Relationships and money: living together and your finances

Finances are an important part of relationships and if you live together you cannot separate money from the equation. With less people getting married, more people are moving away from the traditional institution of marriage in favour of domestic partnerships, where couples share living costs.

Given the nature of these relationships, also called Vat en Sit in Afrikaans, translated directly as ‘Take and Sit’, cohabiting couples often share living expenses such as rent, groceries and petrol, as well as in some cases, the expense of raising a child.

In addition, part of the shared financial responsibility can include managing and paying off of debt and where this is the case, when one party is unable to optimise their credit usage and practice responsible debt repayment practices, the partner may be drawn into a vicious cycle of over-indebtedness.

“Instead of the protection of the law that regulates civil marriages, it is very important for couples living together to have open conversations around personal financial management and what it means in the context of the relationship,” says Charnel Collins, CEO of National Debt Advisors (NDA).

“Couples may think entering into a cohabitation agreement instead of a formal marriage is a way of side-stepping the complexities of marriage, while reaping the benefit of being in a committed relationship. Where finances are concerned, cohabiting may also seem like the most practical option given the turbulence of the current economic climate.”

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Financial snags for the unmarried

However, without a formal cohabitation agreement, individuals in the relationship run the risk of facing a number of financial snags, including the joint management of assets and liabilities and how retirement income is saved and distributed when the time comes.

Collins says it is not uncommon for couples living together to take out joint loans and enter into financing arrangements to pay for items that are considered as equal property.

“Legally, while cohabitees are only liable for debts accrued under their individual names, joint credit agreements will mean that each partner will be 50% responsible for debt that is accumulated as a couple, during and after the relationship should it come to an end.”

With 7.54% of the NDA’s client base being individuals who are overindebted and under debt review due to being married in community of property to another overindebted person, Collins says this number is alarmingly high when compared to the number of clients who are overindebted and apply for debt review as individuals rather as a partner in a relationship or civil union.

The potential impact of financial stress on romantic partnerships is well-documented and while having conversations around money may be uncomfortable and difficult to initiate, they are necessary, she says.

Collins says it is important for couples to understand how each person in the relationship approaches and deals with the concept of debt. “This is particularly true in Vat en Sit relationships, where drafting a cohabitation agreement, which details how financial responsibilities will be met and managed as a couple, is a crucial part of protecting everyone’s financial wellbeing.”

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Cohabitation agreement

A cohabitation agreement should outline the financial position of each individual in the relationship, including any assets they may have, as well as any debt in the form of credit cards, retail store accounts or personal loans, Collins says.

“The agreement must stipulate how these debts will be paid off regarding individual debt and any joint debt. It should also provide a description of the process that will be initiated should the relationship come to an end, in terms of settling any jointly accumulated debt and dividing any assets owned by the couple.” 

Collins says gests, fostering a sense of financial cohesion will go a long way in building a relationship grounded in a sense of mutual responsibility, respect and co-operation. Communication, joint budgeting and financial goal setting and watching out for warning signs are vital in reaching such an agreement.

“It is important for partners to be honest and transparent about their current financial situation and long-term goals. Being honest about money matters will build trust and nurture a sense of security. Communication about your financial needs, stressors, challenges and plans is vital in a Vat en Sit relationship where the cost of living is shared.”

Many couples living together have found it useful to draw up a budget or plan outlining any joint income and expenses. She says having a budget in place will allow couples to track their spend, weigh up whether debt is being managed effectively and whether a healthy debt-income ratio is maintained.

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Watch out for these warning signs

It is also important to watch out for warning signs. “Over-indebtedness does not happen overnight and Collins encourages couples to be on the lookout for these warning signs before committing to a Vat en Sit relationship:

• Living salary-to-salary and struggling to make ends meet.
• Constantly needing to borrow money from lending institutions or family and friends.
• Dishonesty about how much they earn.
• Avoiding phone calls from debt collectors.

‘’There is no denying that cohabiting can ease the financial burden on individuals, but like in any other relationship, it is all too easy to find yourself heavily indebted due to a partner’s dishonesty or bad financial habits.”

Collins says there is a strong case to be made for tackling financial matters upfront and ensuring that each party’s goals are aligned before committing to a Vat en Sit relationship.