Wedding season is upon us and many happy couples will be embarking on the next chapter of their lives together. But couples with significant assets don’t just need to plan for wedding arrangements—they need to think strategically about the assets they are bringing into the union.
Hiring a lawyer to help answer questions around protecting personal assets before marriage could be one of your best investments. Whether you are the one planning to marry soon or know a loved one who will, sitting down for a conversation is imperative. The reality, however, is these conversations rarely happen between couples unprompted, financial experts say—they are more often encouraged by parents or a trusted advisor, instead.
Having the finance talk before marriage
“Couples fall in love, move in together, plan their futures, but often neglect to talk about money, not realizing that financial matters are one of the leading causes of discord in a marriage and ultimately marriage breakdown,” says Tiffany Harding, vice-president and head of wealth planning at Gluskin Sheff.
“Couples are operating on adrenaline. ‘We’re getting married, it’s so exciting’…They don’t want to derail from these happy, blissful conversations to discuss how to protect themselves financially against the potential dissolution of their marriage,” says Harding.
Conversations about everyday financial matters are just as important before saying, “I do,” professionals say.
Disclosing what you are both bringing into the marriage and discussing saving and spending habits will help to ensure the couple is entering the marriage on the same page.
“It’s about entering the marriage informed”, says Jag Gandhi, vice-president of wealth planning at Gluskin Sheff. It means making a conscious and comfortable choice to share everything with your partner, that’s different than doing it by accident and not knowing the consequences, she says.
“Not being aligned with values and financial matters ranks high on the list of why a relationship breaks down,” Harding adds.
Protecting your inheritance
It’s estimated over the coming decade trillions in financial assets will be passed from one generation to the next in Canada. This transfer of wealth—combined with rising divorce rates—has financial advisors and estate planning professionals warning clients to be vigilant about protecting their assets and discussing marriage contracts or prenuptial agreements ahead of any ceremony.
This is especially true for high-net-worth families who want to protect their children’s inheritance. In some cases, the adult children may not even realize the extent of their parents’ wealth.
Clients tell Gandhi they want their kids to inherit but worry the spouse will have access to their money in the aftermath of a separation or divorce.
“It’s a real conversation to have with parents … if children inherit before they get married, then they have an obligation to protect their inheritance going into the marriage,” says Gandhi.
When the marriage contract is entered into and the type of disclosure provided during the process of entering into such a contract is critical to its validity. Professional advise should be obtained well ahead of the wedding date.
High-net-worth families with more complicated estate plans will benefit from the expertise in particular. Enlisting the help of professionals will also clarify what should be included or excluded in a marriage contract and what assets may be inadvertently overlooked. It’s also an opportunity to review existing structures to understand how they may be affected by a marriage and what needs to be adjusted accordingly. Assets held by a family trust can also be impacted if the person getting married is the beneficiary of the trust.
In Ontario, the Family Law Act has an exclusion for gifts or inheritance received during the course of your marriage. If you receive a gift or inheritance while married, and you keep the gift or inheritance separate and apart, you are allowed to exclude that amount from your net family property calculation should the marriage end with certain exceptions, according to Gandhi. This means opening a separate bank account, for example, and reporting all the income from it yourself so that it is not considered marital property.
But if you take that gift or inheritance to buy a matrimonial home, the exclusion may no longer apply even if the home on title is in one spouse’s name.
“To protect yourself, engage a family law lawyer to obtain advice before you accept the gift or inheritance and know what you should and shouldn’t do with it. Be empowered with that knowledge,” says Gandhi. “If you receive an inheritance during your marriage and you co-mingle funds … and then you have a breakdown of a marriage … generally, there is no going back and undoing it.”
Second marriage wiser?
Second marriages may further complicate financial and legal elements when there are significant assets acquired during the first marriage and when support payments, parenting arrangements with former spouses and estate planning comes into play.
“The conversation around a marriage contract may be easier to have in your second marriage because you’ve gone through it once before and you know what to expect. You know where this could end up and so you are prepared to make the investment to seek legal advice in order to protecting your assets,” says Harding.
One question some couples may need to consider is how to provide for your children from the first marriage and children from the second marriage. Children from the first marriage may have already had all their education paid for and you may have already supported them for 15 or 20 years. Do you divide your estate equally amongst all children? “These are not easy questions to answer, it a balance between legal obligations and one’s wishes” says Gandhi.
Some helpful guidance for those planning to marry:
-Document what you own and owe before you say I do
-Have a conversation with your partner about your values and financial matters
-Engage professional advisors early on to discuss how to protect you and your family’s assets if the relationship were to breakdown
Engaging professionals to help answer these and many other questions before getting married could be one of your best investments when it comes to protecting you and your family’s assets.