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Set your financial house(s) in order before getting married

My wife, Carolyn, the kids and I attended the wedding of friends Paul and Kristin last weekend. As the ceremony began, Carolyn started to cry. Never fails. The bride comes down the aisle, and out comes the tissue. Our son, Winston, looked up at his mom and saw her tears. "Mom, why are you crying? It's not your wedding."

"That's right son," I said. "People cry at their own weddings. Weddings are sort of like a funeral where you smell your own flowers," I joked.

Carolyn accuses me of being insensitive. Not true. I very nearly cried at the end of Old Yeller when I was seven. But I digress.

It's the season for weddings, and so I want to share some financial advice for those getting married this year -- particularly those who already have some income and assets.

The issues

Now, I don't want to compound your stress by adding to your to-do list before your big day. But make no mistake, if you choose to ignore the ideas here, a number of problems or missed opportunities can arise, including: dying without a valid will (which can lead to many problems), leaving assets to unintended people upon your death, paying more in probate fees than necessary at the time of death, paying more tax than necessary both during your lifetime and at the time of death, and losing more of your assets than necessary in the event your marriage breaks down.

The checklist

Consider these seven ideas.

1. Prepare a will.

Your marriage will revoke any existing wills, except those made in contemplation of your marriage. You and your spouse should make new wills. Dying without a valid will means that your estate will be divided in accordance with provincial laws -- not your wishes.

2. Set up a spousal trust.

When making your new will, consider leaving your non-registered income-producing assets to a trust for your spouse rather than directly to your spouse. The benefit? Tax savings. Your spouse can split income with the trust. See my article dated Sept. 27, 1997, at www.timcestnick.com.chkd

3. Change your beneficiaries.

If you have named beneficiaries on your registered retirement savings plan, life insurance policies, pension plan, and employee benefit plan at work, you will likely want to make your new spouse the beneficiary instead. Make this change as soon as possible.

4. Consider joint ownership.

I'm not always a fan of joint ownership (see my articles dated June 5, 2004, and June 9, 2001, at http://www.timcestnick.com). Nevertheless, consider holding assets jointly to minimize probate fees at the time of your death or your spouse's.

5. Consider a prenuptial agreement.

I know it's not romantic, but discussing a prenuptial agreement is important if you are entering your second marriage or have significant assets. This could reduce your losses and protect your assets for the benefit of existing children.

6. Create a spousal RRSP.

Ideally, you and your spouse should have equal incomes in retirement. This will minimize your taxes as a couple. If you're likely to have a higher income in retirement, start setting aside money in a spousal RRSP, which can help to equalize your incomes.

7. Make a loan to your new spouse.

If your income is much higher than your spouse's, and you have investments outside an RRSP, consider lending money to your spouse to invest (see my article dated Oct. 27, 2001). If you charge the prescribed rate of interest on that loan (currently 3 per cent), you'll shift income to your spouse's hands, saving tax over all.

Tim Cestnick, FCA, CPA, CFP, TEP, is a tax specialist and author of Winning the Tax Game 2005 and The Tax Freedom Zone.

tim@timcestnick.com



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