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Financial tips for young unmarried couples

Love might conquer all, except your finances if you decide to live with your significant other.
/ Source: Forbes

For young adults, living together involves more than cross-eyed passion and deciding who takes out the garbage.

There are financial considerations, even for a couple kept in cheese and crackers by graduate fellowships or just beginning a career.

"I encourage newer couples to draft a domestic-partner agreement that spells things out," says Sheryl Garrett, a certified financial planner and co-author of Money Without Matrimony: The Unmarried Couple's Guide To Financial Security. "Both parties should keep a copy. If the relationship ends, the agreement can be enforced by going to small-claims court or a higher court if large amounts of money are involved."

The U.S. Census Bureau reports that the number of unmarried couples living together increased 72 percent between 1990 and 2000, underscoring the need for an unknotted pair to get the financial basics right. Unmarried couples now make up about 5.5 million U.S. households. That's 11 million people or about 5 percent of the nation's population.

If your partner doesn't see the need for financial planning, try this: Estimate what you spend weekly on groceries, utilities and other household expenses. Multiply by 52 and toss in the rent. That's real money, even when divided by two. A little planning now can avoid arguments later.

Keep the domestic-partner agreement simple, because too many clauses and footnotes will kill the spark in the relationship. The pact should state that personal property brought into the relationship remains that person's property if the relationship ends.

You can update or completely rewrite the domestic-partner agreement any time you see fit. Just tear up the old copy and start fresh. Both your and your partner should sign and date the new agreement.

If one partner has begun a career while the other remains in school, it's still best to split household expenses 50-50. But if that's not possible, state in the agreement that the person with the job will contribute a greater amount to rent and household expenses with the expectation of being reimbursed in the future through catch-up payments or a lump sum payment. Keep a record of all contributions to the household account and make sure the other partner agrees.

Prepare for the worst. While you are committed to each other at an early stage in your life, things change and you may not be together forever. In the domestic-partner agreement, state that you will be civil if the relationship ends and split expenses equitably. You might consider including a paragraph that states that you'll go to a mediator and split the cost 50-50 if you can't reach an agreement on your own.

If you live in a dream apartment, make it clear in the agreement who has the right of first refusal if the relationship ends. You might consider a paragraph spelling out how you'll handle relocation for the former partner who will leave the apartment. It could include first and last month's rent on a new apartment and a portion of moving expenses. It's up to you, but put it in writing to avoid the possibility of future acrimony.

If you have children together or accumulate significant assets or debts jointly, it's time to get an attorney involved after you've penciled out what you want. At this point, the relationship is no longer simple and it's important for both partners to understand their rights and responsibilities under the law.

Many young couples choose not to get married for personal, financial or family reasons, believing it will simplify their lives. But they don't have the legal protections that cover their married counterparts. Garrett says there are about 1,140 federal laws that apply to married folks but not to unmarried couples. Then comes state law establishing community property and inheritance.

Sometimes living together is a trial marriage, especially among young couples. Some researchers say 53 percent of women's first marriages are preceded by co-habitation.

"Most of us have been in a committed relationship when we were young, but often it wasn't with the person we married," Garrett says.

If you're about to embark on your first live-in relationship, keep the finances simple. In addition to splitting the rent 50-50, each partner should kick in another $250 or so a month to cover household expenses such as utilities, groceries as well as basic phone and Internet service. It might be wise to set up a joint checking account for household expenses. Establish it as joint tenants in common so if one of you dies, that person's share goes to family rather than your roommate. If you later split, divide the money in the joint checking account 50-50 after paying all final expenses. For basic information on joint checking accounts, go to the Web sites of major banks, including Wells Fargo, Bank of America or JPMorgan Chase.

But at this stage in your life, keep all credit, savings, brokerage and retirement accounts separate. There is simply no need to merge such accounts at this point.

Don't buy a car together. If one of you gets sued after an accident, both could be on the hook if the car is jointly owned. Keep auto insurance separate, too, but check on coverage if you partner occasionally drives your car.

"Sometimes, vehicles last longer than relationships," says Garrett, who wrote the book with Debra A. Neiman.

Personal expenses such as the health club, golf, tennis lessons, cell phone, CDs, overseas phone calls and, obviously, clothes should be the sole responsibility of the individual who incurs them. Make that clear in your agreement. Going out to dinner and a movie is a snap: Take turns going Dutch.

It's OK to buy small kitchen items and household goods jointly, but larger items, such as artwork, large-screen TVs or antiques should be clearly marked. Include a paragraph in the domestic-partner agreement stating who bought what and who will retain it if the relationship ends.

Breaking off a relationship is never easy and you don't want to destroy the fond memories by bickering over money and household goods. A clear, concise agreement will help avoid arguments if the relationship ends.