In my last blog, I wrote about the how the “boomer generation” is getting older and that we are seeing the largest transfer of wealth in history. I focused that blog on transfers of property between married spouses, and between parents and children, for tax purposes, for business purposes, for inheritance purposes, or simply for natural love and affection. But in my last blog, I raised an issue that I wanted to “flush out” in a separate blog. Do the same property law rules apply if the spouses are common, and not married? The simple answer is “no.” Current Ontario law does not provide non-married spouses with same legal rights and protections as are afforded married spouses. The courts have recognized that people who decide to live in a common law relationship have done so with the express intent to alleviate themselves of the same rights and responsibilities as married spouses.
So, does that mean that common law spouses have no property rights? Once again, the simple answer should be “no.” But it is not as simple as that. It really does depend on what went on in the relationship – the roles taken (and not taken), the sacrifices made (and not made), the investments made (and not made), and the decisions made (and not made).
I want to focus this blog on the property issues that common law couples face. In my experience, it is one of the greatest misunderstandings that parties have when they decide to not legally marry – many people believe that current Canadian law will protect them as if they were married. That is the case for spousal support considerations, but not for property considerations.
As with all my blogs, this is not a complete primer to the issues raised in the blog, but rather, it is to draw your attention to potentially troublesome and unintended situations that come when common law couples breakup. Once again, as I said in my last blog, I would like people to plan carefully, think ahead and be proactive, rather than be financially compromised and reactive. I truly hate being the bearer of bad news to common law clients who thought their years of being together afforded them something, only to find out (too late) that they may be entitled to nothing.
Property Law in Ontario for Married vs. Common Law Spouses
As I referenced above, married parties who later separate can avail themselves of the property rights as set out in Parts 1 and 2 of the Family Law Act, which defines spouses as “married spouses,” whether they are a same sex or an opposite sex couple. Such rights include, but are not limited to:
- Ability to seek an equalization of net family property values
- Ability to deal with matrimonial property
- Ability to seek ownership rights to property (even if the property is the other spouse’s name)
- Ability to address pension plan assets
- Ability to claim exclusive possession of the matrimonial home
Common law spouses do not have these same rights, and it does not matter how long they have lived together, or what role they took, or what they gave up, in the common law relationship. As already mentioned, under Part 3 of the Family Law Act, a common law spouse can make claims for child and spousal support, as the definition of spouse is expanded to include both married and common law spouses.
So, what’s a common spouse to do about this? What options or solutions do they have available to them? I have listed several options/solutions that people should avail themselves if they plan to be in, or are in, a common law relationship.
Get Proper Legal Advice
It is important for people who decide to live together to discuss, in advance, what their rights are upon separation, and what they aren’t. It is crucial to get proper legal advice, from an experienced family law lawyer, rather than rely on incorrect, misguided, or dated legal advice that one can easily find online or on social media.
I also often hear that some people get family law advice from their real estate lawyer, or their neighbour who is a wills and estate lawyer, or their family member who went through a divorce years ago. Like medicine, the practice of law has specialty fields, and family law is one of them. And it is best to find a lawyer who has current and significant experience in family law. Ignorance of the law will not be a defence years later on, when you find out that you are entitled to little, if anything, and your former common law spouse is now with a new partner.
Get a Cohabitation Agreement
Some people decide that they want to have a cohabitation agreement, to set out clearly what will happen to their property interests upon separation. I am a big fan of such proactive steps, and the cost to do so is relatively cheap (compared to the cost to go after your common law spouse later on in court). It’s like an insurance policy. You hope to never rely on it, but you will be glad that you have it, in case you need it later on.
To have a valid cohabitation agreement, there are some “must haves.” These are:
- it must comply with the law of contracts (offer, acceptance, consideration, etc.)
- it must be written
- it must be clear as to the rights and responsibilities of the parties upon separation
- it must be signed by both parties
- it must indicate when each party signed it (dated)
- it must not be signed under duress, coercion, threats or promises not otherwise stated
There are also some “should haves” that will make attempts to set it aside later on difficult to do:
- it should be witnessed
- it should include reference to the parties having exchanged proper financial disclosure
- it should provide for each party having independent legal advice (ILA), or in the alternative, a written declaration by one or both of the parties that they were given the opportunity to get ILA, but are waiving same
I often see clients prepare and sign a “make-your-own-agreement” that they downloaded from the internet, or they have cut/pasted from other sources. As with any “do it yourself” remedy, you do so at your own risk. I tell prospective clients who are reluctant to spend the money to draft a proper cohabitation agreement that they can spend a little now, or risk spending it all later on.
Get on Title Now
One of the greatest problems with common law couples surrounds ownership of the home, the cottage, or other real property interests. This one is very simple – the person on title owns the property, as the Statute of Frauds requires any transactions involving real property to be in writing. In Ontario, we have a Registry/Land Titles System that publicly records all real property ownership for anyone to see (for a fee, of course).
As mentioned earlier, there is a false idea by some people that if they live together in a common law relationship for three years or more, they are then automatically entitled to an ownership interest in the other partner’s real estate assets. This is 100% incorrect. The “three years” issue helps define whether someone meets the definition of a “common law spouse” for support purposes under the Family Law Act. It does nothing to establish that one common law partner has an ownership right in the other common law partner’s real estate interests.
We also see, but to a lesser extent, squabbles between former common law partners over other property that is not real estate, such as bank accounts, financial investments, pensions, and other personal property (such as vehicles, furniture, computers, electronics, and jewelry). Once again, the common law partner whose name is on record with having purchased or holding the asset is presumptively the owner of that asset. A sole bank account does not become a joint account simply because one is in a common law relationship. Same goes with a car, truck, boat or motorcycle that is registered solely in the name of one common law partner. I say “presumptively” because there is the possibility that an asset was purchased by one common spouse and then it being gifted to the other common law spouse. In such a case, the other common law spouse is now considered the owner of the asset.
As a brief aside, of late, family lawyers have seen an increase in disputes from common law couples about their pets. As of the writing of this blog, pets are “property” and are subject to ownership laws as other assets. Thus, as common law couples do not have the same rights of ownership as married spouses, they cannot avail themselves of the Family Court to address who owns the pet; rather, they must proceed to Small Claims Court.
So, what I tell common law clients before they have separated, or even before they have become a common law spouse, is that if they want an ownership interest in a major asset belonging to the other common law spouse, they must insist that there is documentation to clarify whether the asset is solely or jointly owned, or that there will be a gradual ownership stake created (and documented) if certain steps are taken.
As you can imagine, this advice, when presented to the common law spouse who currently owns the asset alone, does not usually go over well with them. “What’s mine is mine” is the typical response, which then begs me to advise the client that they need to understand the legal realities of their common law relationship, both now and upon separation. Sadly, more often than not, such clients will ignore the obvious “red flag” and defer to the other spouse and concede that they have no ownership interest in the other assets – current or future – only to come back years later, when the relationship sours, to try and make their claim for an interest at that time.
As a cautionary tell, I tell clients that under no circumstance should they accept the verbal promise of their common law spouse that they will “do right by them” if the unthinkable happens and they split up later. With marriages, there is a 50% divorce rate, and the rate of separation amongst common law couples is higher, as it is seen by some as “less of a commitment.” Thus, I warn potential common law clients – those who seek my advice in advance of starting the relationship – that if the issues of possession and ownership of assets are thorny ones now, when they are at the beginning of their relationship, presumably in love, with hope of a committed
future together, these issues will become quite hostile and costly for them when they are at the end of the relationship, presumably filled with bitterness, contempt and disdain for one another.
Claim for Unjust Enrichment (Constructive Trust Interest)
After a common law relationship has ended, one common law partner can make a claim against the other common law partner’s family home, cottage, or other real property, if they can establish that the other partner would be “unjustly enriched” if they were allowed to keep 100% ownership of the property. To successfully prove unjust enrichment, the common spouse making the claim to such an interest must satisfy three elements:
- an enrichment (i.e., a benefit) to the other common law spouse;
- a corresponding deprivation (i.e., a detriment) to the claiming common law spouse; and,
- the absence of a juristic reason for the enrichment (i.e., there is no reason in law or justice for the other common law spouse to retain the benefit).
Step #1
There is no one definition of what constitutes a benefit, but it can be a direct or indirect benefit. As set out in the Ministry of Attorney General’s website “Steps to Justice,” examples of a direct benefit include:
- The claiming common law spouse paid for a new roof on a house owned by their partner
- The claiming common law spouse built a deck on a house owned by their partner
- The claiming common law spouse managed all the bookkeeping for their partner’s business
As well, on the same site, examples of an indirect benefit include:
- The claiming common law spouse cared for the children and home which allowed their partner to spend time and money growing their business
- The claiming common law spouse paid all the household bills and their partner put all their money into savings
Step #2
Similarly, here is no one definition of what constitutes deprivation. However, using the examples above, the claiming common law spouse would need to show:
- The claiming common law spouse will not be compensated for having paid for a new roof on a house owned by their partner
- The claiming common law spouse will not be compensated for having built a deck on a house owned by their partner
- The claiming common law spouse will not be compensated for having managed all the bookkeeping for their partner’s business
- The claiming common law spouse will not be compensated for having cared for the children and home which allowed their partner to spend time and money growing their business
- The claiming common law spouse will not be compensated for having paid all the household bills which allowed their partner putting all their money into savings
Step #3
This one is usually the tricky one. The claiming common spouse must first establish that the monies spent, or the efforts made, or both, were not done:
- solely out of natural love and affection (with no intention of being compensated
- as a gift to the other spouse
- as an agreement or promise to the other spouse
If the claiming common spouse can satisfy a court that there is no legal basis for the other spouse to benefit and corresponding deprivation, that other spouse then has the opportunity to “rebut this presumption” and prove that there was legal basis for the benefit and corresponding deprivation.
All three elements of the trust must be met for the claiming spouse to succeed. Otherwise, their position will fail and they get nothing. Even if the claiming spouse succeeds, the issue then becomes placing a value on the unjust enrichment. For example, let’s look at the first scenario of the claiming common law spouse having paid for a new roof on the other spouse’s home. If the first spouse paid $25,000.00 for a new roof 5 or 6 years ago, that souse is not necessarily entitled to one-half of the equity in the same home. The court would want to know what value was brought to the home by the claiming common law spouse’s contribution. It might be limited to $25,000.00, or more likely, it will be $25,000.00 plus some accrued increase in value to the home as a result of the new roof.
If the claiming spouse can establish that there cannot be a monetary award – e.g., the property cannot be sold, a sale would not result in recovery of sufficient funds, etc. – then the court will consider ordering a “constructive trust” in favour of the claiming spouse for a set amount proportionate to the claiming common law spouse’s contribution. Once again, unequal contributions to the asset will result in an unequal trust allotment.
Claim for Unjust Enrichment (Joint Family Venture)
Another option for a former common law spouse who claims an interest in their former partner’s real property is to claim an unjust enrichment arising from a joint family venture. Once again, there is a four-part test that claiming common law spouse must meet:
- there must have been a mutual effort by the common law spouses to work collaboratively towards a common economic goal;
- there must have been an economic integration between the common law spouses, as opposed to their economic independence, as some common law couples enter in such relationship so that they can intentionally keep their finances and economic matters separate form one another;
- there must have been the actual intent of both parties to intertwine their economic and financial interests. Such intent should be expressed, but it could be inferred – in essence, it will depend on the given the particular objective facts and circumstances of that relationship; and,
- there must have been a clear priority of the family by these parties. In other words, were decisions made “for the sake of the family” that could establish one or both parties detrimentally relied on the success of the relationship.
There has been significant case law and judicial interpretation of this test over the past 15 years. What is clear, however – beyond the establishment of the four-part test – is that the facts of the case, seen objectively by a reasonable person, will determine whether there was, or was not, a joint family venture. This will require keen judicial consideration, either at a conference stage – with firm opinions given to the parties, or at an adjudication stage – with a final determination being made.
Conclusion
As you can now appreciate, clients who decide to become part of a common law couple must consider what their intentions are at the outset of the relationship, especially with respect to their assets, both current and future ones. If these considerations, as unromantic as they are, are not made at the outset of the relationship, it may prove difficult, if not impossible, but most certainly costly, if this exercise is to be done once the relationship is at an end.
Sorry to sound repetitive, but it is critical to make your position and intentions clearly known to your intended common law spouse, and where appropriate, to have each other’s positions properly documented, and to do so before things go further. As I said in my last blog, the old expression that “an ounce of prevention is worth a pound of cure” is still relevant today, as a little bit of time and money to document your intentions will save you from spending a small fortune in time and money later on.