Fairness in Splitting Housing Expenses as a Couple
June 17, 2016 9:06 AM   Subscribe

My fiancé is moving in with me (hooray!) and I'm trying to figure out how to split the mortgage and other things equitably.

I am asking because I haven't done this before and my fiancé is like, I dunno, whatever you want to do, I trust you. I've owned my house for 15 years and my mortgage payment is $1,500 per month. Rents for houses in the area are $3,000-$4,000 per month. My fiancé currently splits a house with his roommate and pays $1,200 in rent plus utilities.

Not sure if it's relevant, but I earn about 60% more than he does. We are both decently paid professionals in our early 40s. Due to his not being awesome with money (and a few other reasons), he prefers that we should keep our finances separate. I am okay with that. We plan to have a prenup drawn up to effectuate that.

My thought is that we would split the "rent" ($750 each) and any other maintenance like housekeeper, lawn service, and utilities evenly, but that I would assume the capital improvements/repair costs like a new roof. (1) Does this seem fair to you? Is there a more fair arrangement?

We are also contemplating building a "mother-in-law" cottage for his parents to live behind us. I would probably not undertake this project otherwise. (2) What is a fair way to finance the cost of that? I could take out a loan against the house value; he has proceeds from the sale of his last home that could cover some of it. I guess what's tripping me up is that the house would presumably be worth a lot more with the cottage if we sell it, so I could pay him back for his investment in the house? Or should I pay for all of it since it's a capital improvement?

Although fiancé is down to discuss anything, he really does not have a preference and in his last relationship, he paid for *everything,* so he kind of feels like it's all gravy. We are both very easygoing, which makes this weirdly difficult. If you have any similar experience with a strategy that worked for you, I'd appreciate it.
posted by anonymous to Work & Money (23 answers total) 8 users marked this as a favorite
Why not split it all proportionally according to income? I understand wanting to keep the finances separate, but having either of you "own" improvements seems kind of strange to me.
posted by hollyholly at 9:11 AM on June 17, 2016 [10 favorites]

If it were me I would charge $500 a month rent and split the utilities.
Would his parent pay rent for the in-law?
I think him NOT paying for the construction and having them pay rent instead is more fair. What if you break up in a month after the construction is complete, etc.
posted by ReluctantViking at 9:17 AM on June 17, 2016 [5 favorites]

If you're drawing up a prenup anyway (smart!) I would suggest conferring with the lawyer who's doing that, as regards this. In different states, there are different potential ramifications of commingling separate funds into one spouse's separate property. It sounds like you're on the right track to keep them separate, but I'd want to spell it out in the prenup... I think paying for the capital improvement yourself is probably going to be the way to go, but I don't know where you live, so I wouldn't presume to say.
posted by fingersandtoes at 9:17 AM on June 17, 2016 [1 favorite]

I agree that proportional splitting seems equitable in this situation. You could come up with what that figure is based on the monthly household expenses and then divide bills that way. In other words, once you know what you should each contribute monthly, it might make more sense to have your fiance pay a few full bills in full and you take others, just for ease of management. Or you could pay them all and your fiance would transfer X amount into your account each month.
posted by LKWorking at 9:17 AM on June 17, 2016

The bottom line is whatever you both agree to is the right decision. There's no one "right" answer to this. HOWEVER, even laid back people can be weird about money, so I would encourage you to work out some understanding that you're both happy with.

I think a reasonable argument could be made for either splitting things right down the middle 50/50 or splitting things proportionally by salary (i.e. you pay ~60% of the costs and he pays ~40%).

For the "mother-in-law" cottage, one reasonable argument is that splitting it would fair - you are both gaining something from it; you get added property value and he has some place for his parents to live. One question you should probably consider is are his parents going to pay you rent? If so, who does that go to? Who will pay the utilities for the "mother-in-law" cottage?

Basically, there is no one right answer. One of the reasons people join their finances (i.e put all the money in one big pot and both people pull from that pot) is to not have to make decisions about this.
posted by Betelgeuse at 9:19 AM on June 17, 2016 [7 favorites]

Two things to consider are that your mortgage payments build equity for you; does his rent paid to you build the same for him? This has big implications, and is worth seeing a lawyer sooner rather than later.

Also, your house payment is $1500 (does that include insurance, property taxes?) but you get a deduction on your income taxes for that; how will you split that benefit?

It's also perfectly acceptable to not go into that level of detail, and just go in good faith with $750 (or $600, to account for income disparity, or somewhere in between) as rent, as long as you write some kind of rental agreement.
posted by Dashy at 9:23 AM on June 17, 2016 [10 favorites]

Is fiance going to be on the title of the house or the mortgage at any point, or will the house be titled in your name alone?
posted by craven_morhead at 9:27 AM on June 17, 2016 [1 favorite]

I like a yours/mine/ours approach to finances - e.g. each of you contributes part of your income (either the same dollar amount or the same percentage of your income, whatever works for y'all) to a joint account for paying housing, food, and other shared expenses, but keep your own personal accounts for your own stuff. You keep a bit of independence, but it's easier than calculating who pays what for each new major purchase.
posted by Metroid Baby at 9:29 AM on June 17, 2016 [4 favorites]

How well do you know his parents? How many experiences do you have telling them no to something they really want, where they accepted it gracefully? There are many ways for the in-law cottage to go horribly wrong.
posted by medusa at 9:39 AM on June 17, 2016 [4 favorites]

1) Yes splitting the mortgage and expenses and the owner covering the improvements seems fair.
2) I would split this down the middle as long as he can have legal equity in the apartment. The rent that comes in from the in-laws should be used to reduce your joint mortgage payment equally. I would also wait on this until you've lived together for at least a year.
posted by soelo at 9:44 AM on June 17, 2016 [1 favorite]

I live with my fiance. We rent.

We split rent 50/50. Bills are a little more complicated. He covers cable and internet (he's an entertainment writer and needs the full premium package as well as the highest internet speeds, so he feels like it's only fair). I cover gas and electric. We each do our own phone bills, health insurance premiums, and other individual expenses. For food and household consumables, it's catch as catch can and we don't really keep track. I own a car, which I bought before we met, so I pay the loan, insurance, expenses, etc. on that. Which is the only thing that isn't strictly equitable, but then I use the car more, need to depend on access to it, and it's not shared equally at this point. He borrows my car maybe once a week, often to run a household errand that benefits me, anyway.

Going forward, I would like us to switch to a less 50/50 arrangement and do something that takes advantage of how we get paid. I have a steady 9-5 that pays weekly, and thus bills can go on auto pay and are a no-brainer. He gets paid less predictably as a freelancer, but gets his money in large lump sums that can more easily be used for big ticket items, or to play with in a way where it's more obvious whether we can afford to do so or not. But that will probably come after we're married. Or maybe I'll just keep trying to convince him of the logic that he should let me pay the bills and let his income be more discretionary, forever.
posted by Sara C. at 9:52 AM on June 17, 2016

You own the house, you pay for repairs and upgrades, just as a landlord would. He puts in an amount for "rent." If you build an add-on, you pay for that, and MIL pays rent.
If the house ever becomes 50% his, then you share.

Also make a plan for groceries and living expenses that are not house bound. Movies, toilet paper, vacations. And chores.
posted by SLC Mom at 9:54 AM on June 17, 2016 [5 favorites]

I agree that you should think hard about the equity and ownership of the home. You own it, but should he now start buying-in rather than renting? Will he feel bitter after 10 years of renting from you and not actually feel like it's his home as well as yours? All of that can be worked out in the prenup & there can even be clauses addressing an unforeseen breakup, where you get the first option to keep the house, but you have to pay him out on his portion of the investment.

It's worth exploring. He doesn't care now, but he might later if his circumstances change.
posted by jenmakes at 9:59 AM on June 17, 2016 [8 favorites]

OP is building equity, but is also bearing the risk of all expenses and default. If he "buys in," it can't be dollar-for-dollar, unless he gets himself added to the mortgage (not sure if this is even possible in all states, though I don't know why a lender would turn down an additional debtor).

I have two siblings who pay "rent" to their partners, who own. They're not married, so they prefer to keep their independence.
posted by praemunire at 10:17 AM on June 17, 2016 [2 favorites]

What's fair for expenses isn't necessarily what's fair for equity. The least painful way to split expenses is from a joint account. You can each hang onto your existing accounts, but you will have much less stress about fairness if you pay all the bills from a single, joint account to which you both contribute. Side benefit: when salaries change you can adjust the balance of who contributes what without having to nickel and dime each other. One important detail is that you should both agree that once the money is in that shared account, you each own 50% of it (since it was equitably split going in, that's an easy and fair way to manage how it comes out).

As for equity in your property, you could look into putting the property into a trust. Find out the current market value of your home and the payoff value of your mortgage. Then subtract the latter from the former. You start with a baseline of 100% of the equity in that trust and your partner starts with 0. (Round number example: FMV is $400,000, you owe $100,000, so your equity in the trust is $300,000 and his is $0). From that point forward you each accrue 50% of the capital gains, assuming all expenses are paid from the shared account. So if the total equity in the property goes up to $350,000, your share is $325,000 and his is $25,000. If and when you divest, your equity split is 50% of the balance over $300,000. (Again: it was adjusted going in so it's the same coming out).

Then, say your partner uses his funds to pay for construction of a cottage. Maybe he puts $100,000 of unmatched funds into it. He's just bought $100,000 of equity in the trust (but also the trust is worth more). So then your equity split is 75/25 of $400,000 (the investment), and 50% of the balance (the capital gains). You can do that without the trust, of course, but this makes it really easy to do the accounting.

The biggest thing is to agree that you're splitting ownership going forward, but not retroactively. Figure out your percentage split up front, and then everything paid from shared funds is 50-50.
posted by fedward at 10:21 AM on June 17, 2016 [3 favorites]

We were in a similar situation.

We got married fairly late (35), already had well-establish financial routines, I already owned a house, and I make much more.

We approached it by dividing categories of expense, and not even trying to split individual bills. I paid capital improvements, the house note, taxes, insurance, etc. She paid utilities. We were fuzzy on groceries, but that was until recently mostly her. I paid for most going-out.

This worked well. When I stopped traveling very much, we changed it up a little so that all the groceries and gas and whatnot run through my Amex, for the points, but that's still the only place we actually mingle funds.

This would probably be fine for you EXCEPT for the idea of the property addition. That's a big deal, and you should be clear about what-ifs surrounding that and its costs and the ultimate equity stake in your property that your fiancé earns through investment there.
posted by uberchet at 10:31 AM on June 17, 2016 [2 favorites]

If you're laid-back, I suggest a laid-back approach. My spouse and I ()after some 13 years) alternate mortage payments, and then divide up the bills -- that is, one of use takes gas and phone, the other takes electric and cable, blah blah. This is less about trust than about different styles of tracking spending and balancing check books, but it hasn't made us worry more about nickels and dimes.

However, you should think about how you plan to handle ownership of the house once you marry. There are advantages to owning it jointly -- e.g., imagine that you die and he suddenly has to pay inheritance tax on it (whether 50% of it or 90% of it) rather than just having to deal with all the rest of what you already have to deal with when a spouse dies. If you plan to eventually own it together (which is just a one-page change in the deed), then splitting the mortgage and future investment costs, evenly or not, seems right. (I imagine that building a building might involve a lot of capital that wouldn't be evenly available, but it could still be a joint undertaking.) If you somehow want a long-term landlord-tenant relationship, then I guess you can sort out the appropriate rental rate, but it will become tricky when a new investment and more family are involved...

Getting married doesn't have to mean pooling all your finances, but it does usually involve a gradual evolution from being two individuals hanging out to sort of being a team in handling life matters. (I think taking on the Wedding Industry helped us realize that.) Even though you're bringing the house into the partnership, you probably want to try to visualize how The Team should share its assets years from now, so that you're planning and spending together, even if it comes out of different pots at different times.
posted by acm at 10:43 AM on June 17, 2016 [1 favorite]

In a similar situation, I charged market rent for a room for my boyfriend-at-the-time. It was a better house for a cheaper price than he paid when he shared with a roommate, so he was okay with it.

From my perspective, having both rented to my now-husband and rented to strangers as a landlord, a lot of the cost of rent includes (1) banking money for fixing things in the future, such as roof, furnace, etc and (2) paying for things like property tax and insurance. So I would not use the mortgage payment amount as a benchmark for how much a roommate would pay.

If you choose to give him a discount (because you earn more, because you really want to incentivize him moving in with you, because your house makes his commute less convenient, etc), you can choose to give him a steeper discount, but that's something for you to decide as a couple.

As for the MIL unit: Would his parents pay you rent or contribute some other way? If you split up, would you be able to rent it out for a good amount? How many years do you anticipate you will need in order to break even? Will you need to put in special features for them (such as making hallways extra wide or putting in a shower only with a strong handlebar, etc)?

I think a lot of this depends on how much you want to merge your finances. If you merge your finances 100% (as we do), then all of this becomes a non-issue (which is partly why we decided to do that). But if you're attempting to keep things separate, then you have to negotiate with your fiance, because there are a lot of potential questions. (Some that come to mind include: Do you feel any responsibility for taking care of his parents financially, when they are your in-laws? Will you get an inheritance from them? Do you get a say in their care / end-of-life planning? Basically, how much influence do you have on their choices?) And you need to have the answer to those questions before you can decide how much you can or are willing to help out.
posted by ethidda at 10:53 AM on June 17, 2016 [1 favorite]

We split our expenses according the Suze Orman method, ie according to the percentage of income we each bring to the table.

In your example you earn 60% of the total household income while he earns 40%; so he should pay 40% of the mortgage, and 40% of the other joint expenses. This includes capital expenses such as a roof repair (you should be budgeting a savings account that each of you contribute to for those long-term expenses).

As far as building a MIL unit; A) make sure you can get one permitted in your jurisdiction, otherwise it adds absolutely no value to your property and can cause an extra expense if it needs to be torn down in order to sell your property at some point in the future, and B) I personally would make the in-laws pay for their living situation. If they can't afford it, you and fiancé should pay for it according to the percentages listed above, but consider it a gift/sunk cost; you're never going to get that money back if they decide not to live there (or if you decide you can't handle it and kick them out).

It doesn't matter what income bracket either of you are in; what's fair is fair. So you should not be footing the cost of everything (or 100% of the cost of anything), but neither should he be paying a higher percentage of costs in order to "split things down the middle".
posted by vignettist at 10:56 AM on June 17, 2016 [3 favorites]

Remember that if your fiance actually pays you rent before you're married you may technically need to declare that as income and pay taxes on it. If you just have comingled funds I don't think that applies. After you're married I don't think it matters no matter how your finances are arranged.

I personally think the easiest way for a couple to split routine household expenses like rent, utilities, groceries, etc., is to proportionally contribute to a joint checking account (him: $X/month, you: $X+60%) and pay all routine expenses out of that pot. Then you don't have to worry about figuring out whether the groceries + the cable bill is equivalent to the phone + electric + mortgage or whatnot. If you keep this at an amount that's reasonable for ongoing operating expenses it won't really matter if you split because it will be a relatively small amount of money.

If you're going to maintain completely separate finances after marriage I think you should probably spring for a session with a family or estate lawyer to discuss what your state laws say about community property, especially the house. After that discussion you may or may not want a formal prenup. If you're married and he's contributing to housing expenses, I think it's likely that at least in some states he will be considered to have some interest in the house regardless of whether he's on the title or mortgage, although you'd have a claim on your premarital equity when it comes time to divvy it up. If you want the house to be clearly and permanently your asset only, you may need to structure your finances a little differently and obviously this will make a difference to how to pay for an in-law unit.

I think it's great that you're both easygoing and trust each other, but given the multiple ways to have equitable division of expenses, you probably want to pick the ones that will also give you an equitable result in the (hopefully unlikely) event that you split up.
posted by The Elusive Architeuthis at 11:49 AM on June 17, 2016 [2 favorites]

The way i handled this when i was in a similar situation was the rent was split 50/50, but bills and utilities were split proportionally. This went as far as getting on the same phone bill, but they only paid the line fee and i paid the majority.

This was a lot less complicated than trying to divide things percentage wise. It was more like splitting a check at a restaurant if someone else is buying your drinks, or something.

It never felt, or seemed unfair.
posted by emptythought at 1:55 PM on June 17, 2016

Split it all proportionally according to income, if you have the financial means to do so (e.g. you are comfortable enough that you can afford to do this).

Don't build a MIL behind your home or allow his parents to move in prior to making a more serious commitment to each other - take your time, that is a serious commitment (the building, the relationship and the parents!!)
posted by arnicae at 5:04 PM on June 17, 2016

Building a cottage on your property will be very complicated, and probably impossible/very difficult to legally permit on an urban or suburban property (although common in rural areas). If you want to shelter in-laws near you, renting or buying a small separate property nearby is more plausible, and separates the financial responsibility to your partner, aside from whatever you personally wish to contribute.
posted by ovvl at 6:41 PM on June 17, 2016

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