The New BC Family Law Act: Why you should have a Cohabitation (a.k.a. a Pre-nup) Agreement

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On March 18, 2013, the new BC Family Law Act comes into effect, replacing the current Family Relations Act. The new Act makes some substantial changes to the current regime dealing with division of property.

One important change is that assets that you own when you get married or begin cohabiting can still be yours even if you have used them, or part of them, for family purposes: provided you and your spouse make a written agreement allowing you to protect your own assets as long as they are specifically identified and given a value in the agreement.

Currently, assets that one party brought into a marriage have often been the subject of dispute as to whether or not they are family assets and thus subject to division, as most couples do not have a pre-nuptial or marriage agreement. For common law couples, unless property was placed in joint names, there were no “family assets” to be divided between the parties on relationship breakdown. A common law spouse was forced to seek the assistance of the courts on a constructive trust claim in order to get compensation for the contribution, whether direct or indirect, that he or she made to property owned by the other. Otherwise, each party leaves the relationship with only what is in his or her sole name.

When the new Act comes into effect, individuals who have been living “common law” (“in a marriage-like relationship”) for two years, or who have a child together, will be treated as spouses. You no longer have to be married to be subject to sharing your property with your spouse. A common law spouse will therefore be subject to the property division rules (“both entitled to family property … regardless of their respective use or contribution”, and to an “undivided half interest in all family property as a tenant in common …”), unless the spouses have a written cohabitation agreement setting out their intention to retain their separate property. The agreement makes it much easier for a spouse to prove that certain assets were originally his or hers especially if the relationship breaks down years into the future when memories may be suspect and documentary evidence scarce.

What should your agreement look like? Well, at a minimum, you will have to agree about what your separate property was before the cohabitation began, and that it remains yours during the relationship and upon breakdown of the relationship, even if some or all of it has been used during the relationship for your family’s purposes. You must include the value of each asset you intend to retain as your own. The value stated in the agreement should be the asset’s value at the date you make the agreement. The new law specifies that increases in values of assets acquired during the relationship or derived from property owned by a spouse during the relationship or from the disposition of that property by a spouse also constitute family property and so is subject to division. This point should also be addressed in your agreement.

If you are a business owner and own shares in your private company, you will want to value those shares at the beginning of your marriage or cohabitation. If your relationship breaks down, you will have to value those shares again at that date, since the change in the value of the share assets between the date of commencement and the date of the breakdown of the relationship will determine how these assets will be divided.

Another important change deals with inheritances. Under the new Act, you will no longer automatically have to share an inheritance with your spouse. It is presumed to be yours. As such, you can still protect your inheritance even if you have used it for a family purpose, such as a mortgage, RRSPs, investments, etc. Therefore, if you contribute some or all of your inheritance to, for example, pay off or pay down your mortgage, or to contribute and support other family purchases, you will want to ensure that you have kept a sufficient record of what you inherited (i.e. how much) and how your inheritance monies were used during your relationship so that you can trace these amounts through to current assets.  It is important to write up an agreement when you get your inheritance, or even before you get it (if you know how much you are entitled to receive from the estate), if you wish to protect it against future claims by your spouse.

An agreement dealing with family property will likely be upheld by the courts although there is a provision in the new Act for a court to set part or all of it aside. Given the criteria in the Act including significant unfairness, which the court must consider before setting aside an agreement, I do not envision many situations where our courts will do so, particularly when an agreement has been made with a lawyer’s assistance and advice.

A cohabitation agreement drafted by a family lawyer is a cost effective way for you to protect your valuable property or assets. Such an agreement will allow you to relax as you will know what to expect and you will have more certainty about your own financial future as you move forward with your relationship. Should you and your spouse decide in future to modify that agreement to allow for, say, a more equal division of your assets (whether acquired pre-relationship or during the relationship), you can do so. This is usually done by a written amendment to the agreement, signed by both parties and witnessed. For more information and to discuss your specific situation, please contact us.

For an interesting recent article from the Globe and Mail on this issue from a more national perspective, look here:

http://www.theglobeandmail.com/globe-investor/personal-finance/household-finances/before-saying-i-do-think-about-drafting-a-marriage-contract/article5463592/

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