Are you unmarried but living with your partner or thinking about cohabiting in the future?
Unless it is your intention to share your property and financial assets with that person, there is a good chance that you are (or will be) putting yourself at unnecessary financial risk if you and your partner do not have a Cohabitation Agreement.
Most British Columbians know that couples are considered common-law spouses after they have lived together for a certain amount of time, and that they begin to gain an interest in each other’s assets. But, many don’t know exactly when they become considered spouses legally, or what is at stake if they separate and are faced with dividing their “family property”.
Rights and Responsibilities of Common-Law Spouses
For the purposes of property division after separation, you and your partner are considered common-law spouses, “spouses” under the BC Family Law Act (FLA), after two years of “living in a marriage-like relationship” (earlier if you have a child together).
As common-law spouses, you will be subject to the same family laws, rights, and obligations as a legally married couple.
This means that, like a married couple, there is a presumption that you intend to share family property with your spouse even though, after separation, spouses often say that they did not intend to share or give up the assets that they have accumulated, whether before or during the relationship.
Family Property and Separation
“Family property” refers to the assets and debts that either spouse acquires during cohabitation. The BC Family Law Act provides that family property is to be divided equally.
For example, if you have acquired more assets than your spouse during the cohabitation period, and your spouse has acquired debt, you may find yourself in a lose-lose situation. You could be on the hook for half of the debt your spouse acquired during that period, and your spouse will likely be entitled to half of the value of the assets you acquired during cohabitation.
Assets that you held prior to cohabitation are considered “excluded property”, not “family property”. However, the line can become blurred where an asset is used for family purposes. This could suggest an intention to share that asset.
In addition, funds which would otherwise be considered excluded could become comingled with family funds (such as in a joint bank account) and lose their excluded nature.
Even if you successfully exclude assets that you held prior to cohabitation, your spouse will likely be entitled to half of the total increase in the value of that asset during the period of cohabitation.
This is usually the case with real estate, even if your spouse is not on title. If there is a mortgage, the equity in your property is increasing as you pay it down, regardless of your spouse’s contributions. The value of your home might increase due to a rise in the real estate market. Factors such as these can amount to a significant amount of money being handed over to your spouse after separation, even after a relatively short period of cohabitation. And, if you don’t have the cash to pay out your spouse, you will have to borrow the funds or risk being forced to sell your property.
If you have a pension plan, your spouse would be entitled to half of the pension benefits you have accrued during cohabitation. This includes not only half of the contributions you made during that period, but also all of the interest earned on those contributions.
Note, however, that property such as gifts, inheritances, windfalls, settlements and awards for damages are exempt from division. Legal disputes can arise in regard to any one or more of these forms of ”excluded property”.
Why You Need a Cohabitation Agreement
The good news is that excessive legal fees and messy litigation can be avoided if you have a comprehensive Cohabitation Agreement in place.
You and your partner can set out how you intend to deal with your assets and debts, going forward as a couple and in the event that you separate.
An effective Cohabitation Agreement should clearly and accurately set out all of your assets, debts and liabilities (whether acquired prior to or during your relationship), and how you intend to deal with them if there is a breakdown in the relationship.
You may want the Agreement to indemnify you from sharing responsibility for debts and liabilities incurred by your partner.
The Agreement can also set out how you and your spouse intend to deal with things during the relationship, like household responsibilities and expenses. You can file your Agreement with the court and it can be enforced.
In short, a Cohabitation Agreement should protect you from sharing any assets or debts you do not wish to share, whether those assets or debts exist now or may exist in the future.
So, be cautious about the risks you take on when you cohabit with your partner and, if you stand to lose more than your spouse in the event that you separate, a Cohabitation Agreement is likely a worthwhile investment.
We at Railtown Law can help you draft the agreement you need to protect yourself. Contact us for a consultation.