Ok. We all know that talking about money to our honeys (especially the new ones) is not easy. Unfortunately many people do not have those discussions with their honeys about finances at the beginning. Those hard chats were never really had until too late.
Study after study has shown that one of the major, if not the most significant, cause of conflict in relationships is money and finances – and debt. So if money is one of the biggest source of conflicts in a relationship – doesn’t it make sense that you work out early on whether your partner (Prince Charming or Princess) has the same money values and attitudes as you?
If you are not convinced by this then, given that conflict may lead to divorce – and that divorce is not only a heartbreaking and traumatic experience but also one of the worst financial decisions you can make – surely it makes sense to take steps to take a common “cents” approach to your finances with your loved one.
Still not convinced? Ok let’s talk about money and divorce. What many people do not realise that once married or in a de facto relationship (typically a relationship of two years or more) that, as a general rule;
- it is not only all assets BUT all debts that are considered joint. Ever heard of the new STD – sexually transmitted debt?
- assets and debts continue to accrue – not until separation – but (with a few exceptions) until you obtain Court Orders (either by consent or following a court judgment) or enter into what’s called a binding financial agreement (which requires both of you having lawyers who have signed off on your agreement);
- income is not something that is always split between parties – spousal maintenance is not “automatically” paid “to keep you in the manner to which you have come accustomed”; and
- and unfortunately, child support is abysmally inadequate. People’s salaries are capped at around $160,000 which means that the CSA amount only goes up minimally if someone is earning over $160,000. The calculations are also made given the average cost of raising children Australia wide – rather than based on the costs given the socio-economic area in which you live.
Research by the Australian Institute of Family Studies found that while men do not typically suffer a fall in income following divorce, women typically do – and what’s more it takes them about six years to recover.
This means that the financial consequences of your marriage and particularly women can last well after your divorce.
So what can you do to “divorce proof” your finances (as much as is possible)? Here are some of our best tips:
1. Talk to your partner about both your ideas about money – and what money represents to both of you
Always Remember: money meaning grows on family trees.
Find a safe time to talk to your partner and talk about your childhood messages about money.
Do you think about money a means to an end or an end in itself?
Were their parents: spenders, savers, hoarders, avoiders, risk takers, dreamers or givers? Did they talk about money in their family? What about your family? What money messages did they give you? How may they be affecting you today?
Talk about your fears – and your delights – about your perceived view of your partner’s attitude towards money. What are you short term and long term goals – and what are his?
A good way to start a conversation about money if you are hesitating is to talk about money with your loved one is to talk about they did with their Easter Eggs when they were a child. Did they save them, eat them straight away, give them away, trade them or keep them until the following Easter?
Another possible opening question is what would you do if you won $100,000? Invest, spend, hoard, pay off you credit card, or don’t know and don’t care?
I know that such conversations can be awkward, but I would like you to ask yourself though: if you cannot talk about money with this person, are they really the person you will want to trust with your heart and purse and bank balance?
2. When moving in with your partner, write down a list of assets and debts – and come up with a budget.
This is important because doing so will give you a bit of insight into how your loved one deals with money.
Hopefully it will also give you some idea about whether any debt, or what kind of debt is being brought into the relationship.
And because if you split up, what you both brought in at the time you MOVED in together may be an important factor in working out how your assets and debts will split between you (other factors are what contributions you both made – financial and non-financial during the relationship) and future factors (such as who is looking after the kids, your earning capacities etc).
We tend to find that if people are honest upfront when it comes to their finances that sets up a positive financial relationship going forward. But always be aware that things can change and that it is your responsibility to be across this as much as possible.
3. Be across your household finances. ALWAYS.
Household finances means your household budget, and BOTH of your assets (including ownership of any assets), debts, incomes, superannuation, your redraw availability, credit card amounts (what’s owing and any credit limits) and your insurances. We are talking detail here people.
In our experience many women are across the everyday aspects of the budget but are in the dark when it comes to their partner’s income, investments, their mortgage or other debts. That is, that the women are more comfortable with making micro decisions and letting the man in their life make the macro financial decisions.
There are lots of excuses that we can make as to why the men in our lives take responsibility for the household financials – “we share duties and that’s in his basket” or “he earns more so that’s his responsibility”.
But getting involved may not help you in the event that divorce happens to you, but may actually help your relationships. Studies have shown that men actually WANT women to get involved the household’s financial decision making. For example, a 2011 LPL Financial Study of 1,000 affluent men found that 75% of men wish that their partners would take a more active role in the household finances. Our anecdotal evidence gained from speaking to many of our male clients, is that men generally feel the burden of this responsibility – and often feel it harshly. Many men blame this burden as one of the factors leading to the demise of their relationship.
This leads us to our next tip.
4. Be Interdependent – Not Co-dependent
Remember: A Man is not a Meal Ticket. Nor is a woman.
Remember: There is no such thing as Prince Charming (or Princess Sweetheart)
Being interdependent (rather than co-dependent or independent) means that each person in the relationship feels able to look after themselves with respect to their finances.
Some signs of “unhealthy” dependency may include not knowing where your assets are held, not knowing in whose name assets are held and not knowing your credit card limits.
Being interdependent does not require you to be fully financial autonomous but does mean that you may have some financial independence in relation to even a small percentage of your income.
For example, you could set up your own “free spending” or “rainy day” bank account (you can spend this money on his birthday present if you want), a line of credit (eg credit card) in your own name (it might be hard to do so later, particularly if you are not working at the time) or an investment account. In the event of a split, yes this will be considered joint funds BUT it will be in your name – and therefore will still be accessible by only you.
Being interdependent means having individual relationships with the people who are across your finances: your accountant, financial planner and personal banker. It means keeping up to date records on all your finances in safe place.
It means taking charge of your superannuation.
And it means, yes, keeping your career on track. When taking time out to have your children, keep your options open by keeping up with your contacts, studying or taking on part-time work (if possible). Yes the best thing a woman can do to protect herself financially is have an ability to earn an income.
Beware of people and partners who use money to control. Many times we have come across people who use money to force people to do their bidding – to bully and intimidate. The best vaccine against such control is to be across the fine detail yourself – and to be interdependent!
Don’t be reliant – be resilient!!
Prepare for the worse noting that many of these tips are relevant for many “worst case scenarios – death/illness/incapacity. We hope you never go through any of these different life experiences – but if you do we hope you are prepared.
We simply could not have got through it without Jacqueline
Whilst the separation was the hardest thing I have done in my life I found that Jacqueline made the process so much easier for everyone involved with the right balance of compassion and firm guidance where needed. We simply could not have got through it without her. Separation Collaboration