Don't share finances unless you plan to get married

There are economic benefits for a couple that gets married, but things can get tricky if an unmarried couple shares finances

Last week, I wrote an article discussing reasons why the idea that men shouldn’t get married for financial reasons was false. In the article, I pointed out several purely financial reasons for men to get married, reasons that applied very well to women as well.

Many people responded with the great point that many of the benefits described in that article are also applicable to people who cohabitate. This is absolutely true. The benefit of reducing the cost per person for rent, energy, and so on occur when people are simply roommates, regardless of their relationship. Also, simply cohabitating instead of actually being married also avoids some of the negatives of marriage, such as legal entanglement.

However, there are several specific economic benefits to marriage over cohabitation that, when considered together, paint a positive economic view of marriage.

First, being married means you have the right to receive property settlements and support in the event of divorce. If you’re cohabitating, your partner is on the lease, and you suddenly find all of your stuff tossed out in the yard, your options are pretty limited. If you’re relying on your partner to support you and he or she tells you to get out, you’re completely on your own.

Second, being married means the ability to obtain family health, dental, and other insurance benefits. The exact rules on this vary from state to state, but generally it is much more difficult to obtain insurance through your partner’s employment if you are not married. Being able to obtain that insurance reduces the cost of insurance for both members of the household and often allows one member to take on a challenging (and often lucrative) alternative career path.

Third, being married means receiving your partner’s property in the event of death without a will (and even with an incomplete will). The presence of a spouse greatly simplifies the resolution of a person’s estate, as the spouse virtually always takes the property. If the cohabitants are not married, the door is open to a great deal of legal wrangling. One only needs to take a peek at the battle over Stieg Larsson’s estate for a clear example of what I’m talking about.

Fourth, being married means receiving survivor’s benefits from retirement plans and Social Security. If your partner dies before you and you’re married, you’re likely to continue receiving some benefit from his retirement and Social Security. If you’re unmarried, you don’t get any of these benefits.

Simply put, cohabitation certainly gives some of the same financial benefits of marriage as opposed to living single, but it does not confer all of the benefits.

Now, are there advantages to simple cohabitation over marriage? If you approach the relationship as though an end to the relationship is expected at some point, cohabitation is superior to marriage in many respects. In effect, smart cohabitants would function just like roommates, with clearly delineated finances and possessions, so that there are minimal issues if the relationship fractures.

In my eyes, danger enters the picture when cohabitants begin to share more and more things of financial consequence. When you begin to co-sign for loans and for utilities, you’re creating a serious financial challenge in the event of a messy breakup without clear rules to follow. Even more challenging is a cohabitation situation with a child involved. Cohabitation agreements can resolve some of this, but they have limited legal backing.

Simply put, I strongly encourage people not to financially bind themselves to each other unless they are entering into a legally married state. Such actions include cosigning for loans, co-ownership of major possessions, and having children. The drawbacks and challenges of disentanglement if one partner chooses not to be cooperative during a breakup (that would never happen, right?) aren’t worth it.

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