By Laurie Itkin
We all know what sexual infidelity is. But what is financial infidelity in a marriage?
When one spouse spends money, incurs debt, or makes decisions that negatively impact the financial security of the other spouse or their children without informing the other spouse, I consider that to be financial infidelity.
You and your spouse may not always agree on how to spend money and that’s normal. But if you do not acknowledge and discuss your differing opinions — even if an argument may result — that’s a recipe for trouble.
Are you Aware of How Much Debt You Both Carry?
I was meeting with a couple as they prepared their financial disclosures, which is one of the first steps in divorce mediation. The couple had been separated for over four years and had been married for 30. The husband was already living with another woman and, unfortunately, the wife was still 100% financially dependent on him because health problems impaired her ability to work. To save money she had been living with a friend free of charge as they did not own a home.
Everything was polite and civil as we discussed the retirement accounts and how they might be divided. Then we started looking at each credit card. After the wife gave me the account numbers and balances for all four credit cards she used, the husband gave me a list of 13 credit cards. When I added up the balances on all the cards, the total came to $113,000. And that was in addition to the nearly $200,000 they owed on loans which paid for their two daughters’ college tuition.
The wife became very angry. She had no idea the husband had racked up all this debt. She complained to me that he had ruined her credit score and demanded that he pay her back for any credit card charges that had been used to benefit his girlfriend.
I was thinking to myself that whatever he spent on the girlfriend was nothing in comparison to what he had paid in interest and late fees every month on all those credit cards. The balances would have grown every month even if he hadn’t put new charges on the cards.
Although I didn’t raise this issue, there was no doubt in my mind that he had incurred most of this debt well before he and his wife separated. How is it possible that she wasn’t aware of this? Was financial infidelity at play? Did the husband keep this information from her? Or had she never considered that maybe they were living above their means?
Are You Aware of Your Spouse’s Investment Gains or Losses?
It’s a “thing” these days. I see husbands losing their jobs and instead of finding a new one turning to day or swing trading to replace the income. The trading could be of stocks, options, futures or leveraged ETFs.
Don’t get me wrong. I love investing and I don’t understand why more women don’t do it. In my Amazon best-selling book, Every Woman Should Know Her Options: Invest Your Way to Financial Empowerment, I share my story of how I started investing in the stock market at age 24 with a $1,600 inheritance and built a million dollar stock and stock-fund portfolio by the time I turned 40.
When used conservatively, options are a great way to generate income in a portfolio (which I teach in my book). But when used speculatively – in the hopes of making significant gains in a short amount of time – they can be a recipe for disaster. Leveraged ETFs can be just as dangerous.
After her divorce was final, a woman came to me with help making a decision. She and her ex-husband had sold their house. Based on her income (she had just received a raise from $15 to $18 per hour), there was little chance she would qualify for a mortgage.
With her share of the marital home proceeds, she could pay cash and buy a small condo in a not-so-desirable community to live (snugly) with her and her children, or she could continue to rent. If she bought, she would wipe out her savings and would not be able to supplement her modest income. If she were to rent, she would have cash to invest which could generate monthly income for her. But based on the little she knew about her ex-husband’s trading, she was terrified to invest even one penny.
I reviewed the last tax return she had filed jointly with her ex-husband. I noticed right on the first page of the return that withdrawals had been made from an individual retirement account (IRA). Since both she and her ex-husband were under 59 and a half, that meant that in addition to paying federal and state income tax, they had to pay a 10% early withdrawal penalty. I calculated that at least 35% of the money taken out must have gone to the government leaving at most only 65% in their pocket. This also reduced the amount of retirement funds that were available for her future needs.
Early withdrawals from an IRA signal an urgent need for cash. Was he hiding this from her or did she never think to ask to see the tax return before she signed it? And even if she saw it, would she have understood what it meant?
I then looked at the section of the tax return regarding capital gains and losses. Believe it or not, the husband had racked up nearly $600,000 in capital losses. I have no doubt that this man, in order to earn income to replace his salary, had engaged in speculative trading practices…the antithesis of what I teach in my book. It’s pretty hard to lose $600,000 in just one year so I suspect his trading losses had accrued over several years.
How to Prevent Financial Infidelity
I can’t go back in time and make either woman’s situation better. But I can encourage readers of this article to take steps to prevent financial infidelity from getting out of control.
Sometimes spouses lie to one another about money. You can’t always stop them from lying but you can make it more difficult for them to do so. Many spouses won’t volunteer information – often due to fear or shame – and some might consider an omission of information to be financial infidelity. That is why establishing consistent and frequent transparency and communication is so important in a marriage. As we found from the Financial Fresh Start Study I co-authored with Worthy and the Association of Divorce Financial Planners (ADFP), too many wives still abdicate financial control to their husbands which often results in financial surprises during divorce.
In some marriages, one spouse is responsible for day-to-day household finances and the other spouse is responsible for the overall financial picture, like tax returns and investments. Spouses who pay most of the bills may think they have a good handle on the overall marital finances, but they often don’t.
Here are four tips to prevent financial infidelity:
Do not sign your tax joint tax return without reviewing it and understanding it.
Develop a net worth statement with your spouse and update it every year. This way you will know if debt is increasing or assets are decreasing. You can use this template from my website and download it in Excel or PDF formats.
If money is tight, together with your spouse explore ways to increase your income or decrease your spending.
Propose a full financial checkup for both of you. Sit down with a financial advisor who will act as a neutral party without shaming and blaming and who will facilitate an effective discussion. If your spouse refuses, suggest couples counseling or therapy. Refusing to discuss finances means there are bigger problems in the marriage than just money.
About the Author
Laurie Itkin is a financial advisor, certified divorce financial analyst (CDFA), and the author of the Amazon bestseller, Every Woman Should Know Her Options. For less than the cost of a one-hour meeting with an attorney, her online course, Woman’s Guide to Financial Independence After Divorce, teaches separated and divorced women essential financial concepts. You can request a free consultation or subscribe to Laurie’s newsletter by visiting TheOptionsLady.com.