A Prenup: Why You Should Consider One
The dissolution of a relationship is never an easy thing. Breakups bring disagreements, and when those disagreements involve the division of property, debt, and spousal support, things can get messy quickly. One of the best ways to reduce conflict on separation is to enter into a prenup, more commonly referred to as a cohabitation agreement.
Married couples who go to court are entitled to ask for orders under the Family Law Act, which outlines each person’s rights and responsibilities at law. Does the Family Law Act apply to non-married couples? And if it does, does that mean I should get a cohabitation agreement?
It’s important to understand a bit about the law before talking about the possible need for a cohabitation agreement. Unmarried couples sometimes have what some people refer to as a “common-law relationship”, but that isn’t a term found in the Family Law Act. The term used is ‘spouse’. Unmarried couples obtain the title of "spouse", and all of that titles responsibilities under the Family Law Act if:
1. They have lived together in a marriage-like relationship for two years; or
2. They have a child together.
Under the Family Law Act if you meet the definition of a spouse, then you have exactly the same rights and obligations as a married spouse. This is important, as this means that if the relationship dissolves, your spouse could acquire an interest in:
– Any company, business, partnership, or venture you own or come to own;
– Money in your bank accounts, savings, pensions, and RRSPs; and
– The growth in the value of property you bring into the relationship.
It’s also important to understand that when a “marriage-like relationship” starts is ambiguous and can be hotly debated. The court has held that it must take a broad view of what a “marriage-like relationship” is to reflect the diversity of relationships that exist. For example, parties can continue to “live together in a marriage-like relationship” even though they do not actually reside under the same roof. This means that while you may not think you are in a marriage like-relationship, that does not mean that you are not in a marriage-like relationship for the purposes of the Family Law Act. In other words, when the two year time period starts to run is debateable, and you may find yourself a spouse, who is entitled to an interest in your property and businesses, sooner than you may have thought.
The bottom line: If you have made the decision to move in with your partner, or are already living with your partner, you may want to consider a cohabitation agreement.
People who enter into a cohabitation agreement generally want to protect the property that they bring into the relationship, and avoid the rules for dividing property that apply under the Family Law Act. Generally, people seek an "I keep what is mine, you keep what is yours" arrangement, which can be accomplished with a cohabitation agreement. JP Boyd on Family Law suggests that such an agreement is generally appropriate when:
– the relationship is expected to be at least two years;
– one or both parties have significant debts or assets going into the relationship;
– one of the parties has significantly more income than the other; or
– one or both parties are bringing a child into the relationship.
If you’re considering a cohabitation agreement, it is well worth your while to retain a lawyer to draw it up correctly for you, as it can avoid considerable expense down the road if the agreement is not binding.
The reality is that people don’t enter relationships thinking they are going to fail, but putting an agreement in place beforehand can be extremely helpful if your personal fairy tale doesn’t turn out to have a happy ending. It’s usually best to make negotiate the terms of an agreement when you and your partner are on agreeable terms.