Cohabitation agreements provide certainty on property division

By Staff

A properly drafted cohabitation agreement can give couples some certainty over the ownership of property brought into the relationship, says Toronto family lawyer and mediator Patrick J. Aulis.

Aulis, founder of Aulis Law Firm Professional Corporation and North York Mediation, tells that the treatment of property is the most common reason for couples to sign the contracts, often ahead of marriage or moving in together as common-law spouses.

“It doesn’t have to be tied to separation, but more typically, people are concerned about what will happen in the event the relationship doesn’t work out,” he says.

The most valuable piece of property many people will ever own is their home, which is why real estate is often a central feature of cohabitation agreements.

“If you’re in a situation where one party has worked hard to acquire a house or a condo, and a new partner is moving in, either as a common-law partner, or with a view to marriage down the road, the individual may want to make sure they don’t have to share the value of that asset if the relationship doesn’t work out,” Aulis says.

For couples who remain common-law, he says the agreements can be drafted to bar one spouse from making a constructive trust claim on the value of the property due to their mortgage or property tax contributions in relation to the home.

Aulis says people who run their own business may also use a cohabitation agreement to draw clear lines around their corporate assets.

“You may want to hive off the business interest altogether to minimize the risk of losing control,” he says.

In addition, pension assets often feature in agreements, particularly when marriage is a strong possibility at a later stage.

“Pension assets can be protected so that the plan’s accumulation doesn’t become subject to a claim by the outgoing spouse,” Aulis explains.

When there is a large disparity between the earnings of the individuals in a relationship, Aulis says a cohabitation agreement can feature spousal support provisions, governing the circumstances under which any payment will be due.

“Often there is an agreement that there won’t be any entitlement to claim for spousal support, but it could also provide some mechanism for determining a right,” he says.

On the flip side of property division, Aulis says cohabitation agreements can also be used to determine responsibility for debts during or after the relationship.

Partners can also use the contracts as part of an estate plan, to commit both spouses to joint decisions over the treatment of their assets after death.

“Couples may do wills leaving everything to each other, but there’s nothing to prevent one from making a change unbeknownst to the other, as long as they have the requisite mental capacity,” Aulis says. “A cohabitation agreement can be used to tie someone in contractually to the estate plan that was agreed on. Conversely, it can be used to have a party waive any statutory rights they may have against an estate.”

While litigation can sometimes ensue over the contracts, Aulis says frank financial disclosure and independent legal advice for both parties are the keys to an enforceable cohabitation agreement.

“When agreements are set aside, it tends to be on the basis that there was a lack of independent legal advice, or what I would characterize as insufficient financial disclosure, especially if it leads to a result that seems unfair,” he says.

Still, Aulis says that his clients are sometimes wary about handing over information about all of their assets in what can often seem like the early days of a relationship.

“Some people see it as too much fuss or as having the potential to cause a problem,” he says. “I warn them that not doing so could result in the agreement being set aside. If that were to happen, you can get some unexpected results in the way the court decides how the property should be divided at the end of the relationship.”

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