17 May 2009

Why you DON'T want a cohabitation agreement

Important Update: The Family Law Act was introduced on 14 November 2011 and contains a number of provisions which are critical to the comments I've made in this post. See my posts "The Early and Unlamented Deaths of ss. 90 and 120.1: Government takes quick action on parental support and unmarried persons' property agreements" and "Family Law Act Introduced!" for more information. I've also added a new post, "Cohabitation Agreements and the new Family Law Act," about why unmarried couples probably DO want cohabitation agreement.

Questions about cohabitation agreements come up fairly often in my line of work, and it seems that I'm constantly dealing with this one particular issue: how cohabitation agreements do and do not help to protect assets brought into a relationship. This issue's come up yet again, and I thought I'd write about it in a broader context.

People often think they need a cohabitation agreement when they move in with someone in romantic relationship. That's not true; you don't need a marriage agreement when you marry someone and you don't need a cohabitation agreement when you begin to live with someone.

That being said, there are a handful of good reasons why you might want a cohabitation agreement: if you or your partner are bringing children into the relationship; if you or your partner want to ward against the chance of a spousal support claim when the relationship ends; or, if you want to protect the property you're bringing into the relationship. The last reason is the most common reason people want a cohabitation agreement, and while this strategy may work in other provinces, it doesn't work in British Columbia. In fact, it makes things worse. A lot worse.

To be completely clear: you do not want a cohabitation agreement if you live in British Columbia and the agreement is meant to protect property. Here's why.

The British Columbia Family Relations Act treats married and unmarried couples very differently when it comes to property. For married couples, the act says they should both have an equal share of all of the family assets, regardless of who owns the asset or whether it was brought into the relationship or bought afterward, and most assets will qualify as family assets. For unmarried couples, including common-law couples, the act says nothing at all; unmarried couples are expressly excluded from the parts of the FRA that divide property. Unmarried couples are limited to making property claims under the law of trusts, and that usually produces results that are far, far less generous than the equal split married couples get under the FRA.

In summary...

1. Married Couples: The Family Relations Act presumes that each spouse gets half of all the assets, and almost all assets wind up being part of the pool of assets that get divided. Although this presumption can be challenged, most of the time the assets are split equally or near-equally.

2. Unmarried Couples: The parts of the Family Relations Act that deal with the division of assets don't apply to unmarried couples. Unmarried couples can only make claims against each other's property under the law of trusts, and those claims are tough to prove and hardly ever result in a division close to the division that would have resulted if the couple had been married

This is where s. 120.1 of the Family Relations Act comes into things.

Under s. 120.1, the parts of the FRA that divide property between married couples apply to agreements between unmarried couples that deal with property and would be a marriage agreement had the couple been married. Making things worse, under s. 65 the court has the express authority to order a division of assets other than a marriage agreement calls for if it thinks the terms of the marriage agreement are unfair... and what's unfair? Often a division of assets that is different than the equal split prescribed for married couples.

In other words: if an unmarried couple make a cohabitation agreement about property, the rules about property division for married couples apply to the agreement and the court can divide property using the standards that apply to married couples.

Now, instead of the crappy trust law claims an unmarried couple would have had to suffer through in making a claim to divide assets, the couple have all the benefits of the rules that apply to married couples, including the presumption that a fair division of assets is an equal division of assets. This is hardly the effect most unmarried couples assume a cohabitation agreement is going to have; instead of protecting their assets from division, the agreement has exposed the assets to a potential claim which is much worse than the claim that would have been available without the agreement! A bit counterintuitive, isn't it?

Important Update: The Family Law Act was introduced on 14 November 2011 and contains a number of provisions which are critical to the comments I've made in this post. See my posts "The Early and Unlamented Deaths of ss. 90 and 120.1: Government takes quick action on parental support and unmarried persons' property agreements" and "Family Law Act Introduced!" for more information. I've also added a new post, "Cohabitation Agreements and the new Family Law Act," about why unmarried couples probably DO want cohabitation agreement.

34 comments:

  1. Thank you very much for your informative posting. I will be moving into my apartment (I bought myself three years ago) with my girlfriend in September. I recently spoke to a lawyer as to what he would recommend and he suggested a cohabitation agreement costing $1500+. After reading your blog post and the articles on your companion site, I'm weary of doing so. What would you recommend that I do to protect myself and my property just in case?

    I was thinking of having my gf sign an agreement in which she confirms that she has no entitlement to the property and that I am the sole owner of the asset - or something to that effect.

    Thanks again,

    Ben

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  2. I'm sorry, but I can't give you legal advice over the internet. If you want, call me at my office at 604-689-7571 during business hours and I'll talk to you, after I've run a quick conflict check to make sure I can talk to you.

    Be warned though, I don't take clients from my website or this blog; I don't want to make my pro bono work a profit centre.

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  3. Thank you for your comments on a cohab agreement. It has clarified the whole issue for me and I can't believe I found your blog while searching for a cohab agreement online with the intention of drafting one up, even though I just didn't feel it was the right thing to do. Now I know why I felt that way. Wow. Thanks again. Marina

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  4. What's the chance that a common law partner would win a claim through trust law for part of a insurance settlement (for a car accident) received by the other partner about 4 months after they began to live together?

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  5. A constructive trust can arise immediately. A person with funds buys a home and allows their penniless boyfriend/girlfriend move in when they do. The boyfriend fixes a tap or the girlfriend makes a decorating decision and a strong case can be made for a constructive trust from day one,

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  6. is this still the case n 2011? That a cohab agreement is not a good idea?

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  7. The comments in this post continue to reflect my views. However, if the Family Law Act proposed in last year's white paper becomes law, the property division scheme will be entirely different and my views will likewise change.

    For more information about the proposed law, search this blog for "white paper."

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  8. I recently learned that my friend has lost his business, his house and basically everything he owned when his common law boyfriend filed a claim when they broke up and won 50% of everything my friend owned. Now I'm worried because even though I don't have any property, I do have investment accounts such as RRSP and TFSA, and my own savings that has large sums of money in. My boyfriend and I have lived together for 2 years in Alberta, but recently moved to BC, so does this mean we shouldn't get a cohabitation agreement or does only apply to problems with dividing real estate properties?

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  9. You really need to get some proper legal advice about your situation. The laws about property division between married and unmarried couples are very different in BC and Alberta.

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  10. I am finding myself in a precarious position and am debating seeking legal support to protect myself and assets as much as possible... My partner's divorce has taken a turn for the worse over the past few months and his ex seems to be able to take him for all he is worth without him having a leg to stand on...
    I am pregnant and will be going on Mat leave in the fall... due to legal fees and exorbadent spousal and child support we have been living off my income in my town house...

    At what point is a couple considered "common law"? At what point would a couple's assets or my income be a consideration in their divorce and his spousal/child support payments? Would a cohabitation agreement offer me, our child and our future some protection?

    I recognize that this is not a place for advice, but I am hoping that you mayt be able to advise me on these questions and whether investing in some legal support/advice now may pay off in the long run, given our already financially sensitive position.... thanks

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  11. If you go to my website at www.bcfamilylawresource.com, you'll find fairly comprehensive information about becoming common law, when your income can be considered in respect of your partner's spousal and child support obligations, and what a cohabitation agreement can do (and can't do) for you.

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  12. Story: A heavily indebted and married woman cohabited with a single man who owned a home and had savings. She declined to divorce her husband because he said if she did, she would have to pay half their 100K debt. He and she agreed he would simply pay no child support for their three children she raised exclusively. After two years, she left the single man with a court ordered decision that awarded her one half the "marital home" which was owned outright by the single man. The man was forced by government legislation to become the spouse of a person who has a spouse. This occurred in Saskatchewan but will occur in BC as soon as the new family law legislation comes into effect.

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  13. After reading the white paper, I am left with the impression that assets brought into the relationship may not be included in the division of assets in the event of a breakdown of a common law relationship. Am I reading this correctly? Has this new legislation come into effect, yet?

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  14. As of today's date no new legislation on family law matters has been introduced in the provincial Legislature. You can track the status of new bills here: http://www.leg.bc.ca/39th4th/1st_read/index.htm.

    In the event a bill is introduced, I hope to have a summary of the bill, including any provisions n asset division, posted within a day or two.

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  15. Understanding that as the law is written now, a co-habitation agreement is not recommended for common law couples in BC. However, should the proposed legislation (white paper) come into effect, would this recommendation change? In other words if the proposed white paper changes come into effect would it then be wise for a person in a common law relationship to have a co-habitation agreement drawn up to protect assets they have brought into the relationship?

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  16. If the Family Law Act proposed in last year's white paper becomes law, the property division scheme will be entirely different and my views will, depending on what the legislation ultimately looks like, will probably likewise change.

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  17. Now that the new Family Law Act has been introduced (click on the "Family Law Act" label), in particular now that s. 120.1 of the Family Relations Act has been repealed, my views about cohabitation agreements have indeed changed.

    Given that the property division regime required by the new act will apply to unmarried common-law spouses just as it does to married spouses, cohabitation agreements on property issues have assumed a new importance. Such agreements are even more important right now, while we're in the sweet spot between the repeal of s. 120.1 and the full coming-into-force of the new act.

    Not to put to fine a point on it, if you have been or plan on being in an unmarried relationship for longer than two years and have concerns about how your assets might be divided if the relationship ends, you MUST see a lawyer immediately! Like now.

    I'll publish a more detailed post on this issue within the week.

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  18. A friend of mine entered a cohabitation agreement after he and girlfriend broke up, they settled on money to her and some furnishings last August. She now wants to claim for support and part of his business etc. Can she do that?

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  19. This is a reminder to everyone that I cannot give legal advice in reply to comments, only because of the potential for conflicts of interest. As long as I have the time, I'll be happy to talk to anyone needing legal advice for a few minutes, as long as my office can run a conflict check first. Call me at my office at 604-689-7571.

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  20. I have a cohabitation agreement and when my x left she claimed everything in the agreement, money, furnishings, cameras, 70' TV ect. after collecting everything a month later she made an application to get more. My question is once you have made good on the agreement and taken the goods can you go to court and claim more ?

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  21. i have been with a partner for almost 16 yraes i was forced to sign a cohab aggrement almost 3 years after linveing togather. i was told not to work just to look after farm and him .he said it was more then a full time job.i had to sign it i my daughter was nine then and i couldnt leave no money no place to go .now i found out he has a young bf now and spending lots of money on him .i just want to know am i f--ked or would i be intitled to anything?or can you direct i somewhere to find out?

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    1. u shld totally speek to a lawyer. call the lawyer referral srvice at 604-687-3221. they cn tell u bout a lawyer in yr areea. Yr probly not f--ked but u nvr no.

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    2. Great reply....Classic!

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  22. If entering into a cohab agreement, does it null and void the will I had done up 2 years ago whereby my son is sole beneficiary of everything I have? I expect to alter the will at some point when the relationship (common law) evolves and with the passage of more time....happily ever after and stuff! :)

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    1. It shouldn't void the will, but you do want to be careful about making arrangements in your cohabitation agreement that conflict with the arrangements made in your will. Maybe you should take the opportunity to update all of your planning.

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  23. My ex wife has been living with her partner for 4 years in BC. They go on holidays together, they sign documents together, they call each other Hubby and Wife, the share house chores, my son calls the partner Step dad. We have proven everything in court they are living together but we cannot prove they are Common Law because no money seems to change hands. Is this correct or am I being taken for a ride and continue to pay support? All I want to know is a simple answer? CRA sees them as Common Law, why doesnt BC Family Law see them the same way?

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    1. The law of BC may very well see them as unmarried spouses. Money changing hands isn't a requirement; to be in an unmarried spousal relationship you must merely have lived together in a "marriage-like relationship" for at least two years. That's it. Money changing hands might tend to support a claim that they are spouses, but it's neither a requirement nor conclusive proof.

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    2. Thank You for the confirmation as it seems they think they can claim not being Common Law since they "sworn" they do not intermingle finances in their Afffidavits or presume they can hide under this umbrella. Yet, they have also sworn that they have been living together for the past 4 years in the same document presented in court. In my humble mentality this is the most ambiguous statement I have seen in an Affidavit as you cannot have take the cake, eat it but deny it at the same time.

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  24. I have been separated 5 years after a 20 year marriage. The ex spouse left the family home and commenced living with her partner for 4 years now. They holiday together, they call themselves husband and wife but deny they are common law. Just like the previous post, how is this possible in BC Law? I kept being referenced to Mogue vs Mogue while I keep supporting my ex spouse and her live in partner. Is there not a new law that states persons living together for 2 years are classified as a married couple and hence spousal support should be terminated. The ex spouse refuses to work or works part time obviously not to lose her gravy train. Is this not classed as a serious change in circumstance? Are judges so blind here in BC and leave this type of obvious fraud take place?

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    1. I suspect that the problem you have, and the reason why the court kept referring you to Moge v Moge, is that sometimes a person's obligation to pay support survives the other spouse's remarriage or repartnering. This sort of spousal support order is called a "compensatory" order, and it's something Moge talks about a length. An obligation to pay spousal support on compensatory grounds can last after the recipient has married, found a job or won the lottery.

      I understand why you'd be annoyed about having to pay spousal support after your ex has plainly gotten herself into a new relationship, but your solution isn't to insult the court but to lobby your local MP and MLA to change the Divorce Act and the Family Law Act so that spousal support terminates when the recipient remarries or repartners.

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    2. Thank You, what do you mean by compensatory grounds? The ex spouse is physically healthy, she is 44 years old and can still integrate in the work force, she has 4 diplomas but refuses to work full time while I have to work 2 jobs to make ends meet. She is able to afford luxury holidays while I cant. I take your point to contact my MP or MLA but I doubt this will have a quick solution. I guess my best option is to resign work and become a burden on the system, that is what the system wants.

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    3. The idea is that there are two main reasons why spousal support might be awarded, "compensatory" and "non-compensatory." Non-compensatory grounds are basically about need: I don't have the money to get by on my own, you have the ability to help me. Compensatory grounds aren't about need, they're about compensating a spouse for the decisions the couple made during their relationship that resulted in an economic disadvantage for that spouse. For example, say a spouse quits work to stay home and raise the kids. As the years pass, that person becomes less and less employable and if he or she returns to work, it'll be for much lower pay. In the meantime, the other spouse is carrying on with his or her career, getting raises, promotions, advancements and so forth. Compensatory spousal support is intended to compensate the spouse who stayed home for the loss of his or her career and forgone opportunities for raises, promotions and advancements. Since it's not about need but about compensation, a compensatory entitlement to support isn't extinguished when the recipient remarries, repartners or gets a job.

      Of course, this example is a stereotype designed to explain the general concept of a compensatory ground of support. I have no idea what's going on for you, and you really should talk to a lawyer to get some proper legal advice and an idea about the options available to you. You can get a lot more information about spousal support from my wiki here:

      http://wiki.clicklaw.bc.ca/index.php/Basic_Principles_of_Spousal_Support

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  25. The information was very useful thank you. What about this new law that came into effect on March 2013 regarding co-habitating couples? Surely if the ex spouse admitted under oath that she has been living with her partner for 4 years they fall under this category and are classified as a married couple under this law? From what I read, if a couple are married then the need of support should end unless I am not reading this law.correctly. Additionally, if the ex-spouse has made no serious effort to become independent (refuses to work full time) but can afford tropical holidays, is this not considered by BC courts as burden to the payor? Should I be made to support her and her live in partner?

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    1. If you're the fellow to whom I was talking about "compensatory" and "non-compensatory" spousal support, if a spousal support order was made on compensatory grounds, the recipient's re-marriage or re-partnering may have no effect on the recipient's entitlement to continuing support. This legal principle will apply until a law overrules it, and the new Family Law Act doesn't do that.

      Remember also that the laws of different provinces and states say different things about spousal support. It's entirely possible, if not likely!, that there's a jurisdiction which says that remarriage terminates an entitlement to spousal support. Unfortunately, that's not the case in BC.

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