AMES, Iowa — Choosing to move in together is a big step in any relationship. For some it’s a symbolic next step towards greater commitment and getting married in the future, while others do it as an alternative to marriage. And while many unmarried couples pull the trigger on cohabitation due to money issues or debt, a recent study reveals doing so can bring upon serious long-term financial restraints.
Researchers from Iowa State University determined that unmarried people who lived with each other had less accumulated wealth compared to those who had never lived together before getting married. This wealth gap was shown to be much wider for people who had cohabited more than once.
“We have to embrace the fact that we are not going back to the days when everyone married at a young age and stayed married,” says lead researcher Cassandra Dorius, an assistant professor of human development and family studies at Iowa State, in a statement. “We are in a new world and we need to think about what that means in practical ways.”
For their study, he researchers used data from a national survey which included data on individuals born between 1980 and 1984. Of the more than 5,000 millennials (aged 28 to 34) in the cohort, 45% were married, 18% were currently cohabitating, and 37% were unmarried and not living with any romantic partner.
Dorius concluded that survey respondents who were currently single, but had previously cohabited, were the worst off, shaving an average of $39,945 from their net worth. Single individuals who had cohabited more than once recorded an average drop in net worth of $44,219. That’s compared to a $26,927 dip for first-time cohabiters, or $33,809 less for individuals in relationships who’d cohabited twice or more previously.
“Cohabiting relationships tend to be more short-term and unstable, and you keep starting over every time. That is difficult for wealth generation,” explains Dorius.
On the other hand, married individuals who’d cohabited once saw their net worth decrease by $16,340, compared to $18,265 less for married folks who’d cohabited twice or more.
The researchers had several theories about why unmarried couples living together are at a disadvantage, including a lack of legal protections that married couples have. They say that leading to cohabitating, these couples tend to spend money together on non-financial assets like furniture and cars, instead of buying houses or putting savings into retirement funds.
Dorius suggests a contract similar to a prenuptial agreement, called a cohabitation agreement. The contract would document how the couple will divide investments and assets should their relationship come to an end.
“There is no reason why we shouldn’t be forward thinking, acknowledge how cohabitation is affecting wealth and start dealing with it,” says Dorius.
The study is published in the Journal of Financial Planning.