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Financial tips for common-law relationships
If you're in a common-law relationship, it's becoming more common.
The latest Census figures show that the number of Canadian common-law couples rose 13.9 per cent between 2006 and 2011 — that‟s about 4.5 times the rate of growth for married couples (at 3.1 per cent).
Your professional adviser can tell you the specific financial issues relating to common-law relationships. Here are 10 to consider:
1. According to the federal Income Tax Act, a couple is considered to be in a common-law relationship if they have lived together in a conjugal relationship for a period of twelve months or have lived together for a shorter time but are raising a child together. For income tax purposes, they are treated the same as a married couple.
2. If you meet the test for being considered a common-law couple under the Income Tax Act (Canada), be sure to file your income tax returns as a couple. Filing as individual could result in consequences related to filing a false return, and could also potentially result in the loss of various federal benefits, including the CPP survivor benefit.
3. The law in many provinces does not give common-law couples the same rights as married couples. For example, in Alberta, New Brunswick, Newfoundland, Nova Scotia, Ontario, Prince Edward Island, Québec and the Yukon, common-law partners whose relationship breaks down do not have any statutory right to a division of property, no matter how long they have lived together.
4. You and your common-law partner should discuss how you will reconcile your individual financial objectives, resources and obligations should your relationship come to an end. Consider writing down your intentions regarding a potential division of assets in a cohabitation agreement. Attach your agreement to a list of each partner‟s assets and personal effects.
5. Discuss how much you expect to spend, save and invest and who will manage your shared finances, including paying the bills and splitting household expenditures.
6. Make sure you each have a valid will that reflects your rights to property division in your province of residence. Given the frequency of changes in the law in this area, it‟s crucial that you speak to your legal and financial advisors regularly and update as required.
7. Review and revise as necessary the beneficiaries for your life insurance policies and registered investment plans.
8. Designate a power of attorney to act for you should you become mentally incompetent.
9. If you have children from a previous relationship, be sure that they are included in your estate plan. Leaving everything to your new spouse through direct beneficiary designations could inadvertently disinherit your children. You should speak to your legal and financial advisors to ensure your children are covered.
10. Don't make the 'common' mistake of solving all your financial complexities on your own. Professional financial and legal advisors can also be your effective partner in achieving all your life goals.
J. Kevin Dobbelsteyn is a certified financial planner with Investors Group Financial Services Inc. His column appears every Wednesday.