Money Mistakes Couples Make That Lead to Divorce
According to the National Marriage Project, couples who reported disagreements about finances once per week were over 30% more likely to divorce than couples who reported disagreements about finances less frequently. There are certain common money mistakes couples make that we see repeatedly in our divorce cases. These mistakes and disagreements cause tension in the relationship and can even destroy a marriage.
Living Beyond Your Means
Whether it’s social pressure or lifestyle creep, it’s not uncommon for couples to live beyond their means in Los Angeles. This happens to even the highest earners.
No matter your income level, living beyond your means causes immense stress in marriages and commonly leads to divorce. The fact is that no one is at their best when they are stressed and pushed to their limits - seeing debt rack up and savings diminish will stress even the strongest of couples.
The way to avoid living beyond your means is to create a plan and work together towards executing that plan. The first step is getting aligned on financial goals. How much are you bringing in? What are your spending categories? What are your savings and investment targets? What type of financial arrangement will make each spouse feel safe and secure in the relationship?
Not Getting Aligned on Investment Risk Tolerance
We all have different appetites for investment risk - and that’s ok. The problem arises when a couple’s tolerance for risk is misaligned. If one spouse loses money in a risky investment, the more conservative spouse is likely to harbor anger and resentment. We see this all the time - one spouse is extremely angry and scared because money has been wasted on overly risky investments. Alternatively, if one spouse prevents the other from a lucrative investment, the more risk-tolerant spouse is likely to feel resentment and anger for missing out.
The way to avoid misalignment on investment tolerance is to craft a joint investing strategy that ideally represents a compromise between both spouses. That way, each spouse knows what to expect and the boundaries are predetermined. This helps avoid surprise. Another option is to carve out funds for each spouse to invest as he or she wants to - to allow each spouse the freedom to test the waters on their own terms.
Secret Spending
Financial infidelity is a serious issue. Financial infidelity occurs when spouses or couples lie to each other about money. It can include hiding debt, purchases, or financial accounts from a partner. When one spouse secretly spends, it diminishes trust and partnership. Couples must be assured and secure in knowing that they are working together to reach financial goals - not against each other. Secret spending can feel like sabotage of the couple’s joint goals and sense of stability.
Not having a financial plan
One of the most important ways to limit conflict is to create clear, predetermined expectations. Your spouse cannot read your mind. If you believe that your financial plan is to save or invest 20% of your earnings, but your spouse believes your financial plan is to save or invest 40%, you are both likely to feel misled and upset. If you had a simple conversation, perhaps you would have agreed meet in the middle and save or invest 30%. Then, all you need to do is execute the plan.
Likewise, if one spouse thinks that a large proportion of investments should be in a mix of bonds and ETFs but the other thinks that a large proportion of investments should be individual stocks and cryptocurrency, you’re bound to be upset when these investments either crash and burn or when you miss out on large gains. Maybe one spouse wants to invest in real estate while the other wants to stockpile cash for their dream home. Again, if you had a simple conversation about a financial plan, including investments and goals, conflict can be avoided before it snowballs into significant anger and resentment.
Emily Rubenstein Law, PC is a full-service divorce and family law firm. We proudly serve Beverly Hills, West Hollywood, West Los Angeles, Santa Monica, Culver City, the South Bay, Glendale, Pasadena, Sherman Oaks, Studio City, Encino and all of Los Angeles County.