Navigating Property and Debt Division for Unmarried Couples in Ontario
In recent years, more couples have been opting to live together without the legal formalities of marriage. People often choose this lifestyle due to personal beliefs, financial reasons, or a desire for flexibility. However, when unmarried couples part ways, they are often faced with the legal hurdles of property division. This is especially true if there is no cohabitation agreement to clarify how assets and debts will be treated upon separation.
Legal Framework for Property Division for Unmarried Couples
In Ontario, the Family Law Act (FLA) does not afford unmarried couples the same property division rights as married couples. While married couples can pursue an equalization of net family properties under the FLA, these provisions do not extend to unmarried couples. For married couples, any increase in the property’s value acquired during marriage or brought into it is shared equally, provided the property still exists at the time of separation. Part II of the FLA, concerning the matrimonial home, also excludes unmarried couples. Married couples have equal rights to possess the matrimonial home. Without a legal agreement, such as a cohabitation agreement, unmarried couples lack statutory rights to the family home unless they hold legal title or make property claims through common law or equitable principles, such as unjust enrichment or resulting trust claims.
For unmarried couples, the general rule is that each partner retains ownership of the assets brought into or acquired during the relationship, while jointly acquired assets are generally equally divided. Debts are treated similarly; each individual is responsible for their personal debt unless it is a shared debt.
In certain cases, property may not be easily divided, and its value must be distributed instead. For example, with a jointly owned vehicle, couples should determine its fair market value and decide whether one partner will buy out the other’s share or they will sell the vehicle and split the proceeds.
Legal Remedies for Claiming Property and Assets
As previously highlighted, when unmarried couples decide to part ways, they do not automatically share equal rights to each other’s property and assets acquired during their relationship. However, they may still have claims for property distribution through the equitable doctrines of resulting trust and unjust enrichment.
A resulting trust claim provides a legal remedy for a common-law partner whose name is not on the property title even though both partners made financial contributions to the property. This claim ensures that a partner that contributed to the asset isn’t left empty-handed. For example, if you and your common-law partner purchase a house solely in your partner’s name, despite you covering the down payment and both of you contributing to mortgage payments, you can file a resulting trust claim if your partner refuses to share the property post-relationship. The court must determine that you intended for your partner to hold the property “in trust” for you rather than your contributions being a gift to them.
A common-law partner can also consider pursuing an unjust enrichment claim for property division during separation. This claim arises when it would be inequitable for a partner to leave the relationship with all the property benefits when they have unfairly gained at the other’s expense. To make this claim, three elements must be demonstrated:
- You contributed to the property (financially or through labour).
- The other party benefited from your contributions, resulting in a corresponding loss to you.
- There is no legal reason for this enrichment.
For instance, let’s say you significantly contributed to renovating a house that is solely in your partner’s name. You provided both financial support and labour, increasing the property’s value. Consequently, your partner benefited from your efforts, while you suffered a loss since you do not have ownership rights. There is no legal reason for your partner to retain the full benefit of the enrichment.
Although these legal remedies are available for common-law couples when dealing with property division, they are often difficult to prove.
Division of Pension Credits
Unlike married couples, common-law partners do not automatically have the right to share each other’s pensions. When they separate, the pension plan member typically keeps the entire pension value unless there is a specific agreement in place. Common-law partners can only share in the value of a pension if:
- There is a pre-existing agreement in place, such as a cohabitation agreement.
- There is a court order or arbitration award that specifies that the pension is to be shared.
Such orders or awards are uncommon because common-law partners do not have automatic property-sharing rights. They are usually granted in cases where one partner makes an unjust enrichment claim or a resulting trust claim.
Common-law partners, however, can share the Canada Pension Plan (CPP) contributions they made during the time they cohabited together. This type of pension is different from the pension plans that may be provided by employers. The CPP credits are earned as your work. It is a pension that most workers and employers contribute to. To claim these CPP credits, you must have lived with your partner for at least 12 consecutive months. The CPP credits are divided between you and your partner for the years you lived together.
To claim these credits, you must apply directly with Service Canada to have the CPP contributions accumulated during the period of cohabitation divided between you and your partner. The application can only be made one year after separation and must be submitted within four years of your date of separation. You do not need your partner’s permission to receive the credit split as long as you lived together for the required period.
Importance of Having a Cohabitation Agreement
When starting a relationship, common-law couples should consider drafting a cohabitation agreement. This agreement serves as a written contract for partners living together or planning to without immediate plans to marry. It can help clarify how assets and debts will be handled during the relationship, after it ends, or even in the event of a partner’s death. If the couple decides to marry, the agreement becomes a marriage contract (commonly referred to as a prenuptial agreement) by default unless specified otherwise.
A well-drafted cohabitation agreement offers several benefits:
- It provides clarity by defining your relationship status, rights and responsibilities.
- It helps prevent future disputes by establishing mutually agreed-upon directions and expectations for property and family law matters.
- It lets you draft family law clauses tailored to your family’s specific needs.
- It empowers you to maintain control over your intimate affairs, avoiding court-imposed decisions, should the relationship end.
- It streamlines any subsequent legal proceedings should you decide to separate, such as resolving matters related to jointly held property, thus saving additional stress, legal fees and time spent in court.
Overall, a cohabitation agreement offers a structured framework for addressing future changes, allowing partners to handle their personal affairs according to their unique preferences.
There’s no universal checklist for drafting a cohabitation agreement; it should always reflect the partner’s goals. Typically, cohabitation agreements cover property rights and spousal support expectations. However, certain family law issues, such as parenting time arrangements and decision-making responsibilities for shared children, cannot be included. These matters are resolved based on the children’s best interests at the time of separation, considering the current circumstances and each parent’s ability to support the children’s well-being.
Essentially, a cohabitation agreement is a proactive tool that addresses family law matters related to the rights and obligations of the parties if the relationship ends. In such instances, these agreements often act as separation agreements, protecting the partner’s assets should they separate in the future and thus avoiding added stress, legal fees and time spent in court.
Separation Agreements for Unmarried Couples
When common-law partners don’t have a cohabitation agreement to guide property division during separation, they may choose to draft a separation agreement. This written contract addresses family law matters upon separation, specifying each partner’s rights and responsibilities and covering areas like property division, debts, spousal support, and, when applicable, child support, parenting time, and decision-making responsibilities.
While unmarried couples can part ways without the formal legal procedures required for married couples, such as divorce, the process can still be complex, especially if they’ve lived together for a long time, have children, or share assets. In these situations, a separation agreement can be highly beneficial. It offers many of the same advantages as a cohabitation agreement, including clarifying the parties’ relationship status and delineating their rights and responsibilities. This empowers common-law partners to maintain control over personal matters, avoid court-imposed decisions, and streamline any subsequent legal proceedings, such as resolving matters related to jointly held property, thus saving stress, legal fees and time spent in court.
Overall, a separation agreement helps establish a cooperative post-separation relationship. It lays the groundwork for common-law partners to independently manage their affairs without court-imposed decisions.
Conclusion: Take Control of Your Future
Ending a relationship, whether you are married or unmarried, can be stressful, especially when confronted with critical decisions like property division. However, understanding your rights concerning property division as an unmarried couple can bring clarity and objectivity to the process. This knowledge helps you navigate the legal complexities of property division more smoothly if your relationship dissolves.
If you are planning to cohabit or are already living together and wish to ensure fair property division should your relationship end, consider our Cohabitation Agreement Template. Alternatively, if you are in the process of separating and want to embark on the next chapter of your life with a solid foundation and clear understanding of your rights and obligations, consider our Separation Agreement (Unmarried Couples) Template. Both templates address several important family law matters to help safeguard your rights.
Don’t leave important decisions to chance—explore our templates today to take the first step toward a secure future.
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