Sometimes, marriage isn’t in the cards for many who live together. Remarriage isn’t always an option due to financially motivated reasons. Often it can be less expensive to live with a roommate. Whether you have a romantic partner or a roommate, let’s take a look at what you’ll want to discuss with regard to money when it comes to living under one roof.
Yours, mine, or ours?
Couples who are not married might share bills or bank accounts. The most important issue to discuss is what is yours, what is theirs, and what belongs to the both of you. Joint bank accounts, for example, do not discriminate between who is on the account. What one person deposits, the other can withdraw. This might become a problem if you do not want your partner and/or roommate to have access to those funds. It might be better to have your own account if that’s the case.
When you hold a joint account with another person, it is likely a joint tenancy. This simply means the “tenants” on the account each have equal rights to the money in the account. In other words, each tenant is a joint owner of the money in the account and is able to withdraw any, or all, of the funds at any time. One of the most important things to know about a joint tenancy is what is called the “right of survivorship”. If one of the tenants dies, the other is entitled to all the money within the account, whether or not they were married.
This is especially important to know if you have the right of survivorship in a joint tenancy because this right supersedes a Will. If Dan and Julie have a joint tenancy and Dan passes away, Julie is entitled to all the funds in the account, whether or not Dan left all his assets to his children. This is one example of why it is so important to ask your bank how your joint account is titled and whether or not the joint tenants have the right of survivorship. Keep in mind that monthly account statements often do not make the ownership rights clear.
Shared or Separate Expenses?
Committed couples are more likely to split more kinds of expenses than roommates but each arrangement is as unique as your relationship. If you’re living with a roommate, you’ll want to have a discussion about expenses and how these things will be handled BEFORE moving in. Even with committed couples, you’ll want to make a distinction between what you pay for versus what they pay for. This agreement can always be revised as needed if and when life circumstances change, such as a promotion at your job, a salary increase, or losing a job.
Some bills will not be paid equally down the middle. Consider this, if an expense benefits only one person then they foot the cost of that item or service. If your partner or roommate wants premium channels on cable TV or speedier Internet for gaming, then they will pay for the increased cost for the upgraded service themselves.
Here are some examples of shared expenses you’ll need to discuss:
Utilities – including electricity, phone, water, trash, etc.
Discretionary – Internet, cable/streaming entertainment
Basic needs – including clothing, household items such a furniture
Groceries & Dining – both at the home and dining out
Insurance – including car, home, or even health insurance (some employers now offer coverage for unmarried couples/domestic partners)
We recommend settling up once per month to avoid arguments and tension over the unpaid debts between parties. A simple worksheet ought to do the trick. If you don’t want to deal with the hassle of tracking and settling up each month? A great way to easily calculate what you and your partner or roommate owe is to use an app such as Splitwise or Splittr. Simply input your information within the app and you’ll know what each of you owes. To read more about apps such as these, Investopedia has an article outlining all the various apps available for splitting expenses.
Roommates are Not Off the Hook
While keeping expenses with a roommate separate might seem like a no-brainer, there are still things to consider when you’re living with someone. Quite often, parents of college students pay for several expenses for their children, including their monthly bills. You’ll also want to know who is on the lease. Who is ultimately responsible for rent to be paid? Sometimes it’s the parents who bear that responsibility, even if their child is the one making payments.
If the lease is in your name, it will impact your credit if payments aren’t made in a timely manner. Make sure your child is aware of this before you sign their lease. In the same way, you’ll want to know who’s name is on the utilities? What happens if your roommate (or your child’s roommate) cannot make that month’s water bill or electric bill? Or their half of the rent? How are these issues handled?
Before you move in, regardless if you are committed to one another, make sure you sit down and have a discussion about money before moving forward. This will save you an enormous headache down the road.
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