Financially Speaking

From community service to new careers and business start-ups after retirement, boomers are leading in a lot of economic and lifestyle categories – including encore relationships, either through a second marriage or a common-law relationship. While that is good news for the couples who have found new lives together, it can also lead to financial and other complications. This is particularly true for relationships that fall into ‘grey areas’, that include children from previous marriages, unfinished separations and divorces and other factors that can have a significant impact on the new family’s financial and estate planning realities. Here are some tips for ensuring the good health of your new financial life together:

Common-law and non-traditional relationships

Boomers may bring different financial resources, objectives and obligations – especially if one or both were previously married. Start with a thorough discussion about each partner’s expectations and responsibilities for the family’s financial affairs. Consider how each partner will spend, save and invest his/her money. You should see a lawyer or notary who can help you prepare a ‘cohabitation’ agreement’ that defines the financial terms of your relationship.

Update your wills and list of beneficiaries for your investments held within your RRSPs and insurance policies as well as who will be granted power of attorney for health and financial affairs.

Married or common-law

Common-law couples, as defined by the Income Tax Act, benefit from the same tax advantages and suffer the same tax disadvantages as married couples. Either married or common-law, it’s wise to speak to a financial planner about your tax implications, but here are some basics:

Advantages:

• You may be able to split pension income – a potential benefit when one partner makes significantly more pension income than the other.
• You can make spousal RRSP contributions on behalf of your partner.
• You can roll-over property to each other without triggering a capital gain or loss.
• You can transfer unused tax credits and claim the Spousal Credit if your partner is earning very little income.

Disadvantages:

• If one or both of you has a child, you will no longer be able to claim the Eligible Dependant Credit for that child.
• Only one of you can claim the Principal Residence Exemption if one of you owns an urban home and the other a cottage.
• Your income is pooled when determining the right to claim GST credits, the Canada Child Tax Benefit, and the Guaranteed IncomeSupplement.
• Child care expenses may not be as valuable because the deduction must be taken by the lower income-earning partner.

Talk to a professional advisor about the right choices for you and your partner.