A couple of weeks ago, we talked about how to financially prepare for divorce. Facing the topic head-on, while it’s a tough row to hoe, knowing you’re not alone can help. According to Stats Canada, 43% of marriages end in divorce before the 50th anniversary. Reading that, you may think “Who would divorce after being married that long?”. The answer is anyone. Life affects everyone and when you share your life with someone, it affects them too. While knowing this doesn’t make preparing for the emotional impact of divorce any easier, planning your financial decisions ahead of time can put you in a better position to move forward. In life, moving on is the key to moving forward.
Most people have been exposed to divorce either directly or indirectly and can attest to the impact it has on all involved. Some people avoid the couple and some get far too involved. One of the most damaging aspects of divorce is the financial damage that can be caused if you don’t address the money side as soon as possible.
A “friend of a friend” had been married for a number of years when they found out their spouse was cheating. Emotionally devastated, this friend didn’t know the steps to take to protect themselves. So while they sorted through how they felt and where they wanted to go, their spouse was spending all their money and amassing a large amount of debt. By the time next steps were decided, this friend was now financially responsible for half of the debt.
If this were you, would you know the steps to protect yourself from that level of financial destruction? Did you know if you are directly involved in a divorce, one of the people that can help is your Financial Advisor. At YourStyle Financial, we can help you organize your financial information which will allow you to effectively and efficiently work with your spouse and lawyers. This can also help reduce legal fees, which assists in financial recovery. We’ll start the conversation with a Checklist-divorce-2017 and go from there.
This is just an inch in the well of information and assistance we are able to offer. We’ll be writing again soon on dividing assets and dealing with debts. If you think we can help, be sure to contact us in the early stages of potential separation or divorce.
Joint policies may seem attractive because of the cost savings. But it doesn’t cost much more to insure each life individually, and you or your spouse receives double the payout.
For example, if you and your spouse are 30 years old, a joint 10-year term first-to-die policy worth $1 million insures both of you and costs about $787 annually (2014 rates). The contract pays out upon the first insured’s death to the surviving spouse. However, you could purchase two $1-million contracts for an annual premium of about $849. And the total payout from both contracts would be $2 million.
Complications with joint policies can arise if your marriage falls apart.
A divorce doesn’t invalidate a contract, so if you forget to cancel it, your ex-partner could receive an unintended death benefit. Also after divorce, you and your spouse may have to purchase insurance individually (depending on the type of original policy), and if either you or your spouse’s health has worsened, it may be difficult to get new coverage.
Your parents may already have bought you life insurance. In that case, parents usually pay the premiums and are the beneficiaries. The parents own the contract and you are usually appointed as contingent owner. If the parent dies, the ownership automatically reverts to you, the insured child.
When you marry, the family needs to discuss when you should take over the premiums based on financial ability, and whether the beneficiary should be changed to the new spouse. Subsection 148 (8) of the Tax Act allows a tax-free rollover from a parent to a child insured under a life insurance policy. Your uninsured spouse should also purchase a policy, even if he stays at home to care for children, since you would have to pay for childcare if he dies unexpectedly. If you can’t afford permanent insurance for the uninsured spouse, you can purchase term insurance and convert it when your finances are healthier. Make sure the policy you choose has this feature.
If both you and your spouse work, your advisor can help you decide whether to opt out of one of your health plans. For instance, if you have a 50% co-pay in your health plan and your spouse is fully covered, you could opt out of the first plan.
But it could also be advantageous to keep both plans in place. That way, you may first claim under your own plan and then under your spouse’s plan to get more or all of the health expenses covered.
Spouses should talk finance
A 2013 BMO survey shows most married Canadians wish they’d discussed financial matters before walking down the aisle. While 98% of Canadians agree they should be on the same page as their spouses, when it comes to finances, most of them aren’t.
A whopping 40% of these couples say they have different investing styles from their partners.
It’s not surprising, then, that more than half of Canadian married couples have financial regrets, with 62% saying they wish they had discussed their financial pasts and plans before getting married.
Types of policies
Joint policies insure two lives on one contract and are underwritten by combining the health and ages of each life. The premium is determined by the average longevity of the two spouses.
A joint life first-to-die contract pays out when the first insured dies, while a joint life last-to-die policy pays out after the second death. A joint last-to-die policy is better if you want to leave money for heirs or cover taxes after death.
To discuss this further or to book an appointment, contact YourStyle Financial today!
Currently, there’s a lot of talk about what may happen if interest rates rise. So, chances are, you’re looking for tips on how to protect your income and balance your portfolio.
However, capturing money that’s wasted on inefficient interest payments should always be a priority. When it comes to cash flow planning, that’s one of the main ways people are able to save money and free up income.
- Mortgage myopia. You may assume your interest rates and mortgage payments will remain the same over a long period of time, or you may not know how to plan for fluctuating rates. As a result, you could fail to build interest rate-movement assumptions into your financial plans and projections.