Financial red flags when entering a new relationship

In the exhilarating early days of a new personal relationship, it can be easy to overlook warning signs that you and your prospective partner may be financially incompatible. This may lead to future stress and legal risk. It’s not a question of always being suspicious, but simply of being aware of these red flags if they appear: 

• Secrecy around money matters 

Although there’s no need to have financial discussions immediately, be wary of ongoing  refusal or reluctance to talk about money matters such as income, debt, employment,  personal or business finances, or financial goals.    

• Unmanaged debt 

When debt is properly managed with structured, prompt repayments, it can be just another  part of sound personal finances. But watch out for large credit card balances rolled over from  month to month at high interest rates, heavy use of Buy Now Pay Later, and ignored tax  debts. 

• No employment stability 

It’s normal to change jobs several times during a career, but frequent loss of employment  without a solid reason could be a sign of unreliability and financial instability. 

• Dodgy financial history 

If your would-be partner has a history of bankruptcy (especially if it’s more than once),  avoidance of tax or child support obligations, or ongoing legal disputes, you may need to  delay getting involved until all issues are resolved. Even then, past history can be a predictor  of future problems.  

• Lifestyle/income mismatch 

Champagne tastes, funded by credit, on a beer income? No savings, even though their  employment seems regular? It could signal poor financial discipline and perhaps debts you  are not aware of. 

• Financial ‘love bombing’ 

It can be very gratifying to receive extravagant gifts early in the relationship, to encounter a  refusal to let you share joint entertainment expenses, and to enjoy overseas holidays you  don’t have to pay for. But unless your new love is a certified billionaire, it may be an attempt to  create an emotional obligation they can later use for financial leverage. 

• Early pressure to combine finances 

Take time to establish trust before moving in together or opening joint bank accounts. Be  cautious if you’re pressurised into a shared loan or into making your new partner a  supplementary cardholder on your credit card account. You could be held solely responsible  for any debts they incur. 

• Lack of respect for your monetary boundaries 

Any criticism of your financial discipline or your reliance on sticking to a budget should prompt you to think. Are you being encouraged to overspend, or to subsidise their lifestyle? Is there an attempt to make you feel guilty because you’re not helping them financially?   

• Incompatible economic values 

Having mismatched financial principles can be as harmful to your future relationship as having political ideals that are poles apart. If one of you is a saver while the other is a spender, if one is a conservative investor and the other a risk-taker, or if it’s a question of short-term pleasure pitted against long-term goals, there could be severe storms on the horizon.    

However, a potential partner’s low income is not in itself a red flag, meaning you have no  future together. More worrying is a lack of financial responsibility and transparency. A partner  who budgets well on a modest income poses less risk than a high earner with disorganised  money habits. 

Practical steps to avoid financial discord 

Under Australian Family Law and taxation rules, a de facto couple’s finances become legally interwoven quite quickly, just like a married couple’s. There are, therefore, some sensible actions you can take in a new relationship, advisable even when there are no particular financial anxieties: 

• Maintain separate bank accounts at first. 

• Make a list of each person’s own assets. 

• Avoid joint loans until later. 

• Keep your own emergency fund of 3-6 months’ expenses. 

• If one or both parties have significant assets, consider a Binding Financial Agreement (“prenup”). Your financial advisor can help you with this, as well as confidentially discussing possible concerns you may have before you tie any financial knots.  

  For more information or to speak to one of our Financial Advisers please contact TNR Wealth Management on 02 6626 3000.