Your guide to legally sound financial planning

04 November 2018 by National Bank
Contexte légal

Legal jargon is complex, even intimidating. But burying your head in the sand can lead to many consequences when you’re dealing with the law.

No one is supposed to ignore the law, but in reality…

In reality, people don’t have a good handle on the law and its subtleties, even when it is directly related to their everyday lives. Quebec, for example, has the highest rate of common-law couples in the country according to the most recent census (2011). Yet, many of these couples don’t know that their relationship isn’t recognized under the Civil Code of Quebec. Just because someone is your “spouse” on your tax return doesn’t mean that the same applies elsewhere. Through my experience, I have realized that people confuse the recognition of a relationship for tax purposes with legal recognition.

Legal issues can have a significant impact on events that require major decision making. Without a written contract, how can you determine who has the right to make decisions? For example, what would happen if you were the victim of an accident that rendered you temporarily disabled? Not many people can answer this question, or even know about the existence – and importance – of an incapacity mandate. This mandate applies when a person becomes mentally incapacitated. It allows him or her to designate a representative, both at the personal and financial levels, who will make serious decisions while he or she is incapacitated. This is the best way to avoid getting the public curator involved. If people really knew the impacts of misunderstanding the law, they would definitely pay more attention.

When we think “legal,” we generally think of a lawyer or notary. Why consult a financial planner?

Financial planners know when clients need to consult a professional (and pay the fees). We can also help our clients establish a foundation that will be a starting point for other professionals, such as a cohabitation contract, a shareholders’ agreement or an estate inventory list. We can also help them appoint executors and designate beneficiaries for retirement plans.

We raise people’s awareness of the “legal” aspects of their everyday lives. We talk to them, for example, about the impact of not having a will on tax rollover and the value of incapacity mandates as well as clauses in marriage contracts. And of course, we discuss cohabitation contracts with common-law spouses.

What are everyday legal issues that require a financial planner’s guidance?

Cohabitation contracts, incapacity mandates, wills, power of attorney, employment contracts, marriage contracts, shareholders’ agreements… There are so many situations where we can help. A client contacted me to look over a job offer that seemed unfavourable at first because of a low salary. However, after having examined all of the benefits, including the new employer’s retirement plan, we realized that she would be better off accepting the job. In short, because we have an overview of the situation, we’ve got everything we need to guide our clients toward making the right decisions.

From a legal perspective, what are the risks in poorly managing your assets?

You run the risk… of losing them! It’s important to protect your hard-earned assets, not just for yourself, but for your future estate. Let me explain: no one likes to think of a business relationship souring or a marriage falling apart. Imagine a common-law relationship ending with a house, kids and a dog, but no contract! Yet, this happens often… too often. You need to think about what could fall apart when things are going well, even if it’s sometimes a difficult, even depressing, thing to think about.

When love and the law meet

Couples living in a de facto union can draw up a cohabitation contract to outline each of their responsibilities while they live together. It can also stipulate, for instance, what will happen to their assets and children in case of a separation. A cohabitation contract is also known as a “non-marital relationship contract,” or a “common-law marriage contract.” De facto spouses don’t have the same rights as married couples or couples in civil unions. A cohabitation contract gives them the chance to grant each other the rights they want. All kinds of agreements between partners can be included in cohabitation contracts, as long as they are legal.

When business and the law meet

Those who decide to enter into a partnership to create a business don’t always think to sign a shareholders’ agreement beforehand. Yet this agreement is useful to stipulate what you and your partners would do in case of a disagreement. For example:

  • If your partner wants to sell her share of the company after a few years of operation, how much would her share be worth?
  • If a shareholder passes away and bequeaths his share to an heir, what would you do if you do not get along with the heir?

It’s best to consider all possible conflicts when you’re starting up instead of having to deal with them later in court. If you end up in a legal dispute, you could lose a lot of money and jeopardize your company.

All of the comments and solutions above are for information purposes only. For legal advice, we recommend that you consult a lawyer or notary.

*National Bank financial planners are registered with National Bank Investments (NBI). NBI is a subsidiary of NBC.


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