Relationships are hard.  It’s easy enough to meet someone and feel a mutual attraction, but it’s much more difficult to find someone whose personality, values, and habits are compatible with yours.  Incompatible money habits are one of the leading causes of divorce, and unfortunately, not enough of us have the money talk with our significant others before locking in our relationships.   It’s critical to talk it out early, and ensure that you and your partner are financially compatible before taking big steps, like combining bank accounts, getting married, or moving in together.

Don’t Assume, TALK

There’s no substitute for a direct conversation on the topic of money.  You may think you’re good enough at observation that you can tell how financially responsible your partner is just by examining their habits.  While that may be partially true, there is a lot that you can’t be sure of until you have the hard, direct discussion.

Due to the ready availability of credit, it’s darn near impossible to tell if someone is financially responsible without getting the straight scoop.  I dated a guy once who said he was the manager of an IT department, and who drove a 2-year-old Corvette.  He lived in a modest apartment in a good city in Orange County, and I just figured that he earned decent money, spent less on his housing, and more on his car because he was a car fanatic.  Many months later, I learned that the company where he was working had cut his work schedule down to about one day per week, so he was barely earning anything.  His mom, who was having financial trouble herself, was spending her last dime paying his rent, car payments, and insurance.

Just to be clear, I was not attracted to him because I thought he was rich, or because he had a nice car.  I am a financially independent person, making a good salary as an attorney and with interests in investment property that provide a decent chunk of passive income on top of that.  I’m not looking for a partner to support me, I’m just looking for a partner who makes smart decisions and can carry his own weight.  This guy wasn’t interested in adjusting his lifestyle to reality, so he clearly didn’t fit the bill.

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What If You’re Not Financially Compatible?

After having the money talk, if it turns out your financial ideologies differ somewhat, keep talking.  It may still be possible to discuss your goals and agree upon a financial future that sounds appealing to both of you.  But if the money talk reveals a fundamentally different view of money and how to spend it, that is a big red flag.

My ex-husband and I had very different money philosophies.  I thought it would work out anyway, since he was willing to put me in charge of the family finances.  But it was always a struggle, and it led to a lot of resentment on my part (and maybe on his as well).  If we had had the money talk before we got married, and if I had fully appreciated the significance of our differences, I might have decided to keep looking for a more suitable partner rather than sign up for what turned out to be certain failure.

A Partner Who Is Bad with Money Can Haunt You Even After You Split

Finding a partner who is financially compatible with you will not only make your life easier during the course of the relationship, but it might also make your life easier if you end up parting ways later on.  When my ex-husband and I ultimately divorced, he quickly returned to his horrible spending habits, and I had to deal with a bit of the fallout.  He had prematurely cashed out his Roth IRA to spend money on toys (big surprise), and when I prepared our final joint tax return, he didn’t tell me about it.  I’m sure he was too embarrassed to tell me, but his failure to disclose that led to big problems.

For our last tax return, we had the option of filing together or separately.  I wanted to file our final return together, because I wanted to make sure his return was filed on time, and was prepared correctly.  Because we were married for part of the year, if he failed to report any income for the year, the IRS would likely come after me to pay the tax on the earnings he had before we separated.  I figured that by taking charge of the situation, I could prevent him from making a mistake (or failing to file at all) and save myself trouble in the long run.  My plan only half worked.

Just before the three-year anniversary of the divorce, the IRS and FTB sent me notices of an alleged underpayment in tax.  I was puzzled, and called the IRS to get more information.  When the representative told me that there were taxes and penalties owed on unreported Roth IRA distributions, I was furious.  Not only had my idiot ex-husband wasted the money we had carefully saved and put into his Roth IRA, but now he had caused the taxing authorities to start knocking on my door looking for the tax to be paid.  Since he was perpetually broke, they were happy to try to take the money from me instead.

To make matters worse, while we were separated, he asked if I would be okay with him drawing funds from our HELOC to contribute to his Roth IRA for that year.  He said that when the house sold, he would deduct that contribution from his half of the equity.  I stupidly agreed.  Just a few months later, he withdrew his entire Roth IRA account balance, including the money he had just borrowed to contribute to it.

To make matters even worse than that, the housing market tanked right about then and we were unable to sell our condo for as much as we had hoped.  His half of the equity in the condo wasn’t enough to cover his liabilities, so he was left owing me about $18,000.  He was supposed to pay that in monthly payments over the next five years.  I told him if he paid for 3 years, which would have been about $9,000 of principal, I would forgive the rest.  He ended up paying me for about five months, and then I never saw another check again.  So ultimately, he borrowed the money from me to contribute to his Roth, cashed it out instead and paid steep penalties, and never repaid me for the loan.

What I Learned About financial compatibility

Based on my experience, I now know that the money talk is not optional, it’s mandatory. I will no longer assume that I have an idea of my partner’s finances, even if I’ve been observing him in close quarters for a significant length of time.  There’s just no substitute for a direct conversation about something as important as finances.

I’ve also learned that if your spending and saving philosophies are too different from your partner’s, then there’s no amount of explanation or instruction that will help your partner to come around to your point of view.  You might get them to come around a little, but unless they prove that they’ve changed their habits on their own, odds are that they will just pretend to adopt a more financially disciplined lifestyle to make you happy.  With time, they will probably go back to their old habits.  It’s better to cut ties than to anchor yourself to someone who will consistently cause you frustration, drag you down, and ultimately hold you back from your financial goals.  In the end, it’s much more expensive to stick it out in a relationship that has financial troubles only to end up splitting everything apart several years down the line.   Better to split sooner rather than later, and keep your finances on track.

Have you had the Money Talk with your partner?  Did you discuss it before or after moving in together/getting married?