Among your senior clients, tying the knot for a second time can be exciting, but it can also be a financial nightmare. Says Dan Collison, regional director for Winnipeg-based Investors Group Inc.: “Love is blind, and these situations can be catastrophic if they aren’t dealt with properly, both from a family point of view and a financial point of view.”
Collison describes one unfortunate situation that could have been prevented by using a marriage contract, also known as a pre-nuptial agreement. These contracts alter rights that spouses otherwise have by statute. In Collision’s example, a new spouse with adult children sold her primary residence prior to the wedding, dividing the proceeds among her adult children. She moved into her new husband’s residence, which became her matrimonial home. As a result, she automatically became entitled to half of the matrimonial home’s value.
The husband’s adult children had been under the impression, based on conversations with their father, that they would receive the full value of their father’s home after the father’s death. But as there was no marriage contract, the new wife was not compelled to transfer the house or its value to the husband’s adult children and continued to occupy the house.
“This brought a lot of grief to the man’s adult children because they saw the home as something their parents, including their deceased mother,- had worked hard to pay for,” says Collison. “In this case, the father was under the impression the new wife would gift [the house] to his children. But there was nothing legally obligating her to do so.”
The reality that many of your clients will bump up against these types of situations is rising steadily, whether your clients are seniors or the adult children of seniors. In 2011, according to Statistics Canada, about one in five people in their late 50s were divorced or separated (21.6% of women; 18.9% of men), the highest rate among the age groups surveyed by Statistics Canada. In comparison, in 1981, 6.9% of women and 6.2% of men in this age group were divorced or separated. Add in widows, widowers and longer life expectancies, and the number of so-called “grey romances” are on the rise.
And if clients who are adult children believe they will always be treated fairly by their parents, they may want to revise that thinking. “It’s surprising how much dependency we see in this age group, especially with men,” says Collison. “Many of these older men are in their 70s and have been taken care of by their spouses their whole life. When they find themselves alone, it can be scary; when they find another companion, they don’t want anything to mess that up.”
The first priority for any couple entering into a late-life partnership is to discuss their finances openly — with each other, and with other family members who may be affected. Stacie Glazman, a lawyer and chartered business valuator in Toronto, notes that everyone involved needs to understand the key differences between a common-law relationship and a marriage.
In most provinces, common-law spouses have no right to the property owned by their spouse. However, this is changing in some jurisdictions — notably, British Columbia. Common-law spouses do, however, have rights to support should the relationship break down.
Spouses who are married, however, have certain rights to their partner’s property —notably, the matrimonial home or homes. (There may be more than one matrimonial home, including vacation properties.)
Glazman notes that disputes over the sharing of the value of matrimonial homes are among the most common issues for second marriages. Thus, marriage contracts dealing with these assets are among the most important to have in place.
When dealing with other types of property, the general rule is that spouses may take out of the marriage the property that they brought into it, and will share in only the growth of jointly used assets from the time of the marriage. This may include RRSPs. Assets kept entirely separate generally are not included in joint property.
These laws are intended to create fairness when two spouses marry young and build a pool of assets together over many years, often while raising children. But the application of these laws to older spouses who have already accumulated much and who may have grown children, can result in unfairness.
For example, a new spouse who has contributed little to asset accumulation may enjoy a windfall, often at the expense of the partner’s adult children.
However, some clients may feel that because they never had a marriage contract in their first marriage, why do so now? Scenarios like the one described by Collision may clarify that thinking.
As well, your clients should know that as soon as they utter, “I do,” existing wills are void. If a new will is not put in place, a deceased spouse will be treated as having died intestate, and property will be divided according to the statutory regime in the province where they live. IE