A divorce is one of the most difficult transitions you can go through. When you add uncertainty about money, that transition can get even more stressful. Here are six steps to help keep your finances intact during—and after—a divorce:
Step 1. Assess your finances and make a budget
As divorce proceedings get underway, take stock of your finances. Start by reviewing your income, retirement accounts, investment portfolio, and insurance policies. Next, make a budget that reflects your income and projected monthly expenses. Include both your personal debts and debts you share with your soon-to-be ex-spouse. Make sure to factor in expenses such as finding new housing or buying a car on a single income. Identify gaps in your budget where you come up short and see where you can make cuts to cover the difference.
Step 2. Target shared debts first
Debt on joint accounts can be problematic. Whatever your divorce agreement says, creditors will continue to consider both of you liable for the shared debt. Keeping those accounts open may pose problems later if your former spouse falls behind on payments. Paying off those debts pre-divorce can help avoid those issues.
Step 3. Divide assets thoughtfully
You and your former spouse may agree about dividing shared assets equally. But if you’re trying to protect your finances, there’s more to consider than the relative size of each party’s share—namely, tax implications and liquidity needs.
If the two of you will be in different income brackets post-divorce, consider the tax implications of holding on to various shared assets. For example, some retirement funds are after-tax accounts, meaning taxes were paid on contributions, and eligible withdrawals will be tax-free. Others are pre-tax accounts, meaning you will owe taxes on withdrawals. For assets that come with tax obligations, the higher-earning spouse will likely take the greater tax hit from keeping them. On the other hand, the lower-earning spouse may have a harder time paying the taxes. Weigh factors like these carefully.
You may also find that you and your ex have different liquidity needs. If you own a house together, for example, carefully consider liquidity when deciding whether either of you will keep it. If one of you needs access to the equity tied up in the house, it may make sense to sell it. Alternatively, you could decide one person will get the house while the other takes a larger share of liquid assets.
Step 4. Review your retirement goals
The costs and financial changes that come with divorce can set back your retirement plan. Check to see how the terms of your divorce may alter your path toward your retirement goals. For instance, you may find that pushing retirement back by a few years gives you more financial flexibility. Also, consider upping your contributions to retirement plans such as 401(k)s and IRAs. If you’re age 50 or older, the IRS allows you to make additional “catch up” contributions to save even more toward retirement.
Step 5. Revise your will and other documents
In general, a divorce won’t automatically remove a former spouse as the primary beneficiary of your estate and other assets. Designate new beneficiaries for your estate, life insurance, annuities, and retirement accounts. Depending on your state’s laws, you may have to wait until the divorce is finalized to make these changes. You will also likely need to make changes to your health care proxy and financial power of attorney.
Step 6. Make a Plan B
If your divorce agreement states your former spouse must make alimony or child support payments to you, prepare for the possibility that they will fail to pay or pay late. Keep money in an emergency fund to cover expenses, such as childcare, in the event your ex-spouse fails to pay. Also, ask your lawyer about ways to guard against nonpayment in the divorce agreement.
 Source: Consumer Financial Protection Bureau: https://www.consumerfinance.gov/ask-cfpb/i-am-divorced-and-getting-calls-about-a-debt-that-is-no-longer-my-responsibility-under-the-divorce-decree-or-property-settlement-agreement-can-a-debt-collector-try-to-collect-this-debt-from-me-en-1413/
 Source: Internal Revenue Service: https://www.irs.gov/retirement-plans/plan-participant-employee/retirement-topics-catch-up-contributions
 Source: CNBC: https://www.cnbc.com/2018/04/16/out-of-date-beneficiary-designations-are-a-common-and-costly-mistake.html
The Unique Advantages of Health Care Spending Accounts
These accounts can pay you back for qualified health care expenses
A health care spending account (HCSA), also known as a health spending account (HSA), is an employee benefit that offers reimbursement for eligible health care expenses. These accounts can help supplement existing coverage and fill in the gaps where public health insurance falls short.
What is a Health Care Spending Account and how do I qualify?
The public health care system in Canada offers coverage for most medical expenses but not everything. Many health care services, like dental or vision care, are not covered by the system, and some Canadians opt for private insurance to cover these costs. This type of private insurance is rarely a benefit an employer can offer, especially if they are a small business.
Instead, many Canadian employers offer health care spending accounts that reimburse employees for health care expenses not covered under the provincial health insurance plans. HCSAs allow employers to offer employees money to pay for out-of-pocket health care expenses, like dental services, eyeglasses, or hearing aids. Eligibility is generally determined by the employer, but an employee must work at least 20 hours a week to qualify.
How do HCSAs work?
HCSAs are typically offered by employers as either part of a benefits package or on a stand-alone basis. They also offer certain financial advantages. Employers fund HCSAs on a monthly basis, and the money they contribute to the account is tax-deductible. Withdrawals are tax-free for employees as long as they spend them on eligible medical expenses.
An employee’s access to the money left over in the account at the end of the year depends on the plan their employer offers. Employers typically have three options for handling unused balances, including:
- Balance carry forward. With this plan design, unused balances at the end of the first year can be carried over, but unused funds left in the account for more than two years go back to the employer. This option allows employees to plan for large medical expenses over a two-year period, giving them ample time to use their HCSA funds.
- Expense carry forward. This option allows for expenses that remain unclaimed at the end of the benefit year to carry forward and be reimbursed with the next year’s funds. Unused funds, however, are returned to the employer at the end of the benefit year. This option offers employees flexibility, especially if they incur a large unexpected medical expense.
- No carry forward. This is essentially a “use it or lose it” design that does not allow unused balances or expenses to be carried over into the next benefit year. For employers, this plan design is straightforward and simple and works well as a one-time benefit or reward for employees.
What medical expenses are eligible for a HCSA?
Employees do not have to pay taxes on withdrawals for eligible medical expenses. The Canada Revenue Agency (CRA) determines what is considered an eligible expense, such as:
- Vision care, like eyeglasses, contact lenses, or laser eye surgery
- Prescription drugs not usually covered by Extended Health Care plans, such as fertility treatments
- Massage therapy
- Adult orthodontics
There are some medical-related expenses that aren’t covered, such as:
- Premiums for public health services
- Services from nonqualified medical practitioners
For a complete list of eligible expenses, visit the CRA website.
A HCSA offers tax benefits to employers and flexibility and freedom to employees, allowing them to pay for medical expenses not covered under their provincial health insurance plan. If you have any questions about your plan, contact your employer.
Learn how to get the most out of your own health insurance and contact us today at email@example.com or 647.349.7070 to get the conversation started.
Where there’s a will, there’s usually at least one executor – a critical role whose mandate is, as the title suggests, to execute your instructions on the distribution of your property after you die. This blog post is by no means intended to be legal advice but merely a call to use common sense when deciding on the future of your assets.
To be an executor is a serious and time-consuming undertaking that comes with fiduciary responsibilities and legal liabilities. Yet many people don’t take the time to truly consider if the person –or persons – they’ve chosen has what it takes to take on the consequential demands of the role. Is the person willing and able to perform the duties you are asking for?
Making the wrong choice for an executor may be a mistake you won’t live to regret. But the beneficiaries of your estate – and perhaps even your appointed executors – will most certainly wish you had made a better selection.
It starts with understanding
Most people know the general definition of the executor role and those who don’t have Google to help fill in the blanks. Few people really know what it takes to be an executor. What a lot of people don’t realize is the number of tasks and moving parts associated with being an executor. For example, there will be paperwork – a lot of it – because your executor is responsible for submitting your will for probate, accounting for your assets and debts, and filing your outstanding taxes. Your executor will also need to consult and coordinate with your accountant, lawyer and other advisors. Your executor may even be called upon to resolve disputes between your heirs.
Educate yourself (and the family) then identify the best candidates
Your eldest child may have done a great job of organizing family dinners and smoothing over sibling rivalries. Then there’s your business partner – an upstanding colleague with smarts and integrity. But before you start naming them as executors, ask your lawyer for an executor job description that details every possible task under this role. Then identify the skills, knowledge and character traits needed to carry out each task. You’ll find that many of the tasks require a level of financial literacy while others require careful attention to detail. Qualities such as good reasoning, sound judgment and fairness are also critical in this role, as is the ability to communicate and mediate between parties. As you match desired qualifications to your executor’s job description, you’ll likely start to make a shortlist of suitable candidates and perhaps scratch off a few of the names you originally had in mind.
Make sure you’ve got the right mix
If you’re appointing more than one executor, make sure you’ve got the right mix of people. This means ensuring your executor team will have the ability to talk through disagreements and bring a fair and united approach to ensuring your wishes are carried out. It’s also a good idea to set down some rules of engagement and decision-making. For example, will decisions have to be made unanimously, or will majority rule? Will one executor have veto powers? As you consider these points, you should also think about potential candidates for back-up executors in case the ones on your top list decline or are simply not available to take on this responsibility.
It can take years – and potentially a lot of stress – to carry out the duties of an executor. While your appointees may consider it an honour to be entrusted with such an important responsibility, they’ll likely also appreciate some financial compensation for their time and effort. Talk to your lawyer about paying your executors, keeping in mind that compensation typically ranges within 2.5 per cent to five percent of your estate’s total value. This is especially critical if the size and makeup of your assets, or your family structure and dynamic, could make the distribution of your property complicated and challenging.
No matter what, have the talk
Yes, talking about your impending death can seem morbid and might cause pain for you and your family. But not discussing your estate plans today can bring even more pain for your heirs tomorrow. So have the talk with the people who stand to inherit your property, as well as with those you’d like to entrust with the responsibility of executing the terms of your will. This will give you a chance to explain why you’re making certain decisions for your estate, and to hear any concerns your family and appointed executors may have. You may be surprised by what you learn from these conversations and how these new insights can help ensure you’re taking care of the people you love, in exactly the way you want.
It’s taken you a long time to build your assets, and you may still have many years left to keep growing your wealth. Don’t let all your hard work go to waste when you’re gone. Don’t risk the harmony in your family. Take the time to ensure your estate plan is built on a solid framework that includes the right executor and all the required conversations. Not talking about the problem, will definitely not make the problem go away.
Let’s start the conversation. Contact us today at firstname.lastname@example.org or 647.349.7070 to get the conversation started.
Addiction is a huge problem in Canada. How big? Between January 2016 and June 2020, there were more than 17,602 apparent opioid-related deaths in Canada, and this represents only a fraction of the overall problem of opioid addiction.
When you add an addiction to other drugs, as well as other types of addiction (e.g. gambling), the pervasiveness of this problem starts to become painfully clear.
Amid this enormously complex social dilemma, one of the heartbreaking challenges that families face is how to manage their finances when a family member is suffering from an addiction.
In this article, we shed light on this sensitive topic and highlight some strategies that may help with managing this situation.
Starting with open and honest communication
One of the biggest challenges related to addiction is that it tends to live in the shadows. The stigma surrounding addiction often silences the very people who are most in need of help, whether that’s the person with the addiction or their family and friends.
A key to overcoming this stigma is the creation of safe spaces for honest discussions. No judgment, no shame – just open conversations.
Some grandparents are becoming parents again. They have taken on the responsibility because the kids are no longer around ― they have overdosed, they have run away, or they are not fit. Their retirement plan is all of a sudden destroyed. All of a sudden, they have to pay for college, and the cost of college is a pretty big shock compared to when their kids were growing up. When we look at increased withdrawals or spending habits, or unexplained lifestyle changes, one can see they are not thinking clearly, that their judgment is cloudy. They’ve got a lot of other things going on.
Given the financial implications that addiction can have on a family, financial advisors can play a role in having these difficult conversations. Sometimes there are financial red flags such as unusual withdrawals that can alert us to a possible problem; other times it might be just a feeling that something in the family dynamic is a bit off.
Either way, we can help by gently probing for answers and offering thoughtful support. Although addressing the actual addiction goes well beyond our scope of training or licensing, we may be able to recommend appropriate professionals and resources.
Mitigating harm with practical solutions
One area where we can provide direct assistance is in helping families manage their finances in a way that can mitigate the harmful impact of addiction.
For example, consider a family with a teenager who is struggling with addiction. If this teenager is set to receive a large inheritance upon reaching the age of majority, there can be serious concerns about what may happen if they suddenly have access to a large sum of money.
In this case, there are ways for the family to manage the disbursement of this money in a controlled way, including but not limited to:
Trusts – Trusts can be useful as a means of managing assets on behalf of an individual with an addiction and controlling the flow of money to them. While a family member can serve as the trustee who manages the trust, this can lead to tension in the family if the trustee has to make contentious decisions. Appointing a corporate trustee is sometimes a better alternative as this can help to separate family relationships from trust business.
Annuities – Annuities are another option for controlling the disbursement of money to a family member with an addiction by setting up fixed annual payments. Although they are less versatile than trusts, annuities can be more cost-effective.
As every family has unique circumstances and financial needs, we can work with them to understand the challenges they are facing and propose a customized strategy to protect their financial well-being while minimizing harm.
Getting help from a trusted advisor
Across Canada, hundreds of thousands of families grapple every day with the stress and anguish of seeing a family member suffering from addiction.
What’s crucial for these families to understand is that they are not alone and that help is available. Updating a trusted advisor about addiction in the family may involve uncomfortable conversations, but it can also be the catalyst that leads to positive changes and eventual solutions.
InvestmentNews did a survey in which 36% of the advisors who were polled said that their clients have been impacted by the opioid epidemic. Let me tell you why that number is very low and underreported: Clients are not telling their advisors that they are going through an issue. Going through addiction and substance abuse is so full of shame from the stigma. The only way to tackle a problem as pervasive as addiction is to work together. So let’s start the conversation.
Whatever your goals, dreams and challenges, financial literacy is a critical factor influencing what you can achieve in life.
Why? Because financial literacy can help you make smart decisions today that will shape your life and the opportunities you enjoy for decades to come.
As November is Financial Literacy Month, this is a good opportunity to highlight the meaning of financial literacy and show how it can positively impact your life.
Empowering your financial life
Being financially literate doesn’t mean you have to become an expert in financial matters.
However, it does mean getting to know the basics so you can ask relevant questions and have meaningful conversations with financial professionals.
Ultimately, becoming familiar with financial topics is about empowerment and being an active participant in the shaping of your financial future.
Financial literacy 101
Learning some of the fundamentals of personal financial management can go a long way in demystifying this important topic.
The following are some of the building blocks of financial literacy:
- Managing your debt. Personal debt in Canada is at a record high, which is particularly concerning for younger Canadians who are growing up to see cheap debt as a way of life.
- Financial literacy means understanding the impact of debt on your finances – including your credit score – and how different strategies can help you pay it off more quickly and at a lower overall cost.
- Growing your wealth. Working hard in a job or running a business is only one part of the equation – there are many other factors that will influence the growth of your wealth during your lifetime.
- Financial literacy means understanding how your income is taxed, learning how best to balance spending and saving, and identifying opportunities for growing your wealth through wise investment choices.
- Protecting yourself and your family. The past year has clearly shown that life can throw unexpected curveballs, highlighting the importance of proactively safeguarding your financial well-being.
- Financial literacy means understanding the role of life insurance as a powerful investment tool, the importance of disability and critical illness insurance for protecting your financial well-being, and the value of locking in lower insurance premiums when you are younger and healthier.
- Working toward goals. A career can be incredibly rewarding in itself, yet it can also be a means to achieving any number of life goals.
- Financial literacy means understanding the steps you can take now and throughout your career to help you achieve major goals, such as buying a house, starting a family, retiring early or engaging in philanthropy.
Adopting a holistic approach
Adopting a holistic approach to your finances means ensuring that all decisions and strategies are thoughtfully aligned with your current situation and future goals.
A base level of financial literacy – together with support from a trusted advisor – will help you put in place a comprehensive financial plan that covers all the bases and can evolve throughout your lifetime.
In addition to giving you greater peace of mind regarding your financial security, it will also leave you free to focus more time and energy on your family, your career and other important areas of your life.
Securing your financial future
Whatever your worries today and hopes for the future, boosting your financial literacy will empower you to move forward with greater confidence.
If you’d like to discuss your financial situation with a trusted advisor who can provide thoughtful guidance, please contact Rubach Wealth to schedule a call.
To discuss how greater understanding of your finances can get you on the right track to a better financial future, contact us contact us at email@example.com or at 647.349.7070.
Everyone has their own vision of an ideal retirement. For some, it means escaping winter for warm climates and playing as much golf as possible. For others, it’s all about time with grandchildren, volunteer work or pursuing favourite hobbies.
One thing that no one wants in retirement is financial stress, yet that has been one of the by-products of the pandemic. The recent financial turmoil has been particularly worrisome for retired Canadians, as many of them depend on their investments to finance their retirement.
Going back to basics can help lift this cloud of uncertainty.
At 67, Alice is loving retirement. She stopped working a few years ago following a successful career in media. Although she sometimes misses her former colleagues, she is thrilled overall to have more time for visiting family, playing tennis and travelling. The pandemic has put a damper on all three of these activities, but she’s optimistic about things gradually returning to normal.
That’s not to say that Alice is stress free. She knows the pandemic has wreaked havoc on stock markets, and she’s worried about how this will impact her financial situation. She wants to be sure that her money will not run out, which would bring a swift end to her golden years.
At the same time, Alice hopes to have the financial resources to support her children and grandchildren in the years ahead – and after she’s gone. Ultimately, what she would like is personalized support from someone she can trust to ensure her financial needs are met.
Overcoming uncertainty with financial planning
Alice enjoys her active retired life, but she has little interest in spending time and energy managing her finances. She’s more than happy to entrust this responsibility to someone else as long as she’s confident they have her best interests at heart.
If you see similarities between Alice’s situation and your own, here are three things that may help you achieve peace of mind regarding your personal finances during retirement:
- Discuss your concerns. One of the first steps in tackling the stress that comes from financial uncertainty is to talk about it. Rather than sweeping your concerns under the carpet, bring them out into the open. Gaining confidence in your financial situation begins with asking questions and seeking advice.
- Find a true partner. Meeting your unique financial needs requires help from someone who will take the time to understand them. It’s a bad sign if someone starts telling you what to do without first listening to what you want. A trusted advisor will listen carefully, advise thoughtfully and help you gain clarity.
- Keep things simple. Ensuring wealth preservation during retirement is important, but that doesn’t mean it has to be complicated. With a clear understanding of your current situation and desired outcomes, the goal should be to draw as straight a line as possible between them. Minimizing complexity will minimize doubt.
A personalized approach
Retirement should be a joyful time as you enjoy the life, family and wealth you have worked hard to build. While the pandemic has introduced uncertainty, going back to basics with personalized financial guidance can help keep your retirement on track.
If you’d like to gain clarity regarding your financial situation, Rubach Wealth can help. Contact me today at firstname.lastname@example.org.
Together, we got this.
This blog post is part of Rubach Wealth’s Back to Basics series highlighting how focusing on financial planning fundamentals can help you stay on course toward your long-term goals during these uncertain times.