Financial Planning – The effects that marriage has on household and individual finances are often overlooked by couples who are “taking the plunge”. The excitement of the engagement, the particulars of the wedding, and the anticipation of starting a new life together tend to outweigh thoughts of a healthy and stable financial future. Many couples, prior to marriage, take part in ‘pre-marital counseling’ as a means of preparing for this new life. This counseling tends to be primarily focused on argument resolution and the importance of communication. However, in a world where the average Canadian’s consumer debt is $25,960 [Globe & Mail Feb 23/12], it begs the question as to why ‘financial planning/advice’ is not a significant part of that preparation.

Debt can be one of the biggest hindrances to a healthy savings account. So it makes sense to deal with this issue first. Many young people today are unaware of the cost of borrowing. They tend to view their credit cards as “free money”, oblivious to the additional costs that these short term facilities can create. Furthermore, there are many instances where such credit can get out of hand, leading to a detrimental credit situation. It can be very easy for engaged couples and/or newlyweds to view their debt as “theirs”, not realizing that the costs to carry and pay for that debt are typically done as a joint effort upon marriage. The bottom line is that debt costs money, and typically, the most expensive form of debt is the credit card. In the event that credit card debt has gotten significantly out of control, it would be better for that debt to be moved to a line of credit with a lower interest rate so it can be paid off faster at a much lower cost.

Marriage also brings about many changes in the realm of income taxes that many young couples are unaware of. The most common effect is the change on the HST rebate, which is based on household income. When the two taxpayers file as “single” on their tax returns, they are eligible for individual rebates. However, upon marriage, the two taxpayers are considered to have formed one household, and this typically results in a request for the payback of funds to CRA. For couples getting married later in the year, this payback is generally quite small, but for those whose weddings were earlier in the year, their payback sums can be much more significant depending on the amounts they received during the full calendar year.

A safe and secure financial future starts with well defined retirement plan. This is something the couple should be discussing on an ongoing basis to ensure (a) that growth is occurring in the savings vehicle and (b) that the overall retirement vision has not changed, and if it has, that savings strategy is revisited, if necessary. There are various vehicles available to ensure accumulated wealth for couples upon retirement. The RRSP presents a unique option in the event that one spouse makes significantly more than the other. A spousal RRSP allows the couple to save for the lower income spouse, while allowing the higher income spouse to claim the income reduction through their contribution room generated by their higher salary. It should be noted, however, that RRSP’s present the opportunity for a tax deferral. When the funds are withdrawn upon retirement, the amount is taxed as income in the appropriate threshold bracket. This differs from the TFSA in that the annual contribution limit is $5,500 and there is no income reduction. However, all growth obtained from those contributions can be withdrawn at any time, tax free to the taxpayer. When used in conjunction with an RRSP, the TFSA can be a viable savings option for any taxpayers retirement years. The ‘catch’ with a TFSA, however, is that contributions must be made by the taxpayer. [ie. Spouse A cannot contribute directly on behalf of Spouse B].

As with anything in life, when it comes to the financial future of a couple joining finances for the first time, the best offence is a strong defense: Be honest. Be proactive. Discuss openly. Be prepared.

For further advice or assistance with these or any other financial issues, please contact a Millards representative at (519) 759-3511.