CIBC Private Wealth
February 08, 2022Money
Financial planning tips for blended families
In second marriages or common-law partnerships, you may have to deal with blending families. How you blend finances is important, especially if you bring significant assets to the new relationship. If not discussed beforehand, these factors can impact your new relationship.
A CIBC poll1 surveyed Canadians planning to get married or live common-law within 24 months. Almost one-fifth (18%) of poll respondents were previously married and divorced; this jumps to almost half (46%) for respondents aged 55 and over. And 25% of individuals aged 35–54 (16% of respondents) had underage children from previous relationships.
So the older you are, the more likely you are to choose a common-law partnership over marriage2. While many consider living common-law to be a more informal arrangement, it may have many of the same financial and estate planning implications as marriage. This is particularly important as couples can unwittingly end up in common-law partnerships simply by living together over a period of time (the length of time varies by province/territory, and may differ for income tax and other purposes). Even living separately, having a child together may create legal and financial obligations.
We recommend one of three methods for managing joint finances:
- Share everything: All your money is deposited to, and all expenses are paid from, joint accounts. A common savings plan is established for accounts that can’t be combined (like RRSPs and TFSAs).
- Expenses-only: You both fund a shared “joint account” that’s used to pay common expenses. You each maintain separate accounts to pay your own expenses.
- Assign expenses: You and your partner maintain completely separate accounts. You decide which expenses you’ll cover and pay your designated expenses from your separate accounts.
When deciding on an approach, consider how your goals align. Do you agree on how to fund children’s expenses, like activities and education, while they’re minors and adults? Do your plans coincide for leaving inheritances for family members? The more your goals differ, the more you may benefit keeping your finances mostly separate.
Please note, various laws may dictate how assets are allocated between spouses/partners and other family members, if a relationship breaks down or a spouse/partner dies.
If your relationship breaks down, some rules dictate how your property must be shared. Family property (real estate, investments and business interests) is divided between spouses in most provinces. In some provinces, a matrimonial home may be considered a family asset from the marriage’s onset, with its value shared equally.
Provincial law may exclude gifts or inheritances from division, such as a matrimonial home. You may need to set out that the gift’s income or appreciation won’t be shared with your spouse.
Depending on the province, a spouse or partner may be awarded support. Child support may be payable by either spouse or partner, depending on circumstances.
Should your relationship breakdown (depending on the province), you may be able to deal with issues by marriage contract or cohabitation agreement. These outline how any property accumulated during the relationship is to be divided and support arrangements. You should both consult with your own legal advisors before signing the contract.
12016 CIBC Couple Finances Poll (August 2016).
264% of poll respondents aged 55 and over were planning to enter common-law partnerships, compared to 56% of all respondents.