Finances can be a source of frustration and conflict between couples. Around 35% of divorcees in Australia claim that financial stress of some kind contributed to their marriage breakdown* and in study undertaken by Creditcards.com in the US only 52 % of individuals polled believe that their spouse is fully honest with them about money.
There are certain issues around money that most commonly spell trouble in a relationship. In the interest of happy homes, here are five money mistakes to avoid:
1. Don’t Hide Your Money
It may seem harmless on the face of it but keeping a savings account or stash of cash hidden from your partner can be your downfall once your significant other catches on. Hiding money can destroy trust and yet around 40%* of people are guilty to some extent. In 2 out of every 5 couples, one spouse admits to lying to his or her partner about money**. One way to avoid this problem is to keep some separate spending money in your joint budget so that each person can splurge without having to justify the expense to the partner.
2. Don’t Hide Your Debts
Keeping debt under wraps is often worse than stashing cash. Not only will it be perceived as a lie by omission, but if your joint accounts have been adversely affected it can also create a lot of anger. It pays to have regular honest conversations about what you have and what you owe - get on the same page before trouble brews.
3. Don’t Overspend
It’s a classic relationship quandary but if one of you is inherently a saver and the other a spender, conflict will likely develop without an understanding. In the stereotypical cliché this happens when one person earns more than the other and the earner comes to resent the spender, but the problem can crop up under all sorts of circumstances. Sometimes one partner has significantly more expensive hobbies and lifestyle requirements than the other. To ease the stress of not seeing eye-to-eye on spending, agree to a certain level of saving, such as 10 percent to 20 percent of your combined income - if that threshold is being met, then the overspending may not be an issue.
4. Don’t be a Grinch
On the flip side, if one person in the relationship is too tight with the purse strings, problems can arise just the same. Watching money all the time can be embarrassing for some people in social situations, not being able to do ‘normal’ things with friends and family can be disempowering. If one partner is pulling the other up on spending much of the time it can become a very big issue. In this case, it may help to consult a financial adviser to weigh in and come up with a budget that works for your family.
5. Don't Disrespect Your Partner
In extreme situations, disputes over money are a battle for power. When one member of the household takes a lead on finances and the other person is purposely left in the dark, it can lead to a method of controlling that person by eliminating their freedoms and options.
An allowance can be a budgeting tool, but if it’s used as a method of control it can quickly destroy a marriage. This type of coercive control is considered to be financial abuse and is now illegal in many parts of the world. There is a push to make it illegal in Australia too. Although a financial adviser can help explain the true picture of a couple’s financial status to both parties, or help one person regain financial control after the marriage breaks down, when this type of problem takes hold it is more likely that you need the help of family counsellors and psychologists to address the dysfunctional dynamics.
What are the red flags that there could be financial deception in your relationship?
Whilst each action below may not spell financial disaster, they can be tell tale signs that you need to become financially vigilant. These are the red flags to watch out for.
If your household mail no longer includes financial statements, such as bank statements, credit card bills or investment account information your partner might be hiding something.
If the mail is still arriving but your partner tells you not to open it.
You find statements for credit cards or accounts you know nothing about.
You’ve been removed from a joint account without knowing or without explanation.
Watch out for unusual behaviour. If your partner uncharacteristically starts lavishing you with gifts or insisting you account for every cent, they may be trying to deflect attention from their own financial deceptions.
Be aware of changes in income or cash flow, including cash withdrawals or cheques made out to cash – they can often signal extramarital affairs, gambling or drug habits.
If your partner reacts with extreme emotion – tears, unnecessary anger or cold avoidance whenever you bring up the idea of talking about your finances, this is a definite sign that something is amiss – and financial infidelity is one very strong possibility.
If your partner has a hobby that can be a constant financial drain, be wary. It’s not a guarantee of financial infidelity by any means, but it does leave the door open to it in the future. Often, other personal pressures can cause people to throw money into their hobbies and if its something that can absorb a lot of cash, it can be a real temptation.
If you hear your partner misrepresenting your financial state in conversation this could be a warning sign that they’re willing to mislead you regarding your shared financial situation.
What to do if you sense money trouble in your marriage
1. Double Check
If you feel that you are being misled about money in some way do your best to gain all the facts before casting allegations. Thoroughly check all your statements to follow the trail of money coming in and going out. Your wealth adviser or accountant can help you with this. Make sure you have concrete evidence.
2. Be Financially Open
If you expect to be able to question your partner it's a two way street, you need to be financially open too. If you’re finding this uncomfortable, why? Are you carrying on some kind of financial infidelity yourself? If you are not willing to open up fully to your partner you’re creating as much of a problem as your partner is.
3. Sit Down for a Financial Check Up
Once you feel ready to open up and you actually understand what your concern is suggest meeting with your partner to go over your finances and talk about where you want to be going in the future. As you dig into life goals, the financial issues will inevitably come up.
4. Work on Goals That Mean Something to Both of You
Like any couple, you are going to have some shared goals and some that diverge. Problems begin when you allow your personal goals to grow to the point where they overtake or eliminate shared goals.
Sit down separately and make a list of ten goals that are truly important to you. What things do you want out of life in the next five years or ten years or the rest of your life?
Agree to focus together on the goals that overlap both your lists above the others. That way, you’re working toward big goals that you care about internally and that your spouse cares about. It’s a goal that’s both internally and externally motivated.
5. Revise Your Spending Expectations
When you start making changes to your goals, invariably you’re going to need to make changes to your spending. Few big life goals exist without some sort of financial sacrifice, so you’ll need to make sure that your financial choices support those big life goals that you share. A financial advisor can help identify the realities of your spending and figure out the best strategies to achieve your big goals.
6. Start a Personal Emergency Fund
If you’re concerned that these efforts won’t get things back in order it might be time to start a personal emergency fund so that your partner’s disastrous financial choices do not wreck you personally. Put aside a little money each week into this account so that if things come to a head, you’re not left high and dry.
7. Seek Counselling
If you’re truly struggling with financial infidelity and the trust in your relationship, give counselling a shot, particularly before you give up on the relationship.
When there is a lot at stake - high net wealth marriages
In wealthy marriages the financial stakes are high. Financial deception may come in many forms and be harder to identify without expert assistance. In the simplest case it may involve transfer of funds from their disclosed bank accounts into other non-disclosed bank accounts. At the sharp end, spouses may move their wealth offshore into a series of inter-linked corporate and trust structures.
If you have strong suspicions of financial infidelity but you cannot determine the full extent of your assets, forensic accounting may be necessary to track down hidden assets and to determine your spouse’s financial holdings and history. Contact us if you are in this position and we can help you through the financial maze.
When it doesn’t work out
If you are unable to work things out, the good news is that in situations where one spouse has hidden money from the other and spent it on non-marital items you can often successfully claim some, or all of it of it back during separation or divorce negotiations.
When necessary, applications to court for emergency remedies can be made. These include, for example, search orders which allow your legal team to enter premises owned or occupied by your spouse to look for important documentation. Where undisclosed assets are located and there is a risk that they might be hidden or dissipated, you can apply for an order to protect them.
Financially, divorce (or separation) is possibly the most complex time of your life. Decisions made during the process can impact you and your family for decades to come. To ensure you make wise choices based on a solid plan for the future, work with both a financial adviser and a lawyer to get you through to the other side in the best financial shape possible.
*Reasons for Divorce and Recollections of Premarital Intervention: Implications for Improving Relationship Education / Prevention and Relationship Enhancement Program (PREP) https://www.ncbi.nlm.nih.gov/pmc/articles/PMC4012696/
**according to a 2018 survey by the National Endowment for Financial Education, US