A potential issue faced by many single-digit millionaires is a less affluent partner. Whether in wealth or income, it’s plausible that your partner will take time to catch up to you financially (or in some cases, are unlikely to ever do so). How then, are expenses to be split in such a situation? There’s no single right answer, but here are alternatives that may work:
Income and wealth discrepancies: beyond the obvious issues
The most obvious issues of income discrepancy are fairness, as it can seem one partner does most of the “heavy lifting”. However, the impact can extend beyond this.
One of the most overlooked factors is the legal consequence, in the event of divorce. As we’re not lawyers, we won’t dispense legal advice here; but we can say there are financial risks involved, if one party in a marriage has (at least on paper) appeared to pay for almost all financial costs. This can result in an inequitable or unexpected division of assets in some scenarios.
Another issue is wilful rejection of financial support. If you’re wealthier or earn more, your partner may refuse your help for fear of looking like a “gold digger”, or fear of developing a dependence (indirectly fearing the loss of their own autonomy). In these instances, your paying for things could actually damage rather than help the relationship.
As each relationship differs, there isn’t a universally correct solution to these discrepancies; so consider which approach works best for you:
Option 1: Assign responsibilities rather than expenses
This is most common in scenarios where one party is paying most or all of the expenses (e.g., there’s a stay-at-home mum or dad, or one partner is still studying).
Rather than look at costs, the partners each take on certain responsibilities. These can include housework, rearing of children or pets, or event planning (e.g., one partner handles all the birthday and family reunion planning, while the other provides all the financial support for it).
An example of this would be moving to a new home, where one partner provides the budget, and the other is the one to liaison with contractors, relators, etc. to handle the process of moving in.
Pros:
- Can completely remove the need to discuss dollars and sense, lowering awareness of the wealth / income discrepancy
- It’s possible to allow the higher earning partner to fully focus on their business or job
- The less affluent partner doesn’t feel a loss of autonomy, as they could actually be the ones making major decisions (e.g., which home to buy, when to set key events, which places to travel to, and so forth)
Cons:
- Distribution of time and effort may be inequitable. Some responsibilities are so huge, they can’t be compensated for just because another partner pays more (e.g., raising a child)
- This can foster a lack of involvement, in situations where one partner becomes too detached from day-to-day responsibilities
Option 2: Split all expenses 50-50, regardless of wealth or income
Even if one partner makes $50,000 a month and the other makes $150,000 a month, a $20,000 holiday will involve both sides contributing $10,000 each. To some couples, this feels fair as neither being a burden – or a crutch – for the other.
In practice, this approach is seldom rigid: if one partner is making $25,000 a month, for example, it’s improbable that they can pay $10,000 for their share of a holiday. This would mean having to go on a much cheaper trip; and if the other partner has their heart dead set on a destination, they’ll probably end up having to break the rules and pay more. In an income discrepancy, this approach is best applied if the difference in earnings is no more than 30 per cent; otherwise the higher-earner is going to feel very deprived in what the couple can or can’t do.
Pros:
- This can end up helping to control lifestyle creep, as the richer partner is forced to wait until the other can save up enough.
- There’s a sense that any indulgence is “fairly earned”, which removes potential resentment in future.
- Legally this could have some advantages, proving very clearly the contributions from each side.
Cons:
- This approach is usually too unwieldy for big-ticket expenses. When rigidly enforced, it can result in some goals being totally out of reach (e.g., a month-long luxury cruise, or landed property ownership, is probably out of the question for a lower-income partner)
- The richer partner can feel frustrated at certain deprivations, such as being forced to travel or eat out less, use public transport instead of owning a car, etc. even if they’re in a very high wealth / income bracket.
- Partners who are not financially well-off may resent high-cost expenses, which are affordable to their partners but not to them. They may not want to spend a year’s income on a new car, for example, even if they’re splitting with their partner.
Option 3: Contribute a percentage of income into a common pool
For example, both partners may agree to contribute 50 per cent of their income into a common pool. This way, the partner earning $5,000 a month would contribute $2,500, while the partner earning $30,000 would contribute $15,000.
This gives the couple $17,500 to share for various expenses for the month. While it’s not strictly “fair” in that the higher earner contributes more, the burden on each partner is more equally distributed on a personal level.
This also helps to keep pace as either partner’s income rises or falls over time.
Pros:
- You know that the overall burden on each partner isn’t excessive
- Straightforward and easy to execute
- Each partner also has enough to save and invest for themselves
Cons:
- This approach won’t work if one partner has a lot of wealth, but little to no income. In these instances, you also need to determine how the wealthier partner is converting their assets to cash, to plan expenses.
- Percentage of income can become quite chaotic if one or both partners have highly variable incomes (e.g., both work on commissions). Partners on variable income need to have an established system where they “pay themselves” consistently, before they can use this system
Regardless of what you choose, do protect yourself from a partner who goes rogue
As the old saying goes, never say never. Always at least a small percentage of money that’s strictly yours – and allow it to your partner too. This helps to foster a sense of security that won’t taint your relationship.
Everyone needs a bit of insurance in case of a partner that goes rogue, gets tied up in legal liabilities, etc. You can also use this for legacy planning, and there may be reason to have these personal funds distributed separately from your shared assets if you pass on.
For help on this matter, as well as issues of protecting and managing your wealth, reach out to us at single digit millionaire. We’ll do our best to put you in touch with the right experts.
