Now that Valentine’s Day has come and gone, I would like to delve into the very unromantic subject of Cohabitation Agreements. Last month, I talked about whether living together before marriage will save you money. In Canada, most people would assume (well, I did, anyway!) that if you live common law, you are entitled to the same property rights and division of assets the same as if you were married. If a marriage breaks up, one generally speaking is entitled to 50% of the others’ assets under the Family Relations Act. Everything is split 50/50 equally. For common law, I thought that if you lived, let’s say, 2 years together and somehow things really just don’t work out, you would be entitled to 50% of each other’s assets, right? WRONG.
The justice system doesn’t treat it like that.
Now I’m not a family lawyer or anything, but the Canadian family law system tells us that for common law arrangements, if you don’t have documentation or a paper trail that you have contributed to rent or a mortgage (or if your name isn’t even on the title of the home), you’re really sh*t out of luck. You’ll get none of it. Zilch. Nada.
So when you move in together, it’s really important to either a) keep all your receipts and make sure that if you’re paying into the mortgage, that your name is on the mortgage and b) you have a good sit down talk about your assets and what you want to do with them in case you break up.
I know talking about the possibility of breaking up is about as romantic as dissecting a cow’s eyeball in Biology lab (mmm formaldehyde, anyone?), but it’s necessary to at least get a sense of what you both want to do if you are faced with a break up.
I have an acquaintance who was living common law for about 7 years with her boyfriend, and she bought an investment condo on her own and it needed fixing up. Her boyfriend offered to help her and he voluntarily fixed up her place really nicely. Things didn’t pan out a few years down the road (she broke up with him) and she thought everything would be simple after the break up. Boy, was she wrong! In court (maybe out of spite, I don’t know), he showed each and every receipt he saved from the renovations he did on her condo, and added in the labour costs, and it added up to a nice sum of $40,000. She did NOT have $40,000 just sitting in the bank, so she was forced to sell her investment condo to come up with the capital to pay him. She did NOT know that he kept every single receipt and that it would bite her in the behind in the future.
So, a Cohabitation Agreement (though it can be pricey because you need a lawyer from both parties to witness it) can save you some money in the long run, should you ever break up (knock on wood). Cohabitation Agreements can show that you want the same rights as married couples (that is, split 50/50)- though on the flip side of the coin, you probably don’t want to be picking up their baggage, if they have any (*ahem* DEBT). They can also help you protect any assets that you may have (e.g. inheritance, a previous property) if your angry ex-partner somehow proves that they have claim in your assets. They are useful tools to have BEFORE or shortly after you start living together. Just to keep things clear.
Sorry for bursting everyone’s bubble. I’m being a real Debbie Downer, but I think it’s some food for thought. Most people don’t get Cohabitation Agreements or even Pre-nuptuals. I guess it’s kind of taboo and unromantic.
What do you think? Are common law partnerships treated differently elsewhere (e.g. United States, Australia)? Please share!
Shameless Plug Alert: If you like what you are reading, please consider subscribing to Young and Thrifty! I promise to provide you minutes of entertainment weekly.