On March 18, 2013, without the ring or drunken rendition of the ‘YMCA’ with your closest family and friends, the province of British Columbia after two years of living together in a common law relationship has pronounced you husband and wife. Well, not actually husband and wife (there is still hope for the rock ladies), but the same property rights that apply to married couples will now apply to common law couples.
BC law now indicates that any asset appreciation that occurs after two years of living together in a common law relationship are now up for grabs; and, the law will affect your rights and obligations going forward.
Assets include and are not limited to RRSPs, stocks, trusts, primary residences, investment properties, and stakes in a business. Debts such as student debt and business loans acquired within the relationship will also be divided up, though precedent has yet to be set on how that will be carried out, particularly where there are no assets to reapportion at separation.
(For more information on the details of the changes to the Family Law Act, please see Lawyer Christine Eilers of Lindsay Kilney LLP’s article “Major Changes with New Family Law Act – Division of Property”.)
As a generation, we have decided to marry later, and thus bring more assets into our relationships. Statistically, common law relationships have a higher break-up rate than marriages; and therefore, there can now be a lot at stake. The debate surrounding a co-habitation agreement has fueled conversation and media coverage as to what this means for modern romance. As one male entrepreneur put it, “I feel like I am making her [his live in girlfriend] out to be a gold digger.”
Well gentleman, in a poll by TD, 1/3 of Canadian women are out-earning their partners and are more likely to manage finances and long-term financial planning. The conversation with my girlfriends has shifted from “Would you sign a pre-nup?” in our 20s to “How do you ask him to sign a pre-nup?” in our 30s (Sheryl Sandberg would be so proud). Regardless of gender, if you have assets or plan to build up your real estate, stock or business venture portfolios, here are some cues on how to navigate the inevitable co –habitation agreement.
1. HAVE A CONVERSATION ABOUT FINANCES
Finances are often cited as the number one reason for divorce and separation. “Have a full and frank discussion about your finances and your willingness to share or not share,” Alison Sawyer, author of the legal guide If you Love Me, Put It In Writing, stated in a press release. Getting on the same page and having a frank conversation about money can avoid awkward conversations later. A friend in the process of drawing up a co-habitation agreement with her boyfriend pointed out: “It has brought up discussions about our day-to-day financial situation. Who would contribute or pay for what? By getting it out in the open I feel like we have avoided future fights about money.”
People argue discussing finances is “terribly unromantic.” Personally, I think that is a bit of an immature outlook. Sharing a life with someone is a huge step in a relationship and in life. Not to mention, many aspects of co-habitation aren’t exactly romantic!
2. CONSULT A LAWYER
A family lawyer will be able to advise how the Family Law Act pertains to you and your financial situation. The lawyer will help you prepare and document the necessary items to determine the current assessment of your assets and how an agreement needs to be structured.
Christine Eilers explains: “The new Family Law Act has clarified when a judge may elect to set aside an agreement. ‘Procedural fairness,’ including full financial disclosure is now virtually required.” This almost always involves independent legal advice for both parties and ideally an agreement drafted by a lawyer.
Drafting an agreement yourself can leave you and your partner exposed. The cost for an agreement is around $1500-$3000 depending on the lawyer and personal circumstance. Independent legal advice is around $200-$500. The investment in a properly drafted agreement assists in avoiding huge costs later on and protects both parties if the relationship ends.
3. GET IT IN WRITING
Even the savviest of business people make this mistake when it comes to love. Alison Sawyer’s title “If You Love Me Put It In Writing” says it all. The co-habitation agreement pertains not just to the wealthier partner, but also for the partner who may be contributing to a mortgage or supporting a partner during a start-up.
The valuation of asset appreciation starts when cohabitation commences NOT at the two-year mark. Eilers encourages people to keep documentation of assets from the month of move in. “As one can imagine, it would be difficult to have the value of your pre-relationship property excluded from division of assets if there is no documentation as to what that pre-relationship property was worth.” A real estate agent (I know a good one) will be able to provide you with a housing evaluation at no charge. Record of your RRSP, bank and tax records for the month of move in is another suggestion by Eilers. “At the very least keep them [records] locked away in a safety deposit box, but a written agreement is still going to provide you with much stronger protection if you have to go to court.
No doubt a cohabitation agreement can be an awkward topic to navigate. Using a professional third party, like an accountant, financial planner, or lawyer, as a buffer or motivator for bringing up the topic of conversation is a way of passing the blame. Unromantic as it is – ‘hope for the best, plan for the worst.’ As one young professional said “It’s just a lot to lose.” By all means protect yourself ladies and gents and back that asset up.
Natalie Genest is a Real Estate Advisor with Macdonald Realty. She works with professionals looking to start or expand on a Real Estate portfolio as part of a diversified investment strategy. Please contact her if you require a complimentary house evaluation. Follow her on Twitter and Facebook.