Planning strategies for couples

Summer is usually the time of year for weddings and couples in a longterm relationship or considering one now need to be more aware than ever of the financial and legal ramifications of a love that lasts and, equally, where it may not. Whether due to the increasing tendency to marry at an older age, live longer or the increased prevalence of divorce, Canadian marriages are now facing increasing financial responsibilities, likely not considered in generations past. On top of this, there may be even more mouths to feed at the Canadian couple’s financial table – whether with the increase in “blended families” (children from previous marriages) or those in the “sandwich generation” (couples caring for aging parents in addition to children).

Whether you have been married for 50 years or considering marriage, the following are the key areas of tax, estate, and financial planning consideration for couples (including common-law partners).

1. Create a financial plan. Deciding together how to best allocate and prioritize expenses will not only save headaches, but build valuable habits and save money. Utilize strategies that take advantage of the 3 Ds — deduct, defer and divide — to minimize tax liabilities. A financial plan can identify a number of tax planning strategies for couples (for example, “income splitting”). One example of income splitting for couples is to have the higherearning spouse pay living expenses for the family as well as the family’s tax liabilities, so the lower income spouse can invest their own income which will be taxed at the lower-income spouse’s tax rate.

2. Use your principal residence exemption wisely when owning two homes. An exemption on the capital gain only applies to your principal residence, and now that you are a couple, only one exemption is available per family unit per year (for each year prior to 1982, each member of the family unit may designate a separate home as their principal residence). This means if you and your partner both own a house (or a house and a cottage), only one exemption is available for the years that you are considered common-law or married.

3. Determine the best ownership of assets for you, your partner, and the achievement of your goals. Do you wish to own them jointly or in your own names? Ensure that you understand the advantages, but most importantly, the legal and tax results and how they will be distributed if you die (or break up). You should obtain independent legal advice from a qualified family law lawyer as every province has its own unique rules.

4. Review your insurance coverage to ensure you and your partner are protected. Life insurance, critical illness, disability and long-term care are options that may be offered by either of your employers, but be sure to have a review of your insurance coverage every three to five years by an insurance specialist. These coverages are not always “portable” if you change jobs or may not cover as much as you may wish (e.g., some critical illness or long-term disability policies may cover the first two years after an injury or illness, but not beyond, where the employee could perform some type of work). A specialist may also be able to find an alternative insurer, if either you or your partner has been deemed not insurable.

5. For those who have been married before, consider obligations you may have with a former spouse, children or elder parents. You will need to consider how your assets are going to be shared both during your lifetime and later, through your estate plan.

6. Make a practice of reviewing and updating beneficiary designations on your registered plans and life insurance to ensure that they align with your current wishes. This is particularly important if you now have a RRIF (beneficiary designations are not automatically carried over from your RRSP) or have remarried.

7. Consider your will sooner rather than later. Be sure it is up to date, and if recently married or remarried, or whether it has been automatically revoked on marriage. This will depend on the provincial laws where you reside. In Alberta there have been changes that may affect you and your partner. You will also need to decide how your partner/spouse will benefit under your will.

8. Update your powers of attorney so that if you are unable to make health care or financial decisions, the right people have the authority to make them for you. Something to think about for those contemplating marriage or living together: Consider a marriage or cohabitation agreement that sets out your financial expectations concerning the relationship to help avoid conflicts later (including legal hassles) should the relationship end. In most jurisdictions in Canada, legislation is encouraging use of these agreements by giving certainty that they will be upheld except where they are found to be unreasonable. You can also agree on certain matters relating to the children, including their educational or religious upbringing and custody and access issues (however, in many jurisdictions these provisions may be disregarded by a court if it is felt to be in the best interests of the children). However, do not leave the marriage contract to the last minute. It is probably wise to consult your respective lawyers well in advance of the proposed nuptial date or even the “save the date” cards being sent to allow for adequate consideration and negotiation. The implementation of a marriage or cohabitation agreement will generally require that you make full financial disclosure to your partner. Full financial disclosure may include providing details of your assets, income, debts and liabilities to your future common law partner/ spouse. As part of this process, you may need to obtain professional valuations for various assets, including business and real estate interests.

Now may be a good time to review your planning. For more information on planning strategies for couples, please one of our advisors and your tax or legal advisor, as applicable.

A. Craig Elder, CFP, FMA, CIM, FSCI is Branch Manager with RBC Wealth Management Dominion Securities Inc. in Medicine Hat. Source material provided by RBC Wealth Management Services. Advisors are insurance licensed under RBC Wealth Management Financial Services Inc., a subsidiary of RBC Dominion Securities and is part of the RBC Financial Group, member CIPF. For more information on this and other financial strategies, contact an RBC Dominion Securities Advisor at 403-504-2700.