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An Introduction To Financial Planning For Same Sex Couples

Update: This article was included in the 267th Carnival of Personal Finance posted at Beating Broke and the 152nd Edition of the Carnival of Financial Planning at The Financial Blogger.

July 20th, 2010 marks the 5th anniversary for same-sex couples across Canada. Only five years ago, the Civil Marriage Act was amended to allow LGBT couples the right to legally marry in this country and to receive the same rights and benefits as straight couples. Interestingly, statistics available show that marriage rates remain low and common-law relationships are the trend for this segment of the population. With the latest Census reporting only 7,500 out 45,300 same sex couples married within the first year of this act. As of 2006, the majority had chosen to maintain the common-law status officially granted to same-sex couples in 1999.

However, despite amendments made by the federal government, many provincial statutes remain unchanged, and there are many jurisdictions which do not recognize common-law couples, whether same or opposite-sex. According to Christine Van Cauwenberghe, financial planning expert with Investors Group, this can have an impact on both estate planning and property rights. For example, in many provinces, if a common-law partner dies without a will, his or her partner will not inherit their estate.

We were lucky enough to get a moment of Christine’s time to discuss financial and lifestyle planning considerations for same-sex couples. Check out the interview below.

Biography: Christine Van Cauwenberghe is Director, Tax and Estate Planning, in the Advanced Financial Planning Support department of Investors Group in Winnipeg. She is an expert in financial planning, particularly tax and estate planning, and helps clients to decide which wealth planning strategies are most beneficial for them. Along with a law degree, Christine has her Certified Financial Planner designation.

Christine Van Cauwenberghe is Director, Tax and Estate Planning, in the Advanced Financial Planning Support department of Investors Group in Winnipeg

Q: Ms. Van Cauwenberghe, to start off, what kind of holistic financial planning advice would you impart to couples that thinking about or have recently gotten married?

A: When you get married you should consider more than just opening a joint bank account. You should look at your long-term financial plan and establish savings and retirement goals together. You should also consider what type of family property rights your spouse may now have, and if necessary, sign a pre-nup to protect things like a vacation property or business. When reviewing your wealth plan as a whole, and particularly your estate plan, remember to consider the interests of any other interested third parties, particularly children from any previous relationships, since you don’t want to inadvertently disinherit them as a result of rashly deciding to leave everything to a new spouse. And of course, you should review your tax situation with a tax professional to ensure you are taking advantage of any tax credits, etc that are available to married spouses and review your insurance coverage with an insurance advisor to ensure that both parties are adequately protected. All the parts of your financial plan are interconnected, so doing one thing, like adding your new spouse as a joint owner to an asset in order to save probate fees, could impact other goals, such as a desire to keep assets separate in the event of relationship breakdown. Making decisions in a vacuum can sometimes lead to unintended results.

Q: What are some important legal/regulatory considerations when approaching estate planning issues with your same sex spouse?

A: Getting married can have a significant impact on your property rights. For example, in every province except Quebec, marriage renders all previous wills void, so you should write a new will. This may also be a good time to update your power of attorney for finances and health care decisions. Also, in most jurisdictions common-law couples don’t have the ability to apply for a division of family property in the event of relationship breakdown, so marriage may expose your assets to a family property claim. You should also review your insurance coverage to ensure that your survivor will be adequately taken care of. It is generally recommended that you speak to a financial planner and a lawyer when you get married (and in fact, hopefully before marriage), to ensure that you understand the implications that it may have on your assets.

Q: Ms. Van Cauwenberghe, can you please talk a little about the tax implications for married couples? What are some practical tax minimization tips to get them started?

A: Entering into a relationship can have a fairly significant impact on your tax situation. First of all, I would mention that these consequences are the same for couples who have been living common-law for 1 year (or a shorter period of time if they have a child). If you are living common-law or married, you will have to file your tax return as a couple, which can provide certain advantages and disadvantages.

Some of the advantages include the ability to:

  • Split certain types of pension income
  • Transfer assets between each other without triggering gains or losses
  • Open a spousal RRSP
  • Claim the spousal tax credit
  • Transfer unused personal tax credits between each other

Some of the disadvantages include:

  • The loss of the eligible dependant credit that either party may be claiming in respect of a minor child
  • The loss of a second principal residence exemption, since only one exemption may be claimed per couple
  • The potential loss of social assistance benefits such as the Guaranteed Income Supplement, the GST credit and the Canada Child Tax Credit since the income of both spouses must be pooled when determining eligibility

Filing as “common-law” or “married” is not optional – you are legally obligated to file truthfully, so you cannot manipulate the consequences to suit your situation, although obviously not all the advantages or disadvantages will apply to every couple. Speak to a tax advisor to ensure that you are maximizing any benefits, and to the extent possible, minimizing any negative consequences of filing as a couple.

Q: With regards to property rights as they are applied to common law unions, what are some important considerations to be aware of?

A: The most immediate consequence of living common-law is that, as mentioned above, you are treated the same as a married couple after living together for one year. As mentioned above, filing as a couple is not optional – you must file your returns honestly, or you risk reassessment in the future. For example, some individuals have filed as “single” for many years, and then after the death of one partner, attempted to apply for CPP survivor benefits, claiming they were in a common-law relationship! The various government departments do share information, so filing a fraudulent return is never a good idea.

However, the fact that you are treated the same as a married couple under the Income Tax Act does not mean that you have any property rights in your province or territory. You should confirm with your lawyer whether or not you would be entitled to inherit at the time of your partner’s death, or apply for a division of family property in the event of relationship breakdown. Many common-law couples operate under the false assumption that they have the same property rights as a married couple, but in most jurisdictions that is not at all the case.

Q: How does a couple go about coming up with a financial plan pre and post marriage and what are some of the points they should be considering?

A: The first thing I suggest to couples is to make time in their lives to sit down and discuss the issue with each other. Book an appointment with your spouse if necessary. Don’t just assume it will all work out. I have seen situations where one spouse was a saver and one was a spender, but the saver didn’t really know that until much later. By that time, a lot of financial damage had been done, and the impact on the relationship was irreversible. Don’t let finances be the reason your relationship fails.

The second thing I recommend is that you sit down with a third party to discuss your situation. Not only are financial planners trained to assist you with meeting your financial goals, but they can ask the hard questions that some spouses don’t feel comfortable asking each other. Make someone else the “bad guy” – if you don’t want to be the one to tell your spouse that you a living beyond your means, get someone else to do it!

Q: Finally, Ms. Van Cauwenberghe, what do you think readers might expect to take away from your book ‘Wealth Planning Strategies for Canadians‘?

A: The first reason I wrote the book is because I firmly believe that most Canadians are not aware of how to approach their situation based on their personal circumstances. Most books of this nature are organized according to subject matter (e.g. the chapters are on topics such as wills, powers of attorney, trusts, etc.) My book is organized according to life scenario (e.g. single, common-law, engaged, married, separated, divorced, blended family, etc.) You need to start with your own personal situation and use the strategies that fit your life situation, not the other way around.

The second reason I wrote the book is because I also believe that most Canadians are not aware of how extremely different the laws can be in each province and territory. I have listed all the jurisdiction differences at the end of each chapter because, for example, living common-law in Manitoba means almost the exact opposite from living common-law in Ontario (common-law partners in Manitoba have fairly extensive property rights; common-law partners in Ontario have almost none). Reading something on the Internet that was written in a different province (let alone different country) could give you a completely false impression of what you need to do to protect yourself. I’m hoping that the book will empower people to take control of their financial and estate planning situation so that they have fewer struggles later in life.

Q: Lastly, Ms. Van Cauwenberghe please free to comment on topics I may not have touched on but those that you find relevant to this discussion.

A: I cannot emphasize enough the importance of looking at your financial plan as a whole. For example, I mentioned above that common-law couples are allowed to open a spousal RRSP for each other once they have been living together for one year. However, this may not be recommended if they are living in a province where their assets aren’t shareable and they want to keep everything separate in the event of relationship breakdown. Always confer with a professional before doing anything that may impact your future wealth (or the wealth of your children). Even doing something as innocuous as designating a direct beneficiary or adding a joint owner to an asset could have significant implications in the future. Make sure you have sufficient information before making any decision.

Thank You, Ms. Van Cauwenberghe!

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