Money can’t buy love, but even in the most loving relationships it can certainly be a source of conflict. For proof, look no further than the fact that, aside from infidelity, financial issues are one of the most commonly cited causes of divorce.Just ask registered professional counsellor Michael Haggstrom, who sees money matters come up in his Calgary practice all the time.
“Money is almost always an issue among couples, but it’s something a lot of couples don’t talk about,” he says. “A lot of couples approach the topic naively, but part of being a couple is having to run things as a business: there are expenses to pay and debts to address and you have to be pragmatic about that.”
So for successful financial planning, couples need to put all their cards on the table. Regardless of their attitudes about money — it’s hardly uncommon to see a penny pincher marry a retail therapist — spouses must disclose their finances if for no other reason than each is liable for the other. Being upfront from the start can help minimize the impact of an unexpected financial hit down the road, whether it’s job loss or having to pay for a new roof.
Start with the big picture
Laura Chanin is pictured in an undated handout photo.Are you a saver or a spender? Does money give you security or is it the last thing in the world you care about?
“By figuring out your style with money, you can figure out ways to work together,” says Vancouver-based HollisWealth investment advisor and certified financial planner Laura Chanin. “The end results can be greater financial success and relationship harmony.”
Divulging details and looking at their overall financial picture together can help couples accomplish financial goals more efficiently too.
“Suppose there was a couple who wanted to buy a home, and one of them was saving into a high-interest account earning 1.5 per cent and the other spouse was still paying down some credit-card debt at 18 per cent before he could add to the down-payment fund,” Chanin says. “If both focused on the paying off the higher-interest debt first and then went back to saving for the down payment, they would get there much faster.”
It’s not necessarily easy to talk about debt, but it’s a crucial discussion to have because it can affect so many aspects of a couple’s plans and dreams, from buying a home to travelling.
Be careful about merging debt, however.
“You may get a lower interest rate on a debt by refinancing existing loans or lines of credit and merging it into one larger debt, but once you merge a debt, both parties are now responsible for it,” Chanin says. “If your partner hits the road, you are then on the hook to pay it. I’ve seen a few cases of this, and if you aren’t able to continue to pay the debt, it impacts your credit rating.”
Ownership: Who has what?
Some assets, such as RRSPs and RRIFs, can’t be merged. However, they have a designated beneficiary, which is often the spouse. Most other assets are able to be jointly owned.
“One advantage to joint ownership of, say, a home or bank account or car, is that if one person dies, the asset rolls over to the other partner easier than if it wasn’t jointly owned,” Chanin says. “This reduces probate fees and gives the survivor access to those assets immediately after the partner’s death.
“A reason to avoid merging such assets would be if one partner had his own business and was concerned about liability,” she adds. “Then it would be safer to keep the assets in the other spouse’s name so the assets are protected from their partner’s creditors.”
A couple may be able to reduce their monthly transaction and account fees by consolidating RRSPs, tax free savings accounts and nonregistered accounts to the same financial institution. “Often, the more money you have with a financial institution, the more valuable you are as a customer and the greater bargaining power you have,” Chanin says.
There can be other ways to save on costs or fees. “If a couple takes a look at what they spend on monthly bank costs or credit-card annual fees, there may be opportunities to consolidate bank or credit-card accounts to reduce these.”
“By sharing the details of your investments with your partner, there may be opportunities to reduce overlap in your investments; you probably shouldn’t own all the same stocks,” Chanin says. “By being complementary, it should lead to a better asset allocation which could lead to higher returns. Even a small increase makes a difference in the long term.”
A couple may be able to save in taxes by having full disclosure with their finances and doing joint tax planning.
“As an example, in a couple with a large income difference, the higher-income person could pay more of the household expenses and the lower-income person could have more of their income put into non-registered investments,” Chanin says. “The result is that the investment income is taxed at a lower tax bracket, and overall, as a couple, they will pay less tax.”
Credit and cash flow
“If a couple looks at their cash flow, they may realize there have duplicated expenses or expenses that don’t make sense and can be reduced without any change to their lifestyle,” Chanin says. “I had a couple once that tracked their expenses and realized they spent $1,200 a month on groceries but ended up throwing a lot of the food out as they were often both not home because of their careers. They were able to reduce that significantly when they realized what they were doing.
An important consideration when sharing your finances with your spouse is in case of death. “It makes life so difficult for the survivor if they don’t know about all the bank accounts, investment accounts, outstanding credit cards, lines of credit, debts, and so on,” Chanin says. “When each partner is informed, it can make settling the estate easier and faster and save stress and money and reduce the time with lawyers and accountants.”
And at the risk of sounding glib, don’t rule out the possibility of divorce. “If you know the status of their assets and liabilities, you are much more likely to end up with a fairer settlement than the alternative.”