If you’ve decided to take the next step and move in with your partner, you might be wondering how you can protect yourself and your assets. If you aren’t thinking about it, you should be– common-law partners are not treated as though they are married by the law, and you should always have a plan in case of death or breakdown of the relationship.
The best way to protect your interests in a common-law relationship is to enter a cohabitation agreement. Your cohabitation agreement may become a marriage contract if you do end up marrying your partner, but it will also stay in place for as long as you remain common-law partners, bar an amendment or the drafting of a new agreement.
So, let’s get into the nitty gritty… What is a cohabitation agreement?
A cohabitation agreement is a domestic contract, written by unmarried parties who wish to live together or are already living together. The contract outlines what is to happen if the relationship ends by death or separation. A cohabitation agreement does not deal with children; it only lays out the partners’ rights and responsibilities to each other. The main topics dealt with in the agreement are spousal support and property rights.
Cohabitation agreements exist to bridge the gap between how married and unmarried couples are treated by Ontario laws.
The property rights of married couples and unmarried couples in Ontario are very different. The Family Law Act’s rules for property division are limited to married spouses only. The Family Law Act recognizes that marriage is a form of economic partnership, or else a business arrangement in which spouses are to share the value of property acquired during the marriage. Upon separation, the sharing of this value is done through an :equalization payment. Married spouses also have an equal right to continue to live in the matrimonial home (the matrimonial home is the home which married partners live in on a regular basis) no matter which spouse’s name is on the deed or the lease.
The same rules do not apply to common-law spouses. The act of cohabiting is not a legal contract like marriage, and therefore does not automatically entitle one person to a share of the other’s property. A cohabiting spouse who has not executed a cohabitation agreement can only claim the right to their spouse’s property through litigation. If this happens, the Court must determine whether there is a valid claim and if so, what the appropriate remedy is. The judge can order a monetary award or an interest over the property by means of constructive trust. This also means that, without a cohabitation agreement, the owner of the property is at risk of having a claim like this brought against them. A cohabitation agreement truly benefits both parties in a common-law relationship by bringing these issues to light before any deterioration in the relationship or commingling of finances.
A further consideration regarding property rights is that, as common-law spouses are not automatically entitled to each other’s property, if one of the parties were to pass away, the other could be left with nothing if a cohabitation agreement was not executed.
But why do I need one?
Let’s address each condition on which partners move in together and review why a separation agreement may be relevant:
- We have no or few assets and will be renting together;
- My partner is moving into my home;
- I am moving into my partner’s home;
- We will be buying a home together and each has their own assets.
In this case, a cohabitation agreement may not be relevant, but if you or your partner do have a specific asset which you wish to protect, or if there are significant debts to be addressed, you should book a consultation with a lawyer to discuss whether there is merit to drafting a cohabitation agreement in your individual circumstance. There may also come a change in circumstances wherein you wish to review your need for a cohabitation agreement, so keep your mind open.The longer that couples live together, the higher the possibility that there may become a disparity in wealth or income between the parties which could also give rise to spousal support or other issues. Remember that you can always ask a lawyer for advice and that you can draft a cohabitation agreement when you are already living together. The process may be more difficult as time progresses because financial discussions can intensify as the relationship progresses and rights/entitlements may have already crystalized by the time an agreement is finally put in place.
When your partner is moving into your home, you may wish to draft a contract to protect your equity in your most significant asset. Alternatively, you may wish to share in the growth of your home and wealth with your partner and protect them in case of your death or a breakdown of the relationship in a similar way to marriage. This depends on whether yourself and your partner wish to remain financially independent or whether you intend to intertwine your finances in a similar way to a married couple. For common-law spouses who choose to be financially independent, the agreement can include a spousal support waiver and provide that each partner has the rights to his or her own property. For common-law spouses who wish to become financially intertwined, a regime similar to that laid out in the Family Law Act can be agreed upon. Either way, you and your partner should discuss how you wish for the home and any other assets to be handled if the relationship were to end and utilise a cohabitation agreement to protect your wishes.
Ontario law states that each partner in a marriage is entitled to half of the growth in the family’s assets, unless a marriage contract exists to the contrary. There is no such provision for common-law couples. Therefore, if you move into your partner’s home, you are unable to claim an interest in the home upon separation even if you contribute to bills or the value of the shared home skyrockets– unless you can make a claim for constructive trust, which is a time-consuming and expensive litigation process. Therefore, you should plan ahead for moving into your partner’s home with the knowledge that you are unlikely to gain any interest in the property without a cohabitation agreement. Moreover, you should consider that, without a cohabitation agreement or proper estate planning, you will have no rights to the home that you live in if your common-law partner were to pass away. You should discuss your individual circumstances with a lawyer prior to moving in with your partner, especially if you are selling your current home to do so.
If you are buying a house together and there is a disparity in the size of the down payment you each will be making, a cohabitation agreement can ensure that your down payment is returned to you if you were to separate and sell the home. Moreover, a cohabitation agreement can assist you in ensuring that your assets are protected and that you are free from one another’s debts. You may also wish to discuss how property is to be divided upon separation as well as your thoughts on spousal support– especially if your incomes are different. One final consideration is for estate planning. As discussed elsewhere in this article, common-law spouses do not have any right to each other’s property without a cohabitation agreement. Thus, if one party passes without a will, the surviving common-law spouse will inherit nothing, regardless of the number of years the spouses have lived together. This is a particularly important consideration for older adults who do not want to get married but require financial security after retirement.
If you are considering moving in with your partner or already living with a common-law spouse without a cohabitation agreement, it is always a good idea to discuss your circumstances with a family lawyer to ensure that you are protected if you and your partner separate, or in case your partner passes away. Nobody anticipates these tough times when moving in together, and it can feel awkward to address, but it is an important consideration nonetheless. A cohabitation agreement is a signal of mutual respect, responsibility and care for both parties’ well-being.
If you would like to discuss drafting a cohabitation agreement, the Filice Law team would love to assist. Call 905-383-0828, or book online through our website.