or after you break up and have to deal with divvying up final bill payments or breaking a lease. “Cohabitation may not be a smart choice if one person is really financially irresponsible -- has bad credit, has filed for bankruptcy or has been foreclosed on -- and shows no signs of improving,” Neiman says.

Be Upfront About Your Financial Status

It can be an awkward topic to bring up, but couples seriously considering moving in together should know each other’s credit scores, advises Kevin Reardon, certified financial planner and owner of the Pewaukee, Wis.-based financial planning firm Shakespeare Wealth Management, Inc. You don’t have to make a big deal about it, he adds: “It could be a simple conversation where one person says, ‘Hey, we’re going to sign a lease together. Is there anything on your credit report that I should be aware of?’”

This is important because a potential landlord will run a credit check on you and your partner to help assess whether you’ll both be able to pay rent on time each month. If there are any serious blemishes on either record, that could affect your ability to get approved for a lease.

Talking it out was vital for Nikkia Harrington, 33, of Washington, D.C., who moved in with her longtime boyfriend, Edwin Banks, Jr., 33, last year. Harrington says that before making the final decision to live together, they had an in-depth discussion about their credit histories. The couple paid special attention to the debts they each already had, which were a combination of student loan and credit card debts. “We created a [bill payment] schedule and did our best to keep it up, as well as doubled up on payments when funds allowed,” Harrington adds. This helped the couple keep track of each other’s debt and reduced their monthly financial obligations once they were living in the same household.

Discuss Whether Opening a Joint Bank Account Is the Right Move

Opening a joint bank account that each person contributes and has access to is easier for some people when paying joint bills. “From the joint account, they can pay their bills and do ‘joint’ things, such as taking vacations or saving for a house,” Reardon says. He adds that they should continue to maintain separate accounts to use however they like.

For Aimee Pringle, 30, and her fiancé, Jesse Peoples, 32, of Washington, D.C., who bought a townhome together in 2010, this strategy has worked out well. “We opened a joint account just for household expenses,” Pringle says. “Both of us put our half of the budgeted expenses in the account at the beginning of the month, and the bills are paid from there.”

The couple also decided to split their bills evenly, as opposed to divvying them up based on income. “Halving the bills was best for us and the level of ownership we each wanted to take for the life we were building,” she adds.

On the flip side, if a couple decides they’d rather not mix their money before marriage and would rather pay bills separately, they should have monthly money huddles scheduled around bill payment time, recommend financial experts Bethany and Scott Palmer, who are known as “The Money Couple.” For an hour each month, they can sit down together, lay out the bills each person is responsible for and discuss that month’s expenses or any upcoming financial obligations, Bethany advises. This helps establish a checks-and-balances system that ensures that each person is paying his or her designated bills on time. (See our story: Should You Use Separate or Joint Accounts?)

Put It In Writing

Once you are approved for a lease, it is in both parties’ best interests to make sure their names appear on the lease, Reardon says. If only your significant other’s name is listed, “you leave yourself open to being thrown out on the street at a moment’s notice [in the event of a breakup] . . . Forget about having 30 or 60 days’ notice,” he says.

A couple might also consider drafting a cohabitation agreement to clearly state on paper what they’ve agreed to. Pringle and Peoples chose to write one. “We have an agreement for what happens if the ‘unthinkable’ occurs,” Pringle says. “It wasn’t fun, but I think it was necessary.”

Cohabitation agreements are a smart move, but they don’t have to be extensive for younger couples with few assets, says Celia Rechtshaffen Reed, a lawyer with Gillespie, Shields & Durrant, in Phoenix. Such agreements should include anything that’s financially relevant to a couple’s everyday lives, she adds, such as how much each person pays for rent and utilities, whether one person is supporting the other financially, and whether there’s a joint bank account and how much each person contributes to it. “If the relationship abruptly ends, having a cohabitation agreement takes the emotion out of a situation that should really just be about dollars and cents,” Reed says.

You can seek out the help of a lawyer in writing a cohabitation agreement, but a basic agreement can cost up to $2,000, she adds. For twentysomethings with limited funds, writing a cohabitation agreement on your own may make more financial sense. Just be sure to get it notarized. If you end up in court due to an ugly breakup, having “a notary seal says that both parties willingly agreed to those specific terms,” Reed says. That could mean the difference between getting reimbursed for money spent on the other person throughout the duration of the relationship (for example, helping him or her pay for grad school) or walking away empty-handed. (See our slide show: 8 Reasons Roommates Fight About Money.)

Andrea Browne Taylor
Contributing Editor

Browne Taylor joined Kiplinger in 2011 and was a channel editor for covering living and family finance topics. She previously worked at the Washington Post as a Web producer in the Style section and prior to that covered the Jobs, Cars and Real Estate sections. She earned a BA in journalism from Howard University in Washington, D.C. She is Director of Member Services, at the National Association of Home Builders.