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Cohabitating and Your Investments: Lay the Groundwork First

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August 16, 2016
Living together and financial planning: how to secure your investments.

If you choose to live with someone, should you share finances and investments as well? That’s a question that’s becoming front and center to more Americans who are opting to set up households together before or instead of marriage, and the answer is a simple one: Lay down the rules first. 

Living together as a couple has long lost its scandalous nature, what with nearly 50% of all Americans cohabitating at some point in their lives, according to the National Center for Health Statistics. That’s up from 34% in 1995, and experts see it only rising further. Does the money issue ever get easier?

“Whether you’re married or not, joining finances is not a simple task,” says Dara Luber, Senior Manager, Retirement, at TD Ameritrade. “There’s lot to consider and you need to have some very candid conversations with your significant other about the financial baggage you’re both bringing into the relationship. It’s also important to talk about your goals and what you both hope to accomplish in the future.”

The ‘Talk’ Is a Must-Do

People who choose to live together should have the “money talk” before the event, in the same vein that those getting married should: What kind of spender and saver are you? What are your assets? Do you own property? Art work? Boats or jewelry? And what debts like student loans, credit cards, and car loans, for example, are you bringing in? How will that be handled? And, of high priority, what’s your credit score?

Once that’s down, talk about “the plan”: Will there be joint accounts? Is it one household account with separate savings? Is it a 50-50 split or does the one who makes more money ante in a bigger percentage? How will day-to-day living expenses and long-term projects be handled?

Luber advises cohabitating couples to take extra measures for financial protection by having a well-planned exit strategy. “There are a whole lot of scenarios that can play out, good or bad, so setting up a plan ahead of time will provide you with some navigation, especially during times of stress or uncertainty,” she says.

Factors to Consider

When it comes to long-term investing in different types of brokerage accounts, Luber recommends making as detailed a strategy as possible from the start and putting it all in writing. Here are some factors that should be considered as couples develop their strategies:

  • What types of accounts are you both most comfortable with? If one’s a risk taker and the other prefers more conservative investments, it might be best to have separate accounts.
  • How is the account funded? If the person making the most money puts in extra, does he or she get extra out if the two split?

What are the accounts going to be used for? Wedding? New house? Retirement? Make sure the budget for the account is in sync with its purpose.

Are the investments conducted as joint tenants with rights of survivorship (JTWRS) or tenancy in common? These are two important alternatives to ownership. JTWRS allows all tenants an equal right to the accounts’ assets and liabilities, and gets survivorship of the full account if the other person dies. It allows for joint responsibility and a smooth transfer if someone dies. And it keeps the account out of probate court, which can hold up an inheritance for weeks, even years. In joint tenancy, each partner owns one-half or a percentage of the asset and can do with it what  they want at any time.

  • Get lawyers involved. “You never know what might happen, and you want to make sure you’re both protected” Luber says.

Besides getting legal advice, it’s also a good idea to talk to a financial adviser about investments and how they may be affected by having a significant other enter into the picture. With cohabiting a growing trend, most financial advisers have experience helping couples manage their money as they form a household together.

Visit TD Ameritrade for more information and additional resources to help guide your trading and investing plans.