You can now find our continuing commentary on financial planning in Soonews.ca under the blog section. Visit www.soonews.ca for more info.
Our content to Soonews.ca will compliment the articles that we post here. We are very excited for this new avenue to bring timely financial advice to Saultites and would like to thank Karen Johns, Craig Huckerby and all of the hard working staff at Soonews.ca for the opportunity.
Wednesday, January 23, 2008
Monday, January 21, 2008
Don't Sell Quality - Article from The Globe and Mail
No doubt you are aware of the recent stock market declines. We came across a great article today in the Globe and Mail that we would like to share with you. It sums up nicely our position on long term investing through a 'Bear Market'.
The most important aspect of any investment plan is to ensure that your investment choices meet your time horizon and risk tolerance. If you would like a review of your current investment portfolio, please don't hesitate to call and make an appointment.
This is no time to sell quality
Rob Carrick
Monday, January 21, 2008
Beware the one-two punch of plunging stock markets.
Not only do they decimate your portfolio, but they also lure you into making bad investing decisions that help ease your short-term anxiety but then hurt you in the long term. That's how it is that investors sell perfectly good stocks and mutual funds, buy principal-protected investments and make other mistakes with lasting repercussions.
Selling quality right now is probably the worst error you can get fooled into making by a plunging stock market. The rationale here of protecting your money against further losses makes sense, especially because it's hard to imagine there aren't more bad days ahead for the market.
But what comes after that? If you sell today you'll have your money languishing in money market funds, where returns are on the decline because of falling interest rates. You'll eventually get an itch to find something with a higher return and, quite likely, you'll end up in the stock market again. By then, stocks will have jumped from their lows and you'll be buying at elevated prices.
Some people, amateur and professional, get lucky timing their moves in and out of the market. The masses get it wrong and thus end up in a cycle of selling low and buying high that robs of them of returns and extracts unnecessary fees and commissions.
Another mistake is to give up on the risks of the stock market and instead buy guaranteed investments like principal-protected notes or segregated funds. The appeal of these investments is obvious – you get exposure to stocks with no risk of losing money in down markets like we're seeing today. The problem is with the cost of the guarantee – it cuts into returns so deeply that it's simply not a good value.
Buying guaranteed investments at times like now make less sense than usual because the stock markets have already lost a lot of ground. They may fall further, but savvy investors know that the current decline is setting up the next move up for the markets. Sellers of guaranteed products will make out like bandits when stocks rebound. Investors, not so much.
With registered retirement savings plan season just about here, gun-shy investors are poised to make yet another mistake, which is failing to make an RRSP contribution. If a plunging stock market is freaking you out, invest your RRSP money in a high-interest savings account until the dust settles and then move into a long-term investment when you can.
The best move would be to take your RRSP money and put it into the highest quality, most beaten down stocks or funds you can find. But one step at a time.
© The Globe and Mail
The most important aspect of any investment plan is to ensure that your investment choices meet your time horizon and risk tolerance. If you would like a review of your current investment portfolio, please don't hesitate to call and make an appointment.
This is no time to sell quality
Rob Carrick
Monday, January 21, 2008
Beware the one-two punch of plunging stock markets.
Not only do they decimate your portfolio, but they also lure you into making bad investing decisions that help ease your short-term anxiety but then hurt you in the long term. That's how it is that investors sell perfectly good stocks and mutual funds, buy principal-protected investments and make other mistakes with lasting repercussions.
Selling quality right now is probably the worst error you can get fooled into making by a plunging stock market. The rationale here of protecting your money against further losses makes sense, especially because it's hard to imagine there aren't more bad days ahead for the market.
But what comes after that? If you sell today you'll have your money languishing in money market funds, where returns are on the decline because of falling interest rates. You'll eventually get an itch to find something with a higher return and, quite likely, you'll end up in the stock market again. By then, stocks will have jumped from their lows and you'll be buying at elevated prices.
Some people, amateur and professional, get lucky timing their moves in and out of the market. The masses get it wrong and thus end up in a cycle of selling low and buying high that robs of them of returns and extracts unnecessary fees and commissions.
Another mistake is to give up on the risks of the stock market and instead buy guaranteed investments like principal-protected notes or segregated funds. The appeal of these investments is obvious – you get exposure to stocks with no risk of losing money in down markets like we're seeing today. The problem is with the cost of the guarantee – it cuts into returns so deeply that it's simply not a good value.
Buying guaranteed investments at times like now make less sense than usual because the stock markets have already lost a lot of ground. They may fall further, but savvy investors know that the current decline is setting up the next move up for the markets. Sellers of guaranteed products will make out like bandits when stocks rebound. Investors, not so much.
With registered retirement savings plan season just about here, gun-shy investors are poised to make yet another mistake, which is failing to make an RRSP contribution. If a plunging stock market is freaking you out, invest your RRSP money in a high-interest savings account until the dust settles and then move into a long-term investment when you can.
The best move would be to take your RRSP money and put it into the highest quality, most beaten down stocks or funds you can find. But one step at a time.
© The Globe and Mail
Wednesday, January 16, 2008
Staying Focused
With the recent volatility in the markets, it can be easy to lose sight of your long-term financial goals. That's why we encourage all of our clients to meet with us on a regular basis to review the financial plans we have made together. Goals and needs can change quickly and it is important that your plan remains focused and adaptable.
It's important to also understand what's happening in the markets and how these changes can affect your plan Our most important goal when working with together is to make sure your time-horizon (the amount of time your investments can stay invested before your need to make withdraws),your risk-tolerance and portfolio diversification strategies are kept up to date.
While we take the time this time of year to contemplate our future financial goals (like your RRSP contribution for this year for example), we would like to leave you with a short presentation on investing through the natural cycles of the financial markets and how to separate our emotions from guiding us toward the wrong investment decisions.
We look forward to meeting with each of you in the near future to ensure that your financial plans stay on track. Please don't hesitate to call and book a meeting.
Kevin Lamour & Ellen MacDougall
It's important to also understand what's happening in the markets and how these changes can affect your plan Our most important goal when working with together is to make sure your time-horizon (the amount of time your investments can stay invested before your need to make withdraws),your risk-tolerance and portfolio diversification strategies are kept up to date.
While we take the time this time of year to contemplate our future financial goals (like your RRSP contribution for this year for example), we would like to leave you with a short presentation on investing through the natural cycles of the financial markets and how to separate our emotions from guiding us toward the wrong investment decisions.
We look forward to meeting with each of you in the near future to ensure that your financial plans stay on track. Please don't hesitate to call and book a meeting.
Kevin Lamour & Ellen MacDougall
2007 in Review
As we begin a New Year, we would like to thank you for choosing us as your financial planning firm. We appreciate your trust and the business that comes with it. This time of year is a good opportunity to look back and put things into context. Here's a quick review of the more important financial events that occurred in 2007:
The Markets
At the beginning of 2007, the S&P/TSX Composite Index was sitting at around 12,923 points. For the first seven months of the year, the index was, for the most part, climbing and even broke the 14,000 barrier for the first time on Friday, May 11.
The strong performance was halted at the end of July, when the credit crisis first began to make itself known. Soon America's sub-prime woes, coupled with asset-backed commercial paper problems, sent markets around the world into turmoil. By August 8, just two weeks after the TSX dropped below 14,000 for the first time in weeks, it had lost nearly 600 points.
Since then, the index has been extremely volatile, dropping below 13,000 in mid-August, climbing back up to almost 14,600 at the end of October and landing at 13,467 on November 23. How the index — and world markets for that matter — will fare in the next month and through next year is anyone's guess, but investors can expect a bumpy ride to say the least.
Budget 2007
In March, the Conservative government presented its 2007 budget. For the most part, Finance Minister Jim Flaherty introduced a number of tax savings for families, including removing the Registered Education Savings Plan's annual contribution limit and introducing a new Registered Disability Savings Plan.
The government also implemented a child tax credit of $2,000 per child under 18, and the spousal penalty was phased out.
While there were a number of other tax savings in March, the government revealed even more tax relief in an October mini-budget, including a further 1% GST cut to come into effect January 1, 2008. As well, the government upped the basic personal amount to $9,600, effective January 1, and the lowest personal income tax rate was reduced from 15.5% to 15%.
Should you have any questions about how these or other recent events might affect you, I'd be happy to schedule a time to either speak with you on the telephone or sit down with you in person. If you have friends or colleagues who you think might benefit from my advice, I would also be pleased to meet with them. A referral is a wonderful present, and I'd like to thank everyone who gave me one over the past twelve months.
Best wishes for health, happiness and continued financial success in the New Year!
Kevin Lamour & Ellen MacDougall
The Markets
At the beginning of 2007, the S&P/TSX Composite Index was sitting at around 12,923 points. For the first seven months of the year, the index was, for the most part, climbing and even broke the 14,000 barrier for the first time on Friday, May 11.
The strong performance was halted at the end of July, when the credit crisis first began to make itself known. Soon America's sub-prime woes, coupled with asset-backed commercial paper problems, sent markets around the world into turmoil. By August 8, just two weeks after the TSX dropped below 14,000 for the first time in weeks, it had lost nearly 600 points.
Since then, the index has been extremely volatile, dropping below 13,000 in mid-August, climbing back up to almost 14,600 at the end of October and landing at 13,467 on November 23. How the index — and world markets for that matter — will fare in the next month and through next year is anyone's guess, but investors can expect a bumpy ride to say the least.
Budget 2007
In March, the Conservative government presented its 2007 budget. For the most part, Finance Minister Jim Flaherty introduced a number of tax savings for families, including removing the Registered Education Savings Plan's annual contribution limit and introducing a new Registered Disability Savings Plan.
The government also implemented a child tax credit of $2,000 per child under 18, and the spousal penalty was phased out.
While there were a number of other tax savings in March, the government revealed even more tax relief in an October mini-budget, including a further 1% GST cut to come into effect January 1, 2008. As well, the government upped the basic personal amount to $9,600, effective January 1, and the lowest personal income tax rate was reduced from 15.5% to 15%.
Should you have any questions about how these or other recent events might affect you, I'd be happy to schedule a time to either speak with you on the telephone or sit down with you in person. If you have friends or colleagues who you think might benefit from my advice, I would also be pleased to meet with them. A referral is a wonderful present, and I'd like to thank everyone who gave me one over the past twelve months.
Best wishes for health, happiness and continued financial success in the New Year!
Kevin Lamour & Ellen MacDougall
Monday, December 17, 2007
Happy Holidays from Algoma Financial
We would like to extend our best wishes to you and your family for a wonderful Christmas and a happy and healthy 2008. We would like to thank for your continued confidence in our services and advice and look forward to seeing you in the New Year.
Below you will find a timely article on end of the year tax planning.
All the best,
Kevin & Ellen
December tax-planning reminders
December 13, 2007 | Mark Noble
Prudent tax planning in December is key to creating a worry-free tax filing for April, according to a pair of tax experts.
The importance of tax planning in December is twofold. First, as the end of the year approaches, so do the deadlines that will determine the eligibility of expenditures and deductions to be included in your 2007 tax filing. Not making these deadlines could create an inefficient 2007 tax plan since clients will not be able to take advantage of deductions until their 2008 tax filing. Second, by December, advisors should have a clear picture of their clients' 2007 tax situation.
"December is the last chance for a number of planning initiatives. Not to say there is nothing you can do to be efficient at the time of filing, but for the most part, your opportunities are gone by the end of the calendar year," says John Waters, manager of tax planning at BMO Nesbitt Burns.
Waters notes that by December, advisors should have a very good sense of what their clients' income and capital gains for 2007. So in the last few days of the month, they should be looking to complete transactions, such as selling securities with capital losses, that can maximize the tax efficiency of their clients' April filing.
Gena Katz, executive director of Ernst and Young's tax group, says good record-keeping makes selling a security for a loss relatively straightforward.
"If people keep reasonable records, they'll know what they sold at the end of the year and what their position is right now, so they know if they're in a net loss or net gain position," she says. "Certainly they should have records from prior years, which allows them to determine what their gains were."
For investors who are planning to take advantage of capital losses, Waters suggests they sell those securities by December 21, 2007, as this gives at least three business days for the transaction to be completed before the New Year.
Clients can also donate publicly traded securities to charity, creating further tax deductions and offsetting capital gains taxes. Katz says there will generally be no income inclusion in respect to the accrued gain and the full value of the gifted securities will be eligible for a donation credit. This must be done by December 31 to be eligible for the 2007 tax return.
But there are some actions that should be put off. Wait until the new year to buy securities or funds that provide annual distributions, Katz says. Generally, distributions are made in December and must be included in that year's tax return. In effect, the investor would be paying tax on his or her original capital, since it's doubtful there would be much growth in the investment if it's only recently been purchased.
"If they purchase a fund just before the distribution, the price of the fund will go up because of the accrued income. They will then get a distribution, which is taxable immediately, on a portion of their capital," she says. "If they wait until after the distribution, the price will go down, so they'll pay less."
Another important thing for clients to remember is to pay expenses by the end of the calendar year to benefit from their deduction in the 2007 tax return. These may include items like tuition, medical expenses, alimony payments and childcare expenses.
For self-employed or non-incorporated business owners who are intending to purchase assets in the near future, Katz says they should consider shopping early to claim depreciation for 2007 (although it's only half of the regular depreciation amount).
Katz also notes December can be an ideal time to purchase tax shelters. Although, she warns, investors need to be careful since these are heavily scrutinized by the Canada Revenue Agency. She says to be on guard for any tax shelters that use charitable gifting arrangements.
"The Canada Revenue Agency will assess every single one of them," she says. "There are good tax shelters accepted by tax authorities. This would be something like flow-through shares. They can be risky since they are invested in the resource sector, but the benefit is that the investor will get a significant tax deduction up front. If it ends up being a good investment then there's money to be made down the way as well."
Filed by Mark Noble, Advisor.ca, mark.noble@advisor.rogers.com
(12/13/07)
Below you will find a timely article on end of the year tax planning.
All the best,
Kevin & Ellen
December tax-planning reminders
December 13, 2007 | Mark Noble
Prudent tax planning in December is key to creating a worry-free tax filing for April, according to a pair of tax experts.
The importance of tax planning in December is twofold. First, as the end of the year approaches, so do the deadlines that will determine the eligibility of expenditures and deductions to be included in your 2007 tax filing. Not making these deadlines could create an inefficient 2007 tax plan since clients will not be able to take advantage of deductions until their 2008 tax filing. Second, by December, advisors should have a clear picture of their clients' 2007 tax situation.
"December is the last chance for a number of planning initiatives. Not to say there is nothing you can do to be efficient at the time of filing, but for the most part, your opportunities are gone by the end of the calendar year," says John Waters, manager of tax planning at BMO Nesbitt Burns.
Waters notes that by December, advisors should have a very good sense of what their clients' income and capital gains for 2007. So in the last few days of the month, they should be looking to complete transactions, such as selling securities with capital losses, that can maximize the tax efficiency of their clients' April filing.
Gena Katz, executive director of Ernst and Young's tax group, says good record-keeping makes selling a security for a loss relatively straightforward.
"If people keep reasonable records, they'll know what they sold at the end of the year and what their position is right now, so they know if they're in a net loss or net gain position," she says. "Certainly they should have records from prior years, which allows them to determine what their gains were."
For investors who are planning to take advantage of capital losses, Waters suggests they sell those securities by December 21, 2007, as this gives at least three business days for the transaction to be completed before the New Year.
Clients can also donate publicly traded securities to charity, creating further tax deductions and offsetting capital gains taxes. Katz says there will generally be no income inclusion in respect to the accrued gain and the full value of the gifted securities will be eligible for a donation credit. This must be done by December 31 to be eligible for the 2007 tax return.
But there are some actions that should be put off. Wait until the new year to buy securities or funds that provide annual distributions, Katz says. Generally, distributions are made in December and must be included in that year's tax return. In effect, the investor would be paying tax on his or her original capital, since it's doubtful there would be much growth in the investment if it's only recently been purchased.
"If they purchase a fund just before the distribution, the price of the fund will go up because of the accrued income. They will then get a distribution, which is taxable immediately, on a portion of their capital," she says. "If they wait until after the distribution, the price will go down, so they'll pay less."
Another important thing for clients to remember is to pay expenses by the end of the calendar year to benefit from their deduction in the 2007 tax return. These may include items like tuition, medical expenses, alimony payments and childcare expenses.
For self-employed or non-incorporated business owners who are intending to purchase assets in the near future, Katz says they should consider shopping early to claim depreciation for 2007 (although it's only half of the regular depreciation amount).
Katz also notes December can be an ideal time to purchase tax shelters. Although, she warns, investors need to be careful since these are heavily scrutinized by the Canada Revenue Agency. She says to be on guard for any tax shelters that use charitable gifting arrangements.
"The Canada Revenue Agency will assess every single one of them," she says. "There are good tax shelters accepted by tax authorities. This would be something like flow-through shares. They can be risky since they are invested in the resource sector, but the benefit is that the investor will get a significant tax deduction up front. If it ends up being a good investment then there's money to be made down the way as well."
Filed by Mark Noble, Advisor.ca, mark.noble@advisor.rogers.com
(12/13/07)
Friday, November 16, 2007
Do Your Investments Match Your Values
One of the fastest growing investment concepts to emerge in the last few years is the area of Socially Responsible Investing (SRI) which some people refer to as ethical investing. Recent studies show that this segment of the investment market is growing at twice the rate of the total investment market.
So, what is SRI? Simply put, it is the practice of incorporating a person’s beliefs and values into their investment portfolio. This can reflect someone’s wishes to exclude a particular industry from their portfolio (eg. tobacco manufacturers or military contractors) or to include only companies with excellent records on international human rights (eg. sweat shops) or environmental impact.
A person’s motivation for doing this may be purely personal or it may stem from a societal-impact view. On the personal side, someone who has witnessed the negative effects of gambling on another person or family may choose to exclude any companies that derive revenue from the gaming industry from their portfolio. From the societal impact side, an investor may want to look for companies which respect the diversity of our society as a whole and have programs in place to ensure that there is fair representation of all types of persons within the company. Still others may choose this approach because of their religious convictions and another group may be looking for ways to support only those companies that respect the natural environment wherever they operate.
Whatever your motivation, the number of mutual funds available for investors who wish to incorporate their social, ethical and environmental concerns into their investment decisions has never been larger than it is now and the diversity of concerns that one can incorporate into their portfolio continues to grow. What was once a niche movement is quickly becoming mainstream.
The number one question that most people ask about SRI is, “What effect will this have on my return?” Good news! There is a growing body of evidence that suggest that there will likely be no impact on your return; or, if there is an impact, it may be a positive one. Socially screened indices in the United States have consistently outperformed their non-screened comparative indices by significant margins. For example, the Domini Social Index in the United States is an index of 400 companies screened according to a number of social and environmental criteria. Over the ten year period ended October 31, 2006, this index averaged 9.02% per year while the Standard and Poor 500 averaged only 8.66%. (Source www.kld.com)
Could it be true that companies with better environmental policies and more effective employee programs have more efficient workforces and are less likely to be the subject of negative press and lawsuits and thus, generate higher returns for their shareholders. Whatever the future financial returns, many SRI investors appreciate that they are also able to get a good social return on their money. In effect, they have a triple bottom line when it comes to their investments: financial, environmental and social returns weigh into their investment decisions.
If you have never thought about this or have a current portfolio that you believe may be inconsistent with your views on a number of social, ethical or environmental issues, please feel free to contact me. Rest assured, you will not be alone in your efforts to use your investments to shape the future. Remember the old saying, “Money makes the world go around”. Well, some of that is your money, so you should be able to have some say in its impact on the world.
So, what is SRI? Simply put, it is the practice of incorporating a person’s beliefs and values into their investment portfolio. This can reflect someone’s wishes to exclude a particular industry from their portfolio (eg. tobacco manufacturers or military contractors) or to include only companies with excellent records on international human rights (eg. sweat shops) or environmental impact.
A person’s motivation for doing this may be purely personal or it may stem from a societal-impact view. On the personal side, someone who has witnessed the negative effects of gambling on another person or family may choose to exclude any companies that derive revenue from the gaming industry from their portfolio. From the societal impact side, an investor may want to look for companies which respect the diversity of our society as a whole and have programs in place to ensure that there is fair representation of all types of persons within the company. Still others may choose this approach because of their religious convictions and another group may be looking for ways to support only those companies that respect the natural environment wherever they operate.
Whatever your motivation, the number of mutual funds available for investors who wish to incorporate their social, ethical and environmental concerns into their investment decisions has never been larger than it is now and the diversity of concerns that one can incorporate into their portfolio continues to grow. What was once a niche movement is quickly becoming mainstream.
The number one question that most people ask about SRI is, “What effect will this have on my return?” Good news! There is a growing body of evidence that suggest that there will likely be no impact on your return; or, if there is an impact, it may be a positive one. Socially screened indices in the United States have consistently outperformed their non-screened comparative indices by significant margins. For example, the Domini Social Index in the United States is an index of 400 companies screened according to a number of social and environmental criteria. Over the ten year period ended October 31, 2006, this index averaged 9.02% per year while the Standard and Poor 500 averaged only 8.66%. (Source www.kld.com)
Could it be true that companies with better environmental policies and more effective employee programs have more efficient workforces and are less likely to be the subject of negative press and lawsuits and thus, generate higher returns for their shareholders. Whatever the future financial returns, many SRI investors appreciate that they are also able to get a good social return on their money. In effect, they have a triple bottom line when it comes to their investments: financial, environmental and social returns weigh into their investment decisions.
If you have never thought about this or have a current portfolio that you believe may be inconsistent with your views on a number of social, ethical or environmental issues, please feel free to contact me. Rest assured, you will not be alone in your efforts to use your investments to shape the future. Remember the old saying, “Money makes the world go around”. Well, some of that is your money, so you should be able to have some say in its impact on the world.
Wednesday, October 31, 2007
Dealing With Divorce
After all the attention on rising divorce rates over the last few years, you may be surprised to learn that fewer Canadian couples are getting divorced. Even more surprising is that one-third of Canadians will still divorce, but do it later on in life.
The age factor is especially significant if you are in your mid-30s to mid-50s, since these are the years when you're building and amassing your financial worth. When divorce happens, finances are one of the biggest considerations. It's a good idea to educate yourself about your finances now, and stave off any financial surprises down the road.
Prepare for financial security
Each divorce is different. Some are amicable and an opportunity for growth and new beginnings. Others are devastating to every aspect of a spouse's life.
But divorce later on in life has its own unique financial ramifications. And it's untying those financial binds that can be the biggest hurdle. The key to financial security is to prepare for any eventuality that can dramatically impact your life and your finances, before it happens.
Finances during marriage
Any major event, including divorce, can change your situation unexpectedly. To ensure your financial security, educate yourself to ensure that you're not caught unaware.
While married, it's critical for spouses to work together on the many financial dimensions of their household. This includes both spouses being involved in everyday financial decisions and transactions, as well as working toward a financial future together.
If you're already managing the finances in your marriage, then you probably have a good idea of what it takes to keep the household afloat.
But, if you're the marriage partner who relies on your spouse to handle the finances, understanding your finances now will put you many steps ahead of financial disaster should the unforeseen happen. The following may help:
* Make a comprehensive list of money in and money out as well as investment funds, retirement accounts, and any other financial aspects of your relationship
* Make a list of your regular expenses. These expenses should include monthly expenses for home, children, automobile, food, medical, personal, and essentials
Separating the finances
If you or your spouse do decide to end the marriage, it's important to understand that separation and divorce are more than just a physical and emotional division; it's a financial one as well.
Knowing how your finances are separated, and being prepared for it, can take some of the anxiety out of an already emotional time.
When a marriage breaks down, there are two ways in which finances are generally divided:
1. division of property acquired during the marriage, and
2. support
Upon separation, it may be a wise choice to draw up a separation agreement – an agreement that outlines the division of family assets, the payment of child or spousal support, and the care of the children, including custody and access.
This separation agreement provides the basis for the divorce settlement once the marriage is dissolved.
The separation agreement is an important step for those with an estate.
In some provinces, divorce voids any estate share bequeathed in a Will to a former spouse. But if you die while separated the provisions of the Will stand – and if you had left everything to your spouse, that's how the estate will be dispersed.
Upon divorce, spouses may receive or have to make a special "equalization payment" based upon an equal division of their wealth acquired during the marriage or other "matrimonial property".1
Taxes2
It has been said that there are three parties in a divorce: the husband, the wife and the taxman. Unfortunately, that could very well be the case if you are caught unprepared.
Listed below are some of the most common taxation issues:
Equalization payments and investments
If you earned more money than your spouse during the marriage, you may have to make an equalization payment. As part or all of your equalization payment you can transfer non-registered investments to your spouse without tax consequences. Provided you and your spouse are living separate and apart because of a marriage breakdown, any interest and dividends earned by the investment would be taxable in the hands of your spouse.
However, if you made the transfer before the divorce was finalized, and your spouse sold the investment and triggered capital gains, then you would be taxed (unless a joint election providing otherwise has been filed with the Canada Revenue Agency "CRA").
You can also transfer your registered investments (i.e. RRSPs, RRIFs or RPPs) to your spouse as part of the equalization payment without it being taxed in your hands, provided the transfer is made pursuant to a court order or separation agreement relating to a division of property arising out of the marriage breakdown.
Equivalent to spouse credit
If you were the lower-income-earning partner during marriage, your spouse, the higher-income-earner, may have claimed a spousal tax credit for you.
However, if after separation you have custody of a child, you can claim an equivalent to spouse tax credit for the child if you do not pay support, and you are the only parent claiming the equivalent to spouse credit for the child.
To claim this credit you must not claim the spousal tax credit and you must be separated.
Be careful in situations of joint or shared custody – if both parents claim the equivalent to spouse credit, both claims will be denied. Consider negotiating the right to claim the credit, for example, each parent can claim the credit in alternating years.
Spousal and child support payments
Spousal support payments are tax-deductible to the person who pays it, and counted as taxable income for the person who receives it.
Child support, by contrast, is not tax-deductible for the person who pays it, and not taxable for the person who receives it, if paid pursuant to a court order or agreement made after April 30, 1997.
Child support
The provinces have developed child support guidelines that apply during separation agreements, and federal legislation deals with child support on divorce.
The Federal Child Support Guidelines have a detailed set of rules dealing with child-care costs, additional expenses that may be ordered, and how to deal with issues such as shared or split custody. It may be difficult to get the court to order an amount different than as provided in the guidelines, although parties may still make their own agreements for different amounts.3
The guidelines are not applicable in Quebec, however, since that province has its own model to determine child support payments.
Spousal support
Spousal support is designed to provide the lower-income spouse with money for living expenses, not including child support. However, where child support is decided according to federal guidelines, unless an agreement has been reached between the parties involved, spousal support is at the discretion of the judge (also in Quebec).
Spousal support payments are usually determined by factors such as the spouse's ability to earn money, both now and in the future, their age and health, the length of the marriage, and the properties involved.
Surviving divorce
For some, divorce can mean an opportunity to grow; for others it is like a death in the family. Many emotions rise to the surface: anger, frustration, fear, sorrow, anguish, bitterness, hatred, and regret. Divorce can destroy self-esteem, and cause depression and guilt.
Instead of trying to deny or suppress your emotions, it's usually best to accept them and understand that all of your feelings are normal.
If you have reached the point where you feel divorce is imminent, remember that you will need to push your emotions aside and look at practical issues.
The way you handle all aspects of your divorce could affect you for the rest of your life.
Ask for help
Divorce can be a tumultuous time. During the divorce process, many go to therapists or support groups to help alleviate emotional strain.
But financial uncertainty can also be a cause of great stress. Seeking out the advice of your financial advisor can give you peace of mind. You may find that, by working to ensure your financial security, you minimize emotional cost.
References
1 The rules governing the division of property upon a marriage breakdown vary by province.
2 Taxation issues are complex and should be discussed with your lawyer and financial advisor. For more information on your personal
situation contact the Canada Revenue Agency.
3 For more information on the Federal Child Support Guidelines, contact the Department of Justice Canada.
The age factor is especially significant if you are in your mid-30s to mid-50s, since these are the years when you're building and amassing your financial worth. When divorce happens, finances are one of the biggest considerations. It's a good idea to educate yourself about your finances now, and stave off any financial surprises down the road.
Prepare for financial security
Each divorce is different. Some are amicable and an opportunity for growth and new beginnings. Others are devastating to every aspect of a spouse's life.
But divorce later on in life has its own unique financial ramifications. And it's untying those financial binds that can be the biggest hurdle. The key to financial security is to prepare for any eventuality that can dramatically impact your life and your finances, before it happens.
Finances during marriage
Any major event, including divorce, can change your situation unexpectedly. To ensure your financial security, educate yourself to ensure that you're not caught unaware.
While married, it's critical for spouses to work together on the many financial dimensions of their household. This includes both spouses being involved in everyday financial decisions and transactions, as well as working toward a financial future together.
If you're already managing the finances in your marriage, then you probably have a good idea of what it takes to keep the household afloat.
But, if you're the marriage partner who relies on your spouse to handle the finances, understanding your finances now will put you many steps ahead of financial disaster should the unforeseen happen. The following may help:
* Make a comprehensive list of money in and money out as well as investment funds, retirement accounts, and any other financial aspects of your relationship
* Make a list of your regular expenses. These expenses should include monthly expenses for home, children, automobile, food, medical, personal, and essentials
Separating the finances
If you or your spouse do decide to end the marriage, it's important to understand that separation and divorce are more than just a physical and emotional division; it's a financial one as well.
Knowing how your finances are separated, and being prepared for it, can take some of the anxiety out of an already emotional time.
When a marriage breaks down, there are two ways in which finances are generally divided:
1. division of property acquired during the marriage, and
2. support
Upon separation, it may be a wise choice to draw up a separation agreement – an agreement that outlines the division of family assets, the payment of child or spousal support, and the care of the children, including custody and access.
This separation agreement provides the basis for the divorce settlement once the marriage is dissolved.
The separation agreement is an important step for those with an estate.
In some provinces, divorce voids any estate share bequeathed in a Will to a former spouse. But if you die while separated the provisions of the Will stand – and if you had left everything to your spouse, that's how the estate will be dispersed.
Upon divorce, spouses may receive or have to make a special "equalization payment" based upon an equal division of their wealth acquired during the marriage or other "matrimonial property".1
Taxes2
It has been said that there are three parties in a divorce: the husband, the wife and the taxman. Unfortunately, that could very well be the case if you are caught unprepared.
Listed below are some of the most common taxation issues:
Equalization payments and investments
If you earned more money than your spouse during the marriage, you may have to make an equalization payment. As part or all of your equalization payment you can transfer non-registered investments to your spouse without tax consequences. Provided you and your spouse are living separate and apart because of a marriage breakdown, any interest and dividends earned by the investment would be taxable in the hands of your spouse.
However, if you made the transfer before the divorce was finalized, and your spouse sold the investment and triggered capital gains, then you would be taxed (unless a joint election providing otherwise has been filed with the Canada Revenue Agency "CRA").
You can also transfer your registered investments (i.e. RRSPs, RRIFs or RPPs) to your spouse as part of the equalization payment without it being taxed in your hands, provided the transfer is made pursuant to a court order or separation agreement relating to a division of property arising out of the marriage breakdown.
Equivalent to spouse credit
If you were the lower-income-earning partner during marriage, your spouse, the higher-income-earner, may have claimed a spousal tax credit for you.
However, if after separation you have custody of a child, you can claim an equivalent to spouse tax credit for the child if you do not pay support, and you are the only parent claiming the equivalent to spouse credit for the child.
To claim this credit you must not claim the spousal tax credit and you must be separated.
Be careful in situations of joint or shared custody – if both parents claim the equivalent to spouse credit, both claims will be denied. Consider negotiating the right to claim the credit, for example, each parent can claim the credit in alternating years.
Spousal and child support payments
Spousal support payments are tax-deductible to the person who pays it, and counted as taxable income for the person who receives it.
Child support, by contrast, is not tax-deductible for the person who pays it, and not taxable for the person who receives it, if paid pursuant to a court order or agreement made after April 30, 1997.
Child support
The provinces have developed child support guidelines that apply during separation agreements, and federal legislation deals with child support on divorce.
The Federal Child Support Guidelines have a detailed set of rules dealing with child-care costs, additional expenses that may be ordered, and how to deal with issues such as shared or split custody. It may be difficult to get the court to order an amount different than as provided in the guidelines, although parties may still make their own agreements for different amounts.3
The guidelines are not applicable in Quebec, however, since that province has its own model to determine child support payments.
Spousal support
Spousal support is designed to provide the lower-income spouse with money for living expenses, not including child support. However, where child support is decided according to federal guidelines, unless an agreement has been reached between the parties involved, spousal support is at the discretion of the judge (also in Quebec).
Spousal support payments are usually determined by factors such as the spouse's ability to earn money, both now and in the future, their age and health, the length of the marriage, and the properties involved.
Surviving divorce
For some, divorce can mean an opportunity to grow; for others it is like a death in the family. Many emotions rise to the surface: anger, frustration, fear, sorrow, anguish, bitterness, hatred, and regret. Divorce can destroy self-esteem, and cause depression and guilt.
Instead of trying to deny or suppress your emotions, it's usually best to accept them and understand that all of your feelings are normal.
If you have reached the point where you feel divorce is imminent, remember that you will need to push your emotions aside and look at practical issues.
The way you handle all aspects of your divorce could affect you for the rest of your life.
Ask for help
Divorce can be a tumultuous time. During the divorce process, many go to therapists or support groups to help alleviate emotional strain.
But financial uncertainty can also be a cause of great stress. Seeking out the advice of your financial advisor can give you peace of mind. You may find that, by working to ensure your financial security, you minimize emotional cost.
References
1 The rules governing the division of property upon a marriage breakdown vary by province.
2 Taxation issues are complex and should be discussed with your lawyer and financial advisor. For more information on your personal
situation contact the Canada Revenue Agency.
3 For more information on the Federal Child Support Guidelines, contact the Department of Justice Canada.
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