Sep 11, 2018
Taboo Tuesday: How to keep your kid's spouse from getting their hands on your money
As we reach the end of wedding season, many Canadian parents have just welcomed someone new into their family with whom their child has chosen to spend their life.
But for some families, the wedding might bring with it the unfortunate possibility that their child's chosen spouse is not a perfect match, that the situation isn't as happy as everyone might have hoped, and that the marriage may not last.
So what can parents who might believe their child's marriage isn't the best fit do to protect their assets – including future inheritances, property and other family heirlooms – in the event that wedded bliss turns to post-matrimony acrimony?
It's not the kind of thing parents usually want to think about – after all, who wants to plan for the end of their child's marriage? – but there are options for parents who might fear the worst.
"The reality is that not all marriages are destined to last, but luckily there are a number of different measures that parents can put in place before the wedding to help protect their child's inheritance,” said Kathryn Del Greco, vice president and investment advisor at TD Wealth.
“For example, parents can structure lifetime gifts and gifts set out in a will to help avoid dilution in the event the marriage breaks down.”
Because the rules around the division of assets varies from province to province (and these measures can be legally complex), the advice of a lawyer is important to help ensure that your strategy is executed correctly.
For parents whose children’s pending nuptials look like they may be problematic, here are a few helpful types of documents to ask your lawyer about that can help keep the financial assets in the family:
Prenup (or marriage contract) – One of the most common legal documents between spouses is a prenuptial agreement. This contract, established between the spouses before they walk down the aisle, outlines how money, property and assets will be divided in the event of a divorce. While parents don’t set these documents up, they can encourage their children to obtain legal advice on how to best establish one.
Trusts – If parents own a property they’re not living in and are willing to have their child and partner live in it, the parent could implement a ‘fully discretionary trust’. This would stipulate under what conditions the property can be used and would stay in control of the trustee (the parent). In the event of a marriage breakdown, the property wouldn’t be split between the child and the spouse, because it is an asset of the trust, not the couple. The discretionary nature of the trust means that neither spouse has a right to continue to live at the property.
Secured loan – A common fear among parents is that they’ll help their child and his/her spouse with a down payment on a home only to have the marriage fall apart and their gift being split with their child's spouse. Typically, the value of the family home is split between the couple even if the contribution is uneven. But parents can make a formal ‘secured loan’ to their child. This type of loan is secured against the property and is documented with a clearly defined payback schedule, rate of interest and date when it will be paid back. In the case of a divorce or separation, the loan should be excluded from the couple's assets because the parental contribution is a loan, not a gift.
Deed of gift – If a parent wants to give a gift of cash to a child - but not for buying a home – they could help ensure its separation from the couple's common assets through a ‘deed of gift.’ Drawn up by a lawyer, the deed would help show that the gift wasn't intended to be common family property in the event of a divorce or separation. The deed of gift would state the amount gifted, and that any growth or income generated from the gift is only to be considered that of the child’s. The receiver of the gift may also need to take precautions like not putting the gift towards the family's home and not mixing it with any money, assets, or property they hold with their spouse.