You move in with someone, buy the pots and pans, and then, when it’s time to move on, your roommate or ex takes the pots and pans with them. Or, you buy a couch together, and they end up with it. This isn’t fair, but it’s very common.
And it might be impacting your ability to accumulate wealth as you get older. Researchers at Kansas State University and Iowa State University found that people who live with someone before they’re married accrue less wealth over time than the people who don’t cohabit before marriage. Folks who live with more than one person are even worse off—the effects are exponential.
“These millennials who are in their early 30s, two-thirds of them are choosing to cohabit, so it’s incredibly common, but they’re also choosing to not save money in the way that they used to, they way our grandparents might have or our parents might have,” said Cassandra Dorius, researcher and assistant professor of human development and family studies at Iowa State, in a video interview with the university.
Dorius and her research team looked at data from the 1997 cohort of the National Longitudinal Survey of Youth, information on people in the U.S. born between 1980 and 1984, and identified the trend. Of the more than 5,000 millennials in the group, 45 percent were married, 18 percent were cohabitating and 37 percent were unmarried and living alone. The researchers found that even when a couple that cohabited ultimately got married, those two people tended to have less wealth over time.
When married folks split up, their assets tend to be divided right down the middle. Whatever they purchased as a couple, they purchased as a unit, and it belongs to them both.
The relationships between couples who live together but aren’t married tend to be “shorter and less stable over time,” and people in these relationships are purchasing stuff for their home together, rather than making big investments or saving together.
“There’s a lot of money in the right here, right now consumption, and not a lot of money in the longterm consumption,” Dorius said.
So when this kind of relationship ends, splitting up assets isn’t as straight forward as it can be in a divorce. There also aren’t many legal protections for people in cohabiting couples who end their relationships.
“It’s very rational that (cohabiting couples) don’t want to invest together in these longterm things, because there’s more risk, you don’t know what you’ll get out of it when the relationship ends,” Dorius said. “We need to make it less rational for people to avoid savings.”
To protect yourself from losing money on a breakup and to keep your savings heading in the right direction, it’s worth drawing up an “apartment prenup” with the person you’re planning to live with, she said. This legal document could outline ahead of time who will end up with what if or when it comes time to move on.
“Before you start your relationship, define how the assets will be split, make it formal, understand what will happen at the end and really work together to grow your wealth together,” Dorius said. “It’ll be more of a rational decision to save in the long run, and we think that will really actually help society.”