In this article:
- The “every man for himself” method
- The common wool sock method
- The “50/50” method
- The pro rata method
- Pay the mortgage without owning
Whether you’ve been in a relationship for a year, five or ten years, you’ve probably talked about money with your better half. Perhaps the subject has even given rise to heated discussions, to say the least! It’s completely normal: personal finances are one of the most frequent subjects of contention between couples. Fortunately, with the right method, friction can be reduced.
The “every man for himself” method
The “every man for himself” method is often used by young couples who still have little in common. Everyone pays their own bills (cell phone, internet, electricity, etc.), while rent or mortgage payments are more or less split in two.
Although this method gives you some financial independence, you may end up feeling cheated. Why? Because it does not take into account the income of each partner or family expenses. Without realizing it, you could thus assume more expenses even if you have a lower salary.
The “every man for himself” is a brake on family projects, such as buying a house, because everyone is putting money aside without a real common long-term plan. A pooling of assets would certainly generate more interest.
And what about the unexpected? Without a joint account dedicated to emergencies, you risk having recourse to credit more quickly in the event of an unexpected event.
The common wool sock method
This method is one of the simplest and easiest to manage. Both spouses deposit all their income in the same joint account which will be used to pay bills, groceries, insurance and the mortgage. If one of the two partners needs to make personal expenses, such as buying clothes, they use this account.
This way of managing money is adopted by couples who do not want to worry at all about a budget, calculations and paperwork.
For this method to work in the long term, however, you must both be on the same page. If you are a spendthrift by nature while your partner is rather thrifty, tensions are likely to quickly appear.
Also, this way of budgeting is for couples who trust each other extremely. It is for this reason that it is mainly used by people who have been together for several years or who have children.
The “50/50” method
As its name suggests, the “50/50” method involves dividing the couple’s expenses into two equal parts. If you use this method, you will each pay half of the family expenses.
Although this approach requires a little more calculation than that of the common woolen sock, it is still very simple to manage on a monthly basis. The distribution of property is also easier in the event of a break-up.
On the other hand, it is not really aimed at couples who have different salaries and debt levels. In this case, it can cause inequalities, even frustrations among the spouses.
For example, if your other half earns $20,000 more annually than you, you may find it unfair to contribute to expenses the same way they do. The same is true if you have significant debts (car, personal loan, line of credit, credit card, etc.) that substantially reduce your budget: you will have difficulty meeting the household’s financial obligations.
The pro rata method
The pro rata method is the one generally chosen by couples with significant income differences. It makes it possible to separate the expenses in proportion to the salary of each one.
For example, if you earn $30,000 more than your lover, you could cover 60% of the expenses and your spouse, 40%. This way, your partner has more leeway for their personal expenses.
When doing your calculations, however, be sure to take the net income, and not the gross income of each. Indeed, people who earn a large salary have a higher tax rate than those who earn less; they give more to the government.
Pay the mortgage without owning
Whether you contribute to the mortgage at 50% or pro rata your salary, make sure you are legally protected if you do not own the house.
Indeed, if your name is registered on the mortgage, but not on the deed of sale, you will be held jointly and severally liable for its payment. In other words, if your partner ceases to fulfill his obligations, you will have to make all future payments alone.
Of course, you will probably have the right to claim from your partner the sums paid on his behalf to the bank. However, you will surely have to take long legal steps to recover your money.
To make matters worse, if your spouse decides to sell the property, you will de facto receive no benefit, since you are not co-owner of the building. If you ever break up, it will also certainly be up to you to leave the residence, because it does not legally belong to you.
To prevent this kind of unfortunate situation from occurring, it would be to your advantage to consult a notary or a lawyer. This professional may advise you to buy part of the property and have a co-ownership agreement drawn up which will put in writing what happens with the house in the event of a break-up. A cohabitation contract is another legal document that will certainly help you prevent arguments and misunderstandings.
To remember :
- The “every man for himself” method grants a certain financial independence to couples, but constitutes a brake on joint projects.
- The common wool sock method is easy to manage, but can create injustices.
- The “50/50” method is the fairest approach for couples who have similar income and debts.
- The pro rata method is intended for spouses who do not have the same salary.
- If you don’t own the house but are paying the mortgage, make sure you have legal protection.
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