Before you say “I do”: Financial tips for newlyweds
A new study from BMO Wealth Planning Group finds 62 per cent of married couples regret not having detailed discussions about their finances before getting married.
Indeed, money squabbles are right up there with family quarrels when it comes to the biggest sources of strife in a marriage. While there’s nothing we can do about that doting mother-in-law, there are ways for newlyweds to make their financial union as blissful as possible.
- Establish what each spouse is bringing to the union. If one brings savings and the other brings debt, the inequity will be a constant burden unless it is addressed.
- Keep the past in the past and formulate a plan to tackle debt and build savings. If one partner has a bad credit rating or admits to having no financial self-control, designate one spouse as the household Minister of Finance. If neither have control, get control. You’re adults now.
- Some couples enjoy their financial independence and that’s fine. But there are many long-term advantages to consolidating your finances with one institution. Both partners can share responsibility for a mortgage or line of credit and both can reap the advantages of building a good credit rating and getting the best borrowing rates possible.
It’s also easier to organize and plan your finances when all your accounts like mortgages, lines of credit, registered retirement savings plans (RRSP) and tax free savings accounts (TFSA) are on one online profile. Banks tend to favour lifetime clients and will often reduce or eliminate fees as the relationship builds. It also removes much of the stress of transferring assets to one spouse in the unfortunate event the other passes away.
One area where it might be wise to be independent is with high-use savings accounts. Direct deposits going in, and withdrawals coming out on a regular basis could make things confusing and increase the chance of paying big overdraft penalties.
Consider having one financial adviser. Investing for retirement should be a team effort. A financial adviser needs to know the goals and fears of both partners and establish an appropriate level of risk.
A more financially savvy spouse, for example, could be directed toward riskier assets like equities and a spouse with a low tolerance for risk can be directed toward fixed income. That can give the couple a risk-balanced portfolio of stocks and bonds. If equities fall 60 per cent in one year, like in 2008, the spouse with fixed income will be the one looking savvy.
A financial adviser can also help utilize certain tax advantages if one spouse makes more than the other through a strategy called income splitting. By opening a spousal RRSP the higher income spouse can contribute to the RRSP of the other spouse and get a bigger tax rebate. When it comes time to withdraw funds from an RRSP the lower income spouse will be taxed at a lower rate.
More direct tax savings can be realized by putting tax advantages in the hands of the higher income spouse. Deductions and credits relating to medical and education expenses – or the Children’s Fitness Credit or Children’s Art Credit – are bigger when they are deducted by the spouse in the higher tax bracket.
Another recent survey on marriage and finances from Investors Group finds 68 per cent of couples share financial duties and make decisions jointly. The remaining 32 per cent risk a life of financial uncertainty and, in many cases, distrust.
Like any part of a marriage the key to sound household finances is communication and a shared vision of the future. That communication should begin well before the rings go on the fingers and, despite a few twists and turns, keep on track to your golden years.
To Your Wealth