Financial Infidelity is On The Rise: Why Couples Keep Financial Secrets

Do you keep financial secrets from your spouse? If you do, you’re not the only one. In fact, a large percentage of Americans keep financial secrets from their spouses or partners. According to new research, financial infidelity is on the rise, and, like any other type of infidelity, it could be contributing to higher divorce rates.

“Having a place where you are saving money for a surprise gift or vacation is not the same as not disclosing financial matters or making decisions without consulting your significant other,” says Ben H. Feldmeyer (CFP®, CDFA®, CLTC), a private wealth advisor at Feldmeyer Financial Group. This type of infidelity (uncontrolled spending, mountains of debt, etc.) can lead to the breakdown of a relationship and a couple’s financial future.

As many as 41% of adults in America admit to financial infidelity.

One of the most devastating things that can happen in a marriage is infidelity – and financial infidelity is no exception. A threat to relationships, financial infidelity may be the result of unclear expectations and a lack of open communication about finances before a couple gets married.

A recent study conducted by Harris Poll on behalf of the National Endowment for Financial Education (NEFE) found that two in five adults in America who share their finances with their partner have committed financial infidelity. While financial infidelity differs from sexual or emotional infidelity, all forms of infidelity carry the same components of lies, secrecy, and mistrust.

When it comes to divorcing couples, financial infidelity is quite common: “Maintaining financial secrets from your spouse is very common among divorcing couples which is probably being done in order to hide activities that are probably at the root cause of the divorce action,” says Roderick Moe (CPA, CVA, ABV, Cr.FA, CFF), a forensic accountant at Roderick C. Moe, CPA. “Financial secrets not only impact what marital assets there are to divide, they can be a means of improper reporting of income that is available for alimony and child support and distorting what one’s actual lifestyle cost is,” he says.

In fact, in a divorce scenario, financial infidelity can often be much more severe, according to Feldmeyer: “When two people reach the point of divorcing, money can unfortunately be used as a weapon. For example, running up credit card debt, taking out loans or making withdrawals on accounts, are tactics some people may use when emotions are running high, even though they’re not the best course of action,” Feldmeyer says.

Feldmeyer also states that financial infidelity can have impacts on the divorce process: “Aside from complicating the process of dividing assets, there may be criminal issues involved. If the court has ordered the parties to not make changes to their accounts, and they ignore the instructions, their problems may become bigger than the divorce.”

What is Financial Infidelity?

Financial infidelity is defined as “the secretive act of spending money, possessing credit and credit cards, holding secret accounts or stashes of money, borrowing money, or otherwise incurring debt unknown or unwilling to one’s spouse, partner, or significant other.” Common behavior associated with financial infidelity includes hiding purchases and/or cash on the side, hiding credit card statements, increased amounts of debt, and more.

Studies find that couples who have financial issues tend to have higher levels of conflict, resulting in decreased marital satisfaction and higher divorce rates. Much like sexual infidelity, financial infidelity erodes trust, causes partners to question each other, and can ultimately lead to divorce.

While each person may have their own definition of financial infidelity, a good general rule is to ask yourself the following question when making a significant financial commitment (spending or investing): “If I do not discuss this with my spouse, will they be unpleasantly surprised or shocked by this when they find out?”

If you don’t want to involve your spouse in the decision-making process, ask yourself: “Why am I hiding this from my spouse? Do I stand to lose more than I gain by choosing not to discuss this with my spouse before making this major purchase/investment?”

Sometimes, you have good intentions or reasons for keeping your decision a secret: perhaps you’re purchasing a surprise gift for your spouse, or you believe that your spouse does not have the financial acumen to understand an investment choice and you don’t want to burden them with it. Still, we encourage you to weigh the pros and cons – perhaps talk it over with a financially-savvy friend – and speak to your spouse before you take the action. Otherwise, one of the consequences of your financial infidelity could be a divorce.

“My ex-husband did all the investing for us because he had the interest and the appetite for it, and I didn’t,” remembers Sarah. “He never made huge investments – $100 here, $200 there. Sometimes we were up, and sometimes we were down. I never worried about it until news of the Bre-X Minerals hoax hit the front page of every newspaper; that was when he confessed that he had literally invested every penny we had in the stock before it tanked. We lost our life’s savings because of a decision he didn’t share with me.”

What Causes Financial Infidelity?

Marital conflict surrounding finances is one of the most common sources of conflict among couples, and this conflict is a direct result of economic pressure and lack of communication.

This lack of communication combined with irreconcilable differences in their beliefs about and approaches to money causes couples to question or misunderstand each other’s financial expectations. When a couple does not agree on or communicate about financial expectations, one partner’s spending habits can lead to bitter battles. This can lead to partners hiding their financial affairs from one another in an effort to avoid conflict. Financial infidelity can also result from a big difference in each partner’s money “personality” and beliefs (e.g., one is a spender and the other is a saver; one likes risky investments and the other is risk-averse; one puts money away for retirement every month while the other thinks that money would be better spent on a luxury vacation).

According to Moe, couples with high assets are more likely to keep financial secrets from their spouse: “People who have the most money have the most to lose, so they would be inclined to keep financial secrets from their spouse. If a couple has minimal assets there is little to hide,” Moe says.

Perhaps the greatest cause of financial infidelity is an addiction to gambling or shopping/spending. Before the addicted spouse’s financial behavior spins out of control (and without treatment, it always does in the end), they may start hiding their purchases and credit card bills until the debts reach a point that they can no longer hide the losses from their spouse.

Feldmeyer states that it is important to get to the root of the problem causing any kind of financial infidelity in order to create a financial plan: “It can be challenging to have a comprehensive financial plan when one person won’t disclose the true financial situation. My experience has been that once the financial infidelity is discovered, the underlying problem, such as addiction, may also be discovered,” he says.

Financial infidelity requires deception, which creates distance between the spouses. When the truth comes out, the damage to the relationship may be difficult or even impossible to repair.

Signs of Financial Infidelity

Signs of financial infidelity, like sexual and emotional infidelity, include secretive behavior. Finances may start to become a sensitive topic for your partner, or you may notice that he or she is hiding purchases from you and has developed an obsession with frequently checking the mail. Other signs of financial infidelity include:

• Finding surprising/alarming charges (including unexplained cash advances) on joint credit card statements.
• Noticing that your partner has become uncharacteristically generous (e.g., buying lavish gifts, booking a family vacation you’re sure you can’t afford, treating friends to meals at expensive restaurants, etc.).
• Unexplained “windfalls” of cash.
• Money missing from joint savings and/or investment accounts.
• Regular but unexplained ATM withdrawals.
• Finding expensive purchases hidden around your home or in your spouse’s car.

How to Recover from Financial Infidelity

Spouses who commit serious financial infidelity have to work hard to regain their partner’s trust; they also have to work together to repair the financial damage to their marital assets.

The first step to recovery from financial infidelity is to have a conversation about it. The partner who breached the other’s trust must come clean, being 100% open and honest about the extent of the betrayal, and demonstrate sincere remorse for their behavior.

Then, both partners must commit to fixing the problem together. Depending on the type of debts and losses incurred, this could take a long time – or even necessitate declaring bankruptcy in certain scenarios. It is crucial for the couple to set up a financial plan, probably with assistance from a financial professional.

This plan can involve debt repayment, closing credit card accounts, and getting to the root of the issue causing the infidelity. It is crucial to address the problem and find out the underlying causes of the infidelity. Was it a gambling addiction? A spending addiction? Fear of disappointing the other partner? Unless these issues are addressed, the couple will never fully be able to recover.

Finally, the couple will need to establish financial expectations and ground rules for their marriage. They should make a budget and openly discuss their finances with one another on a regular basis. If necessary, they can go to couples therapy to improve their communication skills, or to individual therapy to resolve the issues underlying their addictions. If a couple takes the right steps to improve their relationship, and they are able to move past the financial infidelity, it is possible to save the marriage.

Feldmeyer’s advice for couples is to both be involved in the financial process. “Both parties need to be engaged in the household financials,” he says. “They should have business meetings with each other and also with their financial advisor. If your significant other won’t answer your questions about the household finances or dismisses you with comments saying there is nothing for you to worry about, it can be a warning sign. Consider talking with a financial advisor who can help open up the lines of communication when it comes to household finances.”

Any type of infidelity can be disastrous in a relationship, and this includes financial infidelity. Couples should establish financial rules and expectations before they get married to avoid the heartbreak and mistrust that comes with this type of infidelity. If you married without agreeing on a set of financial ground rules for your relationship, start working on them before you’re blindsided by betrayal.