There’s no age limit for getting married—or for ending a relationship that’s not working anymore. Either way, these life events will change your marital status and affect your finances and retirement plan. Want to know more? Just say “I do!” and keep reading.
New couples: The financial advantages
When we’re newly married or become common-law, we’re often in the honeymoon phase and might overlook some things that—let’s face it—aren’t that exciting. For example, newlyweds or common-law partners should be aware that they’re required to disclose their partnership to the tax authorities on their next income tax return.
On the one hand, being married or living common-law could save you taxes by making you eligible for certain credits or benefits. On the other hand, your new marital status might have a negative impact on your taxes, benefits and allowances. As they say, there’s no rose without a thorn!
What is a common-law spouse?
If you’ve been living with someone who you aren’t married to, but you’ve been in a conjugal relationship with them for more than 12 months, or if you’ve adopted or had a child with someone, the CRA considers you to be in a common-law relationship with that person.
Also, for the CRA, Revenu Québec and Ontario taxation purposes, married and common-law partners have the same tax advantages. Here are some of the tax benefits you may enjoy.
Financial advantages of being married or in a common-law relationship
- Can receive a tax credit (amount) for spouses and common-law partners and transfer unused tax credits between spouses
- Can contribute to a spousal RRSP*
- Can bequeath a TFSA or RRSP to the spouse without affecting their contribution room in the event of death
- Can split up to 50% of eligible pension income with the spouse, which results in tax savings
- Can transfer assets to a spouse without immediate tax consequences
An important aspect for newlyweds: Building family patrimony (Quebec) or family property (Ontario)
Marriage is a celebration of love. But it’s also a legal contract that unites two people and has a lot of implications, especially financial ones. A unique feature of marriage is the creation of a “family patrimony” in Quebec and “family property” in Ontario. Here are more details on these concepts, which have significant repercussions in the event of a divorce.
Quebec
What is family patrimony?
Family patrimony is created during a marriage or civil union by pooling certain assets owned by you or your spouse and used for your family’s needs—whether or not you have children.
The purpose of creating a family patrimony is to achieve legal and economic equality between spouses in the event of divorce or death.
How are family assets divided in the event of divorce?
In the event of divorce or death, the value of the property forming part of the family patrimony is determined and divided between the spouses. Here’s a non-exhaustive list of assets subject to the partition of the family patrimony.
Property included in the family patrimony
- Family and secondary homes
- Vehicles and furniture
- Retirement savings products (RRSPs, LIRAs, RRIFs, LIFs and pension funds)
- Earnings registered under the Act Respecting the Quebec Pension Plan (QPP)
Property excluded from the family patrimony
- Income properties
- Businesses
- Savings and personal accounts (except those mentioned above)
- Individually owned stocks and bonds
- Jewelry and other personal property
- Property received as a gift or inheritance
However, it’s important to note that depending on the matrimonial regime chosen by the spouses (for example, a partnership of acquests), other assets may have to be divided.
Ontario
What is family property?
Family property is created during a marriage or civil union by pooling certain assets owned by you or your spouse that are used for your family’s needs—whether or not you have children. Family property also includes debts, such as mortgages, car leases and other loans.
The purpose of sharing family property is to achieve legal and economic equality between spouses in the event of divorce or death.
How is family property divided in the event of divorce?
In the event of a divorce or death, the value of all family property acquired by the spouses during the marriage and still existing at the time of separation is determined and divided between the spouses.
Here’s a non-exhaustive list of property covered by the division of family in Ontario.
Property that can be shared
- Family and secondary homes
- Vehicles and furniture
- Retirement savings products (RRSP, locked-in RRSP, RRIF, pension funds)
- Businesses
- Savings and personal accounts
- Individually owned stocks and bonds
Note that in Ontario, any increase in the value of assets owned by one spouse before the marriage is generally shared between both partners. This rule applies to the marital home where the spouses live.
Property that cannot be shared
- Proceeds from an insurance policy paid out upon the death of the insured
- Amounts received as damages for personal injury
- Property that is to be excluded from the net family property of one spouse depending on the domestic contract between the spouses
- Property given as a gift or inheritance and acquired by the spouse from a third party after the marriage, excluding the marital home
Did you know?
In Quebec and Ontario, upon separation, de facto spouses aren’t required to divide the property acquired during their union equally unless a cohabitation agreement (Quebec) or a domestic contract (Ontario) specifies it. However, they are still responsible for any debts they incurred jointly.
What happens to your retirement plan when you divorce?
If you have a joint retirement plan, you should review it after a divorce or separation. Most of your pension plans and funds will have to be shared with your spouse, including earnings from the QPP, ORPP or other equivalent plans (RRSPs, RRIFs, pension funds, etc.).
To make sure you maintain the standard of living you want, we suggest you re-evaluate your savings and adjust your retirement plan. This will allow you to take into account your new situation and the resulting impact on your budget.
Some food for thought as you begin a new chapter
Now that your separation is a thing of the past, are you considering living with someone new? Take some time to think about different aspects of managing your finances and life together. For example:
- Should you open a joint account? While this has its advantages, think about the pros and cons for you. You may prefer to keep separate bank accounts.
- Consider a cohabitation agreement. To define the equitable division of your property or your individual obligations in the event of separation of your common-law relationship, you could choose a cohabitation agreement (Quebec) or a domestic contract or cohabitation agreement (Ontario).
Tips to make your life easier
Any major change, such as a new marital status, is an opportunity to review certain aspects of your finances and re-examine your priorities. Take this chance to review your insurance coverage and your designated beneficiaries. And while you’re at it, why not also review your will to make sure it truly reflects your final wishes?
If you’re not sure how, reach out to a legal professional for help.
Also be sure to contact your financial advisor, both when things are going well and when they’re not! They’ll be able to help you develop a budget, create a detailed retirement plan or even adjust it based on your new reality and your objectives.
Learn more:
- Changing your marital status (Canada): https://www.canada.ca/en/revenue-agency/services/child-family-benefits/update-your-marital-status-canada-revenue-agency.html