Have the 'money talk' before living together, marrying
By Patricia MacInnis, Senior Editor
“There has to be communication before you get to the point when you're living together or considering marriage,” says Townsend, principal of Townsend Law. “You need to communicate about your money goals and work as a team. That’s one of the reasons I recommend prenuptial agreements — because it spells everything out beforehand.”
While it may not be romantic, she says having the money talk before taking a serious step like marriage can save couples grief in long run.
That’s especially true when it comes to the debts that one partner may bring into the relationship, Townsend says.
“That’s going to have an enormous effect on the household,” she says. “If one party is saddled with debt and has to pay it off, there’s going to be less disposable income from that person, which can create problems. Even though legally you’re not responsible for a debt that’s in someone else’s name, it can have enormous repercussions on your family life,” especially when there are children involved.
Townsend says if one spouse enters the marriage with more assets — investments, properties and the like — than the other, the law provides them with some degree of protection.
“Assets that you bring into a marriage are something you can deduct down the road if you do split up,” she says. However, because there is some equalization that goes on between the assets in the marriage, Townsend says it’s important that they remain in the owner’s name and have a paper trail that validates ownership.
“If you have $50,000 in a bank account and decide to use it to buy the matrimonial home, you won’t have the same protection. Even if you put it into another type of asset that the family is using, you’re not going to be able to deduct it,” she says.
It’s important to remember that common-law couples in Ontario don’t have the same protections as married spouses — it tends to favour the property owner, Townsend says.
“The property rights are very different at common law,” she explains. “If you keep properties, assets and investments in each of your names, when you split up, what’s in your name will likely be what you get.”
Merging bank accounts is a step many couples take when they move in together, but it can complicate matters in the event of a split, she says.
“Common accounts to pay household expenses is a good idea, and both people should have equal access, but if there’s a substantial imbalance in what (one person) is bringing into the marriage, you don’t want to put everything into both parties’ names,” Townsend says, adding that from a legal perspective, the person who brings more into the marriage will be much more exposed in divorce.
Townsend says in her practice she often sees women who have stayed at home to raise their children while their partner works and manages the family’s finances.
But in the event something goes wrong — death or a breakdown of the marriage — she says it’s important for women to have a firm handle on the financial health of the household.
“You see the situation of the stay-at-home mom who gets to be in her 40s or 50s and knows nothing about the family finances. If you’re at home, maybe take over the actual process of paying the bills” and ensure you have access to bank account passwords and other important financial information," Townsend says.
If a couple decides to split, there are more affordable options for ending the marriage than litigation, she says.
“Divorce is expensive, but with mediation, (there’s) as an independent third party who can help them come to decisions on how they want to divide things. It’s much cheaper and more people are doing that rather than hiring a lawyer and fighting in court.”