There's an obscure (though oft-sampled) funk song from the 1970s called "Shack Up." The song is the only recorded output from a group called Banbarra. It's about a guy lamenting the taboo of living together before marriage:
One of the problems of our society
(Shack up, shack up)
Is that we can't live together baby, unless we're married
(Shack up, shack up)
We can love together, work together, sleep together
(Shack up, shack up)
So why can't we live together,
And shack up baby? (Shack up)
Today, "shacking up" is not so taboo. For many people, it's a crucial first step before marriage. It seems to make financial sense. It does to Banbarra: "I think we should just split the costs."
But a study recently published in the Journal of Financial Planning finds unmarried couples who live together have less wealth than those who never lived together before marriage. The gap is wider for people who "shack up" multiple times.
"People who have cohabitated by age 30 have, on average, $30,000 less wealth than people who married directly," said Cassandra Dorius, an assistant professor of human development and family studies at Iowa State and a co-author of the study.
How shacking up affects your wealth
Researchers analyzed survey data from more than 5,000 people ages 28 through 34. Of those, 45% were married, 18% were cohabitating and 37% were unmarried and living alone. Compared to couples who had never lived together until marriage, the study found the net worth of unmarried people living together for the first time was $26,927 lower on average.
People who were single, but had lived with a partner two or more times before fared even worse. Their net worth was $44,219 lower compared to people who had never lived with their partner until marriage.
Little decisions add up, Dorius said. Married couples tend to spend more of their money on long-term investments like saving for retirement or buying a home. "Cohabiters" tend to buy things like furniture and cars, which don't build wealth.
Relationships before marriage are, by nature, shorter and less stable, so couples who live together and break up end up having to "start over" more often, making it difficult to build wealth, Dorius said.
"I don't think cohabiters are doing anything wrong, per se, but they seem to be acting more like single people than married people in their purchasing decisions," Dorius said.
How to keep shacking up from hurting your wealth
Two-thirds of recent marriages started as a cohabitation, the study found, and it's unlikely that number will go down, Dorius said. To avoid the "cohabitation wealth penalty," couples who live together should think about their finances as if they are married.
Couples should consider long-term investments like joint savings, investments and housing, Dorius said. The problem is, these joint investments are riskier for people who aren't married. Married couples have legal protections for their assets if their relationship ends. Unmarried couples who live together don't.
These couples may want to draw up a legal separation plan, Dorius said.
"These work like pre-nuptial agreements, and outline how assets should be divided if the relationship ends," she said.
Couples should also have regular financial check-ups with a financial professional.
"Getting good advice on a regular basis helps keep people on track with their long-term financial goals, and may lessen the wealth gap we found between marrieds and cohabiters," Dorius said.
Here are a few ways unmarried couples can tackle finances together in specific areas.
At the very least, couples should have a plan for dividing bills, said Kristi Sullivan, owner of Sullivan Financial Planning in Colorado. Many couples divide bills in half even though one partner may outearn the other.
That may be equal, but it's not fair to the person making less money, Sullivan said. Consider alternate arrangements when drafting a financial plan together.
For unmarried couples buying a house together, a visit to a lawyer is a good idea, Sullivan said. A legal separation plan can protect each partner's wealth in the event of a breakup.
"Unmarried couples need to seek out those legal protections and pay a little more for them, in the form of time with an attorney," Sullivan said.
If a couple has a house and mortgage together, each partner needs life insurance, Sullivan said. A policy should at least cover the mortgage in case one partner dies. (We can help you compare and buy life insurance.)
"And certainly if you have kids, you have all the same life considerations as a married couple," she said.
Some plans are better than others. In general, unmarried partners can't hop on medical insurance plans, but it can't hurt to talk to human resources.
In some states, living together long enough can qualify your relationship as a common-law marriage, which may allow partners to add each other to their health insurance plans.
If you don't have access to health insurance through an employer, you can sign up for a health care plan through the federal or state health care exchanges during open enrollment or a special enrollment period. There are also some short-term health insurance alternatives to consider.
Talk it out
Any couple living together should feel comfortable talking about money, whether they're married or not, Sullivan said. If not, individuals should treat their finances as if they're single.
Save like you can't depend on your partner's finances, and spend that way too, Sullivan said. Without the ability to talk about money, you have to treat the other person like a roommate, at least financially.
"If your eye is not toward being together for the long term, then you need to protect yourself.
Should you pool finances with your partner? Learn how it could make both your lives easier.