What is a Cohabitation Agreement? Is it useful in Ontario?
Family law draws a distinction between a common-law relationship and a formal marriage.
Common-law partners do not enjoy as much protection as married couples do under the law.
A cohabitation agreement is a contract that is usually made between partners in a common-law relationship.
You may be responsible for the debts of your partner.
If the parties wish to share assets and debts, then they can exercise their intentions in a cohabitation agreement to that effect.
Use a cohabitation agreement to determine how their property will be treated in the event of separation.
Partners in a common law relationship often believe that after living together for a while, they become as good as married. While this may be true in a sense, especially as it concerns living together and building a family, it is mostly inaccurate.
In many ways, the law draws a distinction between a common law relationship and a formal marriage. These differences are most obvious when it concerns matters such as separation, division of marital assets and ownership of property acquired during the marriage.
Essentially, common law partners do not enjoy as much protection as formally married couples do under the law. Where formally married couples can expect certain benefits as a matter of right, these either do not exist for common law partners, or can only be obtained in a complex process.
As a result, it is natural for partners in a common law relationship to try and provide ways to protect their rights during and after the relationship. Signing a cohabitation agreement is one of the ways in which they can achieve this. What is a cohabitation agreement and what does it do? Here’s all you should know.
What is a cohabitation agreement?
A cohabitation agreement is a contract that is usually made between partners in a common law relationship. The agreement helps the parties protect their individual interests and property during the marriage, and determines their rights and responsibilities, should the relationship end.
Although it sounds cold-hearted for a couple to try to keep their property from their partner after separation, you should know this is not the case. Usually, there are several complicated laws that apply to a person’s property after they formally marry someone else or start a common law relationship.
Based on the application of these laws, the property that a person acquires during the relationship, and even their debts, may be regarded as shared property. This means that, contrary to your intentions, you may be responsible for the debts of your partner, even though you had little to no input in how it was amassed. Even worse, most people are unaware of these laws and the effect they can have.
A cohabitation agreement allows the partners exercise their freedom to decide on these matters. If the parties wish to share every aspect of their finances, assets and debts, then they can exercise their rights by signing a cohabitation agreement to that effect. And if they want to be have more freedom over their own property and debts, then they can also do that through a cohabitation agreement.
So, what the agreement really does is it gives partners in a common law relationship the freedom to decide. Formally married couples also use contracts that are similar to cohabitation agreements. Only, in this case, it is called a “Marriage Contract”. Under Ontario’s Family Law Act (FLA), if partners in a common law relationship eventually get married, then their cohabitation agreement automatically becomes a marriage contract.
Most couples use cohabitation agreements to determine how their property will be treated in the event of separation. Some others also use these agreements to decide important matters that come up during the relationship, such as who will be responsible for expenses, how their income will be treated etc.
However, there are two important things to note. First, the FLA says a cohabitation agreement cannot make any provisions for parenting time or child support. These are important matters that can only be decided if a separation occurs, rather than at the start of the relationship.
Second, if the agreement specifies how the matrimonial home (where both partners live) will be treated, the provisions may have to change if the partners enter a formal marriage. In a formal marriage, both partners have an equal right to live in the matrimonial home. Neither a cohabitation agreement nor a marriage contract can change this.
When is a cohabitation agreement useful?
Generally, there are no laws that dictate who should or should not enter into a cohabitation agreement. This means you and your partner are free to have a cohabitation agreement whenever you want. However, there are some instances when having the agreement will be important.
The first, and most common, reason is to protect the separate property, debt and income of both partners. This can be useful to prevent creditors from having access to the property of both partners, or to prevent either partner from making claims on the other’s assets.
A cohabitation agreement will also be useful if both or either partner has substantial assets they are bringing into the relationship. They might also want to protect their assets if they have an expectation of a significant raise in income or a financial windfall after the start of the relationship.
This does not mean they are unwilling to share the property with their partner. It only gives them freedom over how they want to treat the property. The same applies if either or both spouses have significant debts going into the relationship.
Another important reason is to avoid the complexity of a court-supervised process. There are many complicated rules that partners may have to rely on for division of marital property if they eventually separate. Rather than take a chance on these rules they barely understand, partners can instead agree on how they want to treat their own property by themselves.
When should you sign a cohabitation agreement?
Just like there’s no rule dictating who can make a cohabitation agreement, there are no rules as to when to make one. Generally speaking, you may sign a cohabitation agreement before your relationship, right at the start, or at any time while it is ongoing.
However, as any professional would advise, it is often best to have a cohabitation agreement in place before or right at the start of the relationship. The reason for this is it can be easier to come to an agreement at this stage than at any other stage in the relationship. If left till later, certain issues may have already come up or there may already be expectations that may make signing an agreement difficult.
While it’s definitely uncomfortable to start talking about the possibility of separation when you are just starting your relationship, there’s no better time than this. In truth, it is an opportunity for both partners to show their commitment to protect each other, even if they are no longer together.
Conclusion
Legal and formal requirements for cohabitation agreements
Although cohabitation agreements are mostly left to the parties involved, there are certain legal requirements for a valid agreement. The first of this is that it must be entirely voluntary. While this sounds obvious, it can be easy to make a mistake here or overlook an important factor that affects voluntariness.
For instance, not having a lawyer present while the other partner has a lawyer may raise questions about whether both partners truly understand and agree to the contract. Therefore, you should ensure that you both have the benefit of independent legal counsel before signing. Other requirements are that:
- The agreement must be in writing
- It must be signed by each partner, and in the presence of a witness. This means there should be two witnesses, one for each partner’s signature;
- It must clearly identify both partners and the nature of their rights and obligations;
- The agreement should only be signed after both parties have fully disclosed their assets, liabilities and circumstances. Absence of full financial disclosure may render the agreement invalid.
There are many other simple formalities you may need to keep in mind. When you speak with a qualified professional about drafting your cohabitation agreement, they will advise you of these and how they apply to your circumstances.
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Ken Maynard CDFA, Acc.FM
I help smart and successful couples, create separation agreements with clarity and soft landings for secure futures, in 4 meetings or less without all the lawyer created overwhelming conflicts, confusion and costs. You can work with me by video conference or with a DTSW associate at any of our 6 DTSW Greater Toronto mediation centers, including | Aurora | Barrie | North York | Vaughan | Mississauga | Scarborough.
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