Love and Money: 5 Crucial Financial Considerations for New Partnerships

We focus on an often overlooked but crucial aspect of personal finance: navigating the financial landscape when entering a new relationship. There are many considerations when merging lives and finances. We share practical insights and expert advice you may wish to consider at the start of your new relationship as you plan your life together.

The top 5 planning matters to consider:

1. Prepare a household budget and financial plan

As your relationship develops, it should become more natural to discuss your income, salary and career goals. Being transparent about your savings goals and spending habits will help to create an accurate household budget. Deciding together how best to allocate cash flow and prioritize expenses cannot only prevent headaches, but it can also help establish valuable habits and may save money.

?2.?Determine the optimal structure for ownership of assets

The types of assets you own and how you own them should be part of your discussions.

Owning your real estate, investment accounts and bank accounts in sole or joint names brings advantages and disadvantages.

Sole ownership of an investment or bank account means only you will have the legal authority to access the funds in the account and have total control over the assets. Your spouse or common-law partner will not have any influence over the account. You may choose to maintain sole ownership over certain assets because of personal, legal and tax reasons.

Joint Tenancy with right of survivorship (JTWROS) is a common way for couples to jointly own property. It allows both spouses access to the jointly held funds and both can make investment management decisions. A significant advantage to JTWROS is that upon the death of one owner, the surviving owner will assume that deceased’s ownership interest making for a seamless transition of ownership.

Placing assets in joint names could potentially expose the assets to your spouse or common-law partner’s creditors and increase your exposure to property claims on relationship breakdown.

3.?Tax planning

There are many tax credits that can be shared or transferred between spouses or common-law partners. Common credits to share include spousal tax credit, age amount, caregiver amount, pension income amount, disability amount, tuition amount, donation tax credit and medical expense tax credits.

Spouses and common-law partners are given the opportunities to income split depending on the source of the income. It's very common to split eligible pension income to have a portion taxed at your spouse or common-law partner’s lower marginal tax rate. You may also be able to share your Canada Pension Plan (CPP).

4.?Evaluate your need for insurance

When planning your life as a couple, be sure to consider your insurance needs. Depending on your situation, there may be multiple insurance products that can be used to mitigate your family risk, including home and auto insurance, health and dental insurance, and short-and long-term disability.

The most significant insurance product you may decide to purchase is life insurance. You may choose insurance coverage to replace your income in order to maintain the family's standard of living to provide for dependents; to pay funeral expenses; debts and taxes on death; and even to make charitable contributions.

5.?Will and estate planning

When you enter a new relationship, it's a good time to execute, review and/or update your will and beneficiary designations.

A common misconception is that your assets will automatically pass to your surviving spouse or common-law partner in the event of your death. Your wishes need to be properly documented through a valid Will or beneficiary designation.

If you had a Will prior to entering your current relationship, it's important to note that marriage cancels any Will prepared by either spouse prior to the union, unless the Will is made in contemplation of marriage. As such, your Will may no longer be valid.

Review your beneficiary designations on your registered plans and insurance policies

You may wish to review and update your beneficiary designations on your registered plans and life insurance policies when you're entering a new relationship, to ensure they align with your current wishes. Separation and divorce do not revoke prior designations, so you may still have designations that you made in favour of reformer spouse or common-law partner.

A final note

At the start of a new relationship, you may be thinking about how to protect the assets you've worked hard to accumulate while considering how to share your assets with your new partner.

A domestic contract is a term that covers marriage contracts, cohabitation agreements and separation agreements. A domestic contract can help protect your assets if your relationship breaks down. You can also agree on a variety of subjects, including spousal support, matters relating to your children's education, custody and access issues.

Domestic contracts can be important if you have considerable assets or children from a previous relationship that you want to provide for upon your death. You're able to execute a domestic contract before, during or at the end of your relationship. Creating a domestic contract at the start of your relationship can establish your financial expectations and may help avoid future conflict by determining how assets will be divided in the event of a separation or on death.

At the start of a new relationship, effective communication about your respective goals and expectations can lead to careful planning for your future together as a couple and may help prevent conflict later. Full disclosure about your family and financial obligations is key requirement and can prevent unnecessary confusion and expenditure down the road.

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