Whether both spouses are earners or one is a stay-at-home parent, they both need to be fully aware about the family finances. Following is a rundown of the major areas that need to be considered.
What are all sources of income?
What is its make-up and how secure is it? For example, commission income, bonuses, seasonal income and investment income are not guaranteed and could fluctuate widely.
Depending on the ages of the wage earners, consideration has to be given to how much income will be available after retirement.
There should be a family budget drawn up with input from both spouses.
This budget doesn’t have to be a very formal or complex document; a simple spreadsheet will do. Remember to include items that arise infrequently, such as vacations, insurance, RRSP contributions, major repairs, trading the car, Christmas and birthdays. A good approach is to group your outlays under about twenty categories. If you have too many categories you’re going to end up keeping track of too many small items, and if have too few categories you may forget an important item.
In order to effectively manage your expenses, always break down your outlays between discretionary and non-discretionary items.
An ongoing record of assets should be maintained, indicating whether they are owned or leased, in whose names they are, the original cost, estimated current value, and whether there are any liens or liabilities attached to any of them.
Similarly, all liabilities should be known. Areas to be noted include: to whom is the money owed, what is the interest rate, what are the repayment terms, what security is pledged, and are any of the loans insured.
Both spouses should be familiar with all financial records, where they are kept, and how complete they are. Relevant computer passwords should be known by both spouses; this would include access to spread sheets and online banking. Both should also know where important documents, such as deeds and insurance policies, are kept.
Speaking of passwords, both spouses should be aware of each other’s passwords to the extent they are relevant to the family finances. This would include advising each other when any are changed (for example, banking passwords should be changed regularly). Both should also ensure that the passwords chosen are secure. Birthdays, address names and numbers, maiden names, and pet names should never be used for financial passwords.
Both spouses should be aware of all bank accounts, their nature (savings or chequing, joint or not, signatures required), and where located. Non-joint accounts could be frozen for a period of time upon the death of a spouse. All bank contacts’ names, emails, and telephone numbers should be known by both spouses.
Same data as for bank accounts.
RRSP, RRIF, RESP, and TFSA Accounts
Both spouses need to know all the details of such accounts, including the names and locations of the relevant financial institutions, the same information for contacts as outline above for banking contacts, amounts in the funds, contribution or withdrawal requirements, details of the investments, and who the beneficiaries are.
Safety Deposit Box
Questions to which both spouses should know the answers are: Where is it located? Where are the keys? Who can access it? What’s in it?
At a minimum each spouse should know where the wills are kept, who the beneficiaries are (and what they are entitled to), who the executors are, and that the wills are sufficiently up to date.
And, yes, both spouses need wills. The meanest (and stupidest) last act possible is to die without a will.
Powers of Attorney
Both spouses need to know where any powers of attorney are located and completely understand their terms and authorizations.
Information available to both spouses for each policy should include: coverage and types of policies, insurance company names, agents’ names with complete contact information, whether there are any loans or liens, premium amounts and due dates, term, and beneficiaries.
If a Family Business Exists
Books have been written about what spouses need to know about a family business. There is space here only for a list of ten important items of which both spouses should be aware.
1. Who actually owns the business and what is its structure, e.g. proprietorship, partnership or corporation.
2. Names and contact information of accountant, lawyer, bankers, insurance agents and investment brokers.
3. Who prepares the financial statements? Are they audited? If not, how reliable are they? How often are they prepared?
4. What internal financial controls are in place? How reliable?
5. Are there shareholder or partnership agreements. What are their terms? Where are they kept?
6. Is insurance coverage (including liability) adequate?
7. Does insurance coverage include loss of income in the case of a catastrophic event?
8. Is there a list of key customers and suppliers complete with contact information?
9. Who are the key employees? Are they adequately compensated? Is there a risk of losing any?
10. What are the succession arrangements in case of retirement or death?