Do you know what your spouse or partner is doing with your money? Is he telling you the truth about everything he spends? Is he really paying the bills like he says he is? Are the loans you co-sign and the investments you make really as secure as he says they are? What are the signs of lying you need to be wary of?
For most people, the answer to all these questions is “yes”. But in the unlikely event things aren’t as rosy as they seem, you could be in for a very dark, cold and lonely experience. It’s terrible when someone you trust takes advantage of you. It’s far worse when that someone turns out to be your spouse. How do you make sure you aren’t being fiddled before it’s too late? In my experience, there are 3 main areas to look at with unique safeguards:
Personal freedom includes having the liberty to spend without being accountable for every penny. But that doesn’t mean your spouse can spend every penny as he or she sees fit. This is true no matter who makes the money.
A couple came to see me last year because the wife was perplexed. They earned in excess of $100,000 a year and their records indicated that they only spent $87,000 to live. But instead of saving $13,000 each year, they were going in the hole to the tune of $10,000. That’s a $23,000 swing and it’s a hefty hit. The Mrs. looked at the bank records and discovered that Mr. Party maker was taking $2,000 a month in cash every month and partying hardy. When his wife understood what was going on she immediately took control of the finances and threw Peter Partymaker out.
How Do You Stop This From Happening?
- Make it a rule to spend as little cash as possible because there is almost no accountability with that mean green. If you see a big spike in the use of cash – investigate fully and immediately.
- Download all your transactions from banks and credit cards into a spending tracking system. Ask lots of questions if something looks weird.
- Compare your income to spending. Most people miss this step. People who live secret lives often have secret credit cards and bank accounts. But when you tie income to spending those secrets are hard to keep. The example above illustrates this point. Let’s say your gross family income is $100,000. You look at spending, taxes and savings and you can only account for $85,000. That means somebody is spending $15,000 under the radar. That’s a lot of cabbage that’s unaccounted for. With a little digging, you should be able to find out where that money is going.
If your spouse plays “make believe” with your joint tax returns you could end up in big trouble. That’s because if you sign the return you are jointly and individually responsible for the declarations made in the return. If the IRS comes back and determines that your Prince Charming filed fraudulently you could even be criminally prosecuted. And if he or she later skips town and or you divorce, it won’t help you either. You might be able to use an “innocent spouse” defense but that could be costly and take time. Here’s a proactive “to do” list to protect you against this threat:
- Never sign a tax return you don’t understand. If you need to get your own CPA to explain your return to you, do so.
- If you think your spouse is up to some monkey business with the tax returns, don’t sign them. Instead, file a “married filing separately” return and get yourself in front of a tax attorney as soon as you can.
A successful marriage requires team work. Don’t abdicate your rights when it comes to finance. Even though I am a seasoned CFP, financial advisor and investment manager, my wife was complete veto power when it comes to major strategic investment and business decisions. This is how it should be. Even though I’m supposed to be Mr. Smarty Pants when it comes to money, her input is invaluable.
You may or may not be as schooled in investing as your partner. So what? Your gut feelings are still just as valid as his. If you have a strong sense that you should or should not be making certain investments, trust yourself. Insist on having an objective third-party moderator if you and your spouse come to an impasse.
It’s important to trust your spouse. And the best way to build financial trust is to verify what’s going on and never allow important financial transactions to transpire unless you are 100% comfortable with it. Nothing is so complicated that you can’t understand it with a little studying or with the help of independent council.
Have you ever been hoodwinked by your spouse? How did it happen? How did you uncover it? What would you do differently today?