Your Wealth, Our Passion

By iA Private Wealth, May 1, 2024

Any way you look at it, divorce is challenging. Aside from the emotional strain of ending a marriage – especially if you have kids – your finances could be affected significantly. Let’s look at four common steps that can help safeguard your wealth.

1. Get a good grasp of your financial situation. Many people have an idea of their overall finances, but when divorcing you should examine bank and investment accounts, credit cards, mortgage statements, loans, lines of credit, etc. to know where you stand financially. Of particular importance is scrutinizing joint accounts ahead of divvying assets. Consider an agreement with your soon-to-be ex (who, for simplicity’s sake, we’ll refer to as “ex”) to continue paying joint expenses, but to avoid new borrowing charges pertaining only to one of you. If either has co-signed a loan or line of credit, request the financial institution remove the co-signer and rework this debt so the appropriate party is solely responsible.
   
   If you don’t have your own savings or chequing account, arrange for it. Also obtain a credit report to find out your current score. Link to your individual account any direct deposits beyond what you need to meet your share of expenses in the joint account. Regarding credit cards and loans, neither divorcing partner should deal with creditors or be liable for debt they didn’t incur. If you and your ex can pay off joint account balances, agree to close those accounts. Everyone’s heard stories of vindictive exes racking up large bills, so monitor your accounts to keep your assets protected.
   
   

2. Update policies and beneficiaries. Divorce may change your insurance needs. For instance, if you become critically ill or disabled and need assistance paying bills, you may require more coverage as an individual compared to having a spouse’s income to cover expenses. Similarly, assess your life insurance needs as an independent policyholder and ensure you’ve got adequate coverage. Permanent life policies often have cash value, so if one exists, include the cash value when dividing joint assets.
   
   It’s also crucial to review beneficiaries named on financial accounts and registered plans like RRSPs, TFSAs, RRIFs and workplace pensions, and amend accordingly. If you’ve named your ex as beneficiary in your will or as holding certain powers of attorney, you’ll probably want to change that. An estate professional can help you implement planning changes brought about by divorce. If you’re on your ex’s workplace benefits plan (or vice versa), a divorce might lead to rethinking benefits to ensure adequate coverage persists.
   
   

3. Deal with the family home. This one may have emotional repercussions as well. Discuss whether one of you wants to remain in your home and has the financial ability to do so. Both partners could be making mortgage payments, so the absence of one income may make the existing mortgage unmanageable, requiring renegotiated financing for the ex who’s staying put. You may choose to sell the family home and split the proceeds, or the remaining homeowner can buy out the other’s share for the amount of equity they’ve invested into it. If young children are involved, keeping them in the family home could help reduce the disruption in their lives that a divorce inevitably causes.
   
   

4. Work closely with your investment advisor. Getting professional advice is especially valuable in divorce. An advisor can help identify your assets and liabilities, and calculate your personal net worth. They can also adjust your budget and wealth plan based on new life circumstances, including recalculating the money earmarked for retirement and revising your goals to put you in the best possible position for financial success. If you need to save and/or invest more (or in a different manner) to achieve your long-term objectives, an investment advisor can work with you to make it happen. Your income may also be impacted by child or spousal support, whether you’re paying or receiving. It’s practical and comforting to assemble a team (e.g., investment advisor, tax consultant, estate planner, divorce lawyer, accountant) that can help you get through a divorce with financial independence and a sense of clarity moving forward.

By iA Private Wealth, April 26^th, 2024

Tune in weekly for insight and perspective on the macro and market landscape with iA Investment Management chief strategist and senior economist Sébastien Mc Mahon.

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While many people want to purchase a home, it’s become a greater challenge in today’s economic environment. Consumers are financially stretched by high inflation that’s lifted the price of food, fuel and just about everything else. On top of that, central banks have raised interest rates to help control inflation, leading to soaring mortgage rates. Never mind that real estate valuations – while largely off their           peak – remain high, especially in large urban centres. What’s a prospective homebuyer to do?

In addition to sensible actions like watching your spending and trying to put away more of your earnings, the federal government also helps Canadians pursue home ownership via two targeted programs: the Home Buyers’ Plan (HBP) and Tax-Free First Home Savings Account (FHSA).

How the HBP works

This plan lets you withdraw, on a tax-free basis, up to $60,000 from your Registered Retirement Savings Plan (RRSP) to purchase your first home. Essentially, it’s an interest-free loan from your own RRSP to help you buy a home. You’re allowed to withdraw funds from more than one RRSP, to a cumulative total of $60,000, provided you’re the owner of each account. The institution(s) that issued your RRSP(s) won’t withhold tax on the money you withdraw. You should also note that certain RRSPs, such as locked-in or group RRSPs, may not qualify for the HBP.

HBP withdrawals must be paid back to your RRSP account in annual minimum amounts over a 15-year period, beginning the second calendar year after the withdrawal. In April 2024, the government extended this two-year grace period to five years for withdrawals made between January 1, 2022 and December 31, 2025. Note, you may repay more than the minimum in a given year, or repay the entire amount at any time prior to the end of the 15-year period. If you fail to repay the full amount within the allotted time, your outstanding balance is considered taxable income.

How the FHSA works

This plan was introduced in the 2022 Federal Budget, and now that the legal and administrative details have been addressed, financial institutions are rolling it out. The FHSA is a registered account for Canadians aged 18+ who haven’t owned a home ever or, at a minimum, in the past four calendar years. It allows eligible Canadians to contribute up to $8,000 annually on a tax-deductible basis, to a lifetime limit of $40,000. If you contribute less than the maximum in a given year, the unused contribution room (up to $8,000) may be carried forward to the following year.

When you withdraw funds to buy a home, this amount is not taxable (including any income earned in the account). If you don’t withdraw all your FHSA funds to buy a home within 15 years, you must close the account. You can transfer the remaining assets, tax free, to an RRSP or RRIF; otherwise, withdrawal of residual FHSA funds will be taxable. As with many registered accounts, you may invest in various types of securities in your FHSA, such as stocks, bonds, mutual funds and ETFs. Your Investment Advisor can help determine which securities best suit your time horizon, risk tolerance and financial objectives.

How do you decide?

While the HBP and FHSA may have their own features and distinct rules, both plans can help accelerate the home ownership process. An HBP is valuable if you don’t have much cash available, since you’re withdrawing from your established and funded RRSP. An FHSA is valuable if you can contribute a significant amount of cash, since it’ll lower your taxable income and withdrawals are tax free. The good news is, you don’t need to decide. If you wish (and have money readily available), you may use both the HBP and FHSA to assist with funding the purchase of a first home.

Consult with your Investment Advisor to decide how best to use the HBP and/or FHSA to help buy your home, based on your tax situation and overall financial circumstances.