Managing finances as a couple is a part of marriage, but when it comes to marital money, financial infidelity is just as damaging to the relationship as sexual infidelity.
And financial infidelity may start early: “Often, [one] person realizes the relationship is coming to an end and will start moving money,” explains Jerome Johnson, certified public accountant, in Albuquerque, New Mexico. “They’ll open up new accounts in their name and start methodically moving money over.”
A prime ingredient here is the onesidedness of financial management: Most households divide responsibilities, but when one spouse manages the finances, the other tends to "check out." Ideally, both spouses should know what money comes in; what amount of it is saved and spent; the level of debt, if any; and the value of any assets and investments.
“Your finances are the lifeblood of everything you want to do,” says Charles Day, senior vice president at UBS. “You shouldn’t be oblivious to what your finances are, just as you wouldn’t be oblivious to your health.”
While accountants can investigate your marital finances, looking for specific signs yourself can help you figure out if there's a problem. Here are nine.
1. New spending patterns
The way to find misappropriated assets is to follow the money. If you know your partner’s salary, bank and credit card statements that list all transfers, withdrawals and deposits will show this person's spending patterns. “You start with an expectation of where the money went,” says Jerry Love, a certified public accountant in Abilene, Texas. “When you have a change of pattern and less money goes into the account, then you’ve a reason to be suspicious.”
People tend to move small sums out of an account over time and store this cash in a safe deposit box. Or they may deposit the money into a new account.
2. Excessive shopping
Lots of recent purchases may be indicative of a new shopping habit you don't want to help support. If your partner has credit cards you don’t know about, spotting the charges will require some extra investigation.
Reviewing each other’s credit reports once a year will also help to uncover any new credit cards and debts.
3. Fat brokerage statements
Frequent trading rarely results in profits, but instead has the potential to drain a couple’s savings, especially if your partner funds trades with high-interest-rate loans. Look for excessively thick brokerage statements in the mail, says Love, and if you don’t receive paper statements and trade confirmations, you’ll get an extremely long 1099B during tax time.
Gambling can be harder to detect. “You’ll see a change in mood -- people who gamble and lose don’t take losing well,” says Day. “That wouldn’t [just] be a shift in assets; it’s an addiction, and it can destroy your finances.”
Even though gambling wins and losses affect your taxes, people don’t always receive tax forms after playing a game. Casinos track a person’s gambling, with player’s cards, and you can subpoena the casino for a copy of that record. “This will show what kind of volume they’re doing at the casino,” says Johnson. If someone makes frequent ATM withdrawals at a casino, but doesn’t have any wins and losses on tax forms, question what happened to that cash.
5. Sudden changes in compensation
Someone planning a divorce may try to increase his or her divorce settlement by delaying compensation until after the divorce.
To head this off, look for sudden, unexpected drops in bonuses or salary. “If the economy is rolling on, you would not anticipate a lower bonus, or if bonuses are consistent for 10 years, they wouldn’t suddenly drop,” says Johnson.
Business owners have control of their income and can shift compensation until after a divorce by prepaying expenses, for example, or overpaying taxes that are returned in a refund check. “If you’re divorcing a business owner, you want to value their business and have a forensic accountant go through it,” says Day.
6. Recent purchases of art or antiques
One way to hide assets is to buy an expensive painting or valuable antique, like a rug, clock or expensive watch. These high-priced items hold their value, don’t have titles that can track the item and are easily sold after a divorce. “Most people look at cash in the bank rather than how much art someone has,” says Johnson. “It’s something that doesn’t generate a huge trail.”
7. Newly opened accounts
Since people tend to be loyal to brokerages and banks, dividend income from unfamiliar accounts can be cause for concern. If you don’t see regular statements for the new accounts, any income that’s generated will appear on your tax returns.
“If somebody has four or five investment accounts, ask why they have all these different investment accounts,” says Johnson. “Sometimes, they’re doing it to confuse people because they transfer money back and forth. Suddenly, you could have a withdrawal that’s not deposited anywhere. Transfers between accounts raise red flags.”
8. Signing documents without review
“If you’re going to sign something, your signature is extremely important and valuable,” says Day. “If you’re signing a tax return, have a discussion about what you’re signing. If the other person gets annoyed and doesn’t want to explain anything, the more they resist, the more you should want to know.”
Your signature makes you responsible for what’s in that document, even if it’s fraudulent. “The "innocent spouse rule" is not that easy to prove,” says Day.
9. Lack of communication
The period prior to marriage is when couples should decide on joint financial goals and a budget, and discuss spending habits, credit scores and plans for managing their money.
“When you first get together with someone, you need to put all your finances in order,” says chartered financial analyst Robert Stammers, director of investor education for the CFA Institute. “If you’re going to keep your finances separate, and don’t have any controls, that’s a problem, and you can’t get angry if your partner spends their money frivolously, because you have no way of knowing.”
Be sure to talk about your finances at least twice a year throughout your marriage. “The more you talk about it, the less likely someone will hide something,” says Love.