November 2007 Questions & Answers

 


Gail, I am getting married in two months – my second – and I would like to know if you have any info on pre-marital agreements.

Name withheld     
     

Congrats on the upcoming gaiety and I hope your marriage is a very happy one. You seem to be looking for info on a marriage contract but if you need one of these, you may have left it a bit late since the closer to the date of marriage that they are negotiated the less water they tend to hold. You may want to wait until after you're married to proceed.

A marriage contract tends to focus on organizing financial affairs in a way that is different than they would be organized if spouses were to separate under current family law (which differs from province to province). While you can specify how assets will be divided in a marriage contract, you can't deal with custody or access issues. And you aren't allowed to specify that should your relationship break down that you will boot your ex out of the matrimonial home. With a matrimonial home – defined as "property ordinarily occupied as a family residence at the time of separation" - both partners have special rights of possession. However, as far as the assets go, you can set down how they will be divided in the event of a split.

Marriage contracts tend to be of particular interest to people who are entering into second marriages - as you are - and have children by a previous marriage, since it allows you to organize "the money" so that everybody knows from the get-go what's happening. This can be particularly important if one of the parties is currently receiving spousal support since in contemplating a second hitch you're perhaps also giving up an income stream that may not be replaced if Spouse #2 hits the road.

The biggest signal for a marriage contract is usually if one partner has significantly more assets or income than the other, or if there are children on one side and not on the other. Then the partner with the mostest may want to protect assets accumulated prior to the relationship. Or Mommy or Daddy Dearest may want to ensure assets meant for their children remain at their disposal.

A word of warning: before you bring up the idea of a marriage contract, be very clear on why you want a contract. Is it your idea or your family's idea? And be absolutely truthful with your partner. Whether you want to make sure your children from a first marriage are protected, or you want to protect your new partner from the barbs of family members who see him or her as a fortune seeker, explain your reasons. There's nothing wrong with saying, "I ran my business for 10 years without any interference or ownership by others. I want to keep that autonomy."

Getting a potential spouse or partner to sign one of these documents is no walk in the park. Many a bride or groom has been left holding the moneybag while an irate would-be-partner headed off in a huff. It takes the highest level of trust and a good understanding of both parties' interests for a marriage contract to happen. If one side is feeling mistrustful or suspects the other side is out to pull a fast one, the whole negotiation can collapse.

What if your spouse won't sign? That's perhaps the biggest benefit of the contract negotiation: you get things out in the open before it's too late.

 

My husband and I just found out that we're pregnant with our first child and we have no clue how much babies/children cost! Is there a general rule of thumb for adjusting your household budget for baby/child expenses and RESP savings?

Lynn

What great news. A baby is such an exciting addition to a fam. When my babies were born, everything about my life changed for the better.

Babies can be very, very expensive. One of the best ways to figure out what it'll cost, is to sit down with a couple of friends who have kids and ask them what they think you'll need. Make a list. Then price it out. You won't need everything on the list. I found a change-table a complete waste of money since I was happy to put a blanket on the bed, couch or coffee table to change the kids. But a swing was irreplaceable. My first swing was a mechanical wind-up thingy. The stuff they have now is soooooo much better.

I really got lucky because my favorite cousin, Vanessa, would send me her girls' hand-me-downs. Vanessa had fantastic taste. Course, that didn't work for Malcolm, so I had to be more resourceful when it came to shopping for him. Since I was an avid garage sale/second-hand store shopper, he did fine.

Consider having a "give me yours" shower, where friends lend or give you stuff they are no longer using for their kids. It eases the burden on them financially, and puts all that great stuff taking up space in the garage back to work. You can promise to return it when their next child arrives.

As for how much to put aside for education, when each of my children were born, I started an "In Trust" account, and invested $100 a month in equity mutual funds. They've done fine. Once I knew they were headed to university, I switched to an Registered Education Savings Plan (these have gotten more flexible over time), and applied for the grant money the government gives as an incentive to save for post-secondary education.

Good luck with your Mini-me. Have fun. Don't worry too much, and make sure you remember that life is about saying thank you for all the small pleasures: watching them smile (it's not gas), the pleasure you feel when they grab your finger, and the joy that fills you up when you watch them peaceful in sleep. You have been blessed.

 

I have paid off my mortgage but still have a $35000.00 debt on my Home Equity Line of Credit. I have been contributing approximately $150 every 2 weeks to a company pension fund and contribute $10000.00 annually to my RRSP using my annual bonus. Should I pay off my debt first before contributing to my RRSP to save on Interest?

Name withheld

You sound like a very smart chick. But let me ask you this: Why did you work so hard to pay off your mortgage (your cheapest form of credit) before you paid off your line of credit?

You're not the first person I've seen do this. Nope. You're in lots of company. Sometimes we become so focused on a single goal that we lose sight of the big picture.

So don't make the same mistake twice. Taking any financial step to the exclusion of any other is always a mistake.
That being said, I don't know how old you are or how long you have left to retirement, so I can't tell you whether to put the money in the RRSP or focus on paying down the debt.

With a $35,000 balance on your line, your monthly payments should be no less than $1,000 a month.

If you're managing that, and still have money to invest, then the younger you are, the more you should focus on the RRSP. But you should also be moving into retirement with no debt. So how's this: go ahead and make your maximum contribution to your RRSP, then use your tax refund to pay down your debt.

 

Hi Gail, I love to watch the show - your straight-forward approach & HAVING A PLAN is awesome. How do I go about following your plan? I know from the times that we have watched that you seem to use percentages, etc. but that it's also based on the specific needs/goals of the couples. We want to use the jars, have a plan, goals but we just don't know how to look at the big picture and narrow it down to the detail that you accomplish.

Vicki

You can do for yourself what I do for couples on the show by going to Gail's Guide to Building a Budget and following the instructions, and the link to Gail’s Interactive Budget Worksheet. You’ll be able to figure out your own budget, and the budget will show you the percentages and what should go into the jars. It’s a bit of trial-and-error to find the right mix, but you have the tool you need to get the job done.

 

How do you calculate the amount that goes into each of the jars on "Til Debt Do Us Part?" Is there a set formula or is it case by case?

Kelly

There’s no formula for how much goes in each jar. It really does depend on each individual budget. But you can figure this out for yourself by going to Gail's Guide to Building a Budget and following the instructions, and the link to Gail’s Interactive Budget Worksheet. This worksheet will show you what should go into the jars. It’s a bit of trial-and-error to find the right mix, but keep at the budget until you balance and you’ll have a really good road map to move forward.

 

I'm a divorced woman with a good job but going nowhere financially because I cannot get it together. Do you have a book with the same philosophy that you have in the show. I want to understand how and how much to use the jars. Do they go into the bank because you've taken their debit cards and get their allowance out for the jars. If I'm paid every two weeks should the budget be two weeks worth? Anything you can do to help would be great - I'm sick of being alone and in debt. Along with life, debt and creditor issues are too much.

Kim

You can try finding a copy of my book, A Woman of Independent Means, at the library. I’m planning to make it available through my website in early 2008, but right now it’s out of print – as are all my books – because my publisher, Stoddart, went bankrupt some time ago.

I’m going to write a blog on how to use the jars… look there for The “Magic” Jars.

As for doing your jars bi-weekly, hey girl if that works for you then do it.

I am sorry you are alone and in debt. I’m sorry your life really sucks right now. But it won’t always be like this. We have a mantra in our house that we haul out at every opportunity: “Where we are today, is not where we’ll be tomorrow.”

It’s a truth. And it goes both ways. Your horrible circumstances won’t remain horrible, as long as you’re looking to make it better. And a great life won’t chug along without bumps, which is why we should say “thank you” for every great day we get.

Look for something good to say about your life today. If you can’t find anything, you’re not looking hard enough.


I am a 45 year old woman and the mother of a 3 year old little boy. I have a 24 year old step-daughter and 20 year old step-son. He lives with me. I became widowed last November 2006, in a blink of a moment, when my 48 year old husband suffered a heart attack due to a blood clot. Needless to say, my life has been shattered. Fortunately, I am a teacher, earning a very good salary. My net monthly earnings are $3300. Currently, I am paying into a 4 over 5 with my school board, so that I can be off when my son is in kindergarten. Five weeks prior to my husband's passing, we consolidated our debts with our mortgage to the total of $153,000. at a rate of 4.8%. We were fast tracking our payments in the amount of $1616. per month to make up for the consolidation. The mortgage is up for renewal in October 2008. When we consolidated, we did not take out mortgage insurance. My husband figured that the house would be paid off in 7 years, and he would also be retired. After his passing, I used a portion of his life insurance (which was only $32,000., his shares from his company ($14,000.) and $5000. which I had made from selling his van, to put down 15% on our mortgage. The balance on my mortgage is approximately $115,000. as of now. I had taken out additional spousal life insurance when we married 4 1/2 years ago. I used $5000. to pay off bills and now have invested $95,000. in a cashable GIC which is earning 4.15%. My question is this: My husband's flow-through shares become available in March. They have devalued to $6000. I was considering using my tax return of approximately $5000. plus the $95,000. and the interest, to pay off the mortgage early. Is this a wise thing to do? I am finding it a struggle to pay the mortgage, bills and daycare. I also pay out an additional $415. per month for an extra life insurance policy that I took out to cover the taxes on my husband's pension, which is substantial, in the event that I die prior to my retirement in 2018. My husband's pension would immediately pay out in full, to my beneficiary and I don't want the taxes on that to become burdensome. If I pay off the house, I know that I will have to pay a penalty with the bank but I figure that I would then be able to save a good nest egg for future problems which may arise in the house. I would at least be saving the interest of $4200. which would be going to the bank. I use my survivor's benefit to cover my car insurance and my son's orphan benefit goes directly into an RESP. I love your show and value your opinion. I anxiously await your response.

Sincerely,
Name withheld

I’m sorry your husband died. I have often imagined how I would continue if anything happened to my Ken and I am left with a hole in my stomach. I wish I could give you a hug.

First, let’s deal with your mortgage. Having a fast-track mortgage when you have two incomes makes great sense. On one income, it’s suicide. It’s no wonder you can’t make ends meet.

You’re paying just over $1600 a month right now. If you went out and got the a mortgage for $115,000 at 6% amortized for 20 years (so it would be paid off by the time you retired), your monthly payments would be just about $820, almost cutting your payment in half. Could you manage that?

If you want to further pay down your mortgage, consider using $50,000 of the $106,000 you say you have access to (your husband’s shares, your tax return and the GIC), but keep the rest close at hand. Now your mortgage is down to $65,000 and your monthly payment is about $465 a month – more than manageable.

If you decide to renegotiate your mortgage early, negotiate hard on the penalty. Since your interest rate will likely be higher on the new amount outstanding, you want to make sure they take that into account when they are calculating the penalty… don’t just pay the standard penalty without a fight. Pull out the widow-thing, the single-mom thing, the I-have-been-a-good-customer thing. Negotiate HARD.

The reason you should not put all the money into the mortgage is that you need a slush fund just in case. Typically you want to keep about six months’ worth of expenses in dollars on hand so that you can cover your butt should the worst happen. And your home maintenance budget should be about 4% of the value of your home annually.

I find the huge insurance premium you are paying to protect your estate from taxes suspicious. Certainly, if your house is virtually free and clear and there is a pension payout from you (you’re a teacher, you have a great pension) and from your husband, I can’t see the need for tax protection on your estate, especially when it’s costing a single mother over $400 a month to maintain. You do need some insurance to protect your infant son should the most horrible happen prior to his independence. But that would be term insurance and, at your age, should be considerably cheaper than $400+ a month.

Good for you for assigning your son’s orphan benefit to an RESP for him. That was very wise. I think that’s everything. Hope I helped. Keep the faith and keep smiling. You’re lucky to have a beautiful son to focus on.