The landscape of marriage has changed dramatically over the last few decades. People are marrying later, deferring children and home ownership until their mid-to-late 30s, struggling with debt, and divorcing in record numbers.
When married people separate, the division of family assets can be one of the largest legal minefields they face.
The Ontario Family Law Act, which governs the division of property on marriage breakdown, provides that all property and debt acquired between the date of marriage and the date of separation is to be “equalized”, or shared equally.[i]
This provision was meant to ensure fairness, and to recognize and compensate both spouses for all contributions to the marriage – both financial and non-financial. Unfortunately, however, the result can often feel very unfair.
Why? Because under the legislation, not all property is treated equally.
Specifically, there’s a loophole in the law that can come as a rude surprise: While separating spouses generally don’t have to share any pre-marriage, inherited, or gifted property with their exes on marriage breakdown, there’s one major exception that people usually don’t know about.
That exception relates to the “matrimonial home”.
Here’s the law: If you bring equity in a home into the marriage, and you and your spouse are still living in that home on the date of your separation, guess what? Your spouse gets half the total equity on the date of separation…including half of the equity you built in the period prior to marriage. And if you inherit or receive money during the marriage and use it to buy or add equity to a matrimonial home (and this includes a cottage – you can have more than one matrimonial home), the inherited or gifted money also goes into the family pot on separation.
This rule can lead to some very unfair outcomes.
Here’s a fictitious scenario I’ve encountered, in one form or another, many times in my practice. Jane and Bill, who are in their late 30s, receive a loan of $400,000.00 from Jane’s 65-year-old mother to buy a house. The loan is not properly documented and no agreement is signed. A year later, Bill leaves Jane for another woman - and takes $200,000.00 of Jane’s mother’s life savings with him. He denies that the money from Jane’s mom was a loan, and since Jane can’t prove it, the judge’s hands are tied.
Now imagine that Bill also received a gift of $400,000.00 from his parents during the same period. Bill could have used that money to pay down the family’s mortgage, but he didn’t. Feeling ambivalent about his marriage at the time, and having wisely sought legal advice, Bill kept the money invested in a mutual fund, so that it would be excluded from division if and when he ended his marriage.
Thus, as a “reward” for his duplicity, Bill walks away with $600,000.00 – all of his money plus half of Jane’s mother’s money. On the other hand, Jane still has a $400,000.00 debt to her mother but now only has $200,000.00 with which to pay her back.
Sadly, I see variations on this theme all the time.
The only way to avoid these outcomes is to negotiate a solid marriage contract (or “prenup”/”postnup”) before investing any “separate” funds into a matrimonial home. Anyone who brings money into the marriage, inherits money, or receives money from family, and doesn’t negotiate and sign a prenup/postnup is taking a massive risk. And any parent who gifts money to his or her child and doesn’t insist on a prenup/postnup is also taking a massive risk.
But negotiating prenups and postnups can be very thorny.
Traditionally, the spouse who wants the contract (or that spouse’s parents) hires a lawyer to protect his or her assets. That lawyer usually prepares the contract in his or her office, according to the client’s instructions, and then presents it to the less wealthy spouse in a manner that is often perceived as cold and insensitive. This leads to hurt feelings, ill will, and potentially irreconcilable, long-term family conflict.
A mediator, on the other hand, takes a different approach. A mediator who is also a lawyer not only knows the law, but can also help the parties negotiate a fair agreement together, on terms that satisfy everyone’s financial and emotional interests, and in an atmosphere that allows each party’s goals and needs to be expressed honestly and productively. Each party still gets independent legal advice at the end, but because they feel they’ve both had a voice in the creation of the document, the advice is often a ‘rubber stamp’ rather than the first step in an adversarial process.
Study after study shows that parties are more likely to respect and adhere to a contract they’ve both had a voice in negotiating – as opposed to one they feel has been imposed. As if that weren’t enough incentive to use mediation, the process itself costs a small fraction of the amount people spend on traditional legal processes. Best of all, a negotiated agreement gives families peace of mind, which is priceless.
Mediation has been used successfully for decades to resolve the legal issues arising from marriage breakdown. For all the reasons discussed above, it is high time forward-thinking families used this process to negotiate marriage contracts as well.
Rosanna Breitman, B.A., LL.B., LL.M., Acc.F.M. is a partner in a Toronto law firm specializing in Family Law. She is also affiliated with the court-based family mediation clinics in both Toronto and Brampton. Her practice is restricted to family mediation and personal and organizational conflict resolution consulting. She can be reached at email@example.com
 The discussion in this article pertains only to legally married couples in Ontario. The scheme for common-law couples differs, and the legislation pertaining to married couples varies from province to province.
Written by: Gail Elliot, Gerontologist & Dementia Specialist, DementiAbility Enterprises Inc.
“Memory is a way of holding onto the things you love, the things you are, the things you never want to lose.”
From the TV show “The Wonder Years”
Memory slips are common at any age. As the years pass, we often become increasingly concerned about memory loss, with a hidden fear that we may be harbouring early signs of dementia. These fears are usually unfounded, but when there are legitimate concerns (for you or a loved one) it is important to visit your doctor to determine what might be going on, as dementia is not a normal part of aging.
Dementia is not one single disease. Dementia is a term that describes a wide range of symptoms associated with a decline in memory or other cognitive skills (such as judgment and reasoning). The impairment is severe enough to reduce a person’s ability to perform activities of daily living. There are a number of different types of dementia, each with its own distinct set of features. The most common types of dementia include Alzheimer’s Disease, Vascular Dementia, Frontotemporal Dementia and Lewy Body Dementia. For more information about these and other types of dementia visit http://www.alzheimer.ca/en.
Dementia is often diagnosed in hindsight, meaning that when you begin to notice changes, the damage has already begun. People with dementia become increasingly disoriented to time, place and person, may have poor judgment (for example, they may think they have lots of money when in fact they need to watch what they spend) and/or may find it increasingly difficult to accomplish daily tasks. Once you begin to notice such changes in memory and/or behaviour, it is time to learn how to help the person to remain engaged in activities of daily life. The objective is to help the person maintain his/her independence as long as possible.
How do you begin?
Using the DementiAbility Method, you can begin with a simple three part formula: The How is in the WOW! This method connects what you know about the person to what you are going to do, which includes Montessori programming principles.
W – Who: Know the person – focus on present needs while considering past and present interests, skills and abilities.
O – Observations: What behaviours do you see and why and when do they occur?
W – What are you going to do? Connect what you know about the person with what you see. This is how you decide what you need to do (thinking about their needs, interests, skills and abilities).
W – Who is this person?
What do we know about this person? Identify past and present interests, skills and abilities and write these details down to share with the person with dementia as well as those who are involved in providing care. In an effort to help the person with dementia remember important details about past and present, put a memory book together (be sure to put details under each photo). Be sure to include photos of people when they were younger and photos as they look today. Since the person with dementia may not remember he/she has grown old, he/she also tends to forget that their children have also aged. These photos, along with the written details, serve as important memory supports, as well as talking points for those who visit and/or provide care. This information also connects with the last “W” in the WOW model.
O – Observations. What do you see? What is happening? Why the behaviour?
Some of the changes you may observe are due to changes in the brain (for example, the inability to find their way or constant questioning because they can’t remember the answers). Other changes may be due to the frustration that arises when they can no longer do things for themselves or because they are bored or lonely. Try to determine what the person needs when deciding what to do (e.g. – do they need help doing things or people to talk to?)
- Problems finding places and things: Create signs and labels to support memory loss (for example, an arrow that shows which way to go to find the bathroom or bedroom; labels on drawers and cupboard that identify what is in the drawer or cupboard).
- Repetitive questioning: If the person is always asking the same question, place the answer to the question on a sheet of paper (laminate it if you can – so it lasts). For example, if the person asks, “When is my daughter coming to visit?” the sheet would provide the answer, “My daughter Gail comes to visit every day at 2:00 pm.”
- Can’t successfully complete tasks: Sometimes a person can’t remember what to do when he/she gets into the bathroom or what to do first when getting dressed. Break down the tasks, step by step, with words or pictures, and make them available for the person to use. Simple instructions may be all the person needs to maintain dignity and independence.
- The person is agitated. One of the most common reasons for agitation, aggression or anxiousness is boredom. You may also see these behaviours when the person is lonely, and in need of spending time with others. The Montessori Method for DementiaTM focuses on creating activities that support memory loss while placing emphasis on successful outcomes (as the focus is on finding out what they are able to do and creating activities that are aimed at that level of ability).
- W – What are you going to do? When making decisions about what you are going to do, you need to consider the “Who” details and link this information to your “Observations”. A few ideas follow.
- Roles and Routines: Try to find things to do that can be done successfully and regularly (e.g. – set the table, feed the fish, do the dishes, polish things like shoes, golf clubs or silver, fold laundry or, if in a nursing home, greet residents at meals,). Build in memory supports, such as an agenda, so they can be reminded of the things they can look forward to, as well as what they have done, each day.
- Create activities that are based on needs, interests, skills and abilities. Each activity should end in success (this is an important part of the Montessori Method for Dementia). A game of cards such as “Highest Card Wins” can be played even in the later stages of dementia (where each person takes half the deck and one card is turned over at a time – highest card wins). If a person could read before the diagnosis of dementia, they might enjoy reading now. Special books have been written for those with dementia.
Individuals who have been diagnosed with dementia require a range of memory supports and a world where there is something meaningful to do. Sometimes we simply need to support the memory loss (with memory cueing). The goal is to find the capacity that remains, consider the person’s interests and adapt what you do each day to meet each person’s unique and individual needs. The objective is to provide meaning and purpose, within the individual’s range of abilities. Rose Kennedy said, “Life isn’t a matter of milestones, but of moments”. So let’s make every moment count.
To learn more about working with people who have been diagnosed with dementia visit www.dementiability.com. Dates and locations of workshops are listed as well as numerous resources.
How did the Markets Perform?
The first quarter of 2013 was one of degrees of good for stock markets.
- For the U.S. stock markets it was great. S&P 500 was up 10.5% (in Canadian currency).
- For Global stock markets it was very good. The Global (outside of the Americas) EAFE was up 8.3% (in Canadian currency).
- For the Toronto stock market it was good. The TSX ended the quarter up 3.3%.
The Canadian Bond Universe was up about 0.6%.
So the message for the quarter:
Everything was up, but Canada was a bit of a laggard versus the rest of the world.
How did TriDelta Perform?
The first quarter of 2013 was a very good one for TriDelta.
Virtually all clients outperformed both the Toronto Stock market and the Canadian bond index. Returns ranged from 3% to 7%.
This range of performances is tied closely to the clients risk tolerance. Those with more of a stock & growth focus have outperformed to a larger extent than those with a conservative, fixed income weighted portfolio.
What is key for TriDelta is that our portfolios overall have a lower risk profile designed to outperform in poor stock markets. This is why we are particularly pleased that we also managed to outperform in strong markets.
The key reasons for our strong performance would include:
- Meaningful stock exposure to the U.S. Market. This has been a focus for TriDelta, and will likely continue for the foreseeable future. Among the reasons is that for risk management, we believe that Canadians need greater diversification than the Toronto market provides, and that at this point, there still remains many cases of better value outside of Canada.
- Focus on corporate bonds vs. Governments, and a belief that greater returns will be found in longer term bonds. We believe that long term interest rates will continue to remain low for the near future, and will allow us to deliver better bond returns than in the short term end of the market. This view may change during the course of 2013, but not today.
- Focus on companies with growing cash flows, which leads to growing dividends. This is not a get rich quick strategy. This is a ‘slow and steady wins the race’ strategy. This quarter, 16 of our holdings raised dividends and not one lowered. These are signs of stable growth.
Will we see Good Markets the rest of the Year?
In 2010, markets were up over 10%. However, there was still a period of over 15% decline during the year.
In 2012, the S&P 500 was up over 10%. During the year, it still had a 10% decline during the year.
The answer to the question is that at some point in 2013 there will likely be a meaningful decline. Possibly trading down to a 10% decline from its high. We’re unlikely to see consistently good markets for the rest of the year, but the key word is ‘consistently’. The markets remain volatile as they trend higher or lower, but we see many reasons to be positive for the rest of the year.
- The U.S. economic trend is positive. There is growing house prices and an improvement in the unemployment numbers.
- This positive economic trend is coupled with U.S. Government economic stimulus which is allowing companies (and individuals) to borrow funds at incredibly low rates. This combination is very rare and leads to extra strong stock market returns. The U.S. government is essentially committed to most of this stimulus through the end of the year.
- If not investing in the market, you can only earn 1% or 2% (if invested well) on GICs and cash. The safe alternative is looking much weaker.
- Europe is bad but stable. The Cyprus banking ‘crisis’ was met with a yawn from Global markets. This was because of the confidence that is now in place in the European Central Bank and major governments to be able to stick handle their way through. Perhaps this confidence is unfounded, but it seems to be in place.
- Asian growth appears to be on track despite some bumps over the past year.
One other note might be helpful for those looking for more positive signals.
There have been nine years since 1960 in which the S&P 500 rose more than 5% in January. 2013 is the tenth year it has happened. In eight of those nine instances, the market finished those years higher, with the lone outlier coming in 1987, due to the October crash.
The S&P 500 has averaged a 13% gain from February through the end of the year in those nine years.
When will Canadian Markets catch up?
This is a tough one to answer. Because of the concentrated nature of the Toronto Stock Exchange, the question really is, “When Will Energy, Mining and Precious Metals Do Better than the US Market?”
There are certainly components of the Canadian market that remain strong and steady, but Energy and particularly Mining and Precious Metals has underperformed. The Global Gold index is down 22% over the last year!! The Energy index is down 2%, while the Global Mining Index is down 12%.
These areas of the market are very cyclical and because of their volatility, tend to be areas that TriDelta is often underweight. We’re typically overweight companies that are under-valued, have good balanced sheets and have growing dividends. While these aren’t the hallmarks of energy and metals stocks, because of the downturn, there are several names that are looking more attractive.
While we are not going to predict when this cycle will turn, the catalysts will include strong growth signs from China and India, along with the natural sector rotation from a hot sector like Health Care (up 28% in the past year) to a cold sector. We consistently seek value among names regardless of sector, and look to sell some winners that become expensive. Given what has been happening in the market, this may involve some new money going into energy and metals in the coming months.
We are strong believers in the power of dividend growth, and look to hold stocks that based on our analysis, are good bets to grow their dividends over time. This quarter was no exception, with 16 companies increasing dividends, and none decreasing.
||% Dividend Increase
|Canadian National Railways
|United Parcel Service (UPS)
|Bank of Nova Scotia
At TriDelta we look forward to providing our current clients and new clients with three key deliverables:
- A financial plan that gives you a roadmap, financial peace of mind to do more with your wealth and smart tax planning.
- An investment plan that fits within your larger financial plan. An investment plan that will help you to achieve the long term life goals that you have set out.
- An investment approach that lowers volatility, delivers increasing income, and uses proven financial discipline and mathematics to underscore buy and sell decisions.
The first quarter extends our strong 2012 performance, and has been a great example of achieving above average risk adjusted returns. In a world of low interest rates and low growth, we strongly believe our investment approach and philosophy is well suited to outperform.
We look forward to the challenges and celebrations in front of us in the remaining 9 months of 2013.
|TriDelta Investment Management Committee
I recently met with someone who wants to leave all of their money to two charities. They put this in place because they didn’t have close family members (or didn’t feel the family members needed the money), and they wanted to leave a real legacy to a couple of causes that were close to them.
Their situation was as follows: Age 85. $550,000 in savings (75% non-registered and TFSA). Pensions and RRIF withdrawals totaling $70,000 a year. Living in an upscale retirement residence. Drawing roughly $20,000 a year from savings.
While it seemed like his estate plan made sense, there are better ways to leave that legacy than through a will — ways that could grow the amount of giving by over $100,000.
Here are 3 problems with leaving money to charities in the will:
1. By leaving money to a registered charity you will receive a charitable tax credit of between 40% and 50%. The only issue is that you will only receive the tax credit on charitable giving of up to 75% of your current years’ income. For example, if you make $100,000, you could give up to $75,000 and receive the full tax credit. In your ‘final’ tax return, you will get a credit for up to 100% of your income.
The problem is if you have income of $80,000 in your final return, and leave $800,000 to charity, you will have foregone almost $360,000 of tax credits! If you die with a very large RIF, this may work because your RIF would be considered as income on your final tax return (if you don’t have a surviving spouse). Otherwise, it is a real missed opportunity.
2. Wills with very large charitable giving occasionally are contested by family members who feel that they should have received more. This can cause lots of delays, legal costs and heartache. All can be avoided by giving to the charities outside of the Will.
3. You are paying too much tax. In many cases, this money is getting taxed every year sitting in a non-registered investment account, never being spent. Finally it will go to the estate, and in some cases be hit with a probate fee as much as 1.5%, and then go to the charity.
The best way to avoid these problems is by some blend of giving annually and taking out a life insurance policy with the charity as beneficiary. By giving annually you will almost always be in a position to receive the full charitable tax credit (unless you give a very large amount).
You will also have significant flexibility in terms of how much to give, who to give to, and be able to change your mind any year you wish. The charity will also benefit today instead of having to wait for many years.
Taking out a life insurance policy is not as common, but is actually one of the best ways to leave a charitable legacy. Using an insurance policy with the charity as a beneficiary can be a quadruple benefit if you qualify. The first benefit is that if it is structured properly, the annual insurance premiums can be considered annual charitable giving, so that you get the tax benefit each year.
The second benefit is that the insurance policy bypasses the estate, and is paid directly to the charity. This avoids estate battles over the funds.
The third benefit is that the proceeds avoid probate because they don’t form part of the estate. In Ontario, this 1.5% fee can add up on a major charitable gift.
The fourth benefit is if you are in reasonable health for your age (even if you are 75 or 80 years old), the ‘rate of return’ on the insurance can be much higher than other options. This is because the money is tax sheltered and as a permanent life insurance policy, the actual rate of return (money put in vs. money that comes out) is often well over 7% per year.
There are several other good ways to leave funds to charities including community foundations, setting up a private foundation and donor advised funds. Every one of these options requires some personal planning to determine what makes the most sense for your situation.
In the case of the 85-year-old, by giving $30,000 a year to charity they are receiving the full tax credit every year. If he lives to age 97, he should still have an estate of about $200,000. If he is still alive at 97, he can stop giving to charity in order to ensure he has funds to cover another ten years. In his case, if we assume he lives to age 97, he will have given an extra $100,000 to the charities than if he simply left the money in his will, and he will have been able to see the impact of his giving in his lifetime.
Leaving significant money to charity can be of great value to you, the charity and society at large. However, if the plan is to simply leave it through your will, there are likely many other smarter ways to make a bigger impact with the same funds.
Written by Ted Rechtshaffen, President & CEO of TriDelta Financial.
Reproduced from the National Post newspaper article 23rd March 2013.
Here’s why you might.
We all look for ways to reduce the amount of tax we pay. Sometimes I come across situations where one spouse has accumulated a larger non-registered investment account than the other. This can happen over time when one spouse has a higher income than the other, or perhaps when one spouse receives an inheritance.
This often leads to higher taxes being paid by the household. In an effort to reduce taxes, income splitting strategies can help shift income from a high tax bracket family member to a low tax bracket family member.
This is not as simple as making a non-registered account ‘joint’ with a lower income spouse or minor child. CRA would consider this a gift to a non-arm’s-length person and attribution rules would apply, essentially attributing most if not all of the income back to the higher income individual and taxing it in their hands.
One income splitting strategy where attribution rules would not apply is to use a spousal loan.
A spousal loan works like this:
- The higher tax bracket spouse (lender) loans funds to the lower tax bracket spouse (borrower) at the prescribed rate.
- The prescribed rate is set quarterly and is based on the 90-day Treasury bill rate. Today that rate is at a historic low of only 1%!
- The borrower must pay interest on the loan annually by January 30 of the following year ($1,000 for a $100,000 loan).
- The investment income generated is taxed in the hands of the borrower, not the lender.
- The interest paid on the loan can be deducted by the borrower and is taxed in the hands of the lender.
- A written agreement should be put in place documenting the loan. This also locks in the rate of 1% for the life of the loan, regardless if the prescribed rate increases in the future.
To illustrate the potential benefits of this strategy, let’s look at a hypothetical couple Tom & Mary Connor.
Tom recently inherited $500,000 from his mother. Tom faces a marginal tax rate of 46.41% while his wife Mary’s marginal tax rate is 31.15%. Tom plans on investing the money and can earn 5%. For simplicity, let’s assume the 5% return is simple interest.
If Tom invests the funds himself, his after-tax return would be $13,397.
$500,000 x 5% x (1 – 46.41%) = $13,397.
Instead, Tom can lend Mary $500,000 at the prescribed rate of 1%, thereby shifting the growth on the money to Mary who is in a lower tax bracket while avoiding attribution rules.
Tom would include the $5,000 in interest on the loan as income, providing an after-tax return of $2,680.
Mary would include $20,000 in interest as income (5% return less 1% in interest costs), providing an after-tax return of $13,770
The total after-tax return for the household is $16,450.
The spousal loan strategy has provided an incremental family return of $3,053 after one year. As the portfolio grows and the resulting income from the portfolio increases, the incremental improvement in family return also increases.
This tax-planning strategy does however have potential non-tax consequences that should be considered:
- You may be more likely to be reassessed by CRA.
- Tax returns become a bit more complicated.
- If the marriage breaks down, the situation will become more complex and will be subject to family law provisions.
Your entire financial situation, goals & objectives should be considered before employing any strategy. If you find yourself in a similar situation to Tom, a spousal loan may work very well, especially considering the historically low prescribed rate of 1% that can be locked in today.
Written by Brad Mol, Senior Wealth Advisor, TriDelta Financial