Money and your relationship

It’s easy to let your heart make decisions in a romantic relationship but it’s important to take the time to talk about financial topics too.

Finances for couples: Six essential talks

Money may be the last thing on your mind in the exciting early days of a relationship, but it can make sense to think about practical matters before taking any big steps like moving in together. While each country has different requirements, married and domestically-partnered couples generally have legal rights and protections that non-married couples who live together don’t have. If you don’t plan to marry, you may need to take extra steps to establish your rights and protect what you build together.

Income and debt

Talking about how much you earn can be a sensitive topic. And so is debt—like mortgages, credit cards, other consumer debt, or car loans. But, in order to make decisions together, it’s important to be clear about how much money you have coming in and how much goes out to pay debt. Income could potentially include more than base salary. In some cases, you may want to consider the value of other types of compensation, for instance bonuses and allowances. Evaluating your financial pictures holistically can help you decide how to split shared expenses and save for the future.

Splitting expenses

Decide how to run the finances in your household early on. It can help smooth monthly bills and provide consistency as you plan for the future. Consider talking about financial responsibilities and bill payment to come up with a strategy that works for you. This should include a discussion on sharing joint accounts or keeping them separate.

Saving for the future

When married couples divorce, part of the divorce settlement often involves splitting retirement accounts. In most countries, unmarried couples have no legal mechanism to help ensure an equitable split.

It may be important for each person in the relationship to save for retirement on their own. But it’s also important to talk about saving and investing. Consider discussing how much of your income is being saved for retirement—and how much you may be able to save for future goals like vacations, buying a house, a wedding, or having children. It should include consideration about whether one of you will temporarily step back from working to build a family.

Ownership of assets

Consider the assets each of you bring into the relationship. It may also be helpful to talk about what would happen to joint purchases in the event of a breakup. Another consideration may be gifts or inheritances one partner receives. In some cases, bonuses or equity compensation may be on the table.

Here’s another potential wrinkle: Some countries recognise common-law marriages and may impose community property law. That means that even if a couple doesn’t get “officially” married, after living together for a certain period of time, they are treated as married by common law. If things don’t work out, assets acquired during the "marriage" would be split jointly at the time of separation, regardless of the legal ownership at the time. An attorney and/or financial advisor can best explain the laws that may apply in your country.

“What if…” scenarios

Marriage grants certain rights if one partner gets sick or dies; living together may not. It could make sense to get some legal documents in place to help protect each other in a worst-case scenario. For instance, owning property and accounts together can help ensure that no one is locked out if one partner dies suddenly. Jointly titled property, bank accounts, and investment accounts will generally pass to the surviving owner; once again, a lawyer and/or financial advisor can help you with this.

Consider a written agreement

It may be a good idea to consider putting together a written agreement, similar to a prenuptial agreement. It could include anything from bill payment to the division of property in case things don’t work out. To help ensure that both parties are protected and that any tax implications have been considered, it may be a good idea to check with a lawyer or financial advisor too.

Legal documents couples should consider

While the legal and tax environments in each country differ, the following general principles should be considered and adapted to your country of residence:

A living will outlines a person’s wishes for treatment if badly injured or ill and they are not able to make decisions for themselves.

A power of attorney lets you choose an agent to make healthcare and/or financial decisions and pay bills for you if you can’t.

A will is a legal document that can set forth your wishes on such topics as the distribution of your assets and the care of any minor children when you die.

Guide to combining finances (or not)

Splitting expenses and saving for shared goals can be key financial pieces of a cohabiting relationship. There are essentially three ways to go when it comes to coordinating your money: keeping separate accounts and finding a way to equitably divide shared costs and savings; partially combining finances to cover household bills, shared expenses, and shared savings; and completely combining finances and using joint accounts for spending and saving (except for retirement).

Entirely separate

+ Each person gets to keep their own money and manage it.

- It takes ongoing effort to make sure expenses and savings are split equitably.

Partially separate/partially combined

+ Household bills and joint expenses can be budgeted for; easy to track payments for joint expenses; partners have some freedom for personal spending and saving.

- Requires some calculations upfront to understand how much money each partner should contribute to the household finances.

Entirely combined

+ Convenient to pay bills and track spending and saving; owning bank and investment accounts jointly can be an easy estate planning move.

- Spending habits may not always line up; one partner may have more debt; can be messy to untangle.

Paying off debt as a couple

Acting as a team to spend less than you earn and prioritise debt repayment can help you get back to even financial footing. Before putting everything into your debt paydown plan, consider reviewing your saving.

If your company provides a retirement savings plan and get a match from your employer on your contributions, try to save at least enough to get the full match from your employer—it’s like “free money.”

To make sure you’re able to keep prioritising debt payments over time, set aside some cash to cover emergencies. Then consider tackling debts in a methodical order.

High-interest credit card balances

If you have multiple credit card balances, you could consolidate them into one loan or transfer the balance to one card if you can get a good interest rate.

Alternatively, you could use the “snowball” or “avalanche” method to put extra payments toward one balance at a time (while paying the minimum or more on other cards). With the snowball method you would start putting extra payments toward the lowest balance card to get it quickly paid off. Once it’s paid off, you can direct the payments that were going to that card to the next lowest balance along with any extra payments you can afford.

With the avalanche method, you would start aggressively paying off the card with the highest interest rate. After you pay it off, you can put those payments toward the loan with the next highest interest rate. This method can save you the most money in the long run because you’re working away at the most expensive loans first.

Government student loans, car loans, and mortgages

Pay the monthly minimum on student loans if you have them, car loans, and mortgages while paying off higher interest debt. These loans may have lower interest rates, and may some offer tax benefits depending on where you live. That's why it can often make sense to make only the minimum monthly payments on them, and focus your remaining budget on those higher interest rate loans.

Setting short- and long-term financial goals

Goals don’t have to be financial, but many of life’s big goals do tend to have a financial element. Take holidays, for instance. Taking a trip together can be the first big test of a relationship but getting there may take some planning and saving.

Some big goals that couples plan for together often include buying a house, a wedding, or starting a family. In the long term, couples may save for a child’s education or plan retirement saving and investing as a household.

Acting as a team and getting things accomplished can strengthen your relationship and help you grow together. It can also emphasise your shared values and goals. After all, you only have so much money and time. There’s an opportunity cost associated with pursuing one goal over another—so setting goals with your partner is a way of affirming your commitment.

Select Language

Money and your relationship

You may also like: