Financially Speaking

Boomers are booming on the ‘love’ front. According to Statistics Canada, many seniors enter into a second union after a divorce, separation, or the death of a partner. In 2011, 76% of men and 55% of women who had been divorced or separated eventually became part of a separate union – and about three-quarters of seniors who entered into a second union got married again, with the rest living as common-law partners.

It’s good news when boomers find a second ‘love’ but it can also lead to financial and other complications – especially for relationships that include children from previous marriages, unfinished separations and divorces and other factors that can significantly impact the new couple’s financial and estate planning. Here are some tips for navigating 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 including how each of you will spend, save and invest their money. Discuss matters with a lawyer and possibly have them 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 registered accounts and insurance policies as well as who will be granted power of attorney for health and financial affairs.

Married or common-law

When it comes to things like a right to a division of family property at separation, rights to inherit, and so on, the rights of common-law partners can differ quite drastically between provinces. But when it comes to income tax, common-law couples benefit from the same tax advantages and suffer the same tax disadvantages as married couples. It’s always wise to speak to a financial planner about your tax implications, but here are some basics:

Advantages:

• Split pension income – a potential benefit when one partner makes significantly more pension income than the other.
• Make spousal RRSP contributions on behalf of your partner.
• Roll non-registered property to each other without triggering a capital gain or loss.
• Roll registered property to each other at death without triggering income.
• 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 Income Supplement.
• Child care expenses may not be as valuable because the deduction must be taken by the lower income-earning partner.

Talk to your legal, tax, and professional advisors about the right choices for your new relationship.