Experts say couples who take on a mortgage when they're not married is risky. Cohabiting couples who decide to buy a house together shouldn't view it as just a romantic next step in their relationship, a new study says. Untangling finances in a divorce can be complicated, but if couples who aren't married break up, mingled finances can be downright messy.
"Most studies support the fact there are far more risks than rewards," said Matt Parker, a real-estate broker at Keller Williams Puget Sound in the Seattle area. He is also the author of "Real Estate Smart."
"If you're going to go the route of cohabiting and signing a mortgage with someone you're not married to, you should absolutely view it as a business agreement or relationship, no matter how connected you are or aren't to the other person," said Andrew Schrage, co-owner of Money Crashers Personal Finance.
Schrage suggests having an attorney prepare or review legal documents to ensure one is protected in the transaction — and not just loan documents. Experts suggest unmarried couples sign a cohabitation agreement, which is something akin to a prenuptial agreement for a non-nuptial pair. "In any agreement that is documented, it should spell out which party is responsible for what percentage of the loan and insurance involved, as well as the upkeep of the property." It should also outline what will happen if one of the pair moves out, "such as if one person wants to keep the home."
The couple can agree to any terms they want, he said, "but it has to be in writing to be binding most of the time. And take the time to have an attorney review it. … You'll thank yourself in the end."
Different risks and little protection
Laws vary from state to state, but generally protect the property interests of both parties when they're married. Not so with living together; cohabiting doesn't have the same kind of legal protection.
For instance, in Washington state, where Parker lives and works, if a husband or wife buys property, "it's assumed the spouse is getting it as well. You have to proactively write the contract differently, 'my name in my sole and separate estate.'"
In Washington if the couple isn't married, both people are responsible for payment, and if it's sold, the proceeds are split between them. But if one decides not to pay, the "one remaining is left with 100 percent of the burden, but to sell, still has to split the profits," he noted.
A better plan, said Parker, is for one to buy the property and the other to pay market rent to that buyer or work out some other arrangement that satisfies both. If they do get married, the money then will have gone into the same pot anyway, since both would contribute to the cost of the house, although one pays a share as rent to the mortgage holder. If they don't get married the person who bought it is taken care of and the renter paid an agreeable amount of rent.
In 2011, the Pew Research Center examined how cohabiting couples handle joint finances. Report author D'Vera Cohn wrote that research generall shows cohabiting couples are not as likely as married couples to pool all of their money. But a lot of them — maybe even most — pitch in together on the big purchases and expenses.
She said earlier research suggests that "couples who have children together may be more likely to share their money than couples who do not."
She also noted at the time that more than half of those living together see the household arrangement as a step toward marriage.
A guide by Findlaw, a Thomson Reuters online legal resource website for individuals and small businesses, includes a sample cohabitation property agreement and said they can be tailored to specific needs, but should lay out who owns the assets, how or if income and expenses are shared, how financial tools like credit cards and bank accounts are going to be handled and what will happen to each asset if the couple breaks up, including how disputes will be resolved.
It's a question that is increasingly relevant as American family life changes. A National Health Statistics report released in April by Jill Daugherty and Casey Copen, both Ph.Ds in the Center for Disease Control's Division of Vital Statistics, noted couples are initially tying the knot later than they used to, divorce rates are dropping after a long climbing trend, the fertility rate is lower. More people are also living together without getting married and fewer babies are being born to those who are married.
Scott Stanley, research professor and co-director of the Center for Marital and Family Studies at the University of Denver, among other titles, recently told the Deseret News that cohabiting in the United States has long been linked to lower odds of staying together than marriage provides. Recent research shows that's changing somewhat for a few specific groups: Individuals who only lived with a partner they later married, those who mutually agreed they planned to marry before they started cohabiting and those who didn't live together until they were 23 or older.
Otherwise, he said that what he called "cohabi-dating" hampers efforts at family stability, adding that "moving in together is now part of the dating scene — and it doesn't portend long-term commitment the way it did a couple of decades ago."
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