Don’t be April’s fool when it comes to marital finance.
Nothing is more heartbreaking and stressful in one’s life then the dissolution of a marriage. There are a multitude of reasons that marriages do not last. According to Marriage.com, 10 biggest reasons for divorce ranged from lack of communication to lack of intimacy. The top two reasons are money and infidelity. One thing that is particularly destructive is when the infidelity is a financial one. Couples need to address the topic of financial honesty in their relationship and be aware of what recourses are at their disposal if they have been financially “cheated on”.
It’s not the other women, it’s the other hidden bill that I can’t take
In my time working as a CDFA (Certified Divorce Financial Analyst), there was nothing more disheartening than working with a client who has discovered that the financial picture they thought their marriage was in is a mirage. Not only is your trust and faith in your partner shaken but the solid financial footing you thought you were on can pulled out from under you. The MoneyMangement.com article “How to deal with a lying spouse -Financial Infidelity in a Marriage” list different types of financial infidelity such as secret spending and debt, lying about income and hiding accounts and assets. In a 2016 survey by National Endowment for Financial Education (NEFE), 2 out 5 people surveyed admitted hiding information about their finances from their spouses.
Shopping – a form of therapy or a form of addiction
For many people, shopping can be a form of retail therapy. A day out hitting the stores with your girlfriends or spending money on the latest equipment for your hobby can prove relaxing to most. Yet for those who are spending money, the joys of a purchase can lead to a future nightmare. The NEFE also reports that 22% of those surveyed admit to hiding purchases from their significant other. According to CreditCard.com, 12 million American’s are hiding a credit card from their spouse. In addition, there are significant number of spouses that have not been completely honest about student loan debt they brought into the marriage.
What’s mine is our but only what I tell you about.
In my time working as a financial advisor and helping clients who were suddenly finding themselves single, I was always surprised at how many of my clients had no idea what their partner’s annual income was. These clients were unaware of the revenue streams for their family worked, often leaving bewildered when trying to figure out how to maintain a family in the event their partner was unable to do so. SafeHome.com conducted a survey that resulted in 15% of women admitting that they deceive their spouse about their income vs. 13% of men who said they did the same. This behavior can range from under reporting income to exaggerating your income. This type of infidelity is compounded even more when your spouse has a hidden account into which they put their secret income. Again, CreditCard.com reports that 23% of those they surveyed admitted to having secret accounts.
You can lie to everyone but the tax man
One piece of advice that I oftentimes find myself telling my clients is to read their tax returns. Many clients would admit that one person in the marriage was usually responsible for preparing the family tax documents. While in most marriages this division of labor is very common, one thing that is also true is that the responsibility of those returns cannot be divided. The Internal Revenue Service (IRS) will move against both parties in the marriage, even if now divorced, when collecting back taxes and penalties. IRS tax statues do not allow for a divorce decree to disavow one party from any tax consequences resulting from a joint return. Unfortunately, when a marriage has suffered from financial infidelity, many times that same behavior can spillover to one’s tax return. Luckily there are various forms of recourse for spouses that find themselves facing an audit, after discovery that the blind trust of signing those documents has saddled them with an unexpected tax burden. The relief comes in the form of IRS federal form 8857 or the request for Innocent Spouse Relief. According to the New York Times, the IRS estimates that roughly 32,000 cases are filed yearly seeking this type of consideration with 22% of those case being granted review. The NYT also states that recently there has been a shift to grant more of these cases review with the IRS increasing the number of examiners on their staff from 80 to 100.
Financial infidelity can take a huge toll on a marriage. A 2018 poll by CreditCard.com indicated that 31% of those surveyed felt this was worse for their marriage than an affair. Many times, it is just a symptom of a greater underlying problem. I strongly suggest to my clients to have a conversation about debt and finance before marriage or even co-habitation. In addition, couples need to share the responsibility for bill paying and financial planning. In the event of an accident or life threating medical situation, each spouse should know about all accounts and pending debts. Couples will find that with transparency and communication they can avoid heartache at the bank teller.