The hack of Ashley Madison’s website several months ago revealed more about extra-marital affairs than the participants surely wanted. But there are far-less-obvious forms of infidelity that also can be damaging to a relationship; one of which is financial infidelity. The Pennsylvania Institute of Certified Public Accountants advises you on how to identify the causes of financial infidelity and how to prevent it in your relationship.
What Is Financial Infidelity?
Financial infidelity is the violation of an assumed or stated contract between couples about spending, saving, and investing. Some of the more obvious examples of financial infidelity are accumulating credit card debt, withdrawing assets from a joint account, or excessive gambling—all while keeping them a secret from a partner. Less-obvious examples include making risky investment decisions without consulting a partner, or even hiding expensive purchases from a spouse because he or she may disapprove.
Sometimes the intention is not so much to deceive, but perhaps keep the peace at home. To avoid financial infidelity there must be sufficient transparency via open and honest communication about the financial decisions that impact your relationship.
There are many reasons why financial transparency can be hard to achieve. For example, couples may not agree on how to spend money. One spouse may have more expensive taste, while the other prefers to save money. This can also be true if one spouse makes more than the other and feels a sense of entitlement toward their assets. Spouses may also feel a lack of independence if they are required to coordinate every purchase. Inheritances, second marriages, and other unique family situations can further complicate matters.
It is important for couples to determine what they want their shared financial life to look like. The earlier this is agreed upon, the easier it will be to achieve. Some couples may decide to keep separate bank accounts and have an additional joint account for shared expenses; others may decide to keep one joint account for everything. Either way, it is important that both parties know and agree on what is going in and out of these accounts.
Many couples choose to employ a segregation of duties when it comes to managing household finances. One spouse may take complete responsibility for paying the bills and balancing the checkbook, in which case the other spouse may lose touch with the couple’s financial picture over time. This can lead to financial infidelity if the spouse who is making the spending decisions does not consider what is best for both. One way to alleviate this risk is to make sure both parties are aware of what is going on. Having open conversations about how much is being spent is both necessary and critical. It is important that the intention that fuels household decisions is always in the best interest of both parties. If both parties are involved in bill paying, there is less of a chance for a dispute later.
The line between right and wrong for investing decisions is not as clearly defined. Each person may have different goals and ideas about how to reach goals. One spouse may not share identical risk preferences. When it comes to identifying appropriate asset allocation or changing a portfolio, it is important that both parties are consulted.
Couples often enter into relationships with acquired assets or debt. Couples need to be open and honest about their complete financial pictures. They should discuss whether assets will be held jointly or kept separately, as well as agree on a plan to pay off any debt. It is also a good idea for individuals to share their credit reports with their spouses.
They need to openly discuss past debt, future goals, and what it means to be financially independent, together. Then couples should set a budget and ground rules that each person can abide by.
Consult Your Local CPA
Want more great advice on financial issues? Turn to your local CPA. He or she can offer practical advice to help you make smart financial choices. If you don’t have a CPA, you can easily locate one online using the PICPA’s free, online CPA Locator service
To find more information on various personal financial matters, visit the PICPA’s consumer page at www.picpa.org/moneyandlife