The relationship landscape continues to evolve in Canada, with more people in recorded history living as common-law partners, foregoing parenthood and having greater gender diversity within their families.
Through all these changes in the characteristics of our relationships, what has stayed the same is the critical role money plays in keeping people together – or in tearing them apart. Various studies over the years have identified financial issues as among the top reasons for marital breakups, factoring in 50 per cent to 70 per cent of Canadian divorces.
Whether we like it or not, love and money really do go hand-in-hand. Making it all work together, “till death do us part” requires a solid understanding of how finances shape your relationship dynamic, what strategies are best in certain situations, and the importance of ongoing communication about compromise.
Tying the knot? Have the talk first
You’ve discussed every detail of the wedding. So why haven’t you had the money talk yet? Start by getting a clear picture of your finances as a couple. What net worth – income minus debt – are you both bringing into the relationship? What are your expenses going forward, including any support payments that need to be made to a former spouse or children from a previous relationship? How much can and should you put towards savings? To what extent will you mingle your assets? Before you walk down the aisle, sit down with your financial advisor to figure out these details.
When one of you is in the red
In cases where one partner has debts that could create obstacles in a joint financial plan, the other partner may decide to pay off these liabilities so both parties can build on a clean slate. Whether you’re the payor or the one whose debts are getting paid off, it’s a good idea to document this financial arrangement. You also need to be clear about the nature of the arrangement. Is it a loan or a monetary gift from one partner to another? Knowing this in advance can make a difference should the marriage end in divorce, or in the final disposition of an estate.
Love and inheritances
When it’s not handled properly, the windfall from an inheritance could also blow in elements for potential chaos in the future. What happens, for example, if the recipient of the inheritance dies and the surviving spouse has children from a previous relationship? Could the inheritor’s own children be denied a share of their deceased parent’s inherited wealth? And what about returns on investment from the inheritance money – should this count towards joint marital assets? Just as different couples have different ways of handling finances, how they choose to set up, use and share an inheritance is a personal decision. Nonetheless, it’s best to seek professional and legal advice before receiving and spending an inheritance. This is also a good time to discuss each partner’s expectations and intentions related to the inheritance, and how it might fit with your financial plan.
Are your kids getting married?
If you have an adult child or two planning to say “I do” in the near future and are counting on you for help with the wedding expenses, make sure you talk to them – and your financial advisor – about how this contribution affects your financial and estate plan. If all parties agree that part or all of the monies you’re putting towards the wedding counts as a loan, then draft up a loan agreement to be signed by the appropriate parties. Depending on what makes sense for your financial and estate plan, you may stipulate that the loan be repaid over a certain period or that it be deducted from your child’s inheritance. If you’d prefer to give this money as a gift, speak with your financial advisor first to see if you can truly afford it or if you need to make some adjustments to your financial plan.
Find your middle ground
Even the most compatible couples will have some differences in their financial philosophies. Maybe one partner is a conservative and jittery investor while the other believes a more aggressive approach is the best way to go. Or maybe both parties agree on everything – until they bring up the topic of how much should be left to the kids. This is where an objective professional can make a difference. An experienced financial advisor can assess both partners’ goals and create a financial plan that, on balance, addresses each person’s needs. As is the case in all relationships, communication and compromise are key to achieving a harmonious joint financial plan.