If you and your partner move in together, you may be required to split certain property with them if, after two years or more, the relationship fails – even if you’re not married
Many people don’t know this, and so it comes as a surprise when, in the event of a separation, a person discovers that they may be legally obligated to divide certain property with their partner.
That’s why it may be a good idea to have something called a “cohabitation agreement” drafted before you start living together.
What is a cohabitation agreement?
A cohabitation agreement is a written agreement typically made between two people in a romantic relationship who live together or intend to begin living together. Most often, a cohabitation agreement sets out how a couple wants to deal with their property and financial matters if they separate.
A cohabitation agreement can address how real property, bank accounts, family trusts, business assets, and other property are to be shared or kept separate if a couple separates. It can also deal with how a couple will divide household expenses, such as mortgage payments, property taxes and utility payments while they are living together. An agreement may also address whether one person pays spousal support to the other if they separate.
Because a cohabitation agreement is agreed upon by the parties, there is flexibility to craft one that reflects each party’s needs. However, terms about child support or the care of children in a cohabitation agreement are not enforceable. These issues must be addressed after separation or when a couple is about to separate.
Why is a cohabitation agreement useful?
A cohabitation agreement allows a couple to opt-out of certain property division and spousal support laws that could otherwise apply if they separated. This is useful if a couple wants to keep their financial affairs separate and protect certain property from being divided on separation.
To understand why a cohabitation agreement is useful, it’s helpful to know the law that applies when a couple separates.
In British Columbia, the Family Law Act (FLA) provides for certain classes of property to be divided between spouses when they separate. A person is a spouse for this purpose if they have lived with another person in a “marriage-like” relationship for a continuous period of at least two years. Living together is a strong indicator that a couple is in a marriage-like relationship.
Under the FLA, spouses are each entitled to a half interest in all “family property” and responsible for half of all “family debt” on separation.
The definition of family property is broad and includes all real property and personal property owned by a spouse at the date of separation, such as an interest in a corporation, a pension, bank accounts, RRSPs, and RESPs. Similarly, family debt is all debts for which either spouse is liable at the date of separation.
Excluded property is not subject to division on separation. This includes property acquired by a spouse before the relationship began, inheritances, gifts from a third party, certain portions of personal injury settlements, and property derived from excluded property.
However, the increase in value of excluded property during the relationship is family property and is subject to division on separation.
A spouse may also be entitled to spousal support on separation, even if the couple is not married.
When should you make a cohabitation agreement?
Ideally, a cohabitation agreement is made before or at the time a couple moves in together. If a couple has already moved in together, it should be made within two years of the date that they started living together. This is because the property division rules under the FLA apply after a couple has lived together in a marriage-like relationship for at least two years. However, you can still enter into an agreement if you’ve lived with your spouse for more than two years or are married.
A note on independent legal advice
It is highly recommended that each party obtain independent legal advice (ILA) before signing a cohabitation agreement. ILA involves each party sitting down with their lawyer, who reviews the cohabitation agreement and explains each party’s rights and obligations. Obtaining ILA ensures that each party understands the agreement and helps protect the agreement from being set aside by the court. Whether a party obtained ILA is one factor, among others, that a court will consider when deciding whether to set an agreement aside.
Ideally, you will never need to rely on your cohabitation agreement. However, if you do separate, it offers peace of mind knowing that your and your partner’s intentions are agreed upon.