We’ve all got secrets, but when it comes to money and relationships, honesty and transparency can go a long way. And with Valentine’s Day in the rearview mirror, it might be time for some serious financial conversations with your partner. Nicole Ewing, Director of Tax and Estate Planning with TD Wealth, digs into this topic with Kim Parlee.
- Nicole Ewing, director of tax and estate planning with TD Wealth, joins me now. What are some interesting secrets, money secrets, you've heard that have-- with some clients or partners that you've dealt with?
- So we all know about the ones where people are hiding things in the back of the closet or saying things are on sale that weren't necessarily on sale, but--
- I don't know about those things.
I don't want to know about those things.
- But the one that stands out to me is it was a friend of mine, actually, and he liked to gamble. This was the thing he did. His wife knew. That was fine. But he'd actually won, and he was really excited about it. He was going to use it for a down payment on a house. And he didn't tell her because he wanted to surprise her with this amazing news.
So he'd been holding on to this for a few months. And when he finally told her, he did not get the reaction that he was expecting. He was expecting her to be thrilled, and she was furious. She was so angry because she had been making certain sacrifices during those few months. She had been arranging her affairs based on what she thought their financial situation was.
- Enduring hardships and those sorts of things.
- Exactly, exactly.
- And so even good, well-intentioned secrets can still have a negative impact when they're kept.
- It's a pretty good example of just things can go wrong, even if you have the best of intentions, right?
NICOLE EWING: Exactly.
- OK, let's talk about debt because that was a good secret. I think a lot of people would like that secret, even that one case, it wasn't great. But debt can be a sensitive topic for people, so how should it be dealt with, I guess?
- Well, it's important to share the information about the debt. So as much as it might be embarrassing, it might be an uncomfortable conversation, there are some real consequences to being in debt and not sharing that information with your spouse.
- Like what?
- So you might have-- your finances might be available to creditors, and you might not have set yourself up in a way that protects you personally. If everything is in joint names, your spouse's creditors may then have access to your money and your accounts.
You might not be able to retire the way that you expected to because there might be this debt. And you might not be able to get the financing for the things that you do want because there's this other debt already in your name. So when we look at the ratio of what the banks will accept for financing, you might not qualify. And that can be a disappointment that should not be found out in the chair of your banker.
- One of the best ways-- and I've been trained by you over the years-- is just that-- getting a prenup. Because in the prenup conversation, there's disclosure, which I think is really one of the most important parts, right?
- Yes. Agreed. And that, to me, is one of the most valuable parts of the prenup. Yes, it's great to have that marriage contract in place in case something goes wrong, but it requires you to have the discussion beforehand and expose all of your money secrets to the other person. Otherwise, it's not valid.
So if you went into that and didn't, for example, say that you had debt or let them know about money that you had on the side, it's a very good chance that that agreement will not be held up in court on the breakdown of the marriage. So very important to agree to certain terms under marriage contracts, what you expect, what your rights and obligations will be to each other. But even the process of going through it and taking a full account of your assets and liabilities is a very useful exercise.
- What about-- and I think it's one of those things, probably some people are probably listening to this conversation thinking, oh, this is great if you're a new couple. It's a new relationship because you're getting to know each other. But couples aren't static.
NICOLE EWING: No.
- People change. Things they want change. And so how important is it, I think, to keep that in mind?
- And the world changes, right? We've seen the change in interest rates. And so maybe I was comfortable having a certain amount of debt because people were considering a very low cost to maintain that. But now that our interest rates are going up, I might have a different relationship with debt than I did before. And that's worthy of a conversation and check in. Are we still comfortable with the spending that we were doing, with who's paying for what? It should be something that's being revisited as often as possible.
And sort of routinely have a conversation about, are we still on track with what we talked about originally? Is there any adjustments that we want to make? Is our budget, are you comfortable with that, the amount that we're saving? Things change. Our views when we're in our 20s and 30s are very different than when we're in our 50s and 60s. And I think it's important to recognize that those changes happen.
And maybe it's the other way. Maybe you were very militant about having your finances be separate, and now you've reached a point where perhaps you want to share more of that. And you can then have those discussions and plan really effectively if there's an opportunity to do some tax planning or some other type of income planning. But you have to have those conversations.
- One way-- I'm going from the very strategic to, I'll say, the very tactical-- but I know sometimes couples will have joint accounts together. Have you seen-- do those work well? Do they not work well? Does it just depend on the couple? And what structures have you seen?
- So I think oftentimes, and in my own circumstances, we do have a joint account, and we contribute a certain amount that every month to pay predefined expenses. And we know what those are going to be. But it's very convenient to have that in place. If one of you passes, the assets will likely automatically transfer to the other. It's very convenient.
But there is a side to that where you do lose control of those funds. And you might then be exposing yourself, again, to the creditors of your spouse. You might not be making the same decisions with those money. So it is one of those conversations that you need to have. Perhaps not have all of your finances joint if that's not something that makes sense in your circumstances, but to have the tools in place and use them that work best for you.