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Financial planning tips

June 20, 2017

Financial planning for same-sex couples

Canadian law treats same-sex couples the same as opposite-sex couples, so they must consider the same issues when it comes to managing their finances.

After years of lobbying and court challenges, Canada legalized same-sex marriage in 2005. Claire Giroudeau, a financial security advisor with Distinction Finance in Montreal, explains that this is why "same-sex couples now have the same rights as opposite-sex couples, and this impacts management of their finances."

According to Statistics Canada, the number of married same-sex couples almost tripled between 2006 and 2011, to 21,015. This represents about one-third of all reported same-sex couples. In June 2014, the BMO Wealth Institute published a report pointing out that same-sex couples enjoy the benefits of public pension plans as well as "income-splitting strategies such as the use of spousal RRSPs, prescribed-rate loans between spouses, pension income splitting, and the transfer of certain tax credits between spouses." This means that in the eyes of the government, there is no longer any difference between same-sex and opposite-sex couples.

Common-law spouses more vulnerable

Common-law spouses, however, may encounter obstacles that could undermine their finances whether they are same-sex or opposite-sex partners. One such difficulty may arise when an estate is involved. "Common-law spouses don't automatically have the right of inheritance if they are not explicitly named as beneficiaries in a will," explains Damien Pellerin, LL.B., a partner with the Montreal-area law firm Pellerin Savitz and a family law expert. "There is also no universal definition of common-law relationship. The definitions and related criteria – such as the number of years of cohabitation or having children together – vary from province to province."

This can be a problem for some same-sex couples. “If you have filed your taxes as co-tenants rather than as a couple, it may be difficult to prove that you are actually a common-law spouse following your spouse's death," says Pellerin.

Common-law spouses therefore need to head off problems by naming their spouse as their beneficiary, particularly in their will and insurance policies. For example, if you are designated as beneficiary on your spouse's RRSPs, you can transfer those plans into your own name after your spouse's death without paying any tax. Giving your spouse power of attorney enables him or her to make financial and health-care decisions on your behalf in the event of an incapacitating accident or serious illness.

Whether you and your partner are legally married or common-law, same-sex or opposite-sex, the route to a secure financial future is the same: Smart planning. A financial advisor can help you develop the strategy that best suits your situation.

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