Cohabitation Agreements and the new Family Law Act:Why you probably want a cohabitation agreement

In a previous post, “Why you DON’T Want a Cohabitation Agreement,” I summarized the law on the division of property between unmarried couples and how s. 120.1 of the Family Relations Act usually made cohabitation agreements a very, very bad idea when the purpose of the agreement was to protect property brought into a relationship. 

That’s all changed as a result of the enactment of the Family Law Act on 24 November 2011. Let me explain.

Property, unmarried couples and the Family Relations Act

Under the Family Relations Act, married spouses are presumed to have a one-half interest in everything that qualifies as a “family asset.” The definition of family asset is so broad, however, that almost everything a married couple has is a family asset whether they bought it after the marriage or brought it into the marriage; most of the time, a married spouse is entitled to half of everything regardless of when and how an asset was acquired.

This isn’t the case for unmarried couples because unmarried couples are expressly excluded from the parts of the Family Relations Act that deal with the division of family assets.

Unmarried couples have no shared interest in any assets except those that they own together. When only one person owns an asset, like the family home, for example, it presumptively remains that person’s sole property, no matter how long the couple lives together.

Unmarried couples, trust claims and unjust enrichment

Of course, after a couple has lived together for five, ten or twenty years, it can seem somewhat unfair that only one of them has an entitlement to the family home, or the family car, or a business or whatever. In a case like this, the person who doesn’t own an asset tries to establish an entitlement by proving the existence of an express trust or a resulting trust, or, more commonly, by proving that the person who owns the asset was unjustly enriched by something the non-owner contributed during the relationship.

All of these claims are difficult to prove, and, even when successful, rarely result in a property interest any where close to the one-half interest the parties would have had if they had been married.

As a result, someone who didn’t want to share the assets being brought into a relationship would simply get some legal advice about how to avoid express and resulting trusts, and make sure that the contributions of the other spouse were always compensated in someway in order to duck an unjust enrichment claim.

Unmarried couples, cohabitation agreements and the Family Relations Act

Despite this rather favourable legal circumstance, people often wanted cohabitation agreements before entering into a long-term, live-in relationship, mostly to address the division of property in the event the relationship ended. Normally, this would be a sensible course of action; wouldn’t it be easier not to have to worry about unintentionally creating a trust relationship or being inadvertently enriched? 

Not so. The problem here lay in a nasty little section of the Family Relations Act, s. 120.1. Under this section, if an unmarried couple made an agreement that dealt with property, the parts of the act that apply to the division of assets between married spouses applied to the unmarried couple making the agreement, and the cohabitation agreement was considered to be a marriage agreement.

This was very bad, for two reasons. First, s. 65(1) of the Family Relations Act expressly allows the court to vary marriage agreements it finds to be unfair. Second, the definition of “fairness” was the presumption of equal entitlement set out in s. 56 of the act which would otherwise have only applied to married spouses.

In a nutshell, as a result of s. 120.1, the standard of property division for married spouses applied to unmarried couples with cohabitation agreements, including certain presumptions about the division of property that would be far worse in effect than what the principles of trust law and unjust enrichment would have yielded in the absence of the cohabitation agreement.

Unmarried couples and the Family Law Act

Under the Family Law Act, unmarried couples that have cohabited for more than two years will have the same property rights as married spouses.

Under the new act, assets brought into a relationship and certain assets acquired afterwards, like court awards and inheritances, will be excluded from division between spouses. The assets that will be divided, and the presumptive division is an equal division, are the assets acquired after the relationship began as well as any increase in the value of the excluded assets.

From the point of view of the person who owns an asset, this is better than the law for married spouses under the Family Relations Act and better than the law for unmarried couples with a cohabitation agreement. However, there can still be some very significant consequences in sharing in the increase in value of an excluded asset — think of what has happened to the value of real estate in the lower mainland over the past 10 years, or the values of stock in Apple, crude oil and your Gretzky rookie card over the same period.

Despite the coming changes in the law, some couples will still want a cohabitation agreement, specifically couples who are in long-term unmarried relationships right now and couples with assets who expect to be in long-term unmarried relationships.

Cohabitation agreements, the repeal of s. 120.1 and the coming-into-force of the Family Law Act

The Family Law Act became law on 24 November 2011. Although most of the act, including all the parts about property division, are not yet in force, other bits came into effect right away, including s. 258 which had the effect of repealing s. 120.1. Fantastic! Since the Attorney General has said that the rest of the Family Law Act isn’t going to come into force for another 12 to 18 months, this means that we’re in the middle of a legislative sweet spot for unmarried couples. 

Unmarried couples may now enter into cohabitation agreements without fear of the grim consequences of s. 120.1, and almost without regard to the property provisions of the Family Relations Act. 

On top of that, unmarried couples probably want to enter into cohabitation agreements if they wish to avoid some or all of the consequences of the property division regime of the new Family Law Act. In other words, if there’s anything about how property will be shared under the new act that browns you off, now is your opportunity to do something about it, and you’ve got 12 to 18 months within which to get it done. 

Get a cohabitation agreement and get it soon

For the next 12 to 18 months, couples across the province will be going through an unpleasant assessment of how their legal rights will fare under the new act. That’s okay, it’s a necessary consequence of change. However, if you are in a relationship of the sort that won’t require you to share your property, that’s going to change too, and if you want to do something about it and don’t want to end your relationship, the time is ripe to get a cohabitation agreement done up.

There will never be a better time to enter into a cohabitation agreement than right now, under the current law and between the repeal of s. 120.1 and the coming-into-force of the property provisions of the new Family Law Act.

Cohabitation agreements are somewhat complicated at the best of times; they’re somewhat more complicated now that we’re in the transition between one legal regime and another. You really must see a lawyer if you want to get a cohabitation agreement drawn up. If you don’t have someone to see, contact the CBA's excellent Lawyer Referral Service at 604-687-3221 or 800-663-1919.