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Financial Infidelity: Do You Lie Or Keep Secrets About Money?

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A topic that I see come up time after time on personal finance sites is related to married couples, and whether or not they should have joint accounts.  During those discussions one thing that invariably comes up is the topic of hiding money from one's spouse – or keeping secrets about what you're spending money on.

Today I thought I'd take a brief look at money secrets, and why people keep them.

How Many People Actually Keep Secrets About Money?

After reading the comments on several posts about having joint finances, I realized that there were probably more people keeping secrets about money from their spouses than I had originally thought.  Then I found a post on the Consumerist talking about financial infidelity.  It found that almost 1/3 of those polled admitted to lying to spouses about money.

An online poll commissioned by ForbesWoman and the National Endowment for Financial Education (NEFE) and conducted by Harris Interactive, surveyed 2,019 U.S. adults from December 17 to 21 and found that 31% of those who combined finances had admitted to lying to spouses about money. Another third of those admitted they themselves had been deceived about money.

For those couples experiencing financial infidelity, 67% said the deception led to an argument and 42% said it caused less trust in the relationship. A further 16% indicated the problem had led to divorce, and 11% reported a separation.

So almost a third have lied about money, and another third said they had been lied to. That's an amazing number of people lying about money!  Can people actually think that lying about money can be justified?

What Kinds Of Money Secrets Do People Keep?

The kind of money secrets that people keep seem to vary according to the study:

Among both offenders and victims, the leading money crimes were hiding cash, minor purchases and bills. Meanwhile, a significant number of people admitted hiding major purchases, keeping secret bank accounts and lying about their debt or earnings.

So for some reason people feel a need to hide cash, make purchases without their partner's knowledge and pay secret bills so they don't get caught.  Even more surprising to me is the number of people hiding more major purchases – opening secret bank accounts or lying about how much money they make.  There are even folks saving up money on the side “just in case” a marriage doesn't work out.  Talk about planning for failure!

I have an acquaintance who openly talked about having a secret bank account at work a few years ago.  Part of her paycheck went into the secret account so she could buy things she wanted, and the rest went into a joint account with her husband.  There was obviously little or no communication going on between husband and wife, and plenty of deception.  It was a big game of control – who could control the situation more.  Not surprisingly the two are now divorced, in part because of the deception and financial infidelity, but also because of sexual infidelity.  It was not a healthy relationship.

One matrimonial law expert, Nancy Chemtob,  feels like she has seen it all.  Some examples she gave on the Forbes article:

she once worked with the owner of a hedge fund who secretly spent millions on a mistress. In five of their 10 years of marriage, his wife had no clue that he was spending over $20,000 a month on the other woman, ultimately buying her a house, car and extravagant jewelry.

Another of her clients is in her 30s, remarried and has a son from a previous marriage, Chemtob says. Three years ago, she lied to her new husband that she wasn’t receiving child support. She was. Now he pays for the child’s expenses and private schooling while the woman stashes about $7,000 a month in a hidden bank account.

In one of the most extreme deceptions Chemtob’s come across, a 20-something woman fabricated her entire financial history. The original lie happened on the first date. Because he was very well-educated, successful and high-earning, she didn’t think he’d like her when she told him she didn’t have a degree or a job. She lied, saying she had her masters and a salaried position.

The woman continued the fib while they dated and into their eventual marriage. When he left home for work, she left too. When he returned home in the evening, so did she. Because he was so successful, he paid for everything and never noticed that she didn’t have an income. Eventually he did discover the truth and promptly filed for divorce.

The lies go on and on. Do people really think they can get away with the deception, and have no consequences?

Why Do People Lie About Money?

Why is it that people lie about money in the first place? Is it because they're selfish, insecure or just wanting to exert control in some way?

Boston-based family therapist Carleton Kendrick has been counseling couples for over 30 years and says money deception has become a huge issue in the last decade. He suspects the ease of using credit cards and purchasing online may make the act easier but doesn’t explain the lies.

Kendrick says the chief reasons people lie about money to their partners are pragmatism, control, guilt and fear. The pragmatic lie may result from planning an eventual split and not wanting the other to know how much money is available. Financial infidelity for control may include revenge spending, as one partner overspends to prove their independence or to get back at the other for something lacking in the relationship. Knowingly irresponsible behavior may cause guilt and embarrassment, so the person attempts to cover it up. Deceit may also occur because they fear their partner’s reaction to the truth.

Kendrick notes that how we are raised influences our money philosophies in relationships and can create some gendered behaviors or assumptions. “Girls still see their mothers at check-out, saying, ‘We won’t tell Daddy about this; it will be our little secret,’” he says.

So the reasons that people lie are just about as numerous and varied as the lies that people tell. They do it out of guilt, fear, control, and out of pragmatism when there is a faltering relationship.

What Can You Do To Fix Or Avoid Financial Infidelity?

So we've established that deception about money runs rampant these days, but what can we do to avoid having situations like this in our own marriages and relationships?

National Endowment for Financial Education’s Beck advises that couples have the money talk early–well before marriage–to avoid money lies in their relationships. If you are already married or in a committed relationship, he suggests using tax season as a nonthreatening way to ask your partner questions and gain a better grasp of shared finances. Those who suspect or discover that they are currently victims of financial infidelity should first figure out how deep the lies go and gather all the details.

One-third of those in relationships impacted by money deception say they have resolved to do something this year, with most planning to communicate more openly and create a shared budget for 2011.

To me the key here is for there to be plenty of open communication within a marriage. How do you foster those open lines of communication? By having shared weekly or monthly budget meetings, talking regularly about money with each other – even if one person is the main one doing the finances, and by creating a safe environment in the relationship for someone to ask forgiveness when they've done something they shouldn't have. They need to know the other person will be willing to forgive. And of course, you need to have a relationship where you're looking out for your partner's best as well – not just your own.

Have you ever kept a secret about money?  Did you feel justified in doing that, and if so, why?  Have you ever had to come clean about a deception, or had someone confess a deception?  Tell us your thoughts on money lies in the comments!

Changes To The Estate Tax Rates And Exemptions For 2011-2012

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Among the changes that took place due to the recent Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010 was the reinstatement of an estate tax.   Due to gridlock in Congress last year, the estate tax was allowed to lapse.  That means anyone who had a wealthy family member die in 2010 could possibly see millions in tax savings.  For example, the family of George Steinbrenner will pay no estate taxes since he died in 2010.

Estate Tax Reinstated 2011

The tax bill that Congress just passed and President Obama signed in December reinstated the estate tax for the 2011 and 2012 tax years.   So what will the estate tax look like for the next two years?  Will it return to 2009 levels, or return to levels seen before the 2001 Bush tax cuts?

  • Pre-2001 Bush Tax Cuts: $1 million exemption, and a 55% rate on estates worth $1 million to $10 million. Rate rises to 60% on estates worth more than $10 million.
  • 2001-2009: $3.5 million exemption and a 45% tax rate on amounts over $3.5 million.
  • 2010: No estate tax
  • New Estate Tax For 2011-2012:  $5 million exemption for an individual or $10 million for a couple, with a rate of 35% for estates above these levels

So basically what happened was that the estate tax was re-implemented with a higher exemption, and at a rate lower than it had been from 2001-2009, and much lower than it had been before that.  So the estate tax is back for 2 years at least, at which time we'll need to revisit it again, or it will return to pre-2001 and Bush tax cut levels (55-60% rate)

From Don't Mess With Taxes:

For 2011 and 2012, estates worth $5 million or less won't be taxed at all. For estate values greater than that, a 35 percent tax rate will apply.

That's better than the 2009 law, which imposed a $3.5 million exemption and a 45 percent tax rate on the excess. And it's much better than what would have happened had the Bush tax cuts expired. If that had happened, estates worth more than $1 million would have faced a 55 tax rate. The bad news, though, is that Congress has set up a repeat of 2010. Unless it acts again in two years, the $1 million/55 percent rate law will be back.

How Many People Will Be Affected By 2011-2012 Estate Tax?

So now that the estate tax has been reinstated with a higher exemption, and at a rate lower than it used to be, how many people will be affected and still have to pay the estate tax?

The head of the American Bar Association's section that focuses on estate law estimates that less than one-half of 1 percent of people who die in 2011 will be hit by the estate tax. That's minuscule compared to the 10.5 percent of estates that paid Uncle Sam in 1977.

So while wealthy folks who died last year may have gotten away with paying no estate taxes, the families of those less than 1/2 of 1 percent who pass on this year can take solace that at least the estate tax is returning at a lower level than it was at previously.  They won't be subject to the 55-60% rates that were around pre-2001.

One other thing to note, while folks who died last year may not have had an estate tax, they also didn't have the benefit of a stepped up basis for capital gains taxes.  For a discussion of that, see this post that discusses the estate tax stepped up basis.

Also, in case it is any consolation, at least the tax rates in the US are at least somewhat lower than other countries: Tax Rates by Country

What do you think of the estate tax?  Do you think it is necessary and fair, or do you think that it is essentially taxing income twice?  What are your thoughts on the returning estate tax?

What Changes Will Happen To My Taxes On January 1st, 2011?

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We’ve talked quite a bit on this site about the recent tax cut package that was passed, and some of the provisions that were included in the bill. One thing we haven't done, however, is to look at all the changes that we can expect to see in 2011 for individual taxpayers. What tax changes will happen for 2011?

2011 Tax Changes

President Obama and the Congress passed the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010 in the last half of December, and as a result tax rates didn't go up for some as would have happened otherwise.  But the tax rates remaining unchanged wasn't the only thing to happen due to the bill.

Here are some of the changes that you can expect to see due to this tax cut bill.

Tax Rates Remain The Same Through 2012

The 2001 and 2003 Bush tax cuts meant a reduction marginal tax rates for all taxpayers. Those rate reductions will be extended for two years under the tax package. That means the 2011 federal income tax rates will remain essentially unchanged for everyone, including the high income earners.  The tax rates for 2011 are shown below. The main changed from 2010 are some rate range adjustments due to inflation.

2011 Tax BracketsSingleMarried Filing Jointly
10% Bracket$0 – $8,500$0 – $17,000
15% Bracket$8,500 – $34,500$17,000 – $69,000
25% Bracket$34,500 – $83,600$69,000 – $139,500
28% Bracket$83,600 – $174,400$139,500 – $212,300
33% Bracket$174,400 – $379,150$212,300 – $379,150
35% Bracket$379,150+$379,150+

Payroll Taxes Reduced By 2%

A provision that has been controversial, but is liked by those who would like a tax cut is the 2% payroll tax holiday for 2011.  Basically you’ll be paying 4.2% in payroll taxes for social security and medicare in 2011, versus the normal 6.2% on the first $106,800 in income.

Estate Tax Reinstated At Lower Rate

The estate tax lapsed in 2010, but would have been returning next year at a rate of 55% with an exemption of $1 million this package hadn’t happened. The tax cut bill changed that to have it be a top rate of 35% and a $5 million exemption.

Date To Apply For Unemployment Benefits Extended

The original date to apply for up to 99 weeks of unemployment for the long term unemployed expired on 11/30. This will extend that date for another 13 months. Note that the 99 weeks of unemployment benefits aren’t available to everyone, but only in some high unemployment states.

$1000 Child Tax Credit Extended

The $1000 child tax credit will remain at $1000 per child instead of dropping to $500 as it was slated to do.

Energy Tax Credits Return At Lower Rate

In 2010 the tax credits for energy efficient home improvements were quite popular because you could receive up to 30%, or $1500  on many home improvements in the form of a tax credit.    The 2011 home improvement tax credit is significantly reduced to a lifetime maximum of $500, and  only applies to 10% of the cost of the home improvement.  So if you took part and got your $1500 credit in 2010, you can't get this one. Details here.

Standard Deduction For Married Filers Kept

The package will maintain the standard deduction for married filers so that it will be twice that of a single filer – negating the so called “marriage penalty”.

Patch for Alternative Minimum Tax (AMT)

The amount of income exempt from AMT will rise for 2010 and 2011. In 2010, the amount exempt from AMT will be $47,450 for single filers, $72,450 for married filing jointly. In 2011, it would be $48,450 and $74,450 respectively.

Flexible Spending Account Changes

Workers with Flexible Spending Accounts (FSAs) may no longer use pretax funds to pay for many over-the-counter medicines—aside from insulin—without a prescription.  This should reduce many people's participation is this great tax savings.  2011 FSA Changes.

Roth IRA Conversions

The income limit for conversions has been permanently removed, so this year all taxpayers may still convert ordinary IRAs into Roth IRAs. But taxpayers who convert to Roth IRAs in 2011 no longer have the option of deferring conversion income into later years, as was true for 2010 Roth IRA conversions. Those who converted in 2010 do have until next Oct. 17 to decide whether to use this deferral.

Investment Taxes

Rates for both long-term capital gains and dividends will continue to be low. For taxpayers in the 15% income tax bracket and below, the rate is zero. For those in the 25% bracket and above, the rate is 15%.

Tax Filing Delayed For Some, Deadlines Extended For All

As you prepare to file your taxes this year to either get a refund or pay an amount owed, remember that itemizers will have to wait to file until mid to late February.  The reason?  The tax cut package was passed so late in the year that now the IRS is playing catch up to implement all of the tax rates, deductions and credits.

Also of note, the 2011 tax filing deadline is April 18th this year, due to the 15th being on a government holiday – on a Friday.

So what do you think of the tax cut package?  Is it a good thing, bad thing 0r a little of both?  If you don’t like it, what would you have rather seen?

2011 Federal Income Tax Increase For Some Despite Tax Rate Extensions

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A couple of weeks back I published the new 2011 Federal Income Tax brackets. Basically, because of the tax act that was passed on December 17th, 2010, the current tax rates are being extended for all taxpayers, both high and low earners.

What some people might not realize, however, is that despite the tax rates remaining essentially the same (except for some rate range increases due to inflation) some people will see a 2011 federal income tax increase due to expiring tax credits, and a 2% payroll tax holiday for 2011 that might mean less savings for some.

2011 Federal Income Tax Increase

Not everyone will see their taxes remain the same despite the fact that the tax rates remain unchanged.  Some folks will see their taxes go down, and others will see an increase in withholding from their paycheck.

The Making Work Pay credit expired on December 31, 2010; therefore the 2011 income tax withholding tables do not reflect this credit.  As a result, employees in a lower income tax bracket may see an increase in their tax withholding amount, while employees in a higher tax bracket may see a decrease.

So it all really depends on how much you make, and how much of a cut you got in previous years from the Making Work Pay tax credit.

Expiring Making Work Pay Tax Credit

As mentioned the Making Work Pay tax credit has now expired, which means taxpayers will no longer receive the benefits from this cut.   How much was it, and who got it?

  • The 2009 stimulus bill will gave a $400 credit per worker and a $800 credit per working couple.
  • The full credit would be paid to people making $75,000 or less ($150,000 per dual-earner couple).
  • A partial credit would be paid to those making above those amounts but no more than $100,000 ($200,000 for couples).
  • The credit was also refundable, meaning even very low-income families who don’t make enough to owe income tax would be able to claim it.

For most working individuals, the credit was paid over time at roughly $15 per period, assuming 26 pay periods in a year.   So since it is expiring, you won't have that extra $400-800 in your paychecks in 2011.

2% Payroll Tax Holiday For 2011

The 2% payroll tax holiday for 2011 was meant in part to be a replacement for the expiring $400-800 “Making Work Pay” tax credit.  For some people it will more than replace the credit, while for others who have extremely low incomes or don't pay taxes, they won't see as much as with the previous credit (or nothing at all since only those who pay tax will get it).

What does the 2% payroll tax holiday mean for the average taxpayer? Around a $1000 tax savings.  Since the Social Security tax is capped at $106,800, the maximum savings that could be seen by a higher income individual is around $2136.    This as opposed to a $400 credit for singles and $800 credit for families under the “Making Work Pay” tax credit.

Some Will Pay Less Taxes This Year, Some Will Pay More

So because of the expiring tax credits, and because 2% social security tax holiday is calculated at a percentage of income as opposed to a flat rate, people will be seeing different withholdings this year.  Either they'll be coming out ahead from previous years, or if they make extremely low incomes or don't pay taxes, they'll be getting less than previously.  Or nothing.   It really just depends on their situation.

Is the tax withholding situation – along with expiring credits and new tax cuts confusing?  Do you think the government adequately explained that some lower income earners may see a decrease in their paychecks?

30 Things Broke People Say (That Keep Them Broke)

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A few months ago I wrote a post called 10 Things That Broke People Do (That Keep Them Broke).

The article talks about the negative thought patterns and bad behavior that people engage in that leads them straight to the poor house.

We talked about how they do things like shirk responsibility, never plan ahead for the future and how they would rather appear successful than actually be successful

This past week I was reading an article over at DaveRamsey.com that takes a similar tack, where Dave asked listeners to his radio show to send in things that broke people say.   

Tons of people did send in what he calls “loser language”, things that people say when they aren't as responsible, or when they want to make excuses for spending money they don't have. 

Since it was similar to what I had posted previously, I wanted to share some of his listener submitted  list of “Things Broke People Say” today.

Things Broke People Say

things broke people say
  1. If I earn interest, I have to pay more taxes.
  2. There's no shame in being poor, just in dressing poorly.
  3. At my age, it's too late anyway.
  4. Why save money? You can't take it with you when you die!
  5. We're only young once!
  6. But it's only zero percent interest!
  7. I'll pay it off next month!
  8. Old cars just aren't safe.
  9. Whatever you want, dear.
  10. I'll start my budget next month.
  11. It's for the kids.
  12. I work hard so I deserve to have it!
  13. I'll just keep paying the minimum payment.
  14. My rich grandparents are going to die soon.
  15. I want my kids to have it better than I did.
  16. It's cheaper to eat out than eat at home.
  17. Always keep a house payment for tax purposes.
  18. I'll save next year when I'm making more money.
  19. We'll pay it off when the tax return comes in.
  20. You have to leverage debt to become rich!
  21. I need to invest in a car.
  22. Why save ? The Lord is coming back soon!
  23. If I make more money, I will lose my food stamps!
  24. If everybody got out of debt, the economy would collapse!
  25. You'll always have a car note.
  26. Just put it on the card and we will worry about it when it comes in..
  27. Being debt free isn't for everyone.
  28. It's only money! We'll make more.
  29. I must be able to afford this (car, house, etc.)since I was approved for the loan.
  30. I'll just use a cash advance from my Mastercard to pay down my VISA.

I've heard more than one of these over the past few years, and I'm sure you have as well. 

Question is, have you ever made some of those excuses to yourself?  I know I have!

To keep the ball rolling, tell us a few things that you've heard broke people say – or have said yourself!  Leave a note in the comments!

Where Can I Get Paper IRS Forms And Tax Publications?

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With the advent of the internet and widely available free or affordable electronic filing options, the IRS has moved away from sending out paper tax packages every year as they used to.  Do you remember how you used to get your tax forms in the mail every year, and the sense dread that it gave you? No longer.  The IRS no longer automatically sends out paper tax packages by mail.   I'm sure it means a good cost savings for the  IRS and for taxpayers, but what if you're one of those folks who just prefers to file their taxes the old fashioned way? What options do you have and where can you get paper IRS forms and publications?

Places To Get Paper IRS Forms And Publications

There are a variety of places that you can still get your paper tax forms, or electronic versions that you can then print out.  From the IRS:

  • On the Internet: You can access forms and publications on the IRS website 24 hours a day, seven days a week, at http://www.irs.gov.
  • Taxpayer Assistance Centers: There are 401 TACs across the country where IRS offers face-to-face assistance to taxpayers, and where taxpayers can pick up many IRS forms and publications. Visit http://www.irs.gov and go to Contact My Local Office on the Individuals page to find a list of TAC locations by state. On the Contact My Local Office page, you can also select TAC Site Search and enter your zip code to find the IRS walk-in office nearest you as well as a list of the services available at specific offices.
  • At Convenient Locations in Your Community: During the tax filing season, many libraries and post offices offer free tax forms to taxpayers. Some libraries also have copies of commonly requested publications. Many large grocery stores, copy centers and office supply stores have forms you can photocopy or print from a CD.
  • By Mail: You can call 1-800-TAX-FORM (800-829-3676) Monday through Friday 7:00 am to 10:00 pm local time – except Alaska and Hawaii which follow Pacific time – to order current year forms, instructions and publications as well as prior year forms and instructions by mail. You will receive your order by mail, usually within 10 days.

The IRS requests that taxpayers wait until after January 10, 2011, to put in a request for tax products for 2010.

Other IRS Resources

  • Publication 910, Guide to Free Tax Services (PDF 636K)
  • Publication 2053A, Quick and Easy Access to IRS Tax Help and Forms (PDF 40K)
  • State tax forms (link)

State tax forms