Even the healthiest marriages end one day.
PREPARE FOR THE INEVITABLE
By Linda Brent, FCA, President, Brent Valuations Inc.
When it comes to marriage, there are three potential times to plan your financial affairs: before, during and after. While it’s most common to default to the latter time, you may forfeit a lot of options by doing so.
While it can be emotionally conflicting to ponder a potential separation while planning a wedding – much like considering an early demise when we’re very much alive – there are good reasons for doing so.
The reality is that about 50 per cent of marital unions end in divorce. Needless to say, the other 50 per cent end in death.
For those with significant assets, planning for the end of a marriage protects the interests of all family members. For those in second marriages who have children from previous relationships, planning is especially important. Among other things, from the outset, planning can help ensure the new spouse is welcomed into the family with warmth rather than suspicion.
Unfortunately, without proper planning there are elements of family law that can result in consequences that would seem unfair to most people. For example, in Ontario divorces, a formula is applied to calculate the increase in the assets that a couple have accumulated during the marriage. This increase is divided equally. Essentially, a spouse gets to subtract the value of the assets brought into the marriage. Sounds fair enough? Before you take a leap of faith, consider the unique treatments applied to certain assets.
For example, the family home is treated differently. Consider this: a wife brings a property worth $500,000 into the relationship, and it becomes and remains the family home. Her husband has an investment portfolio worth $500,000 at the beginning of the marriage. In a divorce, the husband will get to deduct his $500,000 portfolio from the sharing formula, but the wife will not be able to deduct the family home.
If the value of both assets were unchanged, he would end up with $750,000; she would be left with $250,000. As you might imagine, this anomaly can cause bitterness and suffering.
There are other hazards. Gifts and inheritances, for example, are typically excluded from the sharing formula. Without proper planning, recipients can inadvertently change the way family law views these assets, making them family property. Similarly, businesses can become family assets through shortsighted tax
avoidance measures.
Smart planning can help avoid such pitfalls. It is much easier to plan before the marriage with a marriage contract. Marriage contracts can protect the family estate by allowing flexibility to split assets differently from what’s allowed under the Family Law Act.
The bottom line: the most common time for CAs to become involved in their clients’ marital affairs is when a couple divorces, or a spouse dies. Often, the CA’s job involves investigating possible hidden assets, valuing businesses and other holdings or determining real income for support.
Chartered Accountants can provide you with financial planning advice before the marriage licence is signed, to help protect you from headaches after.
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TO VIEW THE FULL REPORT AS IT APPEARED IN REPORT ON BUSINESS MAGAZINE, PLEASE CLICK ON THE ATTACHED PDF >
| Attachment | Size |
|---|---|
| ICAO April Marriage.pdf | 230.33 KB |