Navigating the financial implications of common-law partnerships in Canada can be challenging. While the legal rules may seem straightforward, the financial consequences are often overlooked.
As a Certified Financial Planner (CFP), I have seen individuals underestimate how being in a common-law relationship can affect their financial future. Even without being legally married, your partner may have claims on your assets and property under specific conditions, particularly in cases of unjust enrichment.
What is Unjust Enrichment?
Unjust enrichment occurs when one partner contributes significantly to the property or assets (whether financially or through home improvements) and the other partner benefits disproportionately. If this happens, courts may award the contributing partner a portion of the property or its equivalent value. For example, if one partner helps pay off a mortgage or makes substantial renovations to a home they don’t legally own, they could claim a share in the property’s value.
Are You in a Common-Law Relationship?
Determining whether you’re in a common-law relationship is not always clear-cut. Courts consider several factors, including:
- Cohabitation: Do you live together, and for how long? The length and continuity of cohabitation are crucial.
Example: If you have lived together for two years without breaks, this could establish common-law status in many provinces.
- Financial Interdependence: Do you share expenses, bank accounts, or financial commitments?
Example: If you have a joint bank account or share a mortgage, these could be signs of financial interdependence.
- Public Perception: How do you present yourselves to family, friends, and the community? Do others recognize you as a couple?
Example: Attending family gatherings or events together and being referred to as partners can contribute to this perception.
- Shared Responsibilities: How do you divide household duties, and do you share caregiving responsibilities for children?
Example: If you both take equal responsibility in household chores or raising a child, this demonstrates shared responsibility.
- Nature of the Relationship: Is your relationship akin to marriage in terms of emotional and practical support?
Example: If your relationship involves emotional and financial support similar to a marriage, this could indicate common-law status.
Variations by Province
In Canada, common-law rules vary by province:
- In Quebec, common-law partners (known as “de facto spouses”) do not have the same rights as married couples, even after years of living together.
- In British Columbia and Ontario, common-law rights often kick in after two to three years of cohabitation, or sooner if you have a child together.
Co-Parenting and Common-Law Status
It’s important to note that co-parenting does not automatically grant common-law status. Courts need proof of a committed relationship beyond just raising children. Even living in separate residences does not necessarily disqualify a couple from being recognized as common-law partners if they are otherwise financially and emotionally interdependent.
Example: A couple who live in separate homes but share financial responsibilities, care for children together, and present themselves as a couple could still be considered common-law.
Financial Milestones and Record-Keeping
One of the most critical financial aspects is the date when the common-law relationship began. This date can affect rights to spousal support, property division, and even pension sharing. It’s essential to keep clear records of key milestones, such as joint bank accounts, lease agreements, or major purchases, as the courts may scrutinize the relationship’s timeline.
Protecting Yourself in a Common-Law Partnership
If you believe you are in a common-law relationship, it’s crucial to take proactive steps to protect yourself. Here are a few key recommendations:
- Cohabitation Agreement: Work with a legal expert to draft a cohabitation agreement. This agreement outlines each partner’s financial obligations and rights, helping to avoid disputes if the relationship ends.
Example: A cohabitation agreement can specify that one partner will not claim a share of the other’s home, even if they contribute to household expenses.
- Create a Will: Unlike married couples, common-law partners are not automatically entitled to inherit from one another unless stated in a will. Make sure your wishes are clear in case of death.
Plan for the Future
The financial and legal complexities of common-law relationships can significantly affect your long-term financial plan. To ensure that your assets are protected and your financial future is secure, it’s always a good idea to consult both legal and financial advisors.
Understanding the nuances of common-law partnerships is not just about following the law—it’s an essential step toward sound financial planning.