Article written by Jackie Porter
With the cost of housing at an all-time high, it's no wonder more couples are choosing to move in together. Average rental costs across Canada have jumped over 10 percent year to date, and over 15 percent in Ontario. Considering this information, you can understand why some couples might feel the pressure to share costs sooner rather than later.
The housing pinch is not just contained to the rental market. The cost of real estate is also rising with an increase of at least 60 percent in Canada since 2020 and 111 percent in Ontario. That being said, you can say that joining forces in the name of love has never looked more attractive.
Before taking the plunge, however, it's important to understand the financial implications of moving in with your partner. Specifically, you need to consider what it will look like if things don’t work out. Remember, moving in together means sharing more than just the bills. You will also be committing to sharing other assets. In order to protect yourself and your family, consider getting a prenuptial or cohabitation agreement. Read on to learn more about how they work, important differences, and how to choose the right one for your situation.
What is a Cohabitation Agreement?
If you are unmarried and planning to move in with your partner, a cohabitation agreement might be a good idea. This is a document that outlines the rights and protections common law couples have available to them based on assets they brought into the relationship. The cohabitation agreement can be signed before or after you move in together. The agreement should also detail entitlements to spousal support should the relationship end, and the rights your partner would have to property in the event you were to pass away.
What is my partner legally entitled to without a Cohabitation Agreement if we move in together?
Without a cohabitation agreement, a common law partner may not have claim on assets brought into the relationship. For example, you may find you are not legally entitled to property, such as your home, unless you can prove you contributed to it. This may be tricky if you simply shared expenses in the relationship and did not contribute directly to the property or purchase the asset jointly with your partner.
Another consideration that may come into play is where there is a significant income difference between you and your partner. This can have major financial implications if the relationship does not work out. For example, would you or your partner experience serious hardship finding a place to rent on your own? Would either of you have claim for support in this case? Remember, in Ontario, common law couples have the same rights to spousal support as married couples so long as they have been living together for 3 years or have a child together.
A cohabitation agreement can protect you against any of the above concerns.
What is a Prenuptial Agreement?
If you plan to marry, a pre-nuptial agreement might be right for you. This is a document that you and your partner voluntarily sign that outlines the assets you and your spouse will be entitled to if the relationship ends or either partner passes away. The prenup also outlines any spousal support your partner would be entitled to should the partnership end in divorce.
What is a Post Nuptial Agreement?
If you got caught up in the excitement of your big day and did not get around to discussing money, the good news is, there is still time. The post- nup is a similar agreement to the pre-nup, except in this case it is signed after your marriage.
What is my partner legally entitled to without a prenup?
It's important for you to know that a marriage offers protections under the law for spouses. These include legal rights to real estate and other assets you brought into the marriage. Your partner would also have legal protections for spousal support and rights to your assets upon death. This means, as of the date of the marriage, your partner would be entitled to 50 percent of any future equity built up in any real estate or other asset purchased or owned as of the date of marriage.
The question you may be asking yourself is whether 50 percent is your intention. Maybe you have other heirs from a previous relationship you need to consider. What percentage would be a fair number for your heirs to receive from your estate now that you're married? Additionally, what does your partner expect in terms of financial well-being in case things don't work out? A prenup can help answer these questions.
Planning ahead of time is important. Document what each partner will be entitled to from a financial perspective based on assets brought into the relationship. Being prepared may help alleviate problems later if the relationship doesn't work out or either spouse passes away.
Start by having a money conversation with your partner where you both discuss your expectations. Working out the details may not be a pleasant conversation. It may even be a bit uncomfortable. But this is an important step to ensure both you and your partner are protected. If you need help having this conversation and drafting the appropriate agreement, reach out to our team and we would be happy to help.