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Cohabitation agreement can save thousands in future legal fees

Having a conversation with your common-law partner about how assets will be divided in the event of a breakup might be uncomfortable but it’s important, Toronto family lawyer Laura Paris tells Flare magazine.

“When you’re married, there’s very clear legislation as to how assets are divided,” says Paris, an associate with Shulman Law Firm. “In common-law relationships, the law is not so clear.”

In an interview with AdvocateDaily.com, Paris says when a married couple separates, there are clear legislative terms that dictate how property is to be divided, irrespective of ownership or each individual's contributions to an asset. 

“Common-law couples, on the other hand, are not subject to the same legislation, and as a result do not have automatic entitlements to property in which they do not have legal ownership,” she says.

In Ontario, couples are considered common-law after continuous cohabitation of not less than three years, or if the parties have cohabitated in a relationship of permanence and have had a child together, Paris says. “In the latter instance, parties obtain common-law status once a child has been born, irrespective of the length of time they have been living together.”

She tells the legal newswire a cohabitation agreement can cover a range of issues and is specifically tailored to each couple's individual circumstances.

“Some of the more common issues covered in a cohabitation agreement include what happens to a shared property in the event of a separation — whether you’re going to sell or if one person can buy the other out and how much each partner is entitled to,” Paris says. 

“That said, a cohabitation agreement can also deal with more specific details, such as how furniture will be divided, who will cover costs related to repairs/staging/cleaning if the property is to be sold, or how the parties will determine the value of the property at the time of separation,” she says.

A straightforward agreement might see a couple who own a house or condo — where they are both on title, each paid half of the down payment and they share in the associated fees — split the proceeds of sale 50/50.

But for couples who seek to divide assets based on individual contributions, their cohabitation agreements can be more complex and detailed than ones where couples agree for specific assets to be divided 50/50.    

“If you have people coming in with different types of assets, or one person is putting in the down payment but then the other person is going to be contributing solely to the mortgage, that’s where things get more unique and agreements become more creative,” she tells Flare.

In these types of cases, Paris says it’s important for couples to clearly define the terms of their situation in their cohabitation agreement to make sure each party gets out what they put in. “You each want what you’re entitled to,” she says.

In the event you don’t have a cohabitation agreement and you can’t reach an agreement on your own, Paris says you may end up going to court to make what’s called a trust claim.

While there are different types of trust claims, generally speaking, a person may advance one when they believe that they are entitled to a portion of a specific asset (which they do not hold legal title) due to specific contributions made to that property, she says. Contributions can be financial, or they may be by way of labour related to the specific property, or even domestic duties, and must be supported by evidence.

To make a trust claim, Paris says you need to gather evidence to support your position, which can be a costly procedure.

A cohabitation agreement may cost between $2,500 to $5,000, which varies depending on factors including whether or not the couple has already discussed and agreed on the terms, the complexity of each person's individual financial circumstances, and the number of matters they wish to address within the agreement, she says.

However, Paris says getting one can save you several thousand dollars in legal fees in the long run.

She points to situations where a couple started out amicable, but things later become messy and convoluted due to personal issues arising from the breakdown of the relationship which could have been avoided had a proper agreement been in place.

“It’s unfortunate because a lot of people have misconceptions with respect to the law in this regard, and do not recognize the implications of failing to protect yourself before entering into a long-term partnership,” Paris says.

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