Modern Love
Joint finances for couples

If wedding planners are right, newlyweds will be sailing into the sunset, as colour trends are pointing to “rich peaches, deep fuchsia, reds, and corals.” Well, that’s just peachy, except after the honeymoon comes the real business of living as a couple; that’s when the colour palette could turn cloudy. Merging finances is emotionally charged, especially when we’re already established in careers and have savings and other assets. Suddenly what was “hers” or “his” is “ours”—or is it?

Some couples prefer to blend their finances, while others choose to keep their personal accounts separate but budget for joint expenses. There is no one best way as long as it works. Still, when individuals have different money habits and attitudes about saving, investing and debt, conflicts are bound to occur. According to a 2016 study by Sun Life Financial, 75 per cent of our major stresses are financial. And in a survey of over 2,000 Canadians in 2018, one-third admitted that finances were a major stress on their relationship.

Stress Test

The most common pain points in relationships involve debt, financial infidelity, different tolerances for investment risk, as well as conflicting attitudes about saving and spending.

Our attitudes towards money are formed early in life. They are an amalgam of early childhood experiences observing how our parents and other close relatives related to money, as well as being teenagers and young adults and handling money on our own. Financial experts often say, “arguments about money are never about money”. They are more likely to be about security, status, moral values, and control.

Today, many couples bring their personal debts into the union, whether student and car loans, credit card balances, alimony and support payments, gambling debts, or other financial obligations. The high cost of housing together with stagnant wage growth is not helping matters. According to a recent report by Statistics Canada, in 2018, the average Canadian household had a paltry savings rate of 1.7 per cent and managed to save only $852, compared with $3,500 in 2013. This doesn’t leave a lot of wriggle room should interest rates rise or a recession occur.

It turns out financial infidelity is a serious problem in relationships. According to a 2018 survey, more than a third of Canadians keep financial secrets from their partner. Not only does it erode trust, it also damages a couple’s credit profile and it could leave the unwitting partner to deal with debt collectors, including the CRA if there are taxes owed.

Some potential red flags, are:

  • Regular cash withdrawals
  • Unaccounted purchases
  • Changes in behavior and spending habits
  • Changes in mail, e.g. new credit cards or investment firms
  • Partner is extra vigilant about getting the mail before you see it

    Because it’s much easier to address a potential problem before it moves in and orders pizza, financial coaches recommend that a couple have a “money talk” before making it official. This should involve reviewing each person’s current cash flow and any existing financial obligations, as well as a discussion on the best way to handle joint finances.

    In some cases, it might be wise to draft a pre-nuptial/domestic agreement that outlines what the expectations are for each partner, and what happens to assets should the relationship dissolve. Division of property is treated differently whether the couple is married or common-law, so it’s best to consult with a legal professional. Although it can be challenging, talking about money with your partner can bring you closer together as you plan and strive together to reach shared goals.

    Taxing Matters

    Though it takes a bit more work to harmonize the household, becoming a legal couple (married or common-law) comes with some big financial advantages. These include both tax breaks as well as benefits.

    The household can lower tax bills, sometimes very substantially, in the following ways:

    • Deferring taxes. When you bequeath your assets to your spouse, taxes are deferred until your spouse sells them or passes away.
    • Splitting pension income.
    • Transferring dividend income to a lower income spouse.
    • Minimizing RRIF withdrawals based on the age of the younger spouse.
    • Transferring tax credits, such as age, pension, caregiver, disability.
    • Claiming spousal credit.

    Rita Silvan is a paid Sonnet spokesperson.
    Looking for a home and auto insurance quote?