12 December 2011

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.

42 comments:

  1. Why not keep the law as it is NOW on common-law marriage and let the couple get an agreement about property etc if they wish or get married.
    It is the political class and powers to be that allowed for all people and persons to seek marriage.

    I conclude that the powers are usually on one side of the so-called "oppressed" including the benefit in the future protection orders and too broadly used(future)definition "family violence"

    The powers to be say..."it`s about the children" in the new legislation.

    It should be about the children after a divorce,but all the tools are put in place to control and harass the non-custodial parent in my opinion....is that "family violence"??

    Comment:The person or people that control each family (through the non-biased family law)
    have total control of every aspect of society.They truly know....what is best!!

    If you truly what to to put children first,not the spouses ultimate right to leave before the children!!
    Rescind NO_FAULT divorce and include forced mediation,if there is NO compliance use the provisions in a protection order.

    Also: it is interesting watching b.c.gov`n trying to defend their infringement of civil law on the criminal code(according to B.C. supreme court judge) in another arena.This legislation(family law) seems to imply a criminal code penalty for a civil matter!!

    This is just my opinion.

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  2. Have you had a chance to review changes to pension sharing yet? Currently it can go on for 30 years or more after the AGREED date of splitting of all other assets. In this way it includes salary increase from promotions, merit increases and all non inflationary increases which surely it is unfair to share after the split.

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  3. That isn't how pension sharing normally works under the Family Relations Act, except in cases where the pension is overlooked and there is no triggering event. Without a triggering event, which required some positive step on someone's part, the pension would go undivided and the non-member's interest would continue to accrue.

    This problem will be avoided under the Family Law Act as the triggering event will be the date of separation and not require that any further steps be taken.

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  4. John-Paul,
    Thank you for the education. Even though I'm single and plan to be for a very long time, I still appreciate the time and effort that went into this informative post. And thank you for referring your readers to the Lawyer Referral Service. Your efforts to maintain this blog as an exclusive tool for public legal education is most commendable.
    JR

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  5. Sooo confused. In court Monday and want to reference the new Family Law Act in reference to mobility (relocation) and violence toward children but cannot understand if that part of the Act is in place yet or not... help?

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    1. Most of the act isn't in force now. Go to my post here http://bcfamilylawresource.blogspot.com/p/family-law-act.html#inforce to read what's in force and what's not.

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  6. I have read your blog. I just do not understand why it can be a law but not in effect. Can we reference it in Court. How do we find out when that particular piece (relocation and family violence) will be "in effect"? Thank you for any additional comments, I thoroughly enjoy your material.

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    1. A law can say how it comes into force. Some laws don't say anything about when they come into force and are in effect right away. In the case of the Family Law Act, the law provides a schedule setting out what's in force and what's not.

      The parts of the law that aren't in force have no legal effect. You can talk about it in court if you want, but it won't be binding on the judge.

      The parts of the law that aren't in force are expected - according to the Attorney General's press release - to be in force between November 2012 and May 2013. I'm inclined to think it will be later rather than sooner. If you want to keep track of the status of the law, follow the website of the Queen's Printer at www.bclaws.ca.

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    2. The easiest way to track the coming-into-force of the act is through Courthouse Libraries BC's proclamation tracker at http://www.courthouselibrary.ca/training/BCProclamations.aspx.

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  7. So if one person has all the assets:house,pension and savings and the other only has CPP and OAP and they are living together for nearly two years (both contributing to food and some bills), are you recommending they get a co-habitation agreement? Will this adequately protect the one with the assets in case of the relationship ending? Or could the person with fewer assets claim she was accustomed to this home/way of life, etc. and deserved some compensation? I liked your former advice to just not have an agreement but I realize things have changed.

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    1. I think the only thing I can positively recommend is that you get legal advice about this. I cannot give legal advice in this forum. Feel free to call me at my office next week, at 604-689-7571, and I'll be happy to talk to you after we've done a conflict check.

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  8. Thank you for providing such an informative blog.

    I'm confused. What is the actual benefit of entering into a cohabitation agreement before the relevant provisions of the FLA come into force? Once it does come into force, won't Division 4 apply to an agreement regardless of when it was entered into? The only advantage I can see is if the partners separate before Division 4 comes into force. Their agreement won't be treated as a marriage agreement and the SCBC won't be able to vary the agreement.

    I can see why you would want to enter the agreement before the two year period ends, so that in the worst case scenario the partners can separate before being subject to the FLA (assuming thay don't have a child together) but if a couple have already been cohabitating for more than two years and will still be cohabitating when the FLA is, in its entirety, in force, what's the advantage of signing an agreement today?

    What am I missing?

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    1. I don't think you're missing anything, or at least not much at any rate.

      When I wrote this post, it seemed to me that by entering into a cohabitation agreement after the repeal of s. 120.1 of the Family Relations Act, unmarried couples could take advantage of the regulatory vacuum existing between the repeal of s. 120.1 and the coming-into-force of the new act. It seemed to me that during this period, unmarried couples could potentially enter into more creative agreements than would otherwise be the case, on the basis that at the time of the making of the agrement they were beholden to no particular statutory regime.

      It still seems reasonable to me that the court might hold property agreements executed before the coming-into-force of the Family Law Act to a different standard on the basis that the standards of a particular statutory regime shouldn't be applied with the same rigour to agreements made before the statutory regime existed. This is why, for example, buildings put up under old, outdated building codes aren't held to the standards of current building codes. Except for the fact that the FLA is more friendly to marriage and cohabitation agreements than the FRA, wouldn't it be unfair to hold an agreement compliant with the FRA to the standards of a regulatory regime that didn't exist when the agreement was negotiated?

      In any event, it's not clear to me that it will be necessary to extend much special consideration to pre-FLA agreements when you consider the provisions of s. 92, which says that parties can make property agreements that divide things that under the statute aren't to be divided, that divide unequally what is supposed to be divided equally, and that don't divide what is supposed to be divided. In other words, it's not mandatory that the regulatory regime set out in the FLA be observed when negotiating a property agreement. If that's the case, then there's probably no significant advantage to be gained by unmarried parties entering into a property agreement now.

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  9. Dear Mr. Boyd,

    I can't seem to find, at quick reference, the requirements for a cohab. agreement to be legally binding.
    I know they have to be signed by a witness, but though highly recommended that lawyer review the agreement, does the document need to be signed by a lawyer or notarized?
    Thanks

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  10. You can find the answer on my website, in first chapter in the Family Agreements section, under the heading "Elements of a Family Law Agreement":

    http://www.bcfamilylawresource.com/07/0700body.htm#elements

    In a nutshell, the parties' signatures just need to be witnessed by any sane adult who isn't a party to the agreement. It needn't be a lawyer or notary public; anyone will do.

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  11. Hi,
    We signed a co-habitation agreement prior to marriage in Dec '04. We each signed and had legal advice when we renewed the agreement just prior to this marriage. He has left the relationship and is claiming 1/2 of the increase in the value of our home. It is in my name. We lived according to the prenuptial agreement until our separation in April '12. I put in the downpayment, added money to lower the mortage and paid all the expenses over and above the regular mortage payments, insurance, property tax. Given as our agreement predates the recent changes, and that we lived according to our agreement, would the Family Law Agreement apply never the less?

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    1. According to s. 252(2) of the Family Law Act, the old Family Relations Act will apply to applications to set aside or enforce agreements made before the FLA comes into effect, unless the parties agree that the new act should apply.

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  12. Hi,

    My ex and I (common law spouses) signed a separation agreement before s. 120.1 was repealed and now she is suing me, trying to set aside the agreement because she is complaining that it didn't divide all assets equally between us. She sued me after s. 120.1 was repealed. I tried to tell her that it doesn't matter that the agreement didn't provide for equal division because we were common law spouses and without s. 120.1 she has no entitlement to an equal division. Who is right?

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    1. I can't give legal advice through this blog, but it would be interesting to know whether she claimed under s. 120.1 in her Notice of Family Claim. If you'd like, you can call me at my office at 604-689-7571 and after we've done conflict check to make sure I can talk to you, I'll try to answer your question.

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  13. Who wrote this bill(FLA)? i've been trying to find the author and I'm having trouble.

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    1. The bill wasn't written by a specific MLA, the way you see private members' bills being authored by a specific person. The bill was written by staff in the Ministry of Justice on behalf of the provincial government; the person who tabled the bill in the legislature was the Minister of Justice.

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  14. How much should a cohabitation agreement, which simply states that there would be no shared property (family property) typically cost if we assume no current children?

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    1. It all depends on the individual lawyer, but I'd expect that a dead simple agreement might set you back anywhere from $500 to $2000.

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  15. are you still recommending that a person sign a Co-habitation agreement before march 18th -the coming into force of the Act - what is the advantage of signing before this date? what is the effect of agreements signed after March 18, 2013? My partner and I would like to agree not to share our assests equally....I do not think we will have an agreement signed by March 18th. we are both aware of the new law and its provisions and are in the process of providing each other with full disclosure of our finances and our assets. Would you suggest we hurry up and get something signed before March 18th....

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    1. My present opinion on the matter is that the Family Law Act applies to everyone who qualifies as a "spouse" now, even though the act is not yet in force. As a result, I don't think there's much to be gained by rushing to finish a cohabitation agreement in short time remaining until the act comes into force.

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  16. Hello

    It seems that if two people were living common law prior to the FLA becoming law; that is, when property division was not equal, but rather depended on contributions, then a person with greater assets no longer has a means of protecting the assets that had been protected under the law. It strikes me as fundamentally unfair that a person whose property was protected under the law is suddenly unprotected, with no time given to change their living arrangements if protection of their property is a concern.

    The time period between the FLA becoming law (November 24, 2011) and the coming into force of the new property division laws (March 18, 2013) does not provide the necessary 2 years to ensure someone with whom one is living is not now considered a spouse. How is it possible to simply change a law and not provide the time required to allow people to decide what is more important == the protection of their property or the preservation of their living arrangement.

    Personally, I would rather leave the assets I spent a good part of my life acquiring to my children and grandchildren, rather than someone who moved into my house for two years. And now I have no choice but to give up half of houses we didn't even live in together? Are you kidding me?

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    1. Although you've got the basic ideas right, including about the time period between the new Family Law Act becoming law and coming into force, it's not quite as bad as you think. If you read through the information I've published about the Family Law Act carefully, you'll see that you're not sharing 100% of your property with your partner; you're entitled to keep what you brought into the relationship as your own property, what you share is the increase in value of that property and anything new that you buy during your relationship, as long as you didn't buy it with the property you brought into your relationship.

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  17. Scenario:

    Two people living together decide to separate. Each see a lawyer about property division. No one makes a claim on the other at that time. Time passes and now the law changes. They are no longer spouses under the law because they've been apart more than 2 years; however, one now claims to have seen a lawyer before they were apart 2 years. Does this count as starting a claim/making a claim that can now be considered under the new law?

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    1. Seeing a lawyer is seeing a lawyer... starting a claim means commencing a court proceeding.

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    2. In such a case does the person commencing a court proceeding have to give notice to the other person before the 2 years is up or can they say it was 'in the works' and you are just getting it now even though 2 years has passed?

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  18. Hi, Scenario: Moved in together 1993; signed co-hab agreement 1994 which states we keep our own property, earnings & assets all separate, joint account for expenses, I owned the home and I had 97% of assets which was accumulated between myself and deceased wife, I have 2 children from deceased wife and we wanted assets passed down to them; 1999 I sold home and purchased another property from funds of sale and I alone borrowed & paid addn'l money for new home; partner & I continued living as common law sharing expenses; now 20yrs later, May 2013, she leaves and wants half of everything & spousal support; stating signed cohab under duress etc (even though had respected family law lawyer represent her) we are both on cpp/oas pensions & I have a little extra from rifs from pre-living together. Will the cohab stand? I understand s 120.1 came into affect after we signed cohab - is s 120.1 applicable? Or does the division of properties fall under the new FLA?

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    1. I'm sorry, but I can't give legal advice through comments to this blog. You have a complicated situation and should get proper legal advice, particularly about the coming into force and early repeal of s. 120. and how the FLA may apply to your situation. The number for the Lawyer Referral Service is in the column to the right.

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  19. Great blog you have here! I think I have this right, but please confirm: Under current legislature, one's spouse has no entitlement to the other spouse's assets/property that were accumulated prior to the relationship, however they are entitled to the gains earned (on those assets) over the life of the relationship.

    Does the same hold true for debt brought into a relationship? Does it belong to the originator or does it become mutual debt?
    Could one spouses financial obligations (to pay spousal or child support) ever be obliged to their new spouse under the FLA?

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    1. Yes, you've got the bit about property right. The bit about debt is a bit trickier.

      As a general rule of thumb, s. 86 of the Family Law Act defines family debt as debt "incurred by a spouse ... during the period beginning when the relationship between the spouses begins and ending when the spouses separate." I think that for most people, this would mean that support obligations from a previous relationship wouldn't be shared: the "debt" of the support obligation was incurred before the new relationship begins. I think this reasoning would hold true whether there was an order or agreement in place before the new relationship started or not.

      Interestingly, I'm not sure where this would leave someone who incurs a new child support obligation while in a spousal relationship with someone other than the other parent (for example, a child born of an affair) or a new spousal support obligation while in a spousal relationship with someone else (for example, being in a polyamorous relationship that breaks up or being in a new unmarried spousal relationship before being divorced from a married spouse), since both obligations would be incurred during the present spousal relationship. Interesting problem... but one I don't think is going to arise terribly often.

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  20. Given that property is grossly over-valued and we are due for a significant crash here in Canada, could my ex-partner also be on the hook for the resulting DECREASE in value of assets after cohab?

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    1. Unfortunately, the Family Law Act only talks about sharing (1) family property, the property acquired during the relationship, (2) the increase in value of excluded property, which includes the property brought into the relationships, and (3) family debt. It doesn't talk about what happens when excluded property decreases in value during a relationship, which means that the owner of excluded property that decreases in value is meant to eat the loss.

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  21. I have just seen a lawyer as my partner and I have just past our 2 year anniversary of living together. The lawyer states we need to both create a property statement of all assets and debts. Given that my partner and I do not share any property, assets or debts, bank accounts etc (though he does live in my property, rent free) nor do we want to lay claim anything in the event of separation, is it really necessary to disclose everything in a property statement? Can we not just have the lawyer draft a cohabitation agreement that merely states we do not share any assets or debts and that we do not lay claim to anything?

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    1. Well, you don't actually *have* to do anything. However, the lawyer's given you some good advice and you probably should make a statement of your assets and debts.

      I know that you don't intend to make any claims against each other if you separate, time has a funny way of changing people's minds. This is especially the case if someone becomes ill and can't work, if you have a child, if someone leaves a career to be a homemaker, if someone abandons a career so that someone else can move ahead in a career, if someone wins or inherits a lot of money, or if any of a number of other things happen. You know how you feel about things now, but you can't guarantee that each of you will feel the same way in five or ten more years.

      Yes, the lawyer can draft a cohabitation agreement like you describe, but to be effective you'll each need to disclose your assets and debts in the agreement. Say you have a million-dollar property in the Gulf Islands. Your partner needs to know you have that property and needs to know what it's worth before he or she can be effectively bound to an agreement that says that he or she has no interest in your property. Also, under the Family Law Act, you are each entitled to a share of the increase in value of an asset during your relationship. That's another reason to get the agreement done, or to prepare a property statement; it will tell you what the property was worth when you began to live together (and help you figure out the increase in value if you separate).

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  22. Hi,

    Is there any good reason to enter into a cohabitation agreement at the present time given the following situation:
    1) Dated for 1.5 years (not living together);
    2) Planning to move in together soon;
    3) No children together (or with another party, on either side), and no plans to have children prior to marriage;
    4) Both parties do have current existing assets (both have mortgages on their own condos, have their own savings/investments, one has a corporation);
    5) Barring unforeseen issues discovered while living together, planning to marry in roughly 1.5-2 years (and parties intend to have "pre-nup" in place prior to marriage or the 2 year threshold for "common-law").

    From my research and given the above, it seems to me that:

    The parties are not currently "common-law" (I suppose "unmarried spouses" is the correct term), and would not become such until they've lived together at least 2 years or had a child together. Therefore:
    a)Neither has a claim to the others existing assets in the event the relationship ends before the parties have become spouses;
    b)Defining existing assets at this point of time serves no purpose as these assets are in no need of protection prior to the parties become spouses;
    c)Furthermore, defining assets now does not preclude the need to define assets existing at the time when preparing a "pre-nup" (marriage agreement?) just prior to becoming spouses because assets need to be defined at that point, as opposed to right now (just prior to starting to live together)

    If a), b) and c) are correct, both getting lawyers in order to prepare/review a cohabitation agreement right now seems like an unnecessary expense of hundreds (thousands?) of dollars. This is because a cohabitation agreement provides no additional protection should the relationship end prior to the parties becoming spouses, nor does it preclude a similar level of expense when it comes time to re-assess existing assets for the "pre-nup" just prior to becoming spouses.

    Am I missing something? Are there good reasons to enter into a cohabitation agreement now, or is it just introducing an extra legal expense in addition to the eventual "pre-nup"?

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    1. You've done your homework, good job.

      Although I don't know all of the relevant circumstances, the primary reasons to do a cohabitation agreement would be to prevent one person from making claims under the law of resulting or constructive trusts against property owned by the other; to fix the pool of assets, and their value, that are going to be brought into the relationship; and to attempt to head off a potential claim for spousal support. Unless there's a pretty good trust claim hanging over someone's head, no, a cohabitation agreement doesn't seem especially useful. Of course, I can't give you legal advice and it might be worth your while to spend a couple of hundred bucks getting some.

      The only extra thing I think you need to know is that although a couple don't become spouses until they've cohabited for two years, or cohabited for a shorter period of time and had a baby together, once they become spouses the date the spousal relationship is considered to have started is the date the parties began to live together. That might change how you look at things.

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  23. Hi,

    Can a Cohabitation agreement be used to exclude the increase in value of an excluded property from family property in addition to the original value? For example, the increase in net worth of a corporation held by one partner, or the increase in the market value of a home held by one partner.

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    1. Yup. That's one of the important things a cohabitation or marriage agreement can do under the Family Law Act. Be careful not to be aggressive; read the s. 93 of the act which gives the reasons why a court might set an agreement on property aside.

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