Canadian retirees entering a second (or third) marriage have more things to consider than how much to budget for invitations. Merging assets at a time when clients are financially established means sorting through several details with financial and legal advisors to ensure the new couple’s wealth will be divided as planned in the event of divorce or death.
Today, more people are likely to end or enter into a relationship later in life than in years past. For example, according to Statistics Canada, the proportion of seniors aged 65 and older who were divorced or separated rose to 12% in 2011 from 4% in 1981. The number of people aged 55 to 64 who were divorced or separated was roughly 20% in 2011, compared with 6% in 1981.
In some instances, these late-life relationships may not be a merging of financial equals. If that is the case, your clients who already have one marriage behind them might want to take steps to protect their assets before saying, “I do.”
“People go into a second marriage with their eyes open a little bit more,” says Cynthia Kett, certified financial planner and principal with Stewart & Kett Financial Advisors Inc. in Toronto.
For clients with concerns about the assets they are bringing into a marriage, one of the most important documents to sign before signing a marriage licence is a marriage contract, a.k.a. a pre-nuptial agreement. This contract details the assets each spouse is bringing into the marriage and how the spouses would like to see the assets divided in the event of a marital separation.
“It helps you organize your thoughts about a division of property in case there is a divorce,” says Cynthia Caskey, vice president and portfolio manager with TD Wealth Private Investment Advice in Toronto.
Even if your clients cohabitate without getting married, they may be putting their assets at risk. In Ontario, if the age of a spouse plus the number of years of cohabitation equals more than 65, there is an indefinite spousal support obligation, says John Schuman, certified specialist in family law and a partner with Devry Smith Frank LLP in Toronto. A marriage contract can help to control how your client would support an ex-spouse.
One piece of property your client may be keen to protect is a mortgage-free home.
Typically, if your client owns a house and remarries, the residence becomes the matrimonial home and therefore is subject to the division of assets in the event of divorce. The easiest way to keep this asset in your client’s name usually is through the marriage contract, Schuman says.
Through that contract, your client can either remove the house from the division of assets calculation, or give him- or herself credit for bringing it into the marriage.
Two other (albeit more complicated) ways to protect a house as an asset are naming another property as the matrimonial home or creating a trust. In the latter case, your client would transfer the house into a trust for his or her children, essentially giving up ownership, but not occupancy.
For example, your client and his or her new spouse would continue to live in the residence, but they would be unable to mortgage the property or sell it. Such a trust must be arranged very carefully, and both partners should be aware of the nature and intent of the arrangement.
A marriage contract also can help to protect your client’s pension in event of a divorce. As with other sources of income, a pension may have to be shared, depending upon several factors. So, if your client wants to protect his or her pension, he or she must seek legal advice to make sure it remains with him or her in the event of a divorce.
As with all shared assets, only the growth in RRSPs during the marriage is subject to division in the event of divorce or separation, says Schuman. If the principal has been shared, it also is subject to division. Indeed, many retired clients in a second marriage are keeping their assets completely separate to avoid division on marriage breakdown, according to Caskey.
Your clients also will need to consider how they will structure their finances in the event that one spouse becomes ill. You should ask your clients if they have critical illness insurance, Caskey says.
For example, would the assets be commingled if one spouse is diagnosed with cancer? How will your client fund residence in a long-term care facility?
Clients also should give some thought to family dynamics. For example, while your client may spend a lot of time with the new spouse’s children, your client may not want those stepchildren to be treated as his or her own kin in the event of divorce or death.
If such is the case, your client needs to clarify in the marriage contract that he or she is not assuming the role of parent to the stepchildren. Doing so can avoid potential child support payments or prevent stepchildren from making claims against your client’s estate. IE
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