Buying a home with a partner or moving in with a friend is often a big relationship step as well as a financial one. However, even if you get more of the closet space it shouldn’t mean you need to take on more than your fair share of debt. Co-habitation can blur some financial lines, so here’s how to deal with living together and splitting expenses.
Moving in with a partner
If you’re moving in with your partner, you’re probably considering opening a joint bank account. While shifting all your possessions to the one address is one thing, you don’t need to go all in with your finances. In many cases a joint account is the most straightforward option because some institutions will only take money for rent or mortgage repayments from one account. Having a joint account is less risky than payments being taken from your individual account and having your partner pay you their share.
Joint bank accounts are also a good idea when you have a lot of joint expenses, from rent or mortgage repayments, to smaller shared expenses like bills and groceries. Having shared money can save arguments and onerous tracking over who owes who what.
But a joint account should not be your only account—keep it for joint expenses only and pay into it from your individual account.
Money is one of the most common areas for relationship breakdowns, so make sure both of you are clear on what’s a fair contribution, complete a budget together of all of the joint expenses—rent/mortgage repayments, bills, groceries and maybe even an amount for dining out and/or entertainment—and then set up an automatic transfer each week (or whatever period works) for the amount needed to cover all these expenses. This way you can have all the rent and bills direct debited from that account, and use the joint card for groceries and other joint costs.
The rest of your money should stay in your own bank account, which you can then use to cover personal expenses, and to invest and save. Avoid getting credit cards together as any debt racked up is transferable and affects both parties’ credit rating. Develop a habit of checking through the transactions monthly to be sure no one is spending money they shouldn’t—it’s better to be safe than sorry.
None of this is to say you can’t share money with a partner, or that you shouldn’t ever trust anyone from a financial perspective. It is about being smart and having boundaries that you’re personally comfortable with. If both of you are in a similar financial position, and feel comfortable with the way you both approach money, you may even opt to go all in – and that is completely fine.
The most important thing is to understand the risks and benefits of sharing money, and to have really open conversations about all of it, ensuring that you’re comfortable with whatever decisions you make as a couple.
From partners to de facto
In Australia, after you’ve lived with your partner for two years you’re considered de facto. This could mean sharing financial responsibility for debts that are not in your name. It could also mean your de facto partner could try to attain some of your wealth, should you split up.
There’s not too much you can do about this, however developing open communication around money and each other’s financial position is a great start. Knowing the position that you’re each in, and seeking professional help and advice if either partner is struggling with debt, is a good idea.
Also consider the option of setting up some sort of prenuptial agreement before moving in together, particularly if your financial positions vastly differ. The idea of a prenuptial agreement is to determine, prior to living together, how your assets and liabilities would be split in the event you separated. It isn’t an easy topic of discussion, however if there’s enough difference in your financial positions this is a great way to protect yourself before moving in together.
Moving in with a friend
If you’re moving in with a friend or into a share house, it’s best to keep your finances separate and simply pay your share of the bills and rent each month. Always get everyone in the household’s name on all the bills, along with the rent and bond paid. That way if there is any dispute about money owing at least their name is on the bills and known to creditors. The possibility of a dent to their credit rating could be a disincentive to slack off on their contribution.
That being said, you’re all still responsible for paying the bills and if a housemate doesn’t make a payment, you’ll still potentially be liable if they refuse to pay. It’s a great idea to check each month that all the bills and rent has been paid in full, and that nothing is outstanding.
Like anything in life, however, you can’t protect yourself from every possible scenario. You do however have your intuition, and if something doesn’t seem right about your partner’s or housemate’s financial position, listen to that instinct. Ask questions and open up the conversation. If they’re unwilling to share or talk about it, and you have serious concerns they may be in a lot of debt or other financial trouble, perhaps moving in together isn’t the right move.
Sarah Riegelhuth is an award-winning, serial entrepreneur and investor in startups, having founded eight companies since 2009.
She has since successfully sold some of these businesses to focus on her role as CEO of Wealth Enhancers, a financial advisory firm specifically aimed at Gen Y. Recently they have launched a free 4-week online course for Gen Y to help them learn all he things they should have been taught about money but weren’t.
Sarah is also CEO of Grow My Team (global recruitment), and sits on the board of the League of Extraordinary Women.