Common Law Relationships and Property Rights
In today’s modern society, more and more couples are choosing to live together before getting married. Many couples are choosing not to get married at all, but instead are happy living together permanently without feeling the need to “tie the knot”. Perhaps you are part of one of these couples, or perhaps you know someone else who is. While most people don’t want to think about splitting up with their other (possibly better) half, it is perfectly normal to wonder what rights each partner has in a common law relationship. For instance, if they own a house together, how would it be divided in the event of a separation? Would it be the same as if they were married?
In Ontario, couples who have been cohabitating in the same residence for a period of three years or longer are considered to be common law spouses (if the couple has a child together, the cohabitation time requirement is lessened).
Now, many people believe that being in a common law relationship affords the parties the same rights on separation as married couples. This belief is a misconception. In fact, if you are not legally married, and you have been living with your partner for more than three years, you may be entitled to less than you think upon a separation.
When a married couple separates, the wealth they have accumulated over the course of their marriage is divided and shared. This is called an “equalization of net family property” under Section 5 of the Ontario’s Family Law Act. While it is true that common law partners can request spousal support after a separation, unmarried cohabitants are NOT entitled to an equalization of net family property.
An example of this was seen in the recent Ontario Superior Court case of G.M.C. v. A.M.F. of 2018. In this case, an unmarried couple purchased a house together. GMC contributed $116,000 towards the purchase of the house, and AMF contributed only $5,000. The purchase price of the house was $570,000 in July of 2014. When the couple split up in 2016, the house sold for $652,000.
The house was jointly owned by both GMC and AMF. AMF argued that one-half of the proceeds of the sale were rightfully hers. GMC disagreed, arguing that AMF held one half of the property in trust for him. The court in this case explicitly stated that the provisions of the Family Law Act do not apply, since the couple was not married. The Court ultimately ruled that AMF held her share of the house in trust for GMC, and that each party was to receive its original investment back ($116,000 returned to GMC, $5,000 returned to AMF). The parties agreed that the increase in the value of the property would be shared equally.
AMF appealed the Court’s decision, and her appeal was heard on February 4, 2019. Her appeal was quickly dismissed and she was required to pay costs to GMC in the amount of $12,500.
If this couple had been married, there would have been an equalization of net family property, and the outcome would have been very different, with each party getting a relatively equal share.
That being said, just because two people are not legally married, it does not mean that a separation has to lead to a Wild West style free-for-all scramble for property. It is important that each partner knows that there are ways to protect their own interests. For instance, the parties can choose to sign a cohabitation agreement, which is a contract that provides a road map in the event of a separation, similar to a prenuptial agreement for married couples.
So if you are currently living with your partner, but a walk down the aisle isn’t on the horizon, it may be a good idea to think about how your property may (or may not) be divided in the event of a separation. It is never a bad idea to have a plan for your future, no matter what it holds, even if that means having an awkward conversation about the division of assets with your partner. Maybe it will even lead to putting a cohabitation agreement down on paper for some peace of mind.
If wedding bells are not in the cards for one reason or another, it does not hurt to be prepared by understanding how Ontario courts view unmarried couples, and plan accordingly.