Cohabitation and Prenuptial Agreements

If you’ve recently moved in with your significant other, or are planning to, you’re entering a high-stakes game. Things could go well, and the cohabitation arrangement could blossom into a long-term relationship or even marriage. But if things don’t work out, breakups can be very messy. A cohabitation or prenuptial agreement could be a very useful document for many common-law couples. Without such an agreement in place, couples who break up after living together could find their property subject to the very same rules of division that apply in divorce cases in British Columbia.

The primary reason for asking for a prenup has traditionally been to ensure the financial stability of the significantly well-off member of the marital partnership. But many couples are now choosing to have a prenup in place, even when their incomes, debts and property are almost equal when they start out together.

Most couples can’t even imagine things could end in a bitter dispute when they move in with someone they love. As they hold hands, look into each others’ eyes and imagine their incredible new life together, a future breakup is the last thing on their minds.

Breakups can be stressful enough, without the burden of discussing the division of property, debts, alimony and child support with emotions running high. People who feel deeply hurt, afraid or resentful can behave very differently from the way they have acted in calmer circumstances.
Sadly, as relationships unravel, people often discover an entirely new side of the person they once felt so close to.

Each person brought things into the home that they shared while living together. Arguments may erupt over who brought what, or who needs an item the most. Joint purchases can be particularly tricky; especially the division of larger purchases like a vehicle or real estate. As disputes escalate, the objectives can shift from what they need, want or feel entitled to, to spite and depriving their former partner of something that means a lot.

Having the foresight to obtain legal advice, and having a cohabitation agreement drawn up before moving in together or marriage can make separations a lot easier.

What is a Cohabitation Agreement?

A cohabitation agreement is a legally binding contract signed by two people who are planning to move into the same home, or who live together. Cohabs, as these agreements are often called, outline how things will be divided if the relationship were to end.

Some of the things that may be included in a cohabitation agreement are:

• who owns what
• how much money each person will be putting into the running of the household
• how credit cards will be dealt with
• how disagreements will be resolved
• who will keep the dog or cat
• who retains ownership of property acquired before the cohabitation relationship began
• who retains the ownership of property purchased together
• how debts will be divided
• how inheritance will be divided if families are being combined
• whether there will be spousal support in the event of a breakup

In British Columbia, the terms of cohabitation agreements must be deemed fair, and cannot infringe upon individual freedoms; but beyond that can include a wide range of terms. Cohabitation agreements can not outline how people must act within the relationship. They also cannot state parenting responsibilities or specify child support for children who have not been born.

Under British Columbian law, cohabitation agreements are deemed to be the very same as marriage agreements, and they hold the same power. Only the naming is different. They can apply to married couples, partners in common-law relationships and people living together.

When is a Cohabitation Agreement Advisable or Needed?

By having a cohab, you are resolving in advance what will happen to the property should the relationship break down. In the event of a breakup, everything should be resolved more quickly, with less cost and stress. Both parties could move on with their lives sooner.

How people deal with stress, their personal histories, perceptions and fears are big factors in deciding to prepare a cohabitation agreement. Some couples will feel more secure in the relationship, knowing the details for dividing their property have already been taken care of, should the relationship come to an end. Their time together can be more carefree, because there’s nothing left to fight about; it’s spelled out in black and white.

For other couples, a cohab feels like a self-fulfilling prophecy, a planned future breakup. One or both parties may feel they have become actors in a tragedy, waiting for that sad prophecy to unfold in the script. This perception could be the source of great stress; a dark cloud hovering over their entire relationship.

The perfect solution for one couple may be all wrong for another. There is no one-size-fits-all solution, and open communication is important.

What Happens if You Don’t Have a Cohab?

In British Columbia, the Family Law Act governs who gets what when a couple doesn’t have a cohabitation agreement and a dispute ensues. According to the act, property and debt is divided equally between both parties. It is the responsibility of each party to submit evidence that proves what they brought into the relationship.

There can be a vast difference between a settlement that best provides each person with what they value most, versus a settlement based upon a division of property and debt, based upon monetary value. The best time to have these conversations is of course when both parties are on good terms.

An increasingly popular option is using an online template. The websites offering these templates appear to save time and money. However, there are many precedents of couples who entrusted their property and debt to these online templates, only to discover they held no legal value. In such cases, the division of assets and debt was governed by the Family Law Act, just as it would have been if no agreement existed.

What Happens if Circumstances Change?

Cohabitation agreements should be viewed as living documents. Mortgage terms are typically renewed every five years because rates, careers and family circumstances change. In the same way, cohabitation agreements should be reviewed at regular intervals to keep them current and to confirm that they are still doing what they were designed to do.

It makes sense to review the agreement every five years, or after any significant event, such as a marriage, birth of a child, receiving a large sum of money or property in inheritance. A review clause can be included in the document itself, triggered by one of the specified events or a time interval.

What is a Marriage or Prenuptial Agreement?

The property section in the Family Relations Act of British Columbia recognizes that marriage is an equal partnership between spouses. Under section 56, each spouse is entitled to one-half of the family assets. According to this provision, household management, child-care and financial provisions are the joint responsibility of the spouses. The rules governing the disposition of property in the event of marriage breakdown seek to ensure that all contributions are recognized and that economic wealth is shared equally.

The statutory regime set forth may be altered, however, if the parties to a marriage agree to specific terms. The requirement of equal division is subject to the existence of a marriage agreement. Also known as a domestic contract, prenuptial agreement or prenup, a marriage agreement is a contract that summarizes each person’s obligations to the other. The purpose of a marriage agreement is to avoid the statutory obligations outlined in the Family Relations Act. Generally, these contracts deal with financial issues and allow the parties to make their own arrangements for how property will be divided.

A Cohabitation or Prenuptial Agreement Must be Fair if it is to Hold Up

The authorities will generally stand by the courts in upholding private arrangements between spouses for the division of their property if the marriage breaks down. They may however intervene if the arrangement is determined unfair. British Columbia uses a standard of fairness with a lower threshold for judicial intervention than the other provinces in Canada.

The Family Relations Act maintains that property should be divided as provided by an agreement unless it would be unfair. The court may determine that the apportionment is unfair, based upon one or several factors. If it’s determined to be unfair, the property may be divided into shares fixed by the Court.

Here are some of the factors the Court will consider:

• the individual needs of each spouse
• the duration of the marriage
• the duration of the period of time the couple lived separate and apart
• the date when the property in question was acquired or disposed of
• whether the property in question was an inheritance or gift specifically to one party
• if the agreement exploited a spouse’s emotional or psychological vulnerability
• influence was used over a spouse through dominance and oppression
• there was a history of emotional, physical or financial abuse
• or there was significant control over family finances
• the partner took advantage of a spouse who did not understand the nature or consequences of the agreement
• one spouse had a lawyer to give them independent legal counsel while the other did not
• access was prevented, or there were unreasonable restrictions over the release of financial information
• the financial circumstances of the parties changed significantly due to a considerable length of time passing since the agreement
• one spouse becomes sick or disabled after the signing of the agreement
• one spouse becomes responsible for the children of the relationship

When is a Prenuptial Agreement Advisable or Needed?

Considering and looking into a marriage agreement can be very educational, whether you proceed or not. Knowing how property and debt are divided up when the court is likely to award spousal support, and understanding unique challenges that can surface when there’s a large difference between incomes can be invaluable financial planning advice. A prenup can provide clarity in understanding who owns what if the marriage doesn’t go the distance.

As with the cohab version of the marriage agreement, a prenup can provide some peace of mind. Very few people enter into marriage believing divorce is inevitable. A prenuptial agreement is like the insurance policy you hold on your home or automobile. It’s there in the event it’s ever needed. A well-written agreement should make your divorce case easier if the marriage breaks down. As with investing in insurance, drafting a prenup agreement demonstrates you are responsible and realistic.

A prenup can protect you from being burdened by your spouse’s pre-existing debts, alimony and child support. Divorce can ruin your credit and financial stability, and your ability to start over fresh. The division of debt could be as important to your future as the division of property.

A prenup should assure both parties of receiving a fair settlement, prepared by two people who love each other and are planning to spend the rest of their lives together. It’s the very best time to put provisions in place to make the end of the relationship as painless as possible, just in case.

Are Prenuptial Agreements Enforced in British Columbia?

To make sure a marriage agreement is enforceable, it must be signed by both parties, with at least one witness. If signed after the marriage, it will take effect immediately. If the agreement is reasonably fair, and both spouses received independent legal advice, it will likely be upheld in a court of law. However, if you sign an agreement, knowing it is unfair, with the expectation a court will not uphold it, there is little chance you will be successful.

It is possible to include provisions with regards to children in a prenuptial agreement, but courts will always review them upon marriage breakdown.

Can You Change or Cancel a Cohab or Prenup?

You can always change or cancel your agreement, so long as both parties agree and the changes are signed, with a witness.

How Much Does it Cost to Draft a Cohabitation Agreement or Prenuptial Agreement?

Pax Law’s Amir Ghorbani currently charges $2500 + applicable taxes for the drafting and execution of a cohabitation agreement.

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Resources

Family Relations Act, RSBC 1996, c 128, s. 56