When entering a newly committed relationship, there are many factors to consider, including differing lifestyle habits, values, and expectations. One area that may get lost in the shuffle with new couples is the discussion of their wealth plan. In this article, we will discuss five wealth planning areas all couples should talk about.

From a tax perspective, common-law and marriages are treated the same. The main differences in the two types of relationships pertain to one’s rights in family law and succession planning. The rights differ depending on the province/territory.

#1: Financial Planning

It is important to have an honest and open discussion about your finances with your partner as it helps determine saving goals, spending habits, and investment strategies to achieve the financial goals you have set out as a couple. As your relationship progresses, the financial plan can change, and adjustments should be made accordingly.

Another aspect to consider is determining the ownership structure of your assets. Does it make sense for one individual to retain sole ownership of the asset, or should it be held jointly with ‘rights of survivorship’ or ‘tenants-in-common’? The table below lists some of the features of each ownership structure.

There are many factors to consider when determining the optimal structure of ownership in a relationship, which depends on factors such as personal needs, taxes, legal and credit reasons. To understand the best structure for you, we recommend speaking to our team to assess the most suitable type of ownership in your situation.

#2: Tax Planning

The government has provided tax credits that can be shared between spouses or common-law relationships to help reduce the tax burden. Some of these credits include the spousal tax credit (claimed if you needed to support your spouse at any time of the year and the net income was less than the basic personal amount). There are also other credits that can be shared, such as an age amount, caregiver amount, disability amount, pension amount, and tuition amount.

Other considerations are the potential for income splitting from different sources of income, such as eligible pension income and the Canada Pension Plan (CPP) to transfer some of the income earned to the individual with the lower marginal tax bracket.

#3 Insurance Planning

With all big life changes, it is necessary to review your insurance needs – home, auto, life, disability, and critical illness. As a new couple, you will need to assess if there are any family risks that need to be mitigated with insurance. A comprehensive review is recommended when you are looking at your existing insurance coverage (personal or through work) and determine if additional coverage is needed.

#4 Breakdown of Relationship

Although couples enter into relationships with intentions to build a life together, it is also important to acknowledge the distribution of assets in the event of a breakdown in the relationship.

Provincial and territorial legislation governs the division of property in the event of a marriage breakdown or death. The laws differ depending on the type of relationship – common law vs. marriage and the province or territory. For example, if you are in a married relationship (depending on where you live), you may be required by law to divide the family assets that were accumulated during the marriage in the event of a relationship breakdown. However, in certain areas, common law partners do not have to divide the family assets. Ultimately, a domestic contract can be considered, which outlines in detail how assets would be divided in the event of a relationship breakdown. This may serve as an alternative to the default set by your governing jurisdiction. Our team recommends speaking with a legal advisor to understand your rights in the event of a relationship breakdown.

#5 Will and Estate Planning

With a new person in your life, this is a great time to review your Will and ensure your estate plan is up to date. Many people assume that if a Will was not drafted, all assets would be passed to the surviving spouse. This is not always the case, and under “intestacy rules,” your surviving spouse may not receive all the estate assets. Furthermore, depending on the jurisdiction, common-law partners may not be entitled to any assets at all.

In some instances, Wills that were drafted prior to the marriage may no longer be valid, and even if they were valid, one should update the Will to reflect the new relationship you have entered. When reviewing the Will, you will also need to factor in any obligations to family members or previous relationships (i.e., spousal and/or child support).

As one can suspect, anyone entering a new relationship (common-law or marriage) should consider establishing a new wealth plan. This article lists out key elements to pay attention to, and we encourage you to speak to us so we can identify the areas that are most relevant to you.