What Is A Cohabitation Agreement?
A cohabitation agreement is a written contract that can be made between common-law spouses to determine how property will be dealt with if their relationship ends. Common-law spouses can create a cohabitation agreement before or while they are living together.
A cohabitation agreement does not change the legal relationship of common law spouses; it only protects each spouse’s financial interests. If you and your partner have a common-law relationship and had no assets at the beginning of the relationship, it may not be necessary for you to create a cohabitation agreement. However, if you do own assets before entering a relationship, it may be beneficial to create one. For example, if you own a home that your common-law partner moves into, a cohabitation agreement will protect the equity you have put into the home. Additionally, a cohabitation agreement will layout how any debts are to be divided and can even cover the topic of spousal support. However, a cohabitation agreement does not cover child support and custody issues, which are both separately handled.
How to create a cohabitation agreement?
There are necessary actions that spouses must take for a cohabitation agreement to be legally binding. Specifically, both you and your spouse must be transparent and honest about your finances. Additionally, a witness must be present when the agreement is signed, and the spouses must sign the agreement without the influence of pressure or threats.
Obtaining a lawyer is the best way to ensure that the cohabitation agreement is legally binding; prudence requires that separate lawyers represent you and your spouse before signing the agreement to prevent any misunderstandings. If you and your spouse become married, the cohabitation agreement does not become terminated. Instead, it automatically becomes a marriage contract.
Why is it important to have a cohabitation agreement?
Canadian law does not require common-law spouses to create a cohabitation agreement, but creating one is strongly recommended. For one, a cohabitation agreement allows common-law spouses to state the expectations if the relationship ends clearly. A cohabitation agreement also allows common-law spouses to create rights that the law does not otherwise provide. These rights can include items such as the equal splitting of any property if the relationship ends or the agreement that neither party is obligated to support the other financially.
When are a couple considered common-law spouses?
In Canada, two people are common-law spouses after having lived together in a romantic or marriage-like relationship for at least three years. However, if two people have a child together by birth or adoption, they will be considered common-law spouses after only living together for one year.
Key differences in property division between common-law spouses and married couples
In Ontario, for example, under the Ontario Family Law Act, only married couples are allowed to claim an equal share of property or wealth accumulated during the marriage. In Ontario, the assumption is that both spouses contributed equally to the accumulation of wealth during the marriage. Although the assumption may not accurately describe the accumulation of wealth during a marriage, the equal sharing provision still applies. Thus, at the end of a marriage, all wealth accumulated during the marriage is shared equally.
Common-law spouses do not have the same right under the Ontario Family Law Act. The law states that each common-law spouse can keep the property they own at the end of a relationship, with no automatic right to property sharing. So, when your common-law relationship ends, you leave with all that you brought into the relationship and whatever wealth you can prove you were responsible for accumulating during the relationship. To summarize, generally speaking, items purchased during the relationship belong to the person who paid for them, and items purchased jointly are divided.
Common-law couples can, however, acquire interests in each other’s property under the legal doctrine of unjust enrichment. Unjust enrichment will apply when one spouse is “enriched” at the expense of the other spouse’s actions. For instance, if one spouse stays home to care for the children rather than seek employment outside the home. The following three criteria must be established for a claim of unjust enrichment to succeed:
- 1) One spouse became enriched at the expense of the spouse claiming unjust enrichment
- 2) The spouse claiming unjust enrichment has been deprived or suffered a loss and;
- 3) There is no justification for the enrichment.
If the claimant spouse can meet all three criteria, then unjust enrichment will be established. The court will then deccide which remedy it will award because of of the unjust enrichment. Canadian courts strongly prefer monetary remedies for unjust enrichment, especially when one spouse unfairly obtained a disproportionate share of assets accumulated during a “joint family venture.” A joint family venture is when both common-law spouses contributed to the accumulation of wealth. To determine whether the couple were part of a “joint family venture,” the courts will consider a variety of fact-specific factors.
In general, the factprs in finding a joint family venture will include: the length of the relationship, the number of children and the integreation of finances, all of which will indicate more or less whether there is joint family venture.
When the court is satisfied that a joint family venture exists and decides that a remedy for unjust enrichment is appropriate, the remedy will most likely be in the form of damages. The damages will be calculated based on the share of those assets proportionate to the claimant spouse’s contributions to the joint family venture.
Unjust enrichment is a difficult and complex area of law. It is not easy to predict when courts will find a joint family venture and unjust enrichment or what remedy they will award. The claims are necessarily very fact-specific.