Protégez vos avoirs lorsque vous cohabitez avec un partenaire

Protecting your assets when cohabiting with a partner

When two people are in a long-term relationship, they naturally want to share their lives. For some, this means marriage; for others, this may mean living together. These two kinds of relationships may look very similar and in day to day life it may make little difference whether two people are formally married to one another – as long as they are happy one another.

It’s when relationships end  — because of death, or because of insurmountable differences —  that the distinction between married and living together becomes important. And that distinction may mean disappointed expectations, or worse, financial pressures.

To make sure that happily ever after is at least satisfactory for each person when it’s over, it’s important to consult legal professionals to establish your rights and obligations. Among the things you need to consider are:

  • how many years of cohabitation are required before common-law status is established;
  • how having a child together affects the status of the relationship;
  • how a common-law relationship affects tax status, including dependent credits and survivor benefits;
  • whether property is considered to be jointly owned;
  • how property is passed on in the absence of a will;

What makes this complicated for non-married couples is that the definition of a couple depends on the law – and the province — in question.

Consider that in some provinces, a common-law spouse is treated as a formally married spouse when it comes to inheriting property – such as a house. But, in other provinces, property won’t be passed on unless a will says so explicitly. Instead, it may go to the deceased spouse’s family.

This is one reason why it’s never too early for spouses to engage in estate planning – to contemplate the future now while it’s time to influence it positively. A professional can walk you through the steps for an estate plan.

A further complication may arise with provisions made through a life insurance policy. The proceeds of a policy will typically go to the beneficiary – which could be the surviving spouse, children, or some other entity.  Here’s a conundrum: a formal marriage can invalidate a pre-existing will, but it may not change the terms of an insurance contract. Again, a conversation about estate planning is of paramount importance to ensure that a couple’s wishes are accurately embodied in all their financial instruments.

Those financial instruments can also cover RRSPs and RRIFs, and pensions, which all have beneficiary designations, as well as ownership documents for property such as homes and cottages.

Couples who are not formally married may also face different treatment from married couples when the relationship breaks down. While each partner generally owns what they brought into a relationship, the status is less clear when it comes to property and wealth built up during a relationship. In some provinces, property is to be equally shared. In others, there must be evidence of what the Supreme Court of Canada calls a “joint family venture.” In that situation, property is often “equalized” when the relationship ceases.

Partners can enter into a cohabitation agreement that, like a prenuptial agreement, spells out rights and responsibilities. It is a formal, legal agreement that would cover how property — and debts — will be divided and how much financial support will be paid. Property may also include employer pensions as well as physical assets. Other terms might cover children and the disposition of property on death. It’s important for common-law partners to consult with a lawyer to ensure the cohabitation agreement is complete, clearly written and legally binding.

Living together is an important life decision and it’s wise to take a clear-eyed view. Once you understand the rights and obligations of common-law partners in your jurisdiction, you can take precautions to protect your assets.

Disclaimer: Foresters Financial does not provide investment, tax, estate or legal advice. This material has been prepared for informational purposes only and may not be applicable to you.

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Scot Blythe

Scot Blythe has been writing about finances, investments and taxes for consumers and professionals for more than two decades.