Cohabitation and division of Assets

Cohabitation—living together in a marriage-like relationship without being legally married—is increasingly common in Canada. While cohabitation offers many benefits, it also raises important financial and legal considerations regarding the division of assets, especially if the relationship ends. Understanding how cohabitation affects your assets can help you plan appropriately and avoid unexpected legal and financial consequences.

Legal Differences Between Marriage and Cohabitation

In Canada, the laws governing property division differ significantly between married couples and common-law partners (which refers to couples who have lived together for a certain period, typically one to three years, depending on the province). Unlike married spouses, common-law partners do not automatically share property rights under provincial family law, meaning the division of assets can be more complex in the event of separation.

Provincial Differences

• British Columbia: Common-law partners (spouses who have lived together for at least two years) are treated similarly to married couples under the Family Law Act. This means property acquired during the relationship is typically divided equally.
• Alberta: The Family Property Act recognizes common-law partners (known as Adult Interdependent Partners) after three years of cohabitation or earlier if they have a child together, with some entitlement to asset division.
• Saskatchewan: Common-law partners (defined as couples who have cohabited for at least two years) are entitled to an equal division of property under the Family Property Act.
• Manitoba: The Family Property Act provides common-law partners (who have lived together for at least three years, or one year with a child) with the same property division rights as married couples.
• Ontario: Common-law partners do not have the same automatic property division rights as married couples. Instead, asset division follows ownership, and claims must be made under unjust enrichment or constructive trust principles.

Property Ownership and DivisionUnlike married couples, who typically share property acquired during the marriage, common-law partners generally do not have an automatic right to half of shared assets. Instead, ownership is determined by whose name is on the title or purchase documents.

• Real Estate: If only one partner owns the home, the other partner may have no automatic legal claim to it upon separation unless they can prove contributions (financial or otherwise) that increased its value.
• Bank Accounts and Investments: Assets in individual names remain with the respective owners unless proven that contributions were made by the other party.
• Debts and Liabilities: Generally, debts incurred individually remain the responsibility of that person unless co-signed.

Joint Assets and ContributionsAlthough common-law partners do not automatically split assets, courts may consider claims under unjust enrichment or constructive trust. If one partner can demonstrate significant financial or non-financial contributions that benefitted the other (e.g., paying for renovations or supporting their career), they may be entitled to compensation.Estate Planning and InheritanceUnlike married couples, common-law partners do not always have automatic inheritance rights. If a common-law partner dies without a will, the surviving partner may not inherit any assets under intestacy laws, depending on the province.To ensure protection, common-law partners should:

• Draft a will to specify asset distribution.
• Designate their partner as a beneficiary on pensions, life insurance, and registered accounts (TFSA, RRSP).
• Establish a cohabitation agreement outlining financial rights and responsibilities.

The Role of Cohabitation AgreementsA cohabitation agreement is a legal contract between partners that specifies how assets will be divided in case of separation. This document can help avoid costly legal disputes and ensure both parties’ expectations are clearly outlined. Key aspects include:

• Ownership and division of property
• Debt responsibilities
• Spousal support provisions (if applicable)

ConclusionCohabitation can offer flexibility but comes with financial and legal risks that many couples do not consider. Since common-law relationships do not provide the same automatic property rights as marriage, it is crucial to take proactive steps to protect both partners’ interests. Consulting a lawyer and financial advisor can help ensure that your assets and future financial well-being are safeguarded.