Who loses most in breakups?

The number of unmarried couples is on the rise, but few realize the financial pitfalls if the relationship doesn't endure.

Everything looked promising for Lauren Laughead and her boyfriend when they moved from Boston to Dallas in 2002 for his job. They had been living together for nearly four years and were planning to marry. They even bought a town house in Dallas.

But their dreams were derailed two years later when her boyfriend ended the relationship. "Since the property was in his name, and he was at fault for the breakup, I just moved out," says Ms. Laughead, who handles advertising for a law firm. "I paid off my part of the credit card and left it at that. I had helped pay part of the mortgage for a year. I lost that money. He's got equity."

Her experience illustrates a little-noted peril of cohabitation: the potential negative financial consequences of breaking up. When unmarried couples who have been living together part company, women are substantially worse off economically than men, according to a study in the current Journal of Marriage and Family. Men's household income drops by 10 percent, while women lose 33 percent. The percentage of women living in poverty increases from 20 percent to 30 percent, while men's poverty level remains relatively unchanged at about 20 percent.

Even the 33 percent drop for women strikes some financial experts as too low. "That's a nice statistic, but I think it's far worse than that," says Doris Theune, senior vice president of Bryn Mawr Trust Co. in Bryn Mawr, Pa. "I live in a very affluent area, yet I see women all the time lose out across the board. It's the same as divorce. If women have given up a career, or if they have relocated, then they lose."

More than 40 percent of American women under the age of 45 have lived unmarried with a male partner at some point, according to the US Census Bureau. In 2000, 9.7 million Americans were cohabiting with an unmarried partner of the opposite sex, while 1.2 million lived with a same-sex partner.

Unlike divorce, cohabitation offers no economic protection for either party. For married couples, there are precedents, formulas, and divorce court, says Debra Neiman, a certified financial planner in Watertown, Mass. "For unmarried folks, there is no such playing field. It's up to the couple at the onset, or early in the relationship, to set the stage and make preparations for what would happen in the event of dissolution."

Yet starry-eyed young lovers don't like to think of that possibility. "It's amazing how many of my friends in their early to late 20s go through this," says Laughead, referring to her breakup. "A lot of us go into a [live-in] relationship with a positive outlook. We think, Oh, nothing bad will happen. The girl typically thinks, this is going to be great, we're [eventually] going to get married."

Among Laughead's friends, the woman is typically the one who moves out. She must find a place to live and buy furniture. "You realize, Oh, my college furniture - I sold that," Laughead says. "Or you have a couch and a headboard and no mattress. Those are expenses you don't think of."

Her ex-boyfriend incurred expenses, too. "When I moved out, all the kitchenware was mine," she says. "He came home and didn't have any kitchen supplies anymore."

But because her boyfriend paid the bulk of the down payment, the town house was in his name. "We figured when we got married, we'd change it to include me," she says. He was also the primary account holder on the utilities. After she left and needed her own telephone and utilities, she had no record of having a good credit standing.

Unmarried couples who want to buy a home should have an attorney draft a property agreement, says Ms. Neiman, coauthor, with Sheryl Garrett, of "Money Without Matrimony," to be published next month. "It could simply say, 'In the event of a breakup, Party A has the right of first refusal to buy the property from Party B.' It could be more explicit and say, 'The purchase price will be based on the average of two or three market appraisals.' "

Some women discover less obvious economic penalties when cohabitation ends. "They're not saving as effectively for themselves," because they see themselves as part of a team, says Gemma Allen, a family lawyer in Chicago. [Editor's note: The original version failed to identify Allen.]

Women also tend to feather the nest more than men, buying curtains, towels, and sheets, Theune says. "That's hard to put a dollar value on."

Pepper Schwartz, a sociologist and relationship expert for perfectmatch.com, advises couples who are thinking about living together to ask serious questions: What are we doing here? Is this an open-ended situation that may not turn into anything? If we love each other, will we marry?

"Just because you don't like the answer doesn't mean you don't need to know the answer," she says.

In the event of a breakup, Ms. Schwartz adds, couples must consider another key question: "What do we owe each other under these circumstances - money, furniture, dogs?"

Dogs were part of the negotiations when Stacy Katz's first live-in relationship ended. She and her boyfriend had two dogs, and they were a big issue in dividing their property. Each took one.

Since then, Katz, of New York, now a manager for a financial regulatory service, has had two other cohabiting relationships, each lasting about a year. When the first and third ended, she incurred no serious financial losses.

But with her second boyfriend, she learned a hard lesson after she allowed him to use her credit card. "I was the cardholder, but he had his name on it, too. When I moved away, he ran it up and didn't pay it," she says.

Katz had also cosigned a car loan. After she left, her ex-boyfriend let the insurance run out. He had an accident and couldn't pay for the repairs. "Creditors were pursuing me for a long time for the credit card and car loan," she says. That hurt her credit rating.

To protect both parties, Allen says, the safest approach is to have joint accounts, joint assets, and run the household on a budget that both people contribute to, perhaps pro rata based on income. But even a joint tenancy account carries risks: Either party can empty it out. She suggests an account that requires two signatures - an "and" account, not an "or" account.

Very often, couples go into these relationships in a state of "gleemania," Theune finds. "By the time the bloom is off the rose, they find themselves in this financial, emotional, psychological bind. Getting out of it is legally easier if you're not married, but the devastation is as harmful." She finds that many women "didn't take time to prepare themselves to leave, financially or otherwise."

One woman she knows relocated to a new city with her boyfriend after they became engaged. When they broke up, she had to move back and find another job. But they did work out a financial settlement to cover what she would need for one year to get reestablished.

Among younger couples, cohabitation can often involve a lighthearted commitment with lighthearted exits, Ms. Garrett says. But as the practice becomes more common among middle-aged couples who may be altar-shy after a divorce, the stakes are higher. "When they were 22, they split up the lawn furniture they were using in the living room. When they're 40 or 50, they often have significant assets and liabilities."

If a couple can't work out the financial aspects of a breakup in a civil manner, Schwartz suggests getting a third-party mediator to help. "If you end up in court, it'll be just awful," she warns. "You might need somebody to talk to, to see if you are due any economic recompense for the relationship. But in general, you signed up for something that wasn't marriage."

Laughead offers her own cautionary note to unmarried couples. "If you're paying toward something, you need to make sure your name is on it somewhere. If the worst-case scenario happens, you want to protect all your assets."

Garrett takes a similarly pragmatic approach. "You need to think of unmarried couples more like business partners," she says. "If you own anything together, or owe anything together, this is your business partner. It's definitely not romantic, but it's very healthy, and a smart way to protect yourself and your loved ones."

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