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What happens to your assets if your relationship ends?

The law decides for you unless you plan in advance

DIVIDING YOUR STUFF. Signing a pre-cohabitation agreement is an awkward exercise, but it can protect your assets and make things easier if your relationship ends. Credit: Jupiter Images

Chris and John’s decision to move in together in the summer of 2005 was natural, almost effortless.

“Chris had moved down from Montreal,” says John. “I had space and it made sense financially that we not keep two apartments.”

Though a bit shy — asking to keep their last names private — the couple explains how the nuts and bolts of their relationship led them into a legal swamp.

“As we became closer,” says John, 64, “I told my financial advisor that my circumstances had changed — that Chris and I were living together and sharing expenses — and I asked if there was anything I needed to be aware of legally. Of course, she said, if you’re living together more than three years, you’re common-law and there are legal ramifications to this. I would be obligated to support him for three more years after he moved out.”

While same-sex marriage solved some legal problems (and created others)  for gay and lesbian people, not everyone wants to get married. Many couples, says family law lawyer Kelly Jordan, are content to drift into common-law status, which happens automatically after three years of a conjugal relationship. (For the purposes of Canada Pension Plan benefits and federal tax calculation, the common law applies to partners after only one year in a conjugal relationship.)

In this context the common law is the set of rules judges use to adjudicate any dispute between you and your partner in the absence of another agreement. The term “conjugal” generally means sharing a home and expenses as romantic partners — shacking up.

There can be important ramifications if you have no formal agreement with your live-in partner. In such a case, the common law dictates the division of your assets and automatically imposes responsibilities on you in the event that your relationship ends. But the common law may not be suitable for every partnership, so many gay and lesbian people enter into domestic contracts. Jordan says such ageements usually deal with spousal support or property rights in the event of separation or death. You can enter into a domestic contact at any time in your relationship, you’re not stuck with the provisions of the common law after three years if you subsquently enter into a domestic contract.

“I think that because marriage is relatively new to us there’s a lot of confusion about whether common-law couples are exactly the same as married couples in terms of property — and they’re not, not at all,” says Jordan.

“Under the Ontario Family Law Act, as it stands now, if you are the owner of a home which you owned when you got married and you’re living in when you separate, in calculating what’s called your net family property (NFP), you don’t get credit for having owned it on the day of the marriage,” says Jordan.

Jordan describes a typical scenario in which the first partner enters a marriage with a $500,000 home, the second partner with $500,000 in the bank. Any money either partner makes during the marriage is joint property and would be split equally if they separate.

But when they do separate the second partner would also keep all of the $500,000 he brought to the relationship and half of the value of the house.

The homeowner would be obliged to give up half the value of the home he once owned alone, watching the other partner walk away with all the cash he brought to the relationship.

“I shouldn’t be penalized because I have a house,” says Jordan.

The Ontario Bar Association has lobbied to change this rule, but for now, the best way to protect yourself from a similar scenario is with a domestic partnership agreement.

In John’s case, as the owner of a home, he was advised to protect his assets in the unlikely event of a messy separation.

“It all made practical sense,” says John, but the contract process was frustrating for both partners. “The agreement was far more complicated than I felt was necessary. Also, it kind of assumed that Chris would become some sharp operator and try and cheat me. I don’t in any way think of Chris as a crook but legally that is what you’re protecting yourself against. It makes you look at the person you’re with in a different light.”

Chris, 43, found the whole legal exercise offensive, especially in regard to the age gap between the two men.

“It’s almost a sugar daddy scenario,” he says.

And Chris had to pay a lawyer to examine John’s contract.

“She told me that all of her work had to then be approved by her supervisor, by the senior partner, at $425 an hour,” says Chris.

Having lost money, time and patience, Chris and John decided to hold off but, by this point, they had lived together for three years.

“We’re now technically a common-law couple,” Chris sighs. “Now’s the point where the agreement is more important than ever.”

There are three kinds of domestic contracts: separation agreements to divide assets and responsibilities after a breakup; marriage contracts or prenuptial agreements to add conditions to a marriage from the “I do;” and cohabitation agreements for couples who live together but don’t plan to get married.

It’s all very complicated, if your have a child together for example, there are huge implications. You should get the advice of a lawyer tailored to your specific circumstances and wishes. 

“The hardest thing about cohabitation agreements,” says Jordan, “is that you draw them up at the time and you think that they’re going to be fair in the future but there can be changes in the circumstances so that when you do separate — five, 10, 25 years later — what you thought was fair back then might not be fair anymore. It’s trying to crystal-ball-gaze the future and that’s very hard to do.

“I think cohabitation agreements are an opportunity for gay and lesbian people to carve out their own ways of governing their relationships, and not just be part of the marriage culture as it’s been developed in the context of heterosexuality.”

Although she says cohabitation agreements aren’t right for everyone, gay and lesbian people can use them develop legal arrangements based on our own values and principles.

Family lawyer and mediator Neeraj Goel sees these contracts all the time in his practice and when asked about other nontraditional relationships, says the flexibility of a domestic contract can even extend to what he calls “cutting-edge” arrangements.

For example, open relationships, he says, could benefit from a bit of extra legal clarity and even polygamy could be legally defined civilly among the people involved.

“In Canada right now we are now recognizing relationships between two people — regardless of what sex they are — but not between three or four people,” he says.

When a couple brings in a third, Goel says, “The law does not provide any kind of real protection for that person, but you could set out all these things in a domestic contract. If it’s a property issue, just have all three names on the title. There are lots of business partners who aren’t married but share property together. Ask me again in 30 years, I’m sure it’ll be different,” he laughs.

“Cohabitation agreements automatically become marriage contracts if you get married subsequently,” says Jordan..

Could Chris and John spare themselves some grief by just getting married?

“I’m a hopeless romantic but I’m also a pragmatist,” says Chris. “I don’t feel that I necessarily need a government body to tell me my relationship is okay and a legal marriage is essentially a contract anyway.”

Whatever their next steps might be, he says, “I feel that, whatever spiritual bond we have between us, we are honourable enough men to be our own guarantors… an agreement can spell those obligations out clearly. Far from being unromantic, he says, “I think it’s a sign of mutual respect that we do this.”