Cohabitation. A rather functional and uninspiring word for what is, essentially, an exciting time for any couple. Moving in together can certainly save you both money; after all, one household is cheaper than two. But what other implications will it have on your financial situation?
Before we go any further, it’s important to discuss the difference between living together and marriage. There is a common perception that, once a couple have lived together for a certain amount of time, they are considered common-law spouses in the eyes of the law. This is a myth. The law does not define you as married just because you have been living together. Even if it is for 10 years. As such, partners living together don’t enjoy protection should something happen to the other. This is an important distinction to acknowledge before you sit down and discuss your finances.
But whether you are married or simply living together, there’s something about discussing finances in the bedroom that seems distasteful and even unromantic. But money is one of the main reasons why couples fight. So, if you’re thinking of moving in with your partner, remember that it’s not as simple as pooling your money and splitting everything in half. We list some of the lessons real couples have shared, to help you learn from their mistakes and successes.
Have the discussion
Most financial experts agree that being able to talk about finances with your partner is a good start if you want to avoid future friction. Have the conversation about finances before you move in together. Even if the conversation is as simple as “who’s going to pay for the food?”. This will lay the groundwork for future conversations.
Andrea and Victor moved in together 10 years ago. While they were serious about each other, they didn’t know where their relationship would lead, so they made the decision to keep their finances simple and separate. Victor paid the bond, while Andrea covered the groceries and utilities. Andrea also refused to take on any joint debt as it could get very complicated should the relationship deteriorate for whatever reason.
As things got more serious between them, the couple started having different conversations. They discussed having a joint bank account, for example. “We are both independent and like to be that way with our finances too, so a joint bank account really wasn’t for us,” explains Andrea. “I want to be able to buy something for myself or my family without consulting or having to justify it. I know my finances well and know what I can afford and when.”
Today, they are married and although they now have joint debt like their house, they still keep their bank accounts separate. “I know other couples who run everything jointly and this seems to work for them,” admits Andrea. “I do think that, sometimes, a joint approach may make decisions more unified, preventing one party from typically making all the decisions regarding holidays, appliances, and other big household purchases. But for us, the independence outweighs any other potential benefits.”
People don’t like to talk about finances because they often think it’s inappropriate or too personal. When you’re living together, it’s important to be honest and upfront about your finances. “Be transparent about your finances, even if you don’t have joint accounts.,” says Andrea. “Be aware of what your partner earns and their expenses. Do not assume that because you got a salary increase, they did too. I think couples need to understand the financial pressures the other person may be facing at certain times. Victor and I earn similar salaries but in some months, he may have more expenses than I do, or vice versa. When this happens, we try to discuss it and find a middle ground.”
If you set up a policy of financial transparency right from the start of your relationship, you will both feel empowered and in control of your financial situation. This can have a powerful impact on long-term relationships.
When Chris and Deborah got married, they decided that Chris would manage all household expenses. Deborah abdicated all responsibility and they never talked much about finances. They had been married for 30 years when Chris passed away. Deborah quickly realised that she had no idea how to handle her own finances. She had to get a crash course in financial planning 101, while trying to get used to living alone.
When you move in with someone, you don’t know, for sure, whether it will be for 2 years or the rest of your life. But at various points in your joint journey, it’s important to reassess the situation, make joint decisions and set things in motion that protect you both as you go forward.
Back to Chris and Deborah. When Chris died, he didn’t leave a valid will. This is known as “intestate succession”. Dealing with the death of a spouse is hard enough, but when that spouse doesn’t leave a will, while you and any children will be entitled to inherit eventually, the process is much more complicated and drawn out. Deborah, for example, had to wait over 2 years before the estate was settled. And the legal fees were much more.
When you do write a will, ensure that someone close to you knows where it is. Too often, family members are left frantically hunting for it and, in worst case scenarios, never find it. If you want to keep its contents private, many service providers, such as Absa Trust, offer the facility of the safe keeping of original Wills. Taking into account the confidentiality and importance of a Will, it is advisable that a person utilises this service offering. This will ensure that it is safe, but private. Absa Trust can also advise on the drafting of your will so that it accurately reflects what you want to do. To find out more, click here.
But death isn’t the only way that couple’s separate. Divorce can have equally significant ramifications on joint finances. There are three marriage contracts that apply in South Africa – in community of property, out of community of property and out of community of property without accrual. The last refers to couples who draw up an antenuptial agreement. Now, many romantics feel that this is dooming their marriage to failure but, by choosing not to sign an agreement, you are choosing one by default. Divorce is an emotional time, by agreeing up front with your partner how you would like your assets protected in the future, you save yourself a lot of stress and heartache. To read more about this, visit https://blog.absa.co.za/whats-mine-is-mine-the-benefit-of-pre-nups
Don’t sweat the small stuff
When you’re sharing expenses, it’s not always easy to split the bills fairly. If you are responsible for handling expenses such as utilities or food, you may occasionally pay more than expected as the amounts may vary each month. Even if you agree to split everything in half (which is a logistical nightmare), one of you could end up writing things off just because it’s easier, this can often lead to resentment.
“I am not sure our payments are always fair,” says Andrea, “but we try to understand where the costs are sitting, and then supplement each other if need be.”
If your intention as a couple is to be fair about payments and you ensure that communication channels are always open, it will be easier to ensure the bills are evenly split over a period of time.
Keep talking and stay flexible
Things change all the time. Financial circumstances are no different. Perhaps, when you first moved in together, one partner was earning less than the other, so you agreed to split the bills 60/40. Then, as time went by, the salaries became more evenly matched. You need to be able to talk openly about these changes without getting defensive as this may create resentment. Perhaps you want to buy a big item like a new car, and the cost of it will impact on what you’re able to contribute to the household. By talking about it openly, you can find ways to make it happen without being unfair to your partner.
Last bit of advice
There are many saving opportunities that happen when you move in together. Don’t squander this opportunity to make smart decisions with any excess cash you may have. “My mom had a great bit of advice for me when we first started out,” says Andrea. “She said to try and run a household based on one salary, that way you will have the second salary as relief should anything happen to the primary salary. You can then use it to improve your lives, and not just survive the bills.
Disclaimer: The advice contained on this blog is for general purposes only and does not take into account individual circumstances, objectives or financial needs. Accordingly, readers are advised to seek appropriate advice from licensed professionals prior to making any investment, or taking up a financial product or service.