Financial infidelity: how to prevent money secrets from hurting a marriage

Financial secrets can prove a hurdle to relationships.

If I mention "infidelity" as being the biggest cause of a marriage or relationship breakup, you'll probably roll your eyes, nod in agreement and wonder (a) why I'm re-stating the obvious and (b) why you're reading about it in a column in the money pages. Easy. I'm talking about the other kind of infidelity. The one that's even tougher to spot – often because you aren't even looking for it – and can destroy trust in a relationship in just as devastating a fashion.

And like the other kind of cheating, it's everywhere. Survey after survey shows that it's happening. In 2011, the National Endowment for Financial Education discovered that 31% of Americans who responded to a poll admitted lying to their partners about their finances. Perhaps it was over something as minor as concealing a small purchase; perhaps they were hiding something large, like a secret bank account, a gambling problem, or big debts. Regardless, 67% of respondents said the secrets – when revealed – led to arguments, 42% said it damaged trust, and 16% said it even led to divorce. When NEFE announced the results of a new survey 18 months ago, the percentage of those who said they had financially deceived their partners rose to 33% – and that's only those who are admitting to what they did.

"It's the secrets that create the problem," says Don Grant, CFP, a financial advisor at Carey, Thomas, Hoover & Breault Investments in Wichita, Kansas, who is working to break a communication logjam between one couple in their 50s. The husband owns rental properties in his own name; the income flows directly into an account over which he has sole authority. "She sees no balances, nor does she have access to the accounts," Grant says of the wife.

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It isn't that the husband is using the money in those accounts for any nefarious purposes: he isn't keeping a mistress, supporting a gambling habit or buying illegal drugs. Grant says that after the husband has paid any costs related to the properties, he'll use money as a "back-up" fund to cover large expenses, like a family vacation, or a charitable gift, or even a round of drinks at a fraternal organization that he belongs to. "But the lack of transparency becomes a problem, and it turns out that in response to all this, she has opened her own accounts without him knowing – and used it to buy him some very expensive BBQ apparatus as a gift." In a way, the advisor says, "it's very endearing – they both see themselves as using these 'secret' accounts for each other. But they are starting to resent each other, too."

Grant is working with them to defuse the situation, and says that what makes it easier in this situation is that the couple are wealthy enough that they can afford an advisor to help them and that none of this "financial infidelity" is going to jeopardize their financial wellbeing. "I could see that this could be a much, much more serious situation if their incomes were lower, or if common bills weren't being paid as a result of one person deciding to hoard the family's income or assets."

Marilyn Chinitz, a New York matrimonial lawyer, has seen all too many situations of that kind in her career. Chinitz, a partner at Blank Rome LLP, recalls one client whose spouse refused to tell her how much he earned, and said most of his salary went on private school tuition for their three children. "So she shopped at Target and Walmart," Chinitz says. "Then she found out that his infidelity wasn't only financial, and when the financial disclosure forms were filed, she discovered that her husband was worth $85m."

Chinitz has urged her own 24-year-old daughter to minimize financial risk by ensuring she is independent and looks out for her own interests, even after marriage. "Often a spouse will insist that he will look out for the family's financial interests on his own, but that's a dangerous road to walk down blindly," she says. "You have to know what is going on; you can't just take a back seat in the financial part of your marriage" any more than you do in any other part of your relationship.

What does that mean in practice?

Set the pattern from the beginning. Be open with your partner about your finances – and expect the same from him or her. Sure, it's romantic if he whisks you off on a lavish vacation to Tahiti – but it's not so great if he has just maxed out his fourth and final credit card to do so, and has no idea how he's going to pay down those big balances.

As relationships become more serious, our lives tend to become entwined enough that it's easier to reveal, in passing, stuff like how much we make, how much we spend on rent or a mortgage, how much we save. We can pick up clues to each other's spending habits, too. Is your partner thrifty, looking for bargains, or is he reckless, eager to spend his annual bonus in advance?

Financial habits are like all habits: tough to break. You may need to decide if you can live with your partner's bad habits or not. Living with secrets, however, is another matter altogether. Some of those can be relatively harmless: the wife of a friend of mine knows that he sneaks secret book purchases into the house; he, in turn, knows that she sneaks secret purchases of clothes past him. They both know that the other knows; both also are aware there are limits to this game. They both accept that their mutual secrets add a bit of spice, not stress, to their lives.

When you decide that you're going to combine your lives, talk openly about what it means to combine your finances. That's the point at which all the skeletons should come tumbling out of the closet. If you're going to inherit $5m from your rich uncle, or you've got a lousy credit rating, your partner should know that. Going forward, whether you marry, form a domestic partnership or simply live together, your finances will become linked. Draw up an agreement so that if one of you goes out and spends $1,000 on a new piece of clothing or sporting equipment, the other won't stew in silent irritation at what they see as frivolous.

"A reason that these problems arise is that for so many years, we are independent and make our own money decisions," says Don Grant. "It's hard for any of us to acknowledge that anyone else has a right to a say over that."

Throw traditional gender roles into the mix, and it all gets even more tricky. Like it or not, too often both Grant and Chinitz have found that it's the men who are keeping the financial secrets and women who find themselves without the information they may need later when, widowed or divorced, they have to manage their own money.

Then, too, financial infidelity can often be a red flag for sexual infidelity. A husband keeping a secret bank account will find it easier to pay for hotel rooms, flowers and gifts – or even an entire secret life. Chinitz recalls a client who bought a large estate, put it in a trust for the benefit of his children (thus removing it from the couple's joint property) and then filed for divorce. He gets to live in the luxurious home, and the value of what is left to be divided between the former partners is significantly less than it would have been.

Being up front about finances doesn't mean that you have to pool all your money. On the contrary: some pros suggest that it often makes sense to keep many of your assets and accounts separate, and only keep a joint one for joint expenses, like the rent or mortgage, food, bills, and so on. Even then, however, keeping big financial secrets – like a lot of personal credit card debt or a bad credit score – can make it hard for you, as a couple, to forge ahead with your joint plans, whether it's to buy a house or retire.

Keep an eye open for red flags that your partner is cheating on you, financially speaking, in the same way that you might look for lipstick on a collar or check for receipts for gifts or restaurant meals, if something feels amiss. If you spot clues, sit down and calmly ask to have a discussion. Trust, but verify – it may be a great way to prevent your relationship from turning into a war zone.

Source: Financial infidelity: how to prevent money secrets from hurting a marriage