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Spousal disharmony can leave cracks in a nest egg

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Money isn't the root of all evil. But it can be the root of intense bickering between spouses on an otherwise beautiful Sunday morning.

It's no surprise that co-habiting couples likely won't have the same investing and saving preferences. An oft-cited U.S. academic paper from 2012, Examining the Relationship Between Financial Issues and Divorce, declared what many of us can already guess: Arguments over money are the leading predictor of a breakup.

So, how can you prevent that last Visa bill for an expensive pair of Frye wingtip boots or that losing gamble on a growth stock from tearing a relationship apart? Consider these steps.

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Step 1: Talk about it (a lot)

"I think you should overcommunicate about everything," particularly money matters, said Kimberly Moffit, a couples counsellor and psychotherapist in Toronto.

The problem is that much of one's attitude toward money is set at an early age. For a spouse to question the other's financial sense can cut deeply.

"What has been drilled into our minds about money from the time that we were really young, we carry those assumptions and feelings into our relationships. And that's where it can become a bit of an emotional roller coaster for people who don't really talk about money," Dr. Moffit said.

Yet, hesitation to talk about investments and money matters should be treated as an early warning sign, she said. If investing is a touchy topic, then couples need to work even harder to talk about it. "The worst thing to do is leave it and not do anything."

Step 2: Learn your partner's preferences

Once the topic is broached, spouses should work to understand the other person's reasoning about money and risk.

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"Get educated. Why does your partner like to do things in a different way? Maybe that's because they know something different than you, or they've read different articles, and they are listening to different influences in their life," Dr. Moffit said.

If a wife is all about investing in growth stocks as she aims to create a nest egg for retirement, and the husband prefers low-risk bank savings accounts, it's time to talk about it.

After that, make a plan. Tell your spouse, "We're going to do some things the way that you like them, some things the way that I like them, and then the rest we're going to split down the middle," Dr. Moffit said.

Step 3: Don't play your risk preferences against your spouse's

A compromise means that each partner sticks with his or her risk tolerances. But sometimes one spouse may change his or her preference in reaction to a spouse's. One may feel, for instance, that the other isn't taking enough risk and is therefore not going to make enough of a return for retirement.

"Then they go to the extreme, and they take investment risks beyond what they actually are comfortable with, because they are starting to overcompensate," said Elaine Kelly, a certified financial planner in St. Catharines, Ont., with Manulife Securities Inc.

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"That partner might tell me that they want a lot of risk, because they want to make home-run-type returns, in order to make up for the partner who has such low, safe returns," Ms. Kelly said.

"What happens then is that the cautious partner will go even more cautious, because they can see what high risks the aggressive partner is taking. So, it's no good trying to manipulate the other person's portfolio with your portfolio," she said.

Step 4: Aim for an equal-income retirement

Because one partner's risk preferences and ability to contribute to investments might be different from the other's – for instance, only one might have a company pension plan – Ms. Kelly recommends careful balancing.

"What we try to do with retirement planning is to make sure your retirement income is very basically equal. So if one person has a very nice defined-benefit pension plan and the other does not, then both partners in the marriage can contribute to the RRSP for the one who has no pension plan."

To emphasize that point, the key isn't to contribute equally but to wind up equal in retirement income.

Step 5: Split (some of) your money

If a couple still can't see eye to eye, consider splitting some – but not all – of the money into two discretionary spending accounts for small, personal expenses.

Sometimes couples just don't understand that one spouse simply needs the latest Radiohead album on vinyl or that the other must have that new Lululemon top for yoga class. These little purchases go a long way toward happiness and can help ease the burden of otherwise careful budgeting.

"Have a heart-to-heart with each other and figure out what's going to motivate you the most and keep you on track the most," Dr. Moffit said.

"Maybe you have your own spending account and your partner does, too. That's totally fine. Who cares? As long as you're staying on track with the goals, the bigger picture, it's okay to have an element of privacy in your finances," she said.

But a couple should never separate all of their money unless they want to court disaster, Ms. Kelly warned. "Separate financial accounts do not mean peace. It just means potential for more problems and more secrets and more blame."

Holding all funds jointly can cause problems too, however. "Then you're asking permission all the time," whenever you want to buy anything, she said.

The solution, she advises, is to create three household spending accounts. One is for all household bills, mortgage payments, joint living costs, joint entertainment costs and investments. The other two are separate, discretionary spending accounts.

So, for instance, after all the joint bills are paid and investment money tucked away, a couple could give themselves, say, $100 or $200 each. This helps diffuse the power struggles.

You shouldn't feel "like you're on a diet all the time," Ms. Kelly said. "You can spend that $100 however you want. But the household budget has to be completely transparent, so that everything that goes in and out is for joint purposes."

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About the Author

Guy Dixon is a feature writer for The Globe and Mail. More

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