Falling in love and wanting to move in and build a home and a life together is life-affirming for many — but for those that are a little bit older, it also comes with a little bit of trepidation. Now, you both come with experience. Deciding to live together the second, or third, or fourth time-around requires a bit of forethought, some research, and lots of open communication.
Here are four considerations you and your partner should discuss before house-hunting:
Financial honesty is the best policy
You need to be able to discuss:
- How much each person earns;
- Any outstanding debts (yes, even that overdue tax bill!);
- Voluntary financial obligations, such as charitable donations, money to and for kids;
- Current retirement savings, as well as projected retirement needs;
- Whether a pre-nuptial agreement is required.
While all of this sounds very unromantic, you need to know that, once you are a legal couple, you become responsible for one another’s financial health. Many marriages and engagements have dissolved quickly when one spouse discovers the partner’s deceitful economic behaviour.
One great strategy for doing this is to print and share off budgets and credit card statements. Discuss what you spend money on. The point isn’t to blame or shame anyone but to open up the dialogue.
Start with honesty about money and all other decisions become significantly easier.
Common-Law or Marriage?
Whether or not to have a formal marriage ceremony is a personal decision and one that should not be made solely because of pragmatic reasons.
However, even if you and your new partner decide to forego an official ceremony or even the legal route of getting married, that doesn’t mean you avoid the legal ramifications of moving in together.
All Canadian provinces and territories recognize the rights of common-law partners — spouses not by legal marriage, but by personal choice and living arrangements. In other words, if you and your partner share a roof and a bed, you are considered as-good-as married in the eyes of Canadian law.
In Ontario, for example, spousal status occurs after three years of cohabitation — unless you have a child together, which speeds up the recognition. On the other hand, British Columbia law dictates that a couple is common-law after just two years or as soon as a child is born.
Why is your legal status as a married couple important? Because that legal status dramatically affects how you file your taxes and what credits and advantages you may have as a couple. For instance, a married couple can split income through familial loans (using a very low prescribed rate) that enables the lower-income spouse to invest in their name and to reduce the taxes owed on the investment and provides the higher income-earner a tax-deductible expense.
Another advantage is that most employer-sponsored health care plans will cover a spouse, but not a non-legal partner.
Finally, certain assets will be protected from estate probate, should you die, if you and your spouse are considered legal partners. This includes the family home and any joint accounts or investments you hold together. While other assets would have to go through probate, if there is no will, it does mean that your life partner isn’t left with an estate that’s frozen while awaiting a final ruling from probate court.
Ideally, you will talk to a family lawyer to get a really good description of the pros and cons of becoming legal spouses before officially sharing the same roof.
Set up a household budget
As a single person, it’s easy to create and stick to a budget (ok…it’s not always easy but there’s no one standing over your shoulder.)
As soon as you move in with someone, suddenly each financial decision has an impact on another person. For example, some may consider a monthly subscription to a music-streaming service a waste of money. For others, this relatively small cost may be listed under “necessary” expense. The key is to understand and appreciate what money is earned, how each expense is chosen, and who pays for that expense.
At this point, you and your partner will need to decide:
- Will you completely meld all finances, setting up one bank account, splitting all expenses 50/50?
- Will you keep earnings separate, but agree to split expenses?
- And if you split expenses is that done 50/50 for each expense? Or does one person take on a prescribed list of expenses, while the other takes on the remainder?
- Will one of you be responsible for earning and paying expenses, while the other is responsible for managing day-to-day decisions and costs (perhaps through an allowance)?
Keep in mind that there is no right way to set up a budget or a method for paying the expenses in that budget. The key is to create a system and plan that works for you and your partner — and then review this system and plan at least once a year, if not more frequently.
Separate or joint bank accounts
There are advantages to having and using one account. All earnings and pre-paid bills go in and out of this account, making it easy to track and adjust expenses. But you certainly lose your autonomy and, more importantly, your independent credit score by getting rid of your bank account.
Without an established, good credit score you will find it very difficult to get a utility or service, like a cellphone, account; you will be denied the best mortgage and loan rates; you may not even be able to get a credit card. For this reason, alone, both you and your spouse must continue to hold and use separate bank accounts, as well as individual credit cards.
Consider using a joint account as a way to pay mutual expenses. You can transfer money from your individual account into the joint account — yes, this is more paperwork or online clicks, but it does keep your creditworthiness current and in good standing.
Have we talked to the kids?
Do you have children in the household or adult children? If either of you does have kids, you’ll want to set up a time to chat with all of them. The idea is to help your loved ones come to terms with the fact that their family dynamic is changing and that this change is a good thing, supported by the notion that the move will provide you with emotional and moral support, companionship and, hopefully, ease in household financial expenses.
Should you shop for a new home?
This can be the toughest part of the decision: Which home should become…the home?
Quite often, later-in-life romances mean that both people already own their own homes. Even if it’s easy to decide which property to keep, it’s not always easy to figure out what to do with the, now, secondary property.
If you are fortunate enough to live in a hot real estate market, such as Toronto or Vancouver, you may want to consider holding on to the property and renting it out. Not only does the property provide a fail-safe — if it doesn’t work, one of you can move out to the old home — but it can also help with month-to-month cash flow or with long-term retirement planning.
If you do decide to sell, remember that when your partner moves and how soon the house goes on the market, will dictate whether or not capital gains tax is owed on any profit earned. Simply put:
- All property is subject to capital gains tax — a tax charged on an asset’s profit.
- The Canada Revenue Agency allows each family unit (defined as property owner, spouse and any dependent children under 18) to shelter one principal residence (the property used as the primary home) from capital gains tax (the tax applied to the profit earned on an asset where the value of that asset increased between the purchase date and the sale date).
This means, if your partner moves into your home, the CRA will consider their former principal residence “as-good-as-sold” and no longer sheltered from having to pay tax on potential capital gains. There are ways to minimize capital gains tax legitimately, but it’s best to talk to a tax specialist to better understand your options.
If you and your love decide to sell both homes and purchase a new home, the best part is that both homes for sale will be sheltered from capital gains tax (as they were both used as a principal residence before to the sale). This is great as any earnings from the sale of these properties can be used to purchase a new home, which is also sheltered from future capital gains tax.
While all of these tips might sound a little cold, clinical and even calculated, keep in mind that by establishing honest, open conversations about pretty integral topics, you are developing a foundation of trust and respect with your potential life partner. This can help set clear expectations and fewer money worries— and allow your love to blossom.