{Quick note: If you prefer listening over reading, there is a podcast version of this post here.}
Romance and love are exciting elements of life. But, when you bring money into the mix, sparks can fly, but not necessarily in a good way.
Internationally renowned relationship researcher John Gottman found that money is one of the most common conflict areas in relationships. Closer to home, Relationships Australia’s relationship indicator survey cited money as the top cause of relationship breakdown. Therefore, it is wise to proceed cautiously and consciously when mixing money and love.
With that in mind, I would like to offer six considerations, two cautions and two ways to cleverly combine finances.
Combining finances – 6 considerations
It must first be noted that in the same way it’s no longer assumed that couples will 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. I know couples who have done all of the above but never fully joined their finances.
If you do decide it’s right for you and your relationship, here are six things you should consider. The first three considerations are bigger picture compatibility considerations. The second three are practical considerations that can become points of friction.
1. How comfortable are you when it comes to talking 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. Often, the only money topics people seem happy to talk about are their hot tips for getting rich quickly or how they got a sweet deal on something they bought.
Money can also be quite triggering. Even talking about splitting costs on a date or asking your partner for their share of some concert tickets you’ve organised can be difficult for many.
If you are going to join finances successfully, you’ll need to be able to talk openly and honestly with your partner about money. I can’t emphasise that point enough.
And talking about money begins with some self-reflection:
What emotional charge do I bring to conversations about money? Is it light and grounded or perhaps heavy, anxious or avoidant?
If you’re not sure what you’re bringing to the conversation emotionally, try to recall a time you were speaking about money (other than a hot tip!). Then, try to remember how you felt during that conversation.
Once you sense how comfortable you are talking about money, shift your focus to your partner and what you’ve noticed about them. For example, when money comes up in conversation, if you see that talking openly about money makes either one or both of you uncomfortable, then perhaps one of the first money conversations you should have is discussing how you will have money conversations.
2. How aligned are your financial values?
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 money represents to you.
You might both say things like “security”, “independence”, or “freedom”, but when you dig deeper, you might find your feelings about those things aren’t actually aligned. For example, 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.
Two of the critical elements of a successful relationship John Gottman identified were:
- Create shared meaning
- Make life dreams come true.
When dreaming about your future together, discuss how you plan to fund those dreams. Like our omnivore and vegan, if your financial values are vastly different, it’s not impossible, but it’ll take work to be happy. You will need to make a conscious effort to develop a money system that works for both of you.
If you want to make things work, make sure you implement shared plans to meet each of your needs as represented by your financial values and dreams.
3. How do your financial values show up in your money behaviours?
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?
Differing money behaviours are easier to work around than differing money values. But it’s our partner’s daily behaviours that we notice. While different money behaviours can be irritating, a step beyond irritation is the meaning we can apply to the impact those behaviours have on our desire for security, freedom and living a life we love.
If you want to make things work, make sure you implement shared plans to meet each of your needs as represented by your financial values and dreams.
4. How do you handle a substantial difference in income and/or net assets?
We’re now moving from bigger picture concerns into more practical considerations.
Whilst this one is not a deal-breaker, I have seen it become a big issue, especially when there are also significant differences between the two people in their values and habits. This is why you need to have explicit, conscious conversations about how your income and wealth will be shared:
- In funding your life together
- Under other unfortunate situations.
5. How committed are you to supporting your partner if they lose their income?
Remember those traditional marriage vows of, “I take you in sickness and health”? Before you move in together, and before you join your finances, you must ponder the scenario of your partner losing all their income – whether it be through the loss of a job that is impossible to replace, or through permanent disability or chronic illness.
You might like your lover enough to move in together but not enough to be solely responsible for paying the rent and bills. Being seriously injured or ill is stressful enough without the added financial stress of making ends meet.
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.
6. Blending families
When one or both of you have children from prior relationships, even adult children, it’s important to carefully consider how joining your finances will impact on the distribution of your money upon death.
Many expensive litigations have their roots in the assumption that your current partner will do the right thing by your children if you die. So it’s money well spent to consult a specialist estate planning lawyer for advice. Even if you think you’re not worth that much.
Combining finances – 2 clever ways to do it
So those are six important things to consider before joining your finances with your romantic partner. Now let’s talk about two smart ways to go about sharing your money.
1. Pace yourself
Give yourself time to observe and explore the three financial compatibility elements highlighted above.
For example, from early on in your relationship, share the costs of each date you go on. This is a good way to gently get a sense of how your new flame relates to money and spending. You get to observe:
- Are they showy, frivolous or frugal?
- Are they brave enough to speak up when your awesome activity idea is out of their financial reach?
- How does your partner react if you are the brave one speaking up?
When planning your first big holiday together, set up a joint savings account and each commit to regular automatic deposits. Take the same approach when saving for other significant life events, such as a home deposit, engagement party or a wedding.
If you choose to live together, manage your money like housemates. Show your rent, groceries and joint entertainment with each step in your relationship.
At each step in joining your finances, keenly observe your partner and how you navigate your inevitable differences in money management. If alarm bells ring, you might want to strongly consider if the relationship is right for you. If you need outside help making that decision, a financial planner or couple’s counsellor are good places to start.
2. Don’t rush to move in together
Even when you don’t share finances, moving in together can seem like a smart way to save money. But this decision can have significant consequences in the event of a nasty breakup or premature death. Even though you may not have fully joined your finances, the law may still see you as de facto partners because you live together.
Many people forget they have default life insurance in their superannuation. This can have a value in the hundreds of thousands of dollars. If you pass away prematurely, 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 from 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 lovely people. If you’ve been living together long enough to be considered de facto under family law, then a nasty breakup 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 of fair. And both definitions will probably be different to what family law sees as fair and equitable. Family law is a complex area.
So it pays to not rush into living together, especially when there’s a significant difference in income assets or money habits. If you have concerns, consult a family lawyer to learn about your options. The few hundred dollars you spend will be money well spent.
Combining finances – 2 cautions
I’ll wrap up now with two final cautions for those couples who have decided to join their finances, especially if they’re joining finances before being legally married or having children.
1. Don’t pay off your partner’s debt
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 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 your finances gives you that opportunity.
2. Don’t guarantee a loan for your partner
Similarly, do not be a guarantor for your partner’s loan until you’re married or have fully joined your finances. The main reason is that if your relationship turns sour, your former love could leave you saddled with the repayments. This is known as catching a sexually transmitted debt (an STD), and can 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’re going to 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.
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I believe everyone deserves a flourishing love life. So I hope this helps you and others you care about to make informed decisions. If you haven’t yet fully joined your money with your partner, then I encourage you to share this blog post with them as a way to open the conversation.
For helping navigating the conversations and the practical elements of joining your finances slowly and carefully, it’s always a great idea to speak with a financial planner.