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Getting Married this Summer? Talk Money


The invitations are sent, the reception hall is booked, the flowers are ordered — and your nerves are probably frayed.

Planning a wedding leaves little time for anything else, but consider this: A prenuptial agreement (also called a domestic contract or a marriage contract) may be as critical a negotiation as the price of food at the reception. Talking about finances may seem pessimistic because it presumes the possibility of a divorce.

A Form of Insurance

Look at it this way: People don’t buy a home assuming it’ll fall apart, but they buy homeowners insurance. Safe drivers buy auto insurance and healthy people have health and life insurance. It just makes sense. Prenups protect both spouses.

One way to ease the potential discomfort of broaching the subject is to say that your accountant or legal counsel insists you include the agreement as part of your financial and estate plan.

So what exactly is a prenup? It’s simply a legal agreement that outlines how you’ll divide your assets in the event of a divorce. And it isn’t just for wealthy people. They work for everyone.

Even couples who live together but aren’t married should consider a cohabitation agreement. If you do marry, you can convert it to a prenup. Some couples arrange postnuptial agreements, which accomplish the same thing but are signed after the marriage — in some cases, years later. In order for these agreements to be recognized legally, both sides should have independent counsel.

Blending Your Finances

Financial disagreements are one of the leading causes of marital problems. So, it’s important to consult with your tax adviser, banker and legal counsel before you tie the knot to get a handle on your financial, tax and estate planning strategies as a joint household. Here’s a checklist of important steps to consider:

1. Candidly discuss joint finances. For example, how much debt is each of you bringing to the marriage? What about savings? How is your credit rating? The older you are, the more (good and bad) financial baggage you’re likely to have.

2. Decide on joint or separate bank accounts — or both. Your banker can walk you through what will be needed to combine checking, savings and money market accounts.

Even if you decide to maintain separate accounts, it’s often helpful to have at least one joint account to pay for shared expenses, such as the costs of a mortgage or rent, household expenses and childcare. This account is meant strictly for your combined needs, and it allows you both to keep track of how you’re spending money.

A joint account can also help avoid trouble and delays in case of death. If a spouse or common-law partner dies and there are separate accounts, the survivor could be excluded from the account until the estate goes through probate. That could take months.

3. Coordinate employee benefits. You might save money by eliminating duplicate health care or life insurance coverage. And don’t forget to change beneficiary designations on retirement plans.

4. Update deeds, wills and power of attorney documents. An attorney can also discuss the full array of estate planning tools, such as various trusts, that might be relevant once you’re married.

5. Plan financial goals as a couple. Create an annual budget, as well as a contingency plan in case a spouse gets laid off or becomes disabled. Make sure you have several months’ income saved as an emergency cash reserve. Designate who’ll be responsible for paying the bills and reconciling the checkbook.

Also look beyond your current financial situation. For example, discuss what you envision your retirement will look like, and whether current retirement account contributions are sufficient to achieve your long-term goals.

6. Review beneficiaries and the amount of life insurance policies. As your marriage progresses and if you have children, remember to update the beneficiaries of the policy as well as retirement accounts. These assets will be distributed to your named beneficiaries, regardless of the terms of your estate planning documents. Coordinate designations with your estate plans. Review how much life insurance you hold. Do you need more to ensure that any children are treated fairly and equally?

7. Check property titles. Jointly owned property automatically passes to the co-owner.

Remarriage Issues

People who have been previously married bring additional financial issues to the table, especially if they have children from a previous marriage or are required to pay alimony, child support or insurance premiums under the terms of a divorce settlement agreement. Consider these questions when blending your finances:

  • Do you have business debts or obligations with your former spouse?
  • Are you required to keep a former spouse on your insurance?
  • Does a former spouse have a claim on your employer-sponsored retirement account?
  • If you’re entitled to assets from a former spouse, for example, an inheritance or other financial interest, will your remarriage end that entitlement?
  • Is your former spouse still a beneficiary in your will?

If you already remarried and have no prenup, consider a postnup to accomplish the same goals. Without proper planning, it’s possible that a family home or family business could pass to your new spouse and eventually to his or her children, rather than your own. A properly drafted prenup/postnup — as well as a change in your will — can help ensure your wishes are carried out.

Talk to the Kids

If you or your spouse are stepparents, discuss plans for your estate with one another and your children and stepchildren. You don’t want your children to think that your spouse has unfairly influenced you or that you don’t care about them. Be open and honest about your estate plans to prevent disagreements and misunderstandings after your death.

An RRSP No-No: Don’t Make Early Withdrawals

050516_Thinkstock_502643282_lores_KKA large number of Canadians are prematurely dipping into their Registered Retirement Savings Plans (RRSPs).

A recent poll conducted by Pollara for Bank of Montreal (BMO) showed that 34% of Canadians have withdrawn money from their RRSPs before retirement. According to the survey, the average withdrawal totaled nearly $16,000. A third of the borrowers have paid back the money, but 25% say they don’t expect to ever pay it back.

The top reasons for these premature withdrawals ranged from buying a home (25%) to paying off debt (21%), covering living expenses (21%) and paying the costs related to emergencies such as car accidents or house floods (15%).

Major Consequences

“It’s clear that some Canadians have had to [withdraw funds early] in order to meet short-term needs,” said Chris Buttigieg, senior manager of wealth planning strategy at BMO. The problem is there are significant tax and financial consequences for early withdrawals.

Of those who withdrew funds from their RRSPs, 84% did it as a last resort, according to the survey. Many said they were worried about the consequences, which include:

  • Loss of retirement income (79%),
  • Tax on the money withdrawn (77%),
  • Inability to save effectively for retirement (77%), and
  • Loss of future contribution room (62%).

The main advantage of an RRSP is tax deferral. The money in the plan can grow and isn’t taxed until it’s withdrawn. Another advantage is the tax deduction. Your taxable income is reduced by the amount you contribute up to a limit. The idea is that the money will be taxed when you retire and your income and marginal tax rate will be lower than during your peak earning years when you can claim tax deductions.

Your RRSP has an added benefit of allowing you to carry forward unused contribution room indefinitely.

Regional Breakdown

This chart breaks down the withdrawals by region:

% Who Withdrew
Average Withdrawal
% Who Repaid Top Reason
National 34 $15,908 33 Buying a home
Atlantic 40 $8,509  34 Living expenses
Quebec 30 $12,622 42 Buying a home
Ontario 35 $17,092 30 Living Expenses
Alberta 32 $16,538 35 Buying a home
B.C. 33 $16,538 28 Buying a home

Most savers didn’t need a crystal ball to realize there would be consequences. Most said they knew it wasn’t a good idea to withdraw money from their RRSPs before retirement, because taking money out prematurely can have significant tax and financial penalties.

First, there are withholding taxes. Your financial institution will hold back taxes on the amount you take out and pay them to the government on your behalf.

On top of that, you’ll have to report the amount you take out on your tax return as income. At that time, you may have to pay more tax on the money in addition to the withholding tax paid earlier.

Lost Contribution Room

Once you’ve withdrawn the money, you lose the contribution room of those funds permanently. If you take out $10,000, you’ll never be allowed to re-contribute it, which reduces the potential value of your total RRSP at retirement. Once the money is out, you have to start over again to save it and you lose the compounding growth that you could have gotten if it had stayed in.

Two exceptions are withdrawing funds and investing in the first-time Home Buyers’ Plan, which allows you to withdraw certain amounts from your RRSP to buy your first home, and the Lifelong Learning Plan, which allows you to take out money to go back to school. Both plans don’t involve withholding tax but require you to repay the money within a certain time. If you fail to repay the money, or any part of it, the amount is added to your income and taxed.

While paying off debt is one of the reasons some people dip into their RRSP early, an alternative to consider is to make the contribution and use your tax refund to pay the debt. You could also discuss with your adviser if it makes sense to consolidate your debt with a loan where you have just one payment at a much lower interest rate than you pay on all your other debts combined.

Another option to consider is a line of credit. A personal line of credit lets you borrow a specific amount, but you aren’t charged interest until you use the money. The interest rate on a line of credit is generally lower than most credit cards, so one strategy is to open a line of credit with a low interest rate to pay off those high-interest debts.

Other Possibilities

There are additional ways to help prepare you financially for retirement such as pre-retirement investment strategies, critical illness insurance and, of course, Tax-Free Savings Accounts (TFSAs). The registered accounts allow you to save as much as $5,500 a year.

Unused contribution room can be carried forward indefinitely. TFSAs allow you to earn money in the accounts and withdraw it tax-free. Just be careful to follow the repayment rules closely. If your contributions exceed the limit, you could be subject to a 1% penalty tax on the highest excess amount in the month of the contribution.

Your financial adviser can help you determine the right strategies and investments for both the years before you retire and after you stop working.

Fed Up Customers Can Hurt Profits

thmb_wait_line_restaurant_turn_sign_MBSometimes It Only Takes A Smile and a Friendly Word

Businesses can’t afford to underestimate the influence customer service has on their bottom line. One nearly certain way to lose customers is to make them wait too long.

Breaking Point

One survey by Maritz Research asked how long individuals thought was an acceptable wait time at  specific types of organizations. Respondents gave the following average times:

  • Doctor – 81 minutes;
  • Public transit – 22 minutes;
  • Grocery store – 15 minutes;
  • Department store – 6 minutes;
  • Fast food restaurant – 6 minutes;
  • Convenience store – 3 minutes;
  • Bank – 6 minutes.

The following percentages of customers left specific businesses after what they considered an unacceptably long wait:

  • Department store, 78 per cent;
  • Public transit, 64 per cent;
  • Fast food restaurant, 58 per cent;
  • Convenience store, 54 per cent;
  • Medical facility, 50 per cent, and
  • Grocery store, 40 per cent.

Customers indicated there are some simple ways to keep them relatively happy while waiting, such as:

  • An apology for the delay, 82 per cent;
  • A greeting with a smile, 74 per cent, and
  • Updates on their status, 67 per cent.

Polls have shown that more than 80 per cent of customers have left a business because of long waits. The amount of time a customer has to wait is a primary driver of customer satisfaction and should be at the top of your business’s list when it assesses how it can better serve consumers.

One survey also showed that bad customer experiences tend to have a ripple effect where customers who perceive negative service are not only less likely to spend money at that business again, but they are also more likely to tell others about their experience.

In a time where shopping research takes place online and people are engaged in social networks to share and collect ideas, businesses risk losing potential customers before they ever set foot in a  store or office.

Knowing that customer service is one of the best routes to a healthy bottom line, here is a management checklist that will help improve your enterprise’s customer-satisfaction ratings:

1. Require executives to personally and regularly serve customers.

By dealing with the public, executives cement relationships with customers or clients and let employees know that service is honorable and rewarding as well as the focus of corporate energy.

2. Survey customers and give immediate feedback.

A customer satisfaction survey can establish performance benchmarks, build relationships, identify customers your business risks losing and can be a catalyst for enhancing overall satisfaction. Surveys should be short, taking no longer than 10 minutes to complete. Ask concise rather than open ended questions and mix topics to force continual thinking about different subjects.

When you get enough results and spot trends, let your employees know. Moreover, be sure staff quickly  hear comments about problems or positive results. This lets them make the connection between their behaviour and customer attitudes toward the company. A quick response to customers shows them that your organization cares and rewards them for taking the time to speak up.

3. Hire people who have a service attitude.

Some people simply enjoy serving others and that urge dominates their personalities. These individuals make the best salespeople, present a good image for your business and help your enterprise grow.

4. Cultivate service heroes.

Your company’s staff and management meetings should regularly feature examples of outstanding customer service. Public praise creates heroes and encourages excellence. Give employees the power to do whatever has to be done to make a customer’s experience pleasant. There will be occasional failures but those are opportunities to find new strategies. When employees deliver the goods, reward them. One way is to link compensation to employee contributions. Companies that do not reward innovation are not likely to be encouraging outstanding service.

5. Devote as much time to service training as you do to technical and procedural training.

Getting it right technically doesn’t count if the customers feel they haven’t received a commitment to a continued relationship. If customers feel they received poor service then they did receive poor service. Your employees represent you, your company, and your brand. Working with customers is the most important thing they will do. Give them the tools by giving them sufficient training. Never let an untrained employee have customer contact.

6. Make customers your only concern.

Let them think you have all the time in the world — even when you don’t. A relaxed tone of voice and patience go a long way toward keeping them happy, even when they don’t get what they want. Take their complaints seriously — they don’t care if you’ve heard the problem before, they want your complete attention. Studies have shown that as many as 90 per cent of customers whose complaints are resolved will purchase again.

7. Keep raising the bar.

Successful organizations continually raise the bar. If your entire enterprise isn’t pushing to do better today you risk being left behind. Create an atmosphere of excellence at your enterprise by spreading the word that everything your company and its employees do must be the best and that you won’t accept less.

8. Comparison shop.

Visit the competition, see what they are doing and then do it better or differently. Customers have more than one choice, so stay ahead of the curve by asking how you can add value to their experience. When you are a customer, get involved with clerks and service attendants.

9. Keep employees up to date.

Let staff know what new products have been ordered, when they will arrive, what kind of advertising promotions you plan and what business changes you may be planning. The more your employees know, the better then can serve the customers or clients.

10. Stay positive.

When a problem or question arises with a customer, say you will try to resolve it rather than that you can’t do anything about it. If a customer demands something that is against company policy, explain the situation but then offer to help come up with an alternative solution.

Final Thought: Always say thank you. A good rule of thumb is to end every interaction with a word or two showing appreciation. Even when customers complain, you can thank them for bringing the problem to your attention.

Improve the Chances of a Successful Merger

thmb_gears_cogs_fit_engage_interlock_mesh_MBCultural Differences Can Make or Break a Combination

If your company is searching for a merger candidate, focus on a company that will support your business’s core direction and produce measurable returns and outcomes.

Taking a strategic focus means emphasizing risk management and ensuring that your due diligence is well directed.

 Categorizing the Risks
After brainstorming possible negative events that could crop up before, during and after a merger or acquisition, it can help to arrange them according to the damage they could cause:

  1. Catastrophic: Scenarios or potential demands from sellers that could kill the transaction before or after the deal is signed.
  2. Booby traps: Unexpected events that could kill the deal if they happen.
  3. Run of the mill: Scenarios that are likely to happen but you probably have the resources to deal with them.
  4. Irritants: These events aren’t likely to occur but if they do, your company will have no problem responding.

Otherwise your business combination could fail to add value, provide insufficient return on the money spent on the deal or suffer a drop in productivity, at least in the first four to eight months after the transaction.

In many cases, failures occur in transactions that make perfect business sense. The difficulty is that due diligence often concentrates only on the financial and legal implications of a proposed transaction. Less time and effort goes toward such critical people issues as corporate cultures, values, work habits and attitudes.

Cultural Due Diligence

These issues are important to the employees of companies on both sides of a combination. Failing to deal with them effectively and early on can result in crucial employees leaving and productivity slowing. In extreme cases the corporation may wind up unable to function effectively.

Cultural evaluation has become a high priority when a merger or acquisition is on the agenda. Among other qualitative factors, having a professional conduct one of these evaluations will reveal each company’s:

  • Values, management style, work environment and founding philosophies;
  • Strategic visions to determine areas of compatibility and synergy; and
  • Assessments of employees, customers and other stakeholders, and evaluation of areas of common ground and avenues of potential conflict.

While no integration between two organizations is ever seamless, significant obstacles can be identified early, making it easier to determine if potential culture clashes might outweigh the benefits.

Cross Border M&A: Bridging the International Divide

Complex, cross-cultural factors need to be carefully examined. Cultural differences and the potential benefits of cultural diversity need to be evaluated for each organization.

Specialized knowledge is often needed to deal with sensitive areas, as the companies need to forge understanding across cultural divides. CEOs who have completed cross-border mergers consistently note that the effort for cultural integration was much greater and considerably longer than they had anticipated. This stems from several issues:

Political sensitivity, which discourages overt references to national differences to avoid causing offense. This can be carried to such a degree that people become even more uncomfortable with their new colleagues than if they felt free to express their feelings and what they expect after the merger is completed.

Lack of understanding of the rules of business behaviour in different cultures. It is important to understand the behaviours they will encounter in a newly purchased business. For example, and very broadly speaking, Americans are not as formal as Europeans, the Japanese find form and ceremony to be important, Germans tend to admire certainty, and Swedes prefer consensus rather than executive decisions.

Strong reactions to the potential loss of a national icon. When U.S. conglomerate PepsiCo was rumoured to be planning a takeover of French food giant Danone, the government stepped in to draft a law to protect companies in “strategic sectors.” This type of reaction strongly supports researching potential local responses and coming up with plans to ensure they won’t hurt the new corporation’s ability to operate.

Difficulties caused by language barriers. Communication can be significantly hindered when companies from different countries meld. But trying to enforce the acquiring company’s native tongue can spark resentment and bring cooperation to a snail’s pace. Some multicultural companies have resorted to adopting a neutral third language as the official corporate language.

It used to be that the financial issues of a merger were thought to far outweigh the value of the qualitative issues. But companies have learned the importance of focusing on becoming an integrated entity where all the divergent pieces eventually fit together.

Consult with your advisers to discuss this type of planning. It can help your business be more confident that the transition will be a relatively smooth one.

Get These Financial Decisions Right

Decisions, decisions and more decisions. Will you ever get our finances right?

Of course, you need to constantly deal with the details: paying bills on time, reconciling bank accounts or getting a late charge waived.

While those things need to be done, you also need to pay attention to your overall financial picture to ensure you are travelling a sound course. There are five basic decisions that determine the course of your financial life. In addition, you must take steps to prepare for a financial emergency (see right-hand box).

Prepare for EmergenciesMaking arrangements to handle financial emergencies will prevent them from adversely affecting your financial goals.

Make sure to have:

  1. An emergency fund covering several months of living expenses. Besides cash, that fund can include readily accessible investments or a line of credit.
  2. Insurance to cover catastrophes.
  3. Someone who can step in and take over your finances if you become incapacitated.

1. How you earn a living

We all want to enjoy our work, but within those parameters you can also choose jobs that pay more than others. Your income drives all your other financial decisions, so investigate your options.

  • Are you being paid a competitive wage with competitive benefits? Even if you aren’t interested in changing jobs now, pay attention to what is going on in your field.
  • Do you have an outside interest or hobby that can be turned into a paying job? This could be a good way to supplement your current salary. It may also turn into a part-time job or business after retirement.
  • Can you get some additional training to help secure a promotion or qualify for another job? Read up on what jobs are expected to have the highest job growth rates and/or highest salaries over the next few years.

If you don’t enjoy your current job, you have even more incentive to implement these suggestions.

2. How you spend

The amount of money left over for saving is a direct result of your lifestyle choices, so learn to live within your means. To get a grip on your spending, analyze your expenditures and set a budget:

  • Prepare a budget to guide your spending. Few people enjoy setting or sticking to a budget, but inefficient or wasted expenditures can be major impediments to accomplishing your financial goals. A budget gives you a road map for spending your income. Start by setting a budget for a couple of months, tracking your expenses closely over that time. You can then fine tune your budget for an annual period.
  • Look for ways to reduce your spending. Take a hard look at all your spending and cut out items that aren’t really necessary.

3. How you save

You should be saving a minimum of 10 per cent of your gross income. But don’t just rely on that rule of thumb. Calculate how much you need to meet your financial goals and then determine how much you should be saving on an annual basis. If you can’t seem to save that much, go back to your spending analysis and cut your spending.

4. How you invest

The ultimate size of your investment portfolio is basically a function of two factors – how much you save and how much you earn on those savings.

Even small differences in return can significantly impact your investment portfolio. Typically, investments with potentially higher rates of return have more volatility than investments with lower rates of return.

While you don’t want to take on excessive risk, you also don’t want to leave all your savings in investments with little growth potential. Your portfolio should contain a diversified balance of investment categories, based on your return expectations, risk tolerance, and time horizon for investing.

5. How you manage debt

Before you take on debt, think about what affect it will have on your long-term goals. If you are already having trouble finding money to save, how will it get any easier with more debt and interest to pay? To keep your debt in check, make some strict rules:

  • Mortgage debt is fine as long as you can easily afford that home.
  • Be careful about taking equity out of your home in the form of a loan. You might want to set up a home-equity line of credit for emergency use, but then make sure it is only used for emergencies.
  • Never purchase items with debt that decrease in value, such as clothing, vacations, food, and entertainment. If you can’t pay cash, don’t buy them.
  • If you must incur debt, borrow wisely. Make as large a down payment as you can. Consider a shorter term for loans. Since interest rates can vary widely, compare loan terms with several lenders. Review all your debt periodically, to see if less expensive options are available.

Making the right choices for these basic financial decisions can help put you and keep you on the right financial course.

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