Getting couples on track

Whether fresh off their honeymoon or yoked for years, the two people in a couple are bound to differ in their financial views and goals. Your job — helping them steer through financial landmines—is not for the faint of heart.

Laura Johansen, an advisor with MGI Financial Inc in Toronto, probably speaks for many colleagues when she says, “I sometimes feel more like a marriage counsellor than a financial advisor.”

Couples probably give you a good chunk of your business — around 60%, if you’re a woman. Many couples also deliver two clients in a single package. Female advisors polled in an Advisor Group survey expect that in the next 10 years, 62% of their business will come from the female half of a couple, and 42% from the male half.

Janet Freedman, a Toronto-based financial planner, says it bothers her when a wife defers to her husband in matters financial. Even if the husband alone makes an appointment to see her, Freedman insists on also seeing the wife—but not the other way around. Sexist?

“Just realistic,” she says. “The fact is that women tend to outlive men. If they’re not exposed to the marital finances, they’re in for a nasty surprise if they need to take control.”

One size doesn’t fit all

Most financial planners agree: There are as many ways to handle money as there are couples. “Deciding what to merge and what to keep separate is an emotional decision as much as a financial one,” says Holly Edwards, a CFP with Desjardins Financial Security in Vancouver. “Couples need to talk about it, do some trial and error, and find out what works for them.”

While conceding different strokes work for different folks, Freedman aims to steer couples between togetherness and separation. She typically suggests couples maintain three bank accounts: a joint one for regular monthly expenses and private accounts for discretionary expenses.

“I’ve had clients resist this format for years, then try it and quickly realize how well it works,” says Freedman. Depending on circumstances, “the two parties might contribute equally to the joint account or in proportion to their respective incomes.”

All rules have exceptions, of course. Johansen, who married her husband on the cusp of 40, says they ended up settling for separate accounts. “We tried the joint thing because it was what we were supposed to do, but it didn’t work for us. We’re very independent,” she says with a chuckle. “Heck, we even have separate voice mails.”

Vivetha Shangrilam* and her husband, who live in Pickering, Ontario, settled on one joint checking account, four joint savings accounts—each with specific savings goals—and two private fun accounts. Shangrilam and her husband contribute $60 to each of their fun accounts every two weeks.

Whether her husband decides to use his fun money to buy a third camera or a fourth guitar, Shangrilam stays out of it. These no-questions-asked accounts “have helped us to avoid arguing about money,” she says.

As for credit cards, Freedman emphatically recommends couples keep them separate. “If one partner leans toward impulse spending or gambling, the other partner will lose credit points if they have joint cards,” she notes, adding that “gambling comes up a lot in credit counselling consultations these days.”

Freedman also advises couples to check their credit ratings every year—ideally while sitting in the same room. “It helps keep things honest.”

To have and to save

Each couple’s means and aspirations will dictate their savings goals. That said, “10% of annual income is a reasonable ballpark for couples unsure of when and what to save,” says Edwards. In her experience, “professional couples can often put away $1,000 [each] or more per month.”

Bettina Schnarr, a CFP with Dundee Securities in Surrey, B.C., gets her clients started on a savings plan by suggesting they “put away no more than they can comfortably handle. Even if it’s only $100 per month, the momentum can build from there,” she says. “If people start too high and then fail, they may lose motivation.”

Doug Buss, a CFP with YourStyle Financial in Winnipeg, offers a reality check. “Many couples not only have sketchy savings goals, but also no system for reaching them,” he says. “In my experience, only 20% of couples keep a true budget.”

To make matters worse, he adds, “they have unrealistic expectations, like wanting to retire in five years, and often have no idea what they’re spending.”

First order of duty, says Buss, is to help clients draw up a simple monthly budget. Easier said than done, of course.

“Budgeting has a way of exposing uncomfortable differences in priorities and values,” he notes. For example, one party may deem it perfectly reasonable to update a 20-year-old kitchen, while the other thinks the old cupboards and counters look just fine, thank you very much, so why plunk down $10,000 on renovations?

On the plus side, budgeting helps raise financial awareness, says Buss. “Once the awareness clicks in, the rest becomes a lot easier.” Shangrilam, who has “saver” engraved in her DNA, says she’s stumbled on a trick to make her husband—whom she lovingly describes as a discriminating spender—more aware of their financial constraints.

At the end of every month, Shangrilam transfers the surplus from their joint account to their credit line. Seeing a low balance in the checking account, Shangrilam’s husband is “less inclined to think we’re flush, which keeps his urge to spend in check,” she says. When the time comes, Shangrilam pays off the monthly Visa bill from the credit line.

Retirement planning à deux

Beyond month-to-month savings targets, couples need to come together in their long-term financial goals. Apparently they’re not quite there: a 2009 Fidelity Investments survey finds only 38% of pre-retirement couples make joint decisions about their retirement finances and 60% disagree about their spouse’s planned retirement age.

When it comes to long-term planning, couples would do well to put on their team colours, says Edwards. Not only does pooling funds encourage a building-together mentality, but it also allows the pair to “split the difference between their individual tolerances for risk,” she says. With the global financial meltdown within achingly recent memory, many couples have become more cautious—and so has Edwards. “When I run projections, I go with 5% for my more conservative clients, and perhaps 7-or-8% for the risk takers—much lower numbers than were standard use in the industry many years ago,” she says.

A yours-is-mine-and-mine-is-yours mindset also gives couples better bang-for-buck on RRSP contributions. “To minimize the immediate tax bite, the most logical strategy is to top up the higher-earning spouse’s contribution first, regardless of whose paycheque is going into it,” says Edwards. “If there’s any gravy, it can go into the lower earner’s RRSP.”

On the other hand, evening out the two RRSP portfolios can yield future tax savings when the funds are withdrawn, though “this strategy has become less important now that pension income splitting is allowed,” Edwards says. It bears noting a higher-earning spouse cannot gift an income-producing asset to the lower earner in an attempt to reduce the tax bite, because the CRA has created a set of attribution rules to choke off this loophole.

Like many of her colleagues, Johansen encourages her coupled clients to invest in RRSPs and use the tax returns to pay down their mortgages. A notable exception: couples who expect to have such a high retirement income that the tax hit on withdrawn RRSP funds, not to mention the Old Age Security clawback, would take too steep a toll.

Shangrilam figured this scenario awaited her if she kept socking away money into her RRSP. So she stopped at age 37, and is now building up her tax-free savings account (TFSA). Along similar lines, Johansen sometimes steers couples in the lowest tax brackets, that don’t stand to save as much tax by contributing to an RRSP, toward a TFSA.

As for assets like homes, cottages or trailers, Freedman typically advises couples to share ownership. Otherwise, “when the owner dies, the surviving spouse will likely have capital gains, which get taxed,” she says. “Same deal with other non-RRSP investments.” Every duo has to find its own groove, of course. Shangrilam, for example, has sole ownership of the house where she and her husband live. “I came into the marriage with substantial assets, while he had none, so this seemed fair.”

Talking through tension

Financial issues, of course, can generate friction between romantic partners. In a survey conducted by PayPal in 2009, 58% of Canadian couples admitted to fighting about money at least once a year, and more than one in 10 Canadians reported ending a relationship over financial issues.

“I’ve been advising a couple who got together when they were older, each with kids of their own,” says Johansen. “He spends lavishly on his nearly grown daughter, while she has two daughters and a son, and is conscious of the need to save. He drives a Mercedes and she drives a normal car. Needless to say, there’s some tension in the air.”

In such cases, “asking questions can help focus the clients and steer them off the warpath,” says Schnarr. For example: How can you keep things as fair as possible among the kids? Can you decide in advance how much you’d like to spend and save, so you don’t need to revisit the issue every month? What are your dreams for your kids?

If the two parties have a wide income spread, “splitting bills down the middle may cause resentment,” Schnarr notes. Bottom line, “if one member of the couple feels she’s getting a bad deal, it’s not the right arrangement. That’s why I always ask couples if they’re happy with their current arrangement.”

A good prenuptial agreement can also nip financial discord in the bud, says Freedman, who suggests couples draw up a prenup in the following cases:

• If one spouse brings inheritance money or other assets to the marriage
• If one spouse owns a home from a previous marriage
• If the couple has children from previous unions and both parties have very different ideas about passing wealth to those children
• If one or both parties have parents with substantial assets and want to ensure their children inherit those assets.

Shangrilam and her husband drew up a prenup because of the great disparity in their assets going into marriage. “He has always supported the idea and continues to support it,” she says. Still, she has noticed “a slight reticence when the subject comes up. I guess it’s not a neutral issue after all.”

Having learned that man plus woman plus money equals volatility, Shangrilam now treads softly around the issue. In Buss’s view, the greatest antidote to financial tension is transparency.

“Financial secrets have a way of exploding—usually in the secret keeper’s face,” he says. And as hard as it may be to talk about money, Buss says not talking about it ends up costing more, both financially and emotionally.

“I tell my clients never to end a financial discussion with, ‘Let’s not talk about this right now,’ ” he says. “If not now, when?”

THE “I DO” EFFECT

A recent study led by Dr. Céline Le Bourdais, a sociology professor and Canada Research Chair at McGill University in Montreal, gives the lie to the notion that a marriage licence is “just a piece of paper.” The study analyzed married and common-law couples’ financial habits in the U.S., Denmark, France and Spain.

As it turned out, cohabiting couples were between four to five times more likely to keep their finances separate than married couples. The difference was as pronounced in Denmark, where cohabitation is commonplace, as in Spain, where it is relatively rare.

On the flip side, “cohabiting couples tend to split domestic work down the middle, while married couples are more likely to ‘specialize’ in the work they do best or most readily,” says Le Bourdais. “You might say that married couples pool their money, while cohabiting couples pool their work.”

HUSH MONEY

In an American survey of married people, 80% of respondents admitted to making secret purchases, while nearly a fifth of married people fessed up to having credit cards their spouse knew nothing about. Worse, 24% of respondents claimed they would never tell a spouse about their spending habits. At the same time, 38% of respondents expressed concern that admission of their “financial infidelity” would cause their spouse to seek separation or divorce.

There’s nothing like personal experience to prove the point for Toronto financial advisor Laura Johansen. For six years, she lived with a gambler.

One day they’d be flush, the next day they couldn’t pay their bills—and Johansen never knew which day was around the corner. While she has a healthy tolerance for financial uncertainty, the seesawing and secrecy proved too much for her.

“One day I was standing in our new house, the sun streaming in through the kitchen window, and I knew it was over,” Johansen recalls. “Sometimes the financial gap is just too wide, and couples need to face up to that.”

PRE-RETIREMENT QUESTIONS FOR COUPLED CLIENTS TO CONSIDER›

• When do we want to retire?
• How much do we need to live comfortably in retirement? How much to just squeak by?
• What immediate expenses need to be taken care of if one of us dies?
• If one of us dies, how much money does the other need every year?
• Is our will more than five years old?

Gabrielle Bauer, a Toronto freelance writer specializing in health, finance and social issues, and the author of two books.