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Are spousal RRSPs still useful?

Spousal RRSPs have traditionally been used as an income-splitting strategy in retirement.  You can contribute to your spouse’s RRSP but claim the tax deduction yourself. Your total contributions (to your own and your spouse’s plans) are subject to your own RRSP contribution limits. In retirement, withdrawals are taxed in your spouse’s hands rather than yours, as long as the contribution has remained in the plan for at least three years. So you benefit from their lower tax rate in retirement, while reducing your own tax liability during your working years. But, in October 2007, the government introduced new pension splitting rules that allow Canadians to split pension income with their spouse. Here are situations where the spousal RRSP is still useful: • If you are planning to retire before age 65 and don’t have a registered pension plan; spousal RRSPs allow income-splitting before age 65 whereas pension income-splitting normally begins at age 65 • If you are saving for a home (each person can withdraw $25,000 under the Home Buyers’ Plan) • If you’re 71 or older and can no longer contribute to your own RRSP, you can still contribute to your spouse’s RRSP if you have earned income and your spouse is younger than 71 • If you and your spouse want to make the balance of assets in your household more equal.

Protecting children’s futures

A parent’s number-one concern is the health and happiness of their children.  Ensuring that their children have the resources to help them pursue their dreams is often their top financial priority.  Planning for the unexpected should include planning for illness.  In the event that your child is diagnosed with a critical illness, you can receive a lump-sum benefit that gives you choices that you would not normally have, such as:

  • Taking time away from work or other obligations to be at your child’s side,
  • Fulfilling a dream to encourage your child to make a full recovery,
  • Paying for prescription drugs or specialized treatments that may not be covered by the public healthcare system.

Chances are that due to the advances in medical treatments, your child will survive a critical illness.  But how will it affect your savings?  A little planning today can go a long way to ensure that tomorrow’s challenges can be overcome and dreams will come true.

10 Financial “Must-Knows” to Successfully Survive Your Divorce

by Sharon Numerow

1. Money will almost always become an issue in divorce

  • Many people start out thinking and believing the promise that things will always be divided evenly and straightforward
  • Money is sometimes used as a bargaining tool to resolve other issues

2. Gather everything you can about your family finances

  • Make a list of your financial property
  • Gather statements and documents on all property
  • Frequently one partner is not “in-the-know” on the family finances which makes this task difficult

3. Understand that a 50/50 division of property is not always fair financially

  • Take into account future value of property
  • Comparable values of different types of property are not always equal due to tax implications

4. Consider the tax implications of all of your financial divorce decisions

  • Consider the year in which you divorce, your change in marital status will affect your tax situation
  • Consider the tax effect and true value of the assets you will retain

5.  Make sure that you can afford to keep the house before you settle this matter

  • Pre-qualify for a mortgage
  • Upkeep costs can be expensive, both financially and emotionally

6. Understand the value of your investment and RRSP portfolios

  • Understand tax liabilities and advantages of different investments

7. Ensure pensions are properly valued

  • Defined Benefit Plans must always be valued by a specialist

8. Make sure that the payor of child and/or spousal support has life insurance to support these financial obligations

9. Seek FINANCIAL consultation during your divorce from a divorce financial expert not from a lawyer

10. Redo your will

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