Setting up a home together– financials
May 6, 2013 7:03 PM
Two people -- both in 40ish-- are talking about the possibility of moving in together. We are in a loving and serious long-term relationship. There has been an initial talk about how we might handle finances and we came to conclusion that there are many ways we could handle them. I read a few posts about how couples handle finances, but am looking for some more viewpoints/options for us to consider and discuss. Details inside.
Person A – we can call them Alex, makes about 100K a year and has a mortgage on the house they own. Assets of about 30K, plus a well-funded pension scheme and retirement savings. Some minor credit card debt.
Person B – we can call them, Bobby, makes about 20% or so less, owns their own home outright and has no debts. Has well-funded retirement savings.
The couple is gay and could legally marry in their country, but marriage is not being considered at this point.
Alex is very happy to to sign a co-habitation agreement to protect Bobby’s home and assets (and vice versa) should they decide to part ways.
Housing: Alex’s house to too small to for two people to live in comfortably. Bobby house is bigger and could house the couple. Where they live -- should they decide to move in together -- will need to be decided.
Finances: One option is the couple has a joint account and all joint bills are paid from that account. (What is considered a ‘joint’ expense versus a personal expense would need to be determined.) Under this method, joint bills/expenses are paid proportionate to income -- so Alex would pay more of the joint expenses as they make more. Each person would also have their own individual accounts.
What are other ways of handling the finances? What are the pros and cons of each?
What about rent? How would that work? If Alex lives in a house owned by Bobby – which could happen given the situation -- it makes sense that Alex pay Bobby rent of some kind. What amount makes sense? How does that amount get determined?
Not sure what else to add here but I am looking for examples of 1) how couples handle their finances and also 2) some specific advice for Alex and Bobby moving forward.
Person A – we can call them Alex, makes about 100K a year and has a mortgage on the house they own. Assets of about 30K, plus a well-funded pension scheme and retirement savings. Some minor credit card debt.
Person B – we can call them, Bobby, makes about 20% or so less, owns their own home outright and has no debts. Has well-funded retirement savings.
The couple is gay and could legally marry in their country, but marriage is not being considered at this point.
Alex is very happy to to sign a co-habitation agreement to protect Bobby’s home and assets (and vice versa) should they decide to part ways.
Housing: Alex’s house to too small to for two people to live in comfortably. Bobby house is bigger and could house the couple. Where they live -- should they decide to move in together -- will need to be decided.
Finances: One option is the couple has a joint account and all joint bills are paid from that account. (What is considered a ‘joint’ expense versus a personal expense would need to be determined.) Under this method, joint bills/expenses are paid proportionate to income -- so Alex would pay more of the joint expenses as they make more. Each person would also have their own individual accounts.
What are other ways of handling the finances? What are the pros and cons of each?
What about rent? How would that work? If Alex lives in a house owned by Bobby – which could happen given the situation -- it makes sense that Alex pay Bobby rent of some kind. What amount makes sense? How does that amount get determined?
Not sure what else to add here but I am looking for examples of 1) how couples handle their finances and also 2) some specific advice for Alex and Bobby moving forward.
This speaks strictly to the "how to handle finances" bit, especially in a situation where one person makes more than the other: one couple I knew handled that situation thusly - the party who was making more money paid for rent/housing, the other paid for utilities and food.
posted by EmpressCallipygos at 7:36 PM on May 6, 2013
posted by EmpressCallipygos at 7:36 PM on May 6, 2013
Under wrok's plan Alex would have an enormous financial advantage. Bobby would have their current cash assets plus either the equity or rent as income from their former place while living rent-free and earning 20% more than Bobby each year. If Bobby covers all maintenance and repairs because it is his house, he will be paying more than he would if living alone because of Alex's wear and tear. If expenses are split, like a major renovation to the bathroom, they would either contribute half and have an equal say (which may mean Bobby either spends more than he can afford if Alex has expensive tastes, or Bobby ends up with cheap, ugly fixtures because Alex doesn't want to invest in a house he does not own).
If you are Canada, co-habition agreements are NOT enforceable unless they confirm to the current Family Law (absent a legal marriage, you would be common-law wed). In some provinces this means that Alex moving in and paying money for rent OR utilities/maintenance OR contributing non-monetarily (housework) would entitle him to a percentage of the property value. Conversely, living together entitle Bobby to a portion of Alex's pension. This may be true in your jurisdiction. You need to seek legal advice to protect both of you.
posted by saucysault at 7:45 PM on May 6, 2013
If you are Canada, co-habition agreements are NOT enforceable unless they confirm to the current Family Law (absent a legal marriage, you would be common-law wed). In some provinces this means that Alex moving in and paying money for rent OR utilities/maintenance OR contributing non-monetarily (housework) would entitle him to a percentage of the property value. Conversely, living together entitle Bobby to a portion of Alex's pension. This may be true in your jurisdiction. You need to seek legal advice to protect both of you.
posted by saucysault at 7:45 PM on May 6, 2013
It somewhat depends on what Alex plans to do with the house he owns. I'm assuming that you're not thinking along the lines of 'whats yours is mine' and rather looking for an equitable split of expenses.
Joint expenses: the obvious stuff is in here. I'd suggest putting a value on the maximum non-shared-item that can be included incidentally. An example of what I mean: it's silly to be picky about a $5 magazine that they bought at the supermarket while getting groceries. It's not quite so silly to say that a $50 TV surcharge each month can't be added to the shared bills without confirming it, supposing one person does not watch any TV.
Rent is complicated. I'd base it somewhat on how you would both be otherwise, and go halfway. So, say Alex rents out his house at $110 per week, and has a $200 mortgage each week. Allowing for rental margins and such of $10, lets say Alex is $100 better off each week by renting his house out. Bobby doesn't gain or lose anything by Alex moving in, as he wasn't renting to anyone previously. So, if Alex pays $50 rent, they're both $50 better off. Note: I'm assuming Alex would contribute to general house maintenance/wear-and-tear.
posted by Ashlyth at 7:46 PM on May 6, 2013
Joint expenses: the obvious stuff is in here. I'd suggest putting a value on the maximum non-shared-item that can be included incidentally. An example of what I mean: it's silly to be picky about a $5 magazine that they bought at the supermarket while getting groceries. It's not quite so silly to say that a $50 TV surcharge each month can't be added to the shared bills without confirming it, supposing one person does not watch any TV.
Rent is complicated. I'd base it somewhat on how you would both be otherwise, and go halfway. So, say Alex rents out his house at $110 per week, and has a $200 mortgage each week. Allowing for rental margins and such of $10, lets say Alex is $100 better off each week by renting his house out. Bobby doesn't gain or lose anything by Alex moving in, as he wasn't renting to anyone previously. So, if Alex pays $50 rent, they're both $50 better off. Note: I'm assuming Alex would contribute to general house maintenance/wear-and-tear.
posted by Ashlyth at 7:46 PM on May 6, 2013
This is a broader conversation than how to handle expenses.
Entwining your financial life with a partner has lots of other decisions - setting up one another as beneficiaries, how to deal with inheritance of property? Are you going to rent the second property? What happens with that income?
When my husband (then boyfriend) and I did the financial merge we paid for a few sessions with a financial planner. The planner helped us clarify how we thought about money. Genuinely it was some of the best money we ever spent.
It's one thing to get together when you're young and build everything together as a couple. It's another to try to merge 20 years of assets, retirement accounts and debts. Get a pro to help you sort it out.
posted by 26.2 at 7:51 PM on May 6, 2013
Entwining your financial life with a partner has lots of other decisions - setting up one another as beneficiaries, how to deal with inheritance of property? Are you going to rent the second property? What happens with that income?
When my husband (then boyfriend) and I did the financial merge we paid for a few sessions with a financial planner. The planner helped us clarify how we thought about money. Genuinely it was some of the best money we ever spent.
It's one thing to get together when you're young and build everything together as a couple. It's another to try to merge 20 years of assets, retirement accounts and debts. Get a pro to help you sort it out.
posted by 26.2 at 7:51 PM on May 6, 2013
What works for household:
Our income is very, very disproportionate right now to give relevant background. We each get a biweekly allowance which is used for daily personal expenses. I use this for gifts, gas, groceries, books, clothes, pretty much everything I use a debit card for on a daily basis. The rest of our income goes into a joint account which pays all bills and also major expenses.
posted by bananafish at 8:39 PM on May 6, 2013
Our income is very, very disproportionate right now to give relevant background. We each get a biweekly allowance which is used for daily personal expenses. I use this for gifts, gas, groceries, books, clothes, pretty much everything I use a debit card for on a daily basis. The rest of our income goes into a joint account which pays all bills and also major expenses.
posted by bananafish at 8:39 PM on May 6, 2013
Talk to a pro. They will have gone through this drill dozens of times. Any agreement is drafted by a lawyer.
posted by Ironmouth at 9:00 PM on May 6, 2013
posted by Ironmouth at 9:00 PM on May 6, 2013
Wow, congrats to both of you. You are in a great financial situation. Please don't over focus on the detail and lose sight of the big picture.
As I see it the benefits you get from sharing should be shared. You have 2 houses and will only need 1 if you move into Bobby's place. If you let out Alex's house you can use the rent from that to cover any joint expenses making everyone feel better off. Anything on top is split 50/50.
Alex continues to pay his own mortgage while you're in the early stages but in the longer term, if you plan to marry, I would just chuck it all in the pot together. You sound pretty well matched financially and as I mentioned before, done well, this should leave everyone feeling better off.
posted by Dorothia at 12:26 AM on May 7, 2013
As I see it the benefits you get from sharing should be shared. You have 2 houses and will only need 1 if you move into Bobby's place. If you let out Alex's house you can use the rent from that to cover any joint expenses making everyone feel better off. Anything on top is split 50/50.
Alex continues to pay his own mortgage while you're in the early stages but in the longer term, if you plan to marry, I would just chuck it all in the pot together. You sound pretty well matched financially and as I mentioned before, done well, this should leave everyone feeling better off.
posted by Dorothia at 12:26 AM on May 7, 2013
Joint account can work well, but another option is just to divide up the bills. In my household, one partner takes electricity, and the other takes gas; we alternate mortgage payments (however, we also co-own, so you might decide to handle that differently if you are going to leave the house in one person's name -- a similar option would be that the non-owner pays all the utilities, or something similar). This kind of system depends on everybody's being reasonable with their cash flow and bill paying; the joint account approach can help if one or the other tends to lose track of account balances and due dates without the designated transfers.
On the up side, we aren't that worried about absolute equity or proportionality, and you don't have to have identical ways of keeping records, balancing accounts, etc. (in middle age, those habits can be hard to change, and why bother?). On the down side, it can lead to resentment if, say, somebody gets a big gas bill while their checking account balance is low and their partner is flush. Additionally, if somebody (think: pesky insurance company) writes you a joint check, it's a pain or impossible to deposit it, so in the end we set up a token joint account just to have all our options available -- that can be handy for one-time household repairs/expenses too, since either of you can pay the repairman from that account.
There's no right answer. And, of course, all these entanglements of settled adulthood make the difference between cohabiting and marriage increasingly subtle -- there's still a lot of stuff that has to be sorted out if you ever separate. So you just have to feel your way to a solution that works best for you, on the basis of both "fairness" and logistical comfort/sustainability. Plus, you can always change it up in a year or two if the original system feels stupid. Just decide the big things (like who owns the house, who claims the mortgage deduction) and the bill and account issues will probably be easier to sort out. Over time, the distinctions begin to blur anyway . . .
posted by acm at 6:51 AM on May 7, 2013
On the up side, we aren't that worried about absolute equity or proportionality, and you don't have to have identical ways of keeping records, balancing accounts, etc. (in middle age, those habits can be hard to change, and why bother?). On the down side, it can lead to resentment if, say, somebody gets a big gas bill while their checking account balance is low and their partner is flush. Additionally, if somebody (think: pesky insurance company) writes you a joint check, it's a pain or impossible to deposit it, so in the end we set up a token joint account just to have all our options available -- that can be handy for one-time household repairs/expenses too, since either of you can pay the repairman from that account.
There's no right answer. And, of course, all these entanglements of settled adulthood make the difference between cohabiting and marriage increasingly subtle -- there's still a lot of stuff that has to be sorted out if you ever separate. So you just have to feel your way to a solution that works best for you, on the basis of both "fairness" and logistical comfort/sustainability. Plus, you can always change it up in a year or two if the original system feels stupid. Just decide the big things (like who owns the house, who claims the mortgage deduction) and the bill and account issues will probably be easier to sort out. Over time, the distinctions begin to blur anyway . . .
posted by acm at 6:51 AM on May 7, 2013
I am of the opinion that mixing assets without the legal benefits of marriage is not such a great idea. I would treat the living situation more like you're roommates than a married couple. If you aren't ready for marriage, I don't think you're ready to mix finances.
posted by parakeetdog at 11:14 AM on May 7, 2013
posted by parakeetdog at 11:14 AM on May 7, 2013
This thread is closed to new comments.
Don't have Bobby pay rent, that would be weird. Be happy and in love and co-habiting, worry less about who owes 5% more on the electric bill.
Setup a joint account to pay living living expenses out of. Contribute 50/50 if that's affordable by both people. If it's not, split it 55/45 or whatever. People stress too much about financial differences, when really -- it doesn't matter unless it's causing a rift in your relationship (which is a thing that happens when you have a really complicated scheme of who owes who what). YMMV, IMHO.
posted by wrok at 7:25 PM on May 6, 2013