September Issue 2019
Where Do Finances Fit in Your Relationship?
How you handle money is a key to creating the life you want together.
For many couples money is a flash point that can make or break their relationship. Too often it’s discussed only after something dramatic forces the issue, like a job loss. Or it’s just not talked about, leaving each partner to their own path and setting the stage for eventual friction that puts trust, security and happiness in jeopardy.
Whether you choose to make financial matters a priority or not, the truth is how you deal with money impacts you at every stage of life, from buying your first home and saving for your child’s education to retirement. Only by communicating openly and planning together can you build the kind of financial foundation that strengthens your relationship instead of putting it at risk.
Getting on the same page
Like politics and religion, conversing about money is something most of us have been raised to steer clear of when getting to know someone. Yet opening up communication early on in a relationship is the first step to getting you and your partner on the same page financially. Even if you’ve been together a while it’s never too late to start talking.
Discuss what you want out of life. What are your short and long term goals? If you’re young and just starting out, is buying a home and starting a family at the top of your list? If you’ve been married a few years it might be about saving for a family vacation or kitchen remodel. What trade-offs are you willing to make? Do your financial resources square with what you want to achieve?
Work other areas like insurance and saving for retirement into the conversation. If you’re remarrying, the situation can be complicated by children, grandchildren and ex-spouses. Discussing where you stand will help you prioritize and set realistic goals as a couple.
Coming into a relationship it’s especially important to be forthright about debt and other obligations. There could be credit card debt, child support or alimony payments that have to be managed. Your credit ratings may be individual, but they will affect your ability to borrow as a couple. So, it pays to know your partner’s credit history and status sooner rather than later.
Your money personality and working together
Your background and attitudes will shape your views on money. Those views can be quite different from your partner’s. Will you stick to a budget no matter what, or are you an impulsive shopper? Are you happy to take on riskier investments or do you like to play it safe? Does having debt keep you up at night?
You and your partner don’t need to be a match in how you approach finances. It’s more important to recognize how your feelings translate into strengths and weaknesses so you can share responsibilities in a way that benefits you both. For example, if you’re a born spender, doing the day-to-day shopping might be a natural role for you. Meanwhile your fiscally disciplined partner can spend their time setting the family budget, tax planning and tracking investments.
Is it yours, mine or ours?
In your relationship you have to balance your need for a little freedom with the benefits of working together. Finding the right combination isn’t always easy. Is it wise to keep separate accounts or should you share it all?
Recent research suggests putting teamwork first pays off when arranging your affairs. A survey by UBS Wealth Management Americas found that couples who share financial decisions argue least about money and are the most satisfied with how they split financial responsibilities. On the other hand, couples who choose to keep separate accounts or investments are more likely to lie, hide information and argue about money.
A practical choice could be a mixed approach. For example, share your primary bank account and make major spending decisions together. At the same time keep individual personal accounts for small purchases. Having a bank account, investments or a credit card in your own name can also give you peace of mind by helping you maintain some financial independence which can get lost in a relationship.
Study suggests women need a more active role in their finances
Are women connected enough to their money? A recent survey suggests they’re not.
Research from UBS Wealth Management Americas finds that while women participate in broader wealth management decisions for the household, they aren’t as active when it comes to investment decisions.
In heterosexual households, UBS says men tend to take responsibility for investing, long-term planning and insurance, with women more likely to handle day-to-day expenses and charitable donations. Most couples share decisions concerning major purchases (real estate for example), as well as estate planning and educational savings.
Women who defer financial decision-making to their husbands often feel good about their situation pre-retirement. But that confidence can fade, replaced by worry and anxiety. Why? One explanation is that because women routinely outlive their male partners, those who don’t take the time to engage with their finances early on can lack the experience and confidence needed to deal with money successfully later in life.
The report also suggests women should seize the opportunity to take a more active role now – or risk difficulty later.
What you need to know about the Family Law Act
Property rights as defined through the Family Law Act (FLA) are worth paying attention to, particularly if you’re in a common law relationship.
The FLA takes the position that people should share the assets, and debt, they build together in their relationship. If you eventually separate from your partner, the FLA considers property owned (and debt owed) by either or both spouses at the time of separation to be “family” property that’s eligible to be divided. But certain assets, including gifts, property brought into the relationship and inheritances, are “excluded” from family property. Only any increase in the value of these assets can be divided unless agreed otherwise.
The FLA extends property division rules to include common law spouses living together for a minimum of two years. This means family law is in line with estate and income tax law which treats common law relationships the same as married families.
Under the FLA, keeping detailed financial records that establish which assets and debt each partner brings into the relationship and how those values change is a necessity to protect your interests.
Seven ways smart couples can pay less tax
1. Remember the spousal tax credit. If your spouse or common-law partner has net income under $12,069 you may be able to claim a tax credit.
2. Pool charitable donations. If the individual donations you each make to registered charities add up to more than $200 per year, pool your donations for a larger tax credit.
3. Combine family medical expenses. Have the lower income partner claim all of the family’s medical expenses on his or her tax return; there’s a better chance of having more of those expenses recognized. Generally, only medical costs exceeding the lower of $2,352 or 3% of a tax filer’s net income can be claimed for the federal credit.
4. Deduct child care expenses. What you and your partner spend on child care may be deductible, usually by the person with the lower income.
5. Split pension income. If you're in a higher tax bracket, divert some of your pension income to your spouse each year to lower your joint tax bill. Up to half of your income that's eligible for the pension income tax credit, including income from a registered pension plan, RRSP or RRIF, may be transferable. However, there are some age restrictions to be aware of. Before age 65, RRSP and RRIF can be split only because of death of a spouse. After age 65, RRIF can be split. Any CPP benefit split must happen at the time of applying though, not on your tax returns.
6. Help out with your partner’s TFSA. If your significant other has TFSA contribution room you can help them grow their plan faster by offering funds to contribute.
7. Think about a spousal RRSP. Contributing to a spousal RRSP for your lower-income partner gives you a tax deduction today. And, by helping your partner accumulate savings, you can better equalize your incomes in retirement and reduce your future taxes as a couple.
A special relationship can enrich your life, especially when you work together to build a solid financial foundation. It starts with open communication, setting goals and putting the right strategies in place.
At BlueShore Financial we can help you create a plan to turn your life’s vision into a reality. Take the next step. Contact your advisor to learn more.