Financial Infidelity (And How to Prevent It)

I was chatting with a family lawyer recently (just an acquaintance, all is good in our household) and he was telling me that financial infidelity as the cause of divorce is what he sees more often in his work than actual infidelity. Meaning that a large cause of marital or common law marriage dissolution is financial infidelity. What is financial infidelity? Financial infidelity is hiding or lying to your spouse about money matters.

According to CNBC and the National Endowment for Financial Education, 43% of adults with combined finances have committed an act of financial deception. This post will go over what financial infidelity is, what to look for in terms of red flags, consequences of financial infidelity, and how to prevent it from happening in the first place.

What is Financial Infidelity?

According to Investopedia, financial infidelity basically is when couples who have combined finances lie to each other about their money.

Money is the number one thing that couples often fight and disagree about.

If one person in the relationship is a saver and the other is a spender there will be even more disagreement.

It makes sense, money is a currency of our values, wants, and needs. How we choose to spend our money can be emotionally charged decisions.

Financial Infidelity Red Flags

What are some red flags to watch out for?

If your partner seems to want to exert a high level of control over the finances and also seems to want a high degree of financial privacy that might be a sign of financial infidelity.

If they seem to avoid joint financial discussions or decision making, that might be another sign of unfaithful finances.

Unfortunately sometimes financial infidelity happens and you discover it after the fact. For example, the family lawyer that I met mentioned that one spouse discovered a new $50,000 Home Equity Line of Credit (HELOC) had been taken out when reviewing bank statements one day.

The Unfortunate Consequences of philandering Finances

$50,000 debt taken on without talking to your significant other is a big deal. It’s not like a covert $100 shoe purchase. This can be serious financial strain on the family finances and in even more serious cases can cause bankruptcy. The aforementioned marriage did not survive the financial infidelity.

Unfortunately, the consequences of financial infidelity is that both parties are still accountable for the money borrowed. Even with divorce the both individuals are still responsible to pay that $50,000 HELOC back since that financial liability was taken on the martial home (primary residence).

In addition to the strictly financial aspect of financial infidelity, there is also the decreased trust and emotional pain that can occur when one partner is financially deceitful in the marriage.

How to Prevent Financial Infidelity

How does one prevent this from happening in the first place?

Discuss your financial pictures before getting serious. I have a friend who is expecting a child with her significant other but they were still splitting all the household costs about 50/50 with income inequality (he makes more than she does) until recently. Before you get serious you should discuss your current money situation (assets, debts, goals for retirement, investing style, how you view splitting expenses and finances) with your partner.

Open and honest communication is key to preventing financial infidelity. Some people have regular money check-ins. If you have date night regularly you could talk about your goals and aspirations as a family and review your household budget if you have one. If you are the partner who is not interested in the household investing, you should at least have regular or monthly check-ins to know how the money is being invested and what the cash flow situation is like. Ramit Sethi’s Netflix show How to Get Rich had a couple who had lost $80,000 (with an initial $100,000 investment) but the wife only just found out about it “just now” on the show- see 0:45 and onwards in this video:

Choose your partner wisely. Warren Buffett says that the most important decision in life has nothing to do with your career or money, but it has to do with who you choose to marry.

The obvious answer is to be wary of the partner you are choosing to share your finances with in the first place. People don’t really change (well, they can change but they have to want to change) and sometimes we try to mould the other person into someone they are not… and that doesn’t work.

I’m not sure who said this quote, but “Men marry women with the hope they will never change. Women marry men with the hope they will change. Invariably they are both disappointed.“

I remember dating this guy and he had disclosed that he was in $15,000 of HELOC debt. He stated that he valued financial security and he had a plan to get rid of it in three months but kept dining at high end restaurants and living a relatively lavish lifestyle (at least compared to his income anyway). Three months later the amount of debt had not budged. It was a source of contention for our relationship because our values did not match. I admit I was a bit of a nag and I didn’t want to be. I envision that if I had proceeded with a more serious relationship, financial infidelity would have cropped up.

Actions speak louder than words.

Consider a prenuptual agreement or a cohabitation agreement. These are becoming more and more commonplace and less taboo. People are marrying later in life (e.g. in their 30’s and 40’s) and may have significant assets built up. Documenting what your premarital assets may help prevent financial liabilities in accounts that are not jointly shared. Additionally, there are lots of second marriages, and people want to protect what’s left of their individual assets from their first divorce.

Have your own money and accounts (in addition to joint accounts). People feel embarrassed to ask their partner if a purchase is okay and hence would rather commit financial deception than have that financial discussion (and be judged by their partner). Even if you have 100% merged finances, you could have your own separate account as “your own discretion” to spend without having to get the A-OK from your partner.

We can’t have 100% the same financial values as our partners. Even my husband and I (albeit being quite similar) have slightly different financial values. He couldn’t care less about enjoying a nice meal, but I like to enjoy a nice meal from time to time and try new things, so I’m glad I have my own money and I don’t have to ask if him if it’s okay that I go out for nicer dinner with a friend.

Here’s another reason why women should have their own money.

So I definitely vouch for your own accounts and joint accounts (kind of like a Venn Diagram). Here are some of the best high interest joint accounts in Canada. Of course, personal finance is personal, and what works for one couple might not work for another.

You have to talk to your significant other to see what works for your relationship.

Financial Infidelity Recap

In summary, there are some red flags to watch out for if you suspect your partner is being dishonest about your combined finances. Communication is the most important thing when it comes to preventing financial infidelity.

If you find out your partner is cheating on you financially and hiding debt or mounting credit card bills, the best thing to do is talk about it and seek professional help (like a counsellor) to help open up the line of communication and work on healing the relationship and building back trust.

There are things to do to prevent this from happening in the first place, like picking the right life partner (easier said than done, hah), so you don’t have to end up 10 years later in divorce court bitterly fighting over who is entitled to the family’s accumulated Aeroplan points.

Do you have a story of financial infidelity to share?

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