Before moving in together, couples should consider property rights

By Sarah Millar, Toronto Star

Do you need a cohabitation agreement?

When Maria Prieto and her boyfriend James Agnew decided to buy a condo and move in together three years ago, Agnew suggested the pair get a cohabitation agreement.

Prieto admitted she didn’t know what that meant, but once it was explained to her she agreed to it right away.

“We just decided that if we were to break up, we wanted to know what would happen, who’s going to get the condo.

“We didn’t want it to be a fight if we broke up: ‘Who’s going to pay whom’ and that type of thing,” she explained.

Many people wrongly assume that cohabiting couples have the same rights as their married counterparts.

For the most part, they’re right, but there are some areas where the law can mean you leave your relationship empty-handed.

Ontario law, for example, does not guarantee an equal 50-50 split of your assets – or net family property – after an unmarried couple’s relationship ends. Net family property refers to more than just physical property – it also includes other assets such as RRSPs and one’s pension, with a few exceptions (for example, inheritance is often not considered part of the net family property, but family trusts can be included).

In plain English, that means what’s mine isn’t necessarily yours and vice versa.

Of the more than 15 million Canadians who reported in the 2006 census that they are married or in a common law relationship, nearly 20 percent – or 3 million – are common law.

Marian Girgis, a barrister and solicitor at Levine Associates in Toronto, says she sees many more couples come in for cohabitation agreements now than when she started practising law in 1993. As the demand for agreements has increased, so too has her clients’ knowledge.

“My average client is much more informed than 20 years ago,” she said, adding she thinks the Internet has played a role in people having more information – even if some of it is wrong.

It turns out, there’s a lot of misconceptions about the rights of common-law partners after a relationship ends. One way a cohabitation agreement can protect spouses is by spelling out what property can be split and how it will be split. It can also spell out how spousal support will be handled, and how joint debts will be paid.

“Right now, married spouses can go to the family law act and force an equalization of their net family properties through agreement or through litigation and, eventually, a court order,” explained Girgis.

“Common-law partners have to rely on the common law to permit them to make a claim against their partner’s assets.”

This means that married people essentially have an automatic right to the equalization of net family property – common-law spouses do not.

For example, imagine a married couple who have been together for 25 years. One of the spouses has a pension that is worth $300,000; the other spouse has no pension. When the couple splits, the spouse with the pension gives $150,000 to the spouse without so the value is equalized between them.

This is not the case for common-law partners. The partner with the pension walks away with it intact; the partner without the pension gets nothing. The common-law spouse could try to make a common-law claim in order to get a share of their partner’s pension, but there’s no guarantee.

Cohabitation agreements offer the same protection that prenuptial agreements, or marriage contracts, do for couples who are tying the knot. A cohabitation agreement turns into to a marriage contract if the couple marries. If they don’t, the cohabitation agreement remains active until one of the partners dies, unless the contract stipulates and end date.

To get a cohabitation agreement, each partner must retain their own lawyer. Without independent legal advice, an agreement isn’t likely to hold up in court in the event of a separation, says Girgis. Each partner gives full financial disclosure explaining all of their debts, as well as their assets. Neither partner can be forced into signing a cohabitation agreement.

That last point is important, since it’s typically one person, or one person’s family, who drives the decision to get an agreement in place. So how does Girgis ensure that her client is not being coerced into signing something they don’t want?

“I would counsel my client to hopefully get as fair a deal as possible,” she says. “Sometimes you tell your client, ‘Don’t sign this, it’s not fair.’”

It’s acceptable that people want to exclude certain assets from their relationship, she says, but it’s about creating a document that’s fair to both parties. After all, she argues, if a document is weighted too heavily toward one side, there’s a good chance the court may set it aside, making it worthless.

There is no one dominant age group that seeks cohabitation agreements, says Girgis – couples young and old get them. However, she says she has noticed an increased demand from people whose families have urged them to get an agreement to protect a family fortune or business asset.

“They want to pass it down through that one family’s line,” she explains. “They don’t want to dilute it. It’s very common. More often than not, that’s one of the main reasons people come to see me.”

As for the old argument that the prenuptial or cohabitation agreements make relationships more business than romantic?

Prieto says it’s all about practicality.

“I don’t see it as romantic or not romantic. I see it more like it’s practical.”

Would she recommend others get a contract as well?

“Absolutely,” she said.

“I talked to some co-workers and people that I know, and yes, I recommend it. I would rather be protected or cautious if something happened.”


Related reading:

How can I achieve homeownership faster?
Note: Original Star headline: Common-law spouses need to take legal view

Achieve the homeownership dream sooner