Kara McGuire: Ways of wealth out of wedlock

The sin bin. That's the fond nickname one of my readers has for her housing arrangement with her live-in boyfriend.

I, too, lived in the "sin bin" for a couple of years before marrying my husband. Of course I was in love and thrilled to be moving the relationship to the next level. But there was also the vision of dollar signs dancing in my head -- one apartment with one bedroom equals half the rent I'd been paying with a platonic pal. Score!

But other than the discussion of how much money we'd save (and then promptly spend on going out), there was little talk about what living together meant for our finances.

Not exploring how merging your physical lives will affect your financial lives is a mistake, says Sheryl Garrett, a certified financial planner and co-author of the new book "Money Without Matrimony."

This is especially true if you're a couple like us who decided to live together in part to cut costs. "If you can't afford the whole thing by yourself, I would highly recommend you have a 'living-together' agreement," Garrett warned. If your partner skips town without paying rent in the middle of your lease, you're left holding it and the rent envelope.

A domestic partnership agreement -- the technical term for a living-together agreement -- makes sense for all unmarried couples shacking up, whether they're marrying eventually or never getting hitched. Garrett recommended downloading domestic partnership forms at www.lawdepot.com or www.nolo.com.

Garrett acknowledged the fact that creating a document laying out the terms of staying together and breaking up is not romantic. But when half of all relationships break up, it's important to "go in with our eyes open and understand what sorts of liabilities and benefits we get out of this financial partnership," Garrett said.

A domestic partnership agreement should include a discussion of what happens to any financial obligations, such as joint credit card debt or long-term leases, in the event that you and your lover break up. It's also important to spell out what happens if one of you becomes incapacitated and can't hold up your end of the financial bargain. It might not seem important now, but you should decide the fate of that pair of La-Z-Boys -- or Pomeranians -- that you picked out together. Otherwise, you'll be brawling about who gets what while bawling about breaking up.

When high school sweethearts Jason Halpern and Tonya Netsund decided to buy a townhouse together in Blaine, they intelligently signed a note addressing what would happen to the house and other assets in the event of a breakup and had it notarized. But that wasn't the end of their financial decisionmaking.

The next challenge: hashing out household finances. Garrett's philosophy: Keep it simple. "What works really well for the majority of couples is you have a 'yours,' 'mine,' and 'ours' type bank account."

The "ours" account pays for household expenses like rent, utilities, groceries. It pays for all the things done together -- taking a vacation, buying a new mattress or fixing the furnace.

The "yours" and "mine" account can simply be your leftover salary once the "ours" account is funded. Or it can be an equal amount to avoid conflict. That's author Ruth Hayden's preferred method. She wrote "For Richer, Not Poorer: The Money Book for Couples."

Using an "ours" account has worked well for Jason and Tonya. "After the first couple of months we saw what the bills looked like and said we think we need X amount of dollars from each of us to cover our bills each month. So we each put an equal amount -- even though our paychecks are fairly different," Jason said. He figures he makes almost 35 percent more as an engineer for United Defense than Tonya makes working as an internal sales analyst for Target Corp.

Garrett cautions that this method of paying equal amounts into the joint account could create bitter feelings. The partner bringing home the smaller salary could end up spending Saturday night broke on the couch while the higher paid of the pair lives large with friends.

Rob Shainess, 25, doesn't want to get into a row about pay inequity and household expenses with his girlfriend, Shelly Cummings. Because her job in advertising doesn't pay nearly as much as his position as a lawyer, he pays two-thirds of the mortgage and any other big-ticket purchases.

After living together for six months, Rob and Shelly are still managing their joint finances with separate bank accounts. So far they say it's going well. "Monthly I pay the bills as they come due and then on the 15th of every month I let him know how much he owes," Shelly said.

Why'd she get the job of keeping tally? "I don't think it's really bad to pay a bill within 20 days of the due date. Shelly thinks it's not good to be late for anything in life, really. So she's the logical choice for paying the bills," Rob admitted.

Rob's job: to look at their big financial picture, and to research long-term investments. This means it's his responsibility to make sure they have each other picked as the beneficiary for their retirement accounts. He should also buy enough life insurance so Shelly could afford to keep the house if something happened to him.

Like Rob and Shelly, Loring Park residents Jeremy Peacock, 30, and his girlfriend Sarah, 27, also keep separate bank accounts. But instead of splitting everything 50-50, they each pay a bill and figure it evens out in the end. Because they're in it for the long haul, it doesn't matter who pays for big-ticket items -- "it's equal ownership no matter who puts up the money for it," Sarah said.

Unlike the other couples, Jeremy and Sarah aren't planning to get married. "For us, this situation of not being married is a choice. He's been married before, and I'm not thrilled with the idea," Sarah said.

Does the plan to never marry change the way they should view merging their financial lives? Hopefully not. In order to be successful financial and life partners, Garrett thinks committed couples should think about their money matters in the same way -- marriage certificate or not.

How's it going?

Is the economy bumming you out? Are you changing your spending habits? Tell kara@startribune.com.

Kara McGuire, 28, works in St. Paul on the staff of American Public Media's personal finance radio program, "Sound Money."