December 23, 2008, 6:00 am

Financial Steps for Couples Part 3

by: The Financial Blogger    Category: Personal Finance
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– For the Better or Worst –

As we approaching Christmas, many couples will get engaged (I don’t know why they decide that time of the year, but it happens more frequently around Xmas 😉 ). They will plan their wedding and ultimately live together in a few months (if they are not already been living together for several years 😉 ). Beyond the religious or emotional aspect of marriage, it has a huge impact of your assets. Depending in which country you are living in, laws defer from what belongs to you and your other half in case of divorce.

So let not go there and keep a happy perspective where everybody that lives together have several children and stay happy for the rest of their life 😉

If you plan on living your life with someone, there are financial strategies to be used in order to financially maximize your union. It becomes even better if you have a different income level.

For example, the person with a higher income (therefore higher marginal tax rate) will be deemed to pay off all the household expenses and contribute to RRSP’s (or spouse RRSP) and the person with a lower income will be deemed to invest money in non-registered investments. Such tax strategies can make you save a lot of money.

Another example could be to have the spouse with the lower income to buy a rental property or a vacation property. If you receive rental income or sell the property and declare a capital gain, you will pay fewer taxes if the asset was held by someone with a low marginal tax rate.

Putting all your money in the same joint bank account can be scary at first thoughts but it is the easiest way to manage your money and benefit from tax advantages. On the other side, communication and trust within the couple must be very strong. Nobody wants to see his bank account ripped to buy a Playstation 3 with 10 games and a Plasma TV… especially if you don’t play videogames and you had other plan for that money like vacation down south!

For the better:

– optimize tax efficiency.

– make money management simple.

– personal finance is 100% divulge to the couple.

– increase saving ability if two people join their effort together.

For the worst:

– you must trust your other half 100%.

– in case of separation, things may be more complicated as all assets are blended.

– in case of death, a will must be written and not contestable as all assets (including bank accounts) will be frozen until the estate is settled.

As you can see in this series, there are no perfect ways to manage finance within your couple. The key remain in trust and communication for any financial steps!

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Speaking of engagement, I have a couple I’m sitting with tomorrow (Christmas Eve) that are actually getting married on the 17th. Have to go over all of this with them.

The old person the women had did what some advisor’s do when the economy goes bad and disappeared right after selling a policy. Sadly, they were also a Primerica agent. Oh well, it happens in all companies and industries so I shouldn’t be surprised.

Back on topic. Another good article. 🙂