Financial Divorce and Re-Marriage

Seems interesting that the subject about re-marriage has been top-of-mind this week.  Perhaps my recent article in Bank Rate and an interesting lunch with family law lawyer, Jeff Rechtshaffen, helped to pave the way.

Jeff and I spoke about remarriage and he re-directed me to an article on his web site.  I thought to share it with you as I think it definitely has a lot of salient advice.  His article is entitled, "When Should You Get a Pre-Nup?"

http://www.torontofamilylaw.com/article_When_to_Get_Pre-nup.php

http://www.bankrate.com/can/news/rrsp-rrif/Apr11_remarriage_tips_plan_1can.asp

Is CRA being fair to the elderly?

If your spouse is a beneficiary of a pension plan did you know that you can allocate some of that income to you?

OK, so why would you want to do that?!  If you have a lower marginal tax rate then it may be beneficial to put the income on your tax return and pay the tax at a lower rate.  You can split up to half of the pension income and only with a spouse or common law partner.   The really neat thing is that you don't have to do it every year and you don't have to always use the same percentage to split.  You can vary these amounts annually....or not even split at all.

This may be a huge savings, especially if one partner has a pension and the other doesn't have much retirement income.  Leveling the playing ground does two things...it lowers the income level of the spouse that has most of the income and then it increases the income level of the spouse who has the lower income.  In effect this lowers the marginal tax rate of the higher income spouse and increases the marginal tax rate of the lower income spouse.

A practical application would be ~ Mary has over $150,000 in pension income and her husband has no income. Her combined marginal tax rate is 46.41% and her husbands is zero.  If she splits her pension income with her husband, effectively earning them $75,000 each which would put them both in the 35.39% tax bracket.  In scenario #1 the taxes owing would be $69,615 and in the second scenario the tax payable would be $53,085.  That's a difference of $16,530!!!

Of course, I over-simplified the answer and there is much more to consider when doing your taxes.  For example, there is an additional benefit of both spouses partaking in the pension tax credit, amongst other tax issues..........however............it can definitely be a benefit to look at the pension splitting option for those with pensions or for those with income streams from retirement plans once they are both 65 years of age.

Keep in mind that the analysis should be done as this does not always work to everyone's benefit.  It must be considered on an individual basis.

Jewelery ~ From an Estate Planning Point of View

One of my clients is aging.  OK, we are all aging but she is aging to a point where she wants to be responsible for what happens after she leaves us.  Her name is Edith.  Edith has accumulated many things during her tenure, here, on Earth, and she has given much thought as to who she would like to see get which trinket or object of perceived value.  To her beneficiaries the value may be extrinsic as it will always produce a fond memory of Edith, herself, but does the object have any intrinsic value?  How can Edith divide her wares on an even basis to her beneficiaries from an Earthly value perspective?

This weekend I was in a business coaching session and I happened to be sitting next to a woman who would provide a perfect resolve for Edith's dilemma.  Barbara is her name and Barbara's specialty is to value vintage jewelery.  I thought of Edith right away.  What a perfect solution to have such an expert peer through Edith's jewelery collection and make note of any hidden gems?!

Personal Effects Memorandum's are often attached to Wills.  They are not legally binding but they do disclose a 'wish' on the part of the deceased to have certain items go to particular people.  With full knowledge of her hidden gems and their approximate value Edith could write her own Personal Effects Memorandum and also ensure she is being fair about the value of her gift far beyond the memory of Edith, herself.

If you are interested in getting in touch with Barbara about her specialty, please let me know I will put you in touch!

Happy Planning.