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{ in·deed·a·bly }

adverb: to competently express interest, surprise, disbelief, or contempt

Financial BDSM

What’s hers is mine, and what’s mine’s my own!

This was one of my father’s favourite sayings as I was growing up, particularly around Christmas and my mother’s birthday. Mostly it applied to minor things like stealing dessert or second helpings of dinner, but occasionally its application escalated.

I remember one year my father gave my mother an industrial power tool (that he wanted) for Christmas. Not something she had asked for. Nor something she had any use for.

She smiled sweetly.

Thanked him for his generosity.

Carefully put the present away in the back of her wardrobe. Then refused to let him play with it. Ever.

After that things started to change slightly for the better.

It took a couple more own goals before he really learned his lesson. In hindsight, the vacuum cleaner he gave her as an anniversary present might have been a tad unwise. So too the fire-engine red saucepan set he bought his wife, ever a reluctant cook, for her milestone birthday.

Eventually, his gift-giving evolved. Transitioning from being about him to being about her.

Not something he wanted, like the power tool.

Not something he assumed she would use for his benefit, like the vacuum cleaner or saucepans.

Not something purchased to look good while humble-bragging. Gifts rare. Exotic. Expensive.

No, his gifts started to be about what she would appreciate or enjoy. Which is as it should be.

Dispelling the myth that everything owned (or owed) by an individual automatically becomes communal property in a marriage.

Joined at the credit file

I learned some interesting things about personal finance this week. Some obvious. Some surprising.

Did you know that credit bureaus don’t care about marital status? They don’t even capture it.

We each have our own credit file.

Distinct.

Separate.

Unique.

Chronicling our individual financial successes and failures. Using bank accounts, lending limits, and payment histories as milestones that chart the course of our journey.

It turns out that linking credit files has nothing to do with exchanging rings, vows, or bodily fluids.

Instead, it occurs via financial activities such as taking out credit with a partner or housemate.

Credit big, a mortgage or car loan.

Credit small, council tax or utility bills in joint names.

Perhaps operating a joint bank account.

Guaranteeing a loan for someone else.

Becoming a secondary cardholder on a credit or store card account operated by another person.

It is the co-mingling of money, rather than the cohabitation or the conjugal that financially binds us.

This has some fascinating implications.

Not my circus, not my monkey

Did you know that a spouse is not automatically liable for the debts of their partner? It all depends on how the couple has arranged their finances.

Tragic stories abound of the financially unwise or unlucky dragging their family down with them.

The spendy spouse. Attempting to buy attention, purchase happiness, or project status by maxing out credit cards or living beyond their means via consumer debt.

The distressed landlord spouse. For whom void periods, rising interest rates, or unbudgeted maintenance bills can represent ticking timebombs of impending financial doom.

The naïve student spouse. Accruing mortgage-sized student debts, then failing to convert that education into marketable skills capable of generating lifestyle sustaining levels of income.

The unsuccessful in business spouse. Hustling their way into lawsuits, insolvency, and bankruptcy.

However the debts are incurred, if they are not serviced and repaid, then creditors will eventually attempt to recover their money. Bailiffs. Court orders. Fire sales. Garnished wages. Repossessions. Visits from intimidating neckless gentlemen with a penchant for punishing patellas.

If the debt was accrued in an individual name, without a guarantor, then the individual alone is on the hook for it.

Where the debt was incurred in joint names and liability was severable, for example council tax or a utility bill, then the creditor doesn’t care who pays as long as somebody does. The clichéd deadbeat flatmate dilemma, where the entire group house faces eviction should one person fail to pay their share of the rent, unless the others cover the shortfall.

Restitution-seeking lenders may seize, or force the sale of, assets owned by the delinquent borrower.

Which is where things start to get interesting.

An asset exclusively owned by the indebted individual is fair game.

Collectively-owned assets, where the ownership model is a joint tenancy, are equally vulnerable.

Jointly held assets with a tenants-in-common arrangement are a slightly different story. The creditors can only go after the debtor’s share. This presents some logistical challenges, as it is not practicable to attempt the sale of half a family home on the open market!

Assets held exclusively by the non-indebted spouse are generally free from the creditor’s clutches, providing they neither signed up to nor guaranteed the debt.

Which sets the scene for some fascinating decision-making.

Does the monied spouse attempt to stage a daring rescue?

Secure victory, or go out in a blaze of glory, like Butch Cassidy and the Sundance Kid?

Or do they choose to keep their powder dry? Live to fight another day. See to their family’s future.

Our individual circumstances and relationships differ. That very personal part of personal finance. The intriguing thing here is that the mutually assured destruction many assume spousal debt to be is actually a lifestyle choice. Who knew?!?

My father’s “what’s hers is mine, and what’s mine’s my own” theory could be easily defeated via caution and adequate planning.

Leveraged buyout

Did you know that married couples can transfer equity or asset ownership between them without triggering capital gains tax events? This is one of the seldom-discussed financial features of marriage.

The primary use for this is tax avoidance. Transferring assets into the name of the spouse occupying a lower tax bracket to reduce the tax payable on investment income or realised capital gains.

Division of property under separation or divorce agreements is another reason it may be exercised.

It turns out there is a less common usage that this quirk of the tax code can be applied to. A spouse buying their partner out of a jointly held asset, such as a house or investment portfolio.

There could be any number of reasons why this might be an attractive proposition.

Changing circumstances.

Differing priorities.

Evolving tastes.

Preparing an escape.

Reconciling risk tolerances.

Sensing a looming threat.

Such a piece of financial acrobatics is one of those simple, but not always easy manoeuvres.

While capital gains tax is not incurred, such a transfer of equity may require stamp duty to be paid unless it is occurring as part of a court-ordered divorce or separation settlement. The basis of that stamp duty calculation is the value of the consideration paid for the transfer of equity, as opposed to the value of the asset itself.

The acquiring spouse may need to borrow funds to complete the purchase, a mortgage for example.

If so, to insulate their spouse from the asset and vice versa, the acquiring partner would need to take out a loan in their own name. Demonstrate they can service the debt with their own earnings. Such a request understandably raises some red flags with many lenders, reducing the range and competitiveness of the mortgage products available to complete the equity transfer.

Do seek professional legal and tax advice before performing a transfer of equity. There are many potential traps and pitfalls to be aware of. Assets saved from an indebted spouse’s creditors may still be lost in a future divorce settlement. There may also be unintended inheritance tax or aged care fee implications.

Financial BDSM

Did you know that some people believe Financial Independence is not found with a spouse, but rather of a spouse? That financial security is assured only when it is independent of a partner. A sustainable alternative to my father’s perspective: “what’s mine is mine, and what’s hers stays hers”.

How many couples approach their finances like they are BDSM enthusiasts? Where a submissive spouse cedes control over money matters to a dominant partner? Leaving them exposed, vulnerable, and should things go wrong, potentially humiliated.

There may be a variety of dynamics at work.

The sub might be focused on keeping the peace rather than counting the pennies. Maybe they lack confidence, interest, or knowledge. Perhaps they are wary of having too many cooks in the kitchen.

The dom may see holding the purse strings as asserting control. Getting their own way. Winning.

The dom’s tastes and preferences heavily influence how their collective finances are managed. Asset allocations. Investment selections. Leverage levels. Risk tolerances. Tax appetite. Timescales.

Would the sub have independently chosen angel investing? Buy-to-let property purchased with interest-only mortgages? Cryptocurrencies? Margin lending? Matched betting? Options trading? Venture capital trusts?

Do they even understand what these things are?

Or would they have opted for safer or more routine options for their money. Premium Bonds? Term deposits? Cash ISAs? Perhaps, if they were feeling really adventurous, adding a diversified assortment of low-cost global index tracker funds?

Ask each spouse separately how comfortable they are with their financial affairs, and you would likely receive very different answers to what might be admitted had they been asked together.

Which leaves the sub at the mercy of the dom. Dependent upon them to research, make and manage investments. Prepare taxes. Pay the bills. Involving faith and a lot of trust. Leaving them ripe for exploitation.

After my father died, we discovered that my mother had never used internet banking. Never bought a stock. Never done her own taxes. Never paid a bill.

She was well educated. Financially literate. More than capable. The stumbling block had been one partner’s fragile ego combined with the other’s lack of interest. An arrangement that worked only as long as they remained together.

A couple of years on, her finances run on an autopilot of her choosing. The experience gained via taking control and making decisions provided confidence, and with that came increasing interest. She will now happily debate strategy with her financial planner or argue tax deductibility with her accountant.

What’s hers is hers, and long may it remain that way.

Fresh eyes

My goal here is not to add to the 1 in 8 people who admit to having secreted money away that their partner doesn’t know about. Rather, it is to challenge some of the persistent myths and ill-informed assumptions that influence what many couples consider the default way to manage their finances.

Debts can be shared. But they don’t have to be.

The family home can be held jointly. Or as tenants in common. Or in a single person’s name.

Assets can be readily transferred between spouses, or from joint names to sole ownership, often at relatively low cost. A course of action that may protect an individual and their family from their own worst instincts, poor judgement, or bad habits.

We don’t all need a passionate interest in the financial. At a minimum however, we should all possess a good understanding about how and where our money is organised, together with what risks such arrangements may pose.

Risks to our family.

Risks to our spouse.

Risks to us individually.

They are not all one and the same.


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10 Comments

  1. FullTimeFinance 25 July 2021

    I have tried for years to get my wife involved in our finances. I even give her updates any time I do anything outside status quo. Her eyes glaze over when I start talking about it.
    It is a choice, but it is one a lot of people make.

    Now I will note for your US readers, different states have different rules in this area. Also in most states if the debt was used to benefit the marriage you are still on the hook.

    • {in·deed·a·bly} 25 July 2021 — Post author

      Thanks FullTimeFinance.

      Your experience is a familiar one. I think it explains why so many “suddenly” wealthy folks like celebrities and sportspeople get fleeced by their managers and accountants. A combination of inexperience, ignorance, and lack of interest.

      The specific rules applicable will vary by jurisdiction, context, and even personal circumstance. The key thing is to understand how they apply to our own situation, and not just blindly accept assumptions (or information found on some random blog!) as being gospel.

  2. Dividend Power 27 July 2021

    Interesting factoids about spouses. I did not know some of this before.

  3. Mistress of Home and Finance 28 July 2021

    My submissive ceded financial control to me, but I’ve always been cognizant of the potential for financial abuse there.
    Thus I force him to learn and grow.
    It’s the hardest but most important duty I have: I will make him happy, healthy, and wealthy, regardless of whether I’m around or not.
    For these beginning years though, that means I direct the entirety of our finances as he picks up more and more slack at his own rate of learning.

    From some of the s-types I’ve heard from that are completely dependent (unlike my submissive), they enjoy the peace of mind that they don’t need to focus on finances.
    They trust that it’s handled by their partner.
    It gives them room to specialise into other areas.
    As long as they have the financial basics down, I don’t think there’s anything wrong with that.

    • {in·deed·a·bly} 28 July 2021 — Post author

      Thanks for sharing your experiences, Mistress. Great job ensuring the basics are understood by all.

      Trust is ultimately a leap of faith. Sometimes resulting in a safe landing and smiles all around. Other times ending in tears.

      Great when it works out. Appearing hopelessly naïve if the responsible party fleeces the reliant party. Knowable with certainty only in hindsight. The unknown is one of the things that makes life exciting!

  4. Impersonal Finances 2 August 2021

    The older I get and more assets I accumulate without a spouse, the harder I think it would be to combine finances with one in the future. Especially given some of the neurotic budgeting/categorizing that I am prone to with my own finances. Personal finances are often very personal–even I can admit that!

    • {in·deed·a·bly} 2 August 2021 — Post author

      Thanks Impersonal Finances. I think as we age we all start to get set in our ways. Developing behaviours and habits that appear bizarre or insufferable to an independent outsider, but the sorts of thing a spouse or long term partner may have grudgingly grown to accept with a shrug or an eye-roll!

  5. weenie 2 August 2021

    Interestingly, growing up, I saw that it was my mum who held the purse strings, did the budgeting, saving and investing, both personal and business. My dad was happy to let her do that as long as he had enough ‘pocket money’ for the bookies! Or to buy a car when his old one needed replacing.

    I have to admit that when I was in a long-term relationship, it was a struggle determining how best to sort out finances – I don’t recall having a ‘conversation’ as such at the start so that might have been the problem, no ground rules were laid.. It seems so much easier doing it on my own.

    • {in·deed·a·bly} 2 August 2021 — Post author

      Thanks weenie. Your parent’s arrangement was a common one amongst the elder generation, my grandparents operated a similar setup.

      The money side of coupledom can be tough, it is certainly one I’ve struggled to find a workable answer to over the years.

What say you?

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