Do I Need A Cohabitation Agreement?
Since fewer couples are “putting a ring on it” these days, it has become even more important for people to discuss with their significant other whether they should sign a Cohabitation Agreement (or what some may call a “prenup”). While some may consider it awkward to talk with their partner about their debts and assets, as a family law lawyer, I would say that it is a very smart move to discuss your finances openly, along with how you intend to manage your future living expenses.
What is a Cohabitation Agreement?
A Cohabitation Agreement is a written contract by non-married persons, who are living together or who intend to live together in the future. It is a document which allows you to set out your agreed upon rights and obligations while living together, and outlines what is to happen if the relationship ends by separation or death.
The most common provisions in a Cohabitation Agreement include:
- Obligations for spousal support; and
- Property rights — which state how property is to be owned and/or divided if the relationship ends.
Why have a cohabitation agreement?
In Ontario, unlike married spouses, there is no statutory regime for the division of property amongst common-law partners. Without a Cohabitation Agreement, unmarried spouses have virtually no rights to the other person’s property on separation or death — which means that you may have no rights to the person’s pension plan, RRSPs, or the home that they own.
The financial ramifications of only one common-law spouse holding title to the home and not the other can be detrimental to the spouse not on title. Many people rely upon verbal agreements while living together. Unfortunately, when a relationship ends, such agreements are very difficult to establish in court, and are time-consuming and costly to litigate.
How does a Cohabitation Agreement protect you if your relationship ends?
- The longer that couples live together may result in a greater disparity of wealth between the parties. Parties may view their relationship as an economic partnership and choose to decide that if they separate, they wish to divide their property similar to married spouses. This may be especially relevant if parties decide to only put one of the parties on title, but both parties contribute a downpayment, and are equally contributing to the mortgage and household expenses throughout the relationship. If the relationship ends without an executed agreement indicating the parties’ shared intention of co-ownership, a common-law spouse not on title would likely have no recourse to obtain any equity accrued in the home, unless they start a court application for a constructive trust claim and are successful.
- Alternatively, parties may decide to specify that they want all their debts to remain separate (e.g. student loans and credit card debts) so that if their relationship ends, each party will not be responsible for debts solely incurred by the other party. This is particularly relevant when one party has greater financial assets and manages their finances better than their partner.
- A party that owns a home and has their partner move in with them would likely want to protect their interest in the home by way of an agreement.
- When parties purchase a home together and one party is contributing more as a downpayment, an agreement can ensure that if they separate, the party receives their downpayment back upon the sale of the home.
- A party can protect their business interest by explicitly disentitling the other to any rights in their business, which will also protect their business partners.
- Parties may choose to forego any spousal support obligations if they separate.
- Parties can set out rights for their estate planning. In Ontario, if a common-law spouse passes away without a Will, the surviving common-law spouse has no rights to inherit their property — regardless of the number of years they have lived together. This is a particularly important consideration for older adults who do not want to get married a second or third time around but want to be financially secure at the end of their life.
What if I have already moved in with my partner?
Not to worry!
While we do recommend, as a best practice, that parties sign a Cohabitation Agreement before they start living together, it is possible for parties to do so after they have already been living together.
A Cohabitation Agreement can be signed at any point before marriage, and once parties become married, a Cohabitation Agreement automatically becomes a Marriage Contract and the provisions will continue to apply during marriage.
For further inquiries and for assistance in drafting your Cohabitation Agreement, contact the family law team at Brown Beattie O’Donovan. We’d be happy to help!