What is required to make a romantic relationship work? I think most of us would agree that love, commitment, and trust are three key ingredients.

If your partner cheats on you with another person, this can be difficult or even impossible to overcome. Once trust is broken in a relationship, it’s hard to recover.

The same is true when it comes to money. If your partner commits financial infidelity and lies about where they’re spending money, the amount of credit debt they’ve racked up, or gambles your life savings away through delusional stock market prowess, it can be very difficult to move on.

 

What is financial infidelity?

Financial infidelity is when one partner keeps a secret or tells lies that affect the family’s shared finances. If your partner is hiding a secret credit card they’ve been racking up, have a compulsive online shopping habit they haven’t told you about, or stopped investing in their company retirement plan in defiance of your stated plans – you’ve been a victim of financial infidelity.

These are just a few examples.

And just as there are various levels of physical cheating, there are various levels of financial infidelity. Racking up tens of thousands of dollars in credit card debt is different than “temporarily” stopping your retirement plan contributions. Nonetheless, they all possess the same characteristics: an inappropriate use of money without you knowing about it.

Financial infidelity can be just as devastating to a relationship as when someone physically cheats because both of these acts result in broken trust.

The partner who has been financially cheated on starts to think, “If he’s lied to me about this, what else is he hiding?”

“How long has this been going on?”

“Is this the first time he’s strayed or does this happen often?”

In addition to the lack of trust, taking away someone’s money is like taking away their freedom, their independence, and their dreams for the future. If enough money is taken, your life goals, dreams, and ambitions could be stripped away.

 

 

Why do people commit financial infidelity?

Financial infidelity is a common problem in the U.S. A 2018 survey conducted by Harris Poll found over 40% of Americans who had combined their finances admitted to financial infidelity. And it’s a growing problem.

In 2016, the number of adults who had committed financial infidelity was 33%. By 2018, it jumped to 40%. That’s a 21% increase in just 2 short years. This begs the question … why?

We know money is an emotional topic. People come into relationships with all sorts of financial baggage. This makes it difficult for partners to communicate about money or get on the same financial page. Here are some of the most common reasons people commit financial infidelity.

 

Traditional beliefs

Some people grow up thinking money is taboo and should not be discussed. Talking about money is considered classless and rude. Such beliefs make it difficult for partners to open up and have honest conversations about money. It also leads to the “I didn’t know” argument.

You know, the one where he says, “I had no idea you felt this way. I wouldn’t have done it had I known.”

But, if you’ve never had the conversation …

 

Gender roles

Others grow up believing in traditional gender roles. It’s not uncommon for men to believe they should be the primary breadwinner. If they can’t (or don’t) live up to this expectation, they feel they’ve failed as a man. This can lead to feelings of embarrassment and shame and an unwillingness to share with their partner.

In a similar vein, many women believe that finances are the man’s job and they should be in charge of it. This lack of engagement is fertile ground for bad financial behavior. Often, by the time she figures out what’s going on, real damage, sometimes irreparable damage, has been done.

 

Fear

If someone is in an abusive or controlling relationship, they may find it necessary to sneak money and put it into a secret account to fund their escape or prepare for separation. Additionally, an abused partner might feel like she needs to hide her purchases from a controlling spouse if she fears there will be negative consequences for her spending.

 

Entitlement

Some partners might feel they are entitled to a secret credit card or bank account because they make significantly more money than their partner. They believe because they earn the majority of the money, they deserve to treat themselves with “no questions asked.“

 

Addiction

Any kind of addiction, whether it’s alcohol, drugs, shopping, sex, or gambling can lead to financial infidelity. Usually, the person battling the addiction is trying to cover up their bad habit as well as the financial ramifications associated with it. They hide evidence of their compulsive shopping trips or fail to admit they’ve blown through the retirement savings to fund their addiction.

On the other side, partners of addicts may begin to hide money in an effort to keep it safe. They might open secret bank accounts so their partner can’t use the money to fund their addiction.

 

Affairs

This is the double whammy of infidelity. One partner is having a physical affair while also committing financial infidelity. The cheating partner is buying gifts and paying for romantic dinners all behind their spouses back.

 

 

How to overcome financial infidelity

It’s easy to comprehend how financial infidelity happens. That doesn’t make it any easier for the person who has been duped. In an effort to avoid financial infidelity, or overcome it if it’s already occurred, here are some strategies you can try with your partner.

 

Communicate

Couples should have open conversations about money as soon as their relationship starts to get serious. And they’re an absolute must before any shared long-term financial commitments are made like buying a house, getting married, or even adopting a puppy.

 

Take responsibility

Get your heads out of the sand. Both partners should be aware of their combined financial situation. If one person is more financially savvy and enjoys taking care of the finances, that’s fine. But, you both need to be aware of what’s going on and how to access account information so no one is surprised.

 

Come up with a plan

There’s no such thing as “one size fits all” when building a financial plan. It is up to you and your partner to discuss and decide what works best for you. The important part is to make sure you have a shared plan that outlines how your finances will be managed. This includes things like how you will split expenses, who will be responsible for ensuring the bills are paid, what are your debt and investing philosophies, and whether or not you will consult each other before making a (large) purchase.

(See Guiding Principles for a unique way to get on the same page with your partner.)

 

 

Are you ready to start talking?

Money is the number one thing couples fight about and one of the leading causes of divorce. It’s no surprise financial infidelity is so prevalent among American adults.

Partners come together as two separate people with separate beliefs, values, and opinions about money. This makes it difficult to find common ground when it comes to how to manage your money.

If you’re going to avoid or overcome financial infidelity, it’s imperative you talk early and talk often. If you are still struggling, consider reaching out to a therapist or financial coach to help you get on the same page. Given what’s at stake, isn’t it worth the effort?

 

 

After 31 years of marriage, it finally happened.  Her husband told her he wanted a divorce. This wasn’t “in the heat of the moment” stuff, but a non-emotional directive.  He wanted out and that was that.

It wasn’t completely unexpected but it was still jarring.  And painful.

Once past the initial shock, her thoughts turned to the realities of divorce and the decisions that needed to be made.  Her first thought was “where am I going to live?”

 

What to Do With the House

 

“Where am I going to live” is not only a financial question, but an emotional one.

Buying a home is often the most expensive, and emotional, financial purchase we ever make.  It goes beyond four walls and a roof, beyond the money. For some, their home is their identity.  For others, it represents safety and security, it’s their sanctuary. For many moms, there’s the added emotions of “this is where I raised my children” and it hits them hard.

Unfortunately, emotions don’t provide clarity; they cloud judgment.

When the subject of the house came up with her divorce attorney, she was confused and unsure about what to do.  Buy out her husband and keep it? Have him buy her out and let him keep it? Sell it outright?

Her attorney suggested she meet with a realtor to get a value for the home and explore her options.

By the time I met with her, she had already met with the realtor and had some numbers.

Here’s how it went:

    • Based on your income, your earnings support $4,000 in credit and housing debt
    • Of that, $2,800 could go towards the home
    • Your monthly non-housing debt (i.e. credit card, car loans, etc.) could be a maximum of $1,200
    • Currently, you’re at $725 per month for your car, student loan, and credit cards, so you’re fine there
    • The home we’re looking at is around $2,250 per month including property taxes, insurance, PMI

On the surface, this seems reasonable.  Consult with an expert who can tell you your options.

The problem is they were putting the cart before the horse.

Yes, it’s true, she should know the value of her home; no problem there.  But, it was far too early to be looking at new homes and pricing out payments.  Had they considered not jumping into a mortgage again, maybe renting for a year?

 

 

 

 

A better approach is to first determine how much home she could afford and then tailor our search based on this number.  Looking at homes this early in the process, particularly in cases of divorce, often leads to unnecessary emotional strife (looking at homes you can’t afford) or financial struggles (buying the home anyway).

 

Bankers Have No Idea What You Can “Afford”

 

We often look to bankers (and car dealers) to tell us how much of a home/car we can afford.  After all, they’re lending us the money so they should know, right?

Wrong.

Banks have no idea what you can “afford.”  When they tell you you’re eligible for a $2,800/month mortgage payment, this does not mean you can “afford” it.  It just tells you the upper limit of how much the bank will lend you.

 

There’s a major difference between how much a bank will lend you and whether or not you can afford it. 

 

Borrowers often conflate the two which all too often leads them to buy too much home.  By the time they realize their mistake, it’s too late. They’re stuck with a payment that haunts them for years or even decades to come.

A better approach is to start by calculating what you can afford and then go looking for homes in that price range.

This is the approach we took.

 

The “How To”

 

There are several steps to this process but if you take them one at a time it’s totally manageable.  You don’t need mad math skills for this to work for you. The stakes are high so it’s worth a little extra effort to get this decision right.

The first step is to calculate your monthly take-home pay.  Take-home pay is the amount you receive after taxes and all other deductions have been taken out of your pay.  In short, it’s the amount deposited to your bank account.

In this case, it was $5,875 per month.

We then added up all of her committed expenses.  This includes any liabilities (car loans, credit card debt) and monthly expenses she couldn’t realistically avoid (i.e. groceries, utilities).

 

 

 

After paying her committed monthly expenses, she had $3,160 for the rest of her monthly spending including the new mortgage.   

If we plug in the mortgage number from above, here’s how it looks:

 

 

 

This means she’d have $910 per month left over for “lifestyle spending.”

We then listed her most common lifestyle spending:

 

 

 

We didn’t plug in numbers in each category because: 1) it isn’t necessary and 2) we’d just be making up numbers.  Knowing we have $910 to cover all of these expenses is good enough. [See Budgets Are Bullshit for a better way to manage cash flow.]

Finally, we listed future spending/savings needs not currently being addressed:

 

 

 

Armed with this information, we could (finally) have a realistic discussion about how much home she could afford.  She could weigh the impact of buying more or less home against how it would affect her lifestyle spending.

To understand the give-and-take relationship between the new mortgage and lifestyle spending, think of it as pulling on a string.

If you pull the string (money) towards the home, it means pulling dollars away from lifestyle spending.

If you pull the string towards lifestyle spending, it means pulling dollars away from the home.

 

 

 

You can’t have it both ways.

You can’t increase your mortgage payment without concurrently decreasing your lifestyle spending.  Conversely, you can’t increase your lifestyle spending without decreasing the amount of home you buy.

The good news is you get to choose what’s more important to you.  It’s entirely within your control.

 

Not Just for Divorce

 

This “pulling on a string” dynamic isn’t just true in cases of divorce but all situations where you’re making a long-term financial commitment.

The next time you consider taking on a long-term financial obligation and need to know if you can “afford it,” walk through the steps outlined above first.  The true cost of the decision – both in financial terms and in lifestyle spending – will be evident and put you in the best position to make an enlightened decision.