What are the financial benefits of marriage in Canada?
Getting married is an exciting milestone for many reasons.
Not only are you choosing to spend your lives together, but it’s also a time many couples choose to merge their money and start building a financial future together. It turns out that alongside having a partner for life, there are many financial benefits to marrying in Canada, from shared living costs and expenses to tax breaks and the ability to save for retirement together.
Shared living costs
If you’re not already splitting the bills equally, marriage provides a great opportunity for a fresh start and for couples to budget together for everyday living expenses.
This could include “fixed expenses”, or expenses that occur on a fixed date each month, which are normally essential bills and utilities such as:
- Rent or mortgage payments
- Car payments or transit costs
- Internet and phone bills
- Credit card and loan repayments
- Subscription payments
Your living expenses could also include variable expenses, which are paid with the money you have left over after you’ve covered the essentials and could occur at different or multiple times throughout the month. This could include paying for:
- Eating out
- Toiletries and personal care
- Beauty and haircare
Sharing these living costs between you can help to lower the amount you pay individually each month, freeing up more money to put towards things like debt repayment or saving for the future.
Now that you no longer need to budget for the wedding, you may find it’s time to set new savings goals for yourselves as newlyweds.
This could include:
- Going on honeymoon or travelling more extensively in the future
- Buying a new car
- Buying your first home together
- Paying off any wedding debt
- How you’ll cover the costs of starting a family
- How you’ll save for your children’s education
- Planning for retirement together
To reach these goals, you could contribute to tax-efficient accounts such as a Tax-free savings account (TFSA) or a Registered retirement savings plan (RRSP), and consider investing on your own or through managed portfolios.
When it comes to investing, it’s a good idea to discuss how you’ll approach this going forward.
You may decide to merge your portfolios, keep your own individual investments, or a combination of both (you each keep your existing portfolios and open a new account in which you can contribute towards investments together).
Which approach you take towards investing for the future will depend on things like each of your appetites to risk, if and how you currently invest, what age you’d like to access your savings, your investment goals, and so on.
Speaking to an advisor can help you determine which approach and which savings products may be best to help you as a couple.
On top of saving towards big goals or far off dreams like retirement, it’s important to keep saving into an account you can easily access to help deal with the unexpected in daily life.
For example, it’s wise to have an “emergency fund”, or money saved to cover large emergencies that could impact your income, such as job loss or illness. You could also set up a ‘rainy day fund’ which may only have $500 - $1,000 saved to cover smaller, one-time purchases like car or home repairs.
Even with savings to help, it’s not uncommon for married couples to borrow together to achieve large goals.
Does marriage impact your credit score?
It’s important to note that the simple act of getting married won’t impact your individual credit score or history, and nor will changing your name. However, how you borrow and pay back money going forward as a couple may have implications for both.
The perks of borrowing together
When you apply to borrow money, lenders look at your credit rating to see how you’ve paid loans back in the past. This helps reduce the risk to them as a lender, and to you as a borrower by not being offered more than you can realistically pay back.
There are some perks to borrowing together – for example, if 1 of you doesn’t have a strong credit rating but the other does, having them as a co-applicant will help you get approved. It may also help you receive better interest rates.
The risks of shared borrowing
On the other hand, you must be completely sure you’re on the same page about borrowing money together, discussing thoroughly important things such as:
- When and why you need to access credit
- How you’ll use the borrowed funds
- Where you’ll borrow the money from
- How and when you’ll pay the amount back together
If you borrow money together, you’ll become what’s known as a “joint borrowerOpens a new website in a new window” – meaning you’re both responsible for repaying the loan you take out together. This applies whether it’s something like a joint line of credit or a credit card, or a large loan like a mortgage. If 1 of you doesn’t keep up with payments, you could receive penalties and/or interest, and even in serious cases be at risk of defaulting on a loan.
Make sure you have open and frequent conversations about borrowing and paying back any shared loans to prevent financial stress that could not only impact your credit ratings, but could also impact your marriage.
Tax credits and/or deductions
Doing your taxes together as a couple may mean you can pay less in tax. Now that you’re married you may also now qualify for provincial, territorialOpens a new website in a new window and federal tax creditsOpens a new website in a new window.
Spousal tax credit
If your spouse has a lower income than you and you’ve had to provide financial support as a result, you could be eligible for a non-refundable tax creditOpens a new website in a new window. This could help decrease the overall amount of income tax you’d have to pay.
Canada Caregiver Credit (CCC)
You could be eligible to claim the CCC Opens a new website in a new windowif you care for and support your spouse if they have physical or mental impairment.
Canada Child Benefit (CCB)
The CCB is a government benefit that helps families with the costs of raising children, and is available whether you’re married or not. It provides eligible parents with children under the age of 18 a monthly, tax-free payment. The CCB could also include the Child Disability Benefit (CDB) and is payable on top of any other child benefits that might be offered at provincial or municipal level.
If you have an eligible child in daycare, nursery or another eligible institution, you or your spouse can claim childcare expensesOpens a new website in a new window on your tax return.
Donations to charity
You may be able to receive a non-refundable tax credit when you donate to registered charities. To get a larger tax credit, you or your spouse could claim all your donationsOpens a new website in a new window as a couple on 1 tax return.
Claim medical expenses
There are a number of medical expenses you may be able to claim on your tax return. The tax credit for these expenses is based on a percentage of your income, so you may be able to get a larger tax creditOpens a new website in a new window if the spouse with the lower income claims all of your expenses on 1 tax return.
Pension income splitting
To help lower your tax bill, you and your spouse may choose to split your eligible pension incomeOpens a new website in a new window between you.
The spouse who earns more money, in this case known as the “Transferring spouse”, allocates eligible pension incomeOpens a new website in a new window to the spouse who earns less and is therefore taxed at a lower rate (the “Receiving spouse”). This may help to lower the amount of your family tax bill.
There could be other tax implications to splitting income, such as paying withholding tax, and income such as payments from the Canada Pension Plan (CPP) or Old Age Security (OAS) aren’t eligible.
Working with an advisor can help you determine if pension splitting could be the right move for you as a married couple.
Insurance for married couples
As you start this chapter of your lives together, it’s important to discuss how you’ll protect assets such as the family home as well your family’s financial situation should something happen to either of you.
You may either choose to update existing policies or look at buying insurance that can help to protect what matters most.
In addition to health insurance, you may also want to help protect your family from the unexpected with coverage such as:
- Life insurance — Following a death, a lump sum is paid to the policy holder’s beneficiary. This life insurance can help your family with funeral costs, outstanding debts or loss of crucial income.
- Critical illness insurance — This lump sum is paid out following a life-altering diagnosis of a covered condition and can reduce the financial burden of fighting a serious illness.
- Accident insurance — Accident insurance can be paid out as a lump-sum following catastrophic injuries, or to help a beneficiary financially following the accidental death of the policy holder.
The kind of coverage you need will depend on things such as whether you rent or own your home, if you have or plan to have children, what kind of health insurance you have through your workplace and more.
Your insurance needs may also change over the years, so it’s a good idea to review your coverage every few years to make sure it still suits your needs.