A few months ago, a poll was conducted by the National Endowment for Financial Education with the aim of analyzing financial infidelity among U.S. adults. The results showed that among those who report having ever combined finances in a relationship, two in five (43%) confess to having ever committed some act of financial deception, with 85% of those individuals stating the indiscretion affected the current/past relationship in some way.
“When you comingle finances in a relationship, you’re consenting to cooperation and transparency in your money management. Regardless of the severity of the act, financial infidelity can cause tremendous strain on couples” says Billy Hensley, Ph.D., president and CEO of NEFE.
Financial infidelity is an act of deception by one partner in a relationship where finances are combined. It could be hiding purchases, money or accounts, lying about the amount of income earned, debt owed and more. In 2019, a research paper by professors at four American universities defined financial infidelity as engaging in any financial behaviour that is expected to be disapproved of by one’s romantic partner and intentionally failing to disclose this behaviour to them. It involves both the financial "act" and the subsequent concealment.
In 2018, researchers from the University of Southern Mississippi polled 414 U.S. residents on the topic. More than half of the participants said they had kept money secrets, such as hiding receipts or lying about the price they paid for a particular item, from their partner. Yet, just 27% of respondents admitted to having committed financial infidelity.
But studies are pretty unanimous about the fact that financial infidelity has the potential to be as harmful for relationship health and longevity as sexual infidelity.
So what must you do? Financial writer Vikram Barhat presents us with insights, after speaking to Tina Tehranchian, senior wealth advisor at Assante Capital Management, one of the largest wealth management firms in Canada, supporting 900 professional advisers who oversee over $46 billion of wealth.
Honest communication about debt is critical to a happy relationship.
While debt deception may not create widespread media sensation like an extra-marital affair, it’s not unusual. In Canada, for instance, a pre-pandemic study conducted by Rates.ca found one in five Canadians were committing financial infidelity by keeping a secret around money. As many as 17% admitted the monetary value of their secret debt exceeded $10,000. A similar study conducted found debt deception was more prevalent in millennials, 51% of whom confessed to having pulled the wool over the eyes of their significant other in money matters.
A secret could mean hiding from your spouse the few thousands you owe a friend from a bet. It could also mean willfully concealing a few lakhs racked up in debt owing to an extravagant lifestyle. But the trouble with fibbing isn't just about the size of the debt.
Regardless of the magnitude of the mendacity, a violation of trust could have serious consequences, including divorce. Not to mention, the creditworthiness of one partner can take a beating because of financial indiscretions of the significant other, especially if the couple has combined their finances.
However uncomfortable it may feel, the idea of frequent and frank discussion about money has undeniable merit. The longer people wait to disclose their secret debt, the harder it becomes to do it, and the more distressful the consequences. The only way to get around it is through it.
Tehranchian advises: Ideally, there should be no hidden debt in a relationship. The amount that could be a deal-breaker would depend on the tolerance of each partner for having secrets of any kind in a relationship. Usually, partners keep their debt a secret because they are ashamed of having taken on a debt. If the debt was incurred during the relationship without the knowledge of the other partner, then they have also breached the trust and confidence of their partner, which is another reason for being ashamed and wanting to hide the debt.
Look before you leap.
If you're planning to enter a long-term relationship, don't keep a detailed talk about finances off the table. Being open with your partner about an unpaid debt is critical. Ideally, bring it up before making a long-term commitment. Don't leave it too late in a relationship to talk about finances. Provide full financial disclosure before getting married and merging your finances with your partner.
Tehranchian advises: Solid relationships are built on trust and confidence and being open and honest from the start of the relationship helps build a solid foundation for a long-lasting union. Hiding debt, for instance, may make one partner feel like they look better in the eyes of the other, but it exposes the entire relationship to the risk of breaking down due to abuse of trust. Also, if one of the partners is expected to support their parents, it must be discussed. No one wants to be in a relationship where their partner lies to them about their finances, no matter the reason.
Have the talk. Keep communicating.
Have a good open start, but keep the conversation going. Set limits and discuss goals together, and do a joint financial checkup at least once a year to find and fix any issues.
'Better safe than sorry' is a good policy to follow, especially when it comes to finances. You may even consider taking legal advice on drawing up a marriage contract, or a pre-nuptial agreement. Or, at least deciding what should be held jointly, and who should be the nominee for certain assets. It is not romantic way, but it could provide an effective security blanket when relationships sour.
Tehranchian advises: Being open and honest about one’s finances is a good strategy both at the beginning of a relationship and as an ongoing policy. But you need to be honest with yourself. If you have an iota of a doubt that your partner may be marrying you because they are more interested in your money than you, then you should get a marriage contract or a pre-nuptial agreement to eradicate those doubts.
Life after Debt.
Sooner or later, the truth catches up.
The loss of trust in a relationship will likely take longer to repair than your credit history. So, owning up to your misdeed could be a good place to start. And the sooner the better. Bad debt may be difficult to fix, but some measures can be taken to remedy the problem. The same can't be said for fixing a broken heart or home. As soon as you have the great confession out of the way, it's time to create a repayment plan to defuse the debt bomb. Do read, Here's how to get out of debt.
Tehranchian advises: Unfortunately, when the truth finally catches up with you, it is too late and the foundation of trust in the relationship would be tarnished no matter how you try to explain the situation.
Hidden debt could cause more serious problems than being turned down for a loan. It is always better to voluntarily disclose your financial infidelity than to be found out. Your partner is more likely to understand that as a human being you made mistakes and are now being truthful about it and want to have no secrets. But, if you keep it a secret until you are exposed then it would be extremely difficult to regain your partner’s trust.
It is always better to come clean as soon as possible and decide on a strategy to eradicate the debt together with your partner; this could actually help solidify your relationship. Partners can and should work together to make a repayment plan and discuss the debt with a financial adviser and come up with the best strategy to eliminate the debt.
The advice in this article initially appeared on Morningstar Canada but has been edited for an Indian audience.