Money for Life

14. Joining Finances with your Partner – Considerations, cautions and the clever way to do it

Episode Summary

Romance and love can be one of the most exciting elements of our lives. And when you include money in the mix, sparks can fly – but not necessarily in the good way. Money is one of the most common areas of marital conflict. It is therefore wise when mixing money and love to proceed cautiously and consciously. In this episode I share six things to consider before joining your finances. If you do decide to mix money and love I’ll also share the clever way to join finances, plus I’ll share two cautions and two things not to do.

Episode Notes

Romance and love can be one of the most exciting elements of our lives. And when you include money in the mix, sparks can fly – but not necessarily in the good way.

Money is one of the most common areas of marital conflict. It is therefore wise when mixing money and love to proceed cautiously and consciously.

In this episode I share six things to consider before joining your finances. If you do decide to mix money and love I’ll also share the clever way to join finances, plus I’ll share two cautions and two things not to do.

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Check out my course to help you take control of your money, to stress less, save more and afford a life that lights you up!

For my free course visit www.MattHern.com.au and follow FB @matthern, LinkedIn @matthern IG @matthern_moneyguide

Episode Transcription

Romance and love can be one of the most exciting elements of our lives. And when you include money in the mix, sparks can fly – but not necessarily in the good way.

Internationally renowned relationship researcher John Gottman found that money is one of the most common areas of marital conflict. Closer to home, in Relationships Australia’s, Relationship Indicators Survey, money was cited as the top cause of relationship breakdown.

It is therefore wise when mixing money and love to proceed cautiously and consciously.

In fact, just like it’s no longer assumed that couples will formally marry, have children or even live together, in our modern world fully joining your finances should not be a foregone conclusion.

Just because you’ve decided to move in together, get married or have children doesn’t mean you need to join all your money.

There are examples of couples succeeding in each of those scenarios who have not joined finances, so I’m reluctant to recommend anyone ‘should‘ join finances.

Instead, I recommend couples tread slowly and carefully when joining their money.

In this episode I will share six things to consider before joining your finances. If you do decide to mix money and love I’ll also share the clever way to join finances, plus I’ll share two cautions and two things not to do.

 

Hi, this is Matt Hern and welcome to Money for Life, where I blend insights from social science and personal finance to help you afford a life that lights you up. In Money for Life, I explore how you can get more happiness from how you earn, spend and manage your money.

As you listen please remember this is general information and not personal financial advice.

 

One of the first considerations is, how freely can you talk about money? 

Many people grew up in households where money was a taboo topic. Discussing how much someone earned or their financial net worth was considered impolite and even dirty.

In my lifetime I’ve seen society become more comfortable talking openly about relationships, sex and intimacy, mental illness and mental wellbeing.

But money is still taboo for many. About the only money topics people are happy to talk openly about is their hot tip for getting rich quickly or how they got a sweet deal on something they bought.

Money can also often be quite triggering. Even talking about splitting costs on a date or asking your partner for their share of the concert tickets you organised can be quite difficult for many.

If you’re going to successfully join finances, even a little bit, you will need to talk openly and honestly with your partner.

I perhaps can’t emphasise that point enough- if you avoid talking openly about money, conflict will inevitably arise because of what money represents to us.

So, I invite you to begin with some self-reflection and consider “Are you comfortable talking openly about money? What emotional charge do you bring to the conversation? Is it light and grounded, or perhaps, heavy, anxious or avoidant?

If you’re not sure then try to recall a time you were speaking about money other than a hot tip. Try to recall how you felt during that conversation.

Once you have a sense of how comfortable you are to talk about money then shift your focus to your partner and what you’ve noticed about them when money comes up in conversation.

If you notice that talking openly about money makes either one or both of you uncomfortable then perhaps one of the first money conversations you have is discussing how you will have money conversations. You can share this podcast episode with your partner as a non-confrontational way to initiate the conversation.

 

Now, once you’re talking about money one of the next most important things to realise is that you’re not really talking about money. You’re talking about what that money represents to you – the meaning.

Two of the key elements of a successful relationship that researcher John Gottman identified is to create shared meaning and to make life dreams come true.

Money funds our life choices, so the second consideration about joining finances is how aligned are your financial values? What does money mean to each of you?

Sure, you both might say things like money represents security, independence or freedom, but dig deeper about what each of those stages looks like to each other.

It’s like if you imagine two people writing in their online dating profile that healthy eating is important to them. It sounds like a good fit, but on their first date they discover one is a meat-loving omnivore while the other is a vegan raw food enthusiast. Healthy eating means something different to each of them.

A big part of talking about financial values is talking about what you value in life, and what represents a flourishing life for you. As I say in the introduction to each episode being good with money is about affording a life that lights you up. So when dreaming about your future together discuss how you plan to fund those dreams.

Just like our omnivore and vegan, if your financial values are vastly different it’s not impossible but it’ll take work. To be happy it will take conscious effort to develop a money system that works for both, and that may mean you don’t have joint money.

 

Moving onto the third consideration for joining finances, reflect on how your values show up in your money behaviours and habits.

Where are each of you on the spectrum of Frugal to Frivolous?

How about on the spectrum of Planned to Impulsive?

Do you budget and track your money, or do you wing it and hope for the best?

Having different money habits is easier to make work than having different financial values. But it’s our partner’s daily behaviours that we notice and so vastly different habits can be irritating, often because of the meaning we make about the impact of those behaviours on our needs for security, freedom and for living a life we love.

So, if you want to make it work make sure you implement shared plans to meets each of your needs as represented by your values and dreams.

 

Ok, the first three considerations have been bigger picture compatibility considerations. The next three considerations are practical considerations that can become points of friction.

The first practical consideration is how you handle a substantial difference in income and/or net assets, which often there is. Whilst not a deal breaker I’ve seen this become a big issue, especially when there are also significant differences in values and habits.

So it’s best to have explicit, conscious conversations about how your income and wealth are shared, both in funding your life together and in other unfortunate scenarios.

 

Which leads to the second practical consideration which is somewhat clinical, (okay, admittedly it’s all been clinical). Do you remember those traditional marriage vows of “I take you in sickness and in health?”

Before you move in together and before you join your finances ponder this scenario, “how committed am I to supporting my partner if they lose their income due to illness or injury?” What about if it’s a permanent disability and loss of income?

Maybe you like your lover enough to move in together but not enough to be solely responsible for paying the rent and bills.

Being seriously ill or injured is stressful enough without the added financial stress.

So to mitigate the financial risk, each of you should get professional insurance advice and make the insurance premiums a priority part of your shared budget.

Another scenario related to how your money will be shared, and the sixth consideration, is if you are blending families. 

When one or both of you have children from prior relationships, even adult children, carefully consider how joining finances will impact on the distribution of your money upon death.

Assuming your current partner will do the right thing by your children has been the cause of many, many expensive litigations.

It’s money well spent to consult a specialist estate planning lawyer for advice, even if you think you’re not worth much.

In fact, as far as I’m concerned everyone should have properly drafted estate planning documents from the moment they are legally an adult – but that’s a topic for a future episode.

 

Righto, they are six important things to consider before joining finances with your romantic partner. Let’s now talk about the smart way to go about sharing your money.

Firstly, if the thought of joining your finances makes you uncomfortable, don’t do it yet.

Given those six considerations are quite significant, and money is a big element of couple’s lives, for couples who do choose to combine finances, I recommend to pace yourself – join your finances at the pace you join your life. In this way you give yourself time to observe and explore the three financial compatibility elements.

 

For example, from early on share the costs of each date. This is a good way to gently get a sense of how your new flame relates to money and spending.

Then when planning your first big holiday together set up a joint saving account and each commit to regular, automatic deposits.

Take the same approach when saving for other big life events such as a home deposit, engagement party or wedding.

If you choose to live together manage your money like housemates, sharing the rent, groceries and joint entertainment.

With each step, keenly observe your partner and yourself and how you navigate your inevitable differences in money management. If alarm bells ring, either get the professional help of a financial planner or couples counsellor or get out of the relationship.

 

Whilst in one my examples just then I did suggest managing your money like housemates, my first big caution is to not rush to move in though because shacking up may cost you rather than save you - even when don’t share finances.

Moving in together can seem like a smart way to save money but there are significant consequences in the event of nasty break-up or premature death. Even though you may not have fully joined your finances the law may see it differently in those circumstances.

 

Many people forget they have default life insurance in superannuation, sometimes in the hundreds of thousands of dollars. If you prematurely pass away your de facto partner may be eligible to receive it all. Not your parents or your siblings. 

If you want to prevent your de facto partner receiving it all ensure you complete a beneficiary nomination in your superannuation and have a properly executed Will. Don’t leave it to chance that your partner will share the money with your family if you die unexpectedly.

 

And while we’re talking about uncomfortable scenarios, we’ve probably all seen how a romance ending can bring out the worst parts of usually nice people.

If you’ve been living together long enough to be considered de facto under family law, then a nasty break-up could see your former partner claiming some of your hard-earned assets. Your definition of fair will likely differ from your former partner’s definition, and both will probably be different to how family law sees fair and equitable.

Family law is a complex area so when there’s a significant difference in income, assets or money habits it pays to not rush into living together. Definitely pace yourself and ensure you first can comfortably talk about money with each other.

If you’re concerned, then consult a family lawyer to learn about your options. The few hundred dollars will be money well spent on your education.

 

I’m going to wrap up now with two final cautions for those couples who have decided to join finances, especially if you are joining finances before being legally married or having children.

 

It can be tempting for a money savvy partner to repay their partner’s consumer lifestyle debt, such as credit cards and car loans, thereby saving interest.

But doing so will deny the indebted partner the critical opportunity of learning how to control their own spending, which is essential in avoiding future fights about money.

As you explore your financial compatibility it’s a good idea to observe how your partner gets themselves in and out of debt. Pacing yourself in joining finances gives yourself that opportunity.

 

Along similar lines do not be a guarantor for your partner’s loan until you’re married or have fully joined finances. If the relationship turns sour your former love could leave you saddled with the repayments. This is known as catching a ‘sexually transmitted debt’ (STD) and could trash your credit record. STDs can also happen with jointly owned property when you don’t structure the loans properly.

Another reason not to be a guarantor is that you will again deny an opportunity for your partner to learn healthy money habits and for you to observe how they behave.

A strong desire for something you can’t yet afford is a good motivator for learning healthier behaviours. Guaranteeing your partner’s loan will usually enable them to buy something sooner than they would otherwise be able to afford it, thereby removing a motivator.

 

I’ll close now with a quick summary.

The six elements to consider before joining finances are:

  1. Can you talk about money freely and openly?
  2. How aligned are your financial values?
  3. How similar are your money habits?
  4. Is there a substantial difference in income and/or net assets?
  5. How committed are you to supporting your partner if they lose their income due to illness or injury?
  6. Are you blending families?

I also cautioned that if you plan to move in together you may be unknowingly sharing your financial resources with your partner in the event of a nasty break-up or premature death. So sort out your estate planning and consult with a family lawyer.

If after considering all of those factors you’ve decided to join finances then the smart way is to pace yourself – join your finances at the pace you are joining your life.

That said joining finances prematurely or too quickly can undermine the health of your relationship by masking bad habits before they’ve been addressed. So, don’t be too hasty in repaying your partner’s debts or being a guarantor or co-owner on a loan.

 

Yes, I know this is far from romantic, but neither is fighting about money. I believe everyone deserves a flourishing love life, so I hope this helps you and others you care about to make informed decisions. 

 

I’m Matt Hern and this is Money for Life.

If you haven’t yet fully joined your money with your partner then I encourage you to share this episode with them as a way to open the conversation. 

Similarly, think of one friend or family member who’s in the early stages of commitment with their partner and lovingly share this episode with them.

For help in navigating the conversations and the practical elements of joining your finances slowly and carefully speak with a money coach or financial planner.