Financial secrets within a marriage can start small – an additional credit card for private expenses, an extra bank account for private savings, a meant-to-be-temporary loan from a joint account to take advantage of an exciting investment opportunity. But when those secrets unravel, financial advisors often have to pick up the pieces.
Cathie Hurlburt, senior financial planner at Assante Financial Management Ltd. in Vancouver, says one of her clients first had a hint something was amiss when a department store declined her credit card purchase. The client went home and asked her husband what could’ve happened. He was a stockbroker and took care of the family’s financial affairs. She never even glanced at their bills and statements.
It turned out he had made a series of bad investments and, as a result, an $800,000 inheritance she had received was now worth $150,000. He had also racked up $100,000 in debt secured by their home. At every step, he avoided confessing because he was worried she’d think less of him, Ms. Hurlburt recalls. In the end, the couple divorced.
“I do a lot of work in divorce, and a lot of divorces spring from, ‘We don’t communicate and we’re not playing on the same team,’” Ms. Hurlburt says. “You have to be on the same team. You have to have shared goals. And you have to have management protocols or systems so you know when you’re offside.”
That doesn’t mean couples can’t maintain separate accounts, something she says is common, especially when people marry later in life. She says “proportional sharing” can work well, with each partner contributing a percentage of income toward joint expenses. The rest is then available to spend on individual goals. But she emphasizes it’s still important to talk openly and honestly about finances.
“Part of the role that true financial planners play … is providing a structure and a place where [those] conversations happen,” Ms. Hurlburt says.
Natasha Knox, founder and financial planner with Alaphia Financial Wellness in Vancouver, who incorporates financial therapy into her practice, says problematic behaviour such as keeping money secrets from a partner often stems from an underlying need.
“Secrecy can be about self-preservation. [For example,] you’re hiding assets from your spouse because you have a need for trust, you have a need for security, and you feel vulnerable, so you’re trying to protect yourself,” she says. “Or, on the other extreme, you’re hiding debts and purchases [because] you’re afraid of judgment and recrimination, and you may fear your relationship disintegrating. There’s a lot of fear around financial secrets.”
Working with clients to get to the bottom of the needs that are motivating their behaviour can lead to rich discussions and enable people to find alternative ways to meet those needs. Ms. Knox stresses it’s not a process that can be rushed, and advisors must be careful not to jump to solutions too quickly even if a situation sounds like one they’ve encountered before.
“Everything in a person’s background, everything that’s happened to them in their life leading up to that point means that what they are doing makes sense to them,” she says. “Our job as advisors is to help make a financially healthier plan begin to make perfect sense, and that takes time [and] effort.”
While financial secrets can lead to divorce, they can also be the result of one partner planning for divorce, says Mark Halpern, chief executive officer at Wealthinsurance.com Inc., in Toronto. He’s faced situations in which he was working with a couple and then, over a period of several years, one partner quietly moved accounts around, sometimes outside of Canada, in an attempt to lower the valuation of assets pre-divorce.
These cases put him in an awkward position personally and professionally. For example, if the husband is the owner of a life insurance policy that protects both partners’ lives, he can’t discuss the policy details with the wife without the husband’s permission.
In addition, he says, “Often what happens is the advisor has to pick sides … and of course the other side [is] likely going to find another advisor.”
Advisors can mitigate the loss of clients and their assets by referring one partner to another advisor within the same firm. Also, before clients commit to life insurance, which can be difficult to break apart, Mr. Halpern says advisors should explain potential challenges clearly if a divorce were to occur.
To discourage clients from hiding assets or liabilities from their partners, Mr. Halpern tries to have both partners attend every meeting, and also explains to them that an advisor, like a doctor, needs complete information to make the best recommendations.
“At the end of the day, everyone has free will and they can make up their own mind [on] what they want to do. We can only give them our wisdom and knowledge on what everybody else is doing and what’s the proper and appropriate way of doing things, and then it’s up to them,” Mr. Halpern says.
That said, financial secrets tend to be discovered at some point – whether by accident thanks to a declined credit card, during divorce negotiations, or after death.
“Any dishonesty, any secrecy is going to come out in the wash at some point in time,” he says.