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Financial considerations of living common-law

Written by Preet Banerjee

Friday, September 2nd, 2016

You've met someone. You've fallen hard for them. You're not quite sure about marriage, but since you spend so much time together at each other's places, you think you might as well live together. Why pay rent or carry mortgages at two places?

Sometimes the decision to become a common-law couple doesn't explore financial implications any further than that. But there's much more to consider.

Tax filing

According to Dean Paley, CPA, CGA, a chartered professional accountant in Burlington, Ontario, regardless of which province or territory you live in, in the eyes of the Canada Revenue Agency (CRA), you're considered to be in a common-law relationship after you've lived together for 12 consecutive months. (There are other criteria you need to check if you have children.) Once you've crossed this threshold, you'll have to start including your partner and some of their details on your tax return. This change can impact how much tax you pay or what benefits you receive (or stop receiving). Depending on your situation, you may come out ahead or behind in the end.

Breakdown of the relationship

No one wants to dwell on the thoughts of a relationship breaking down, but it does happen. While the CRA has its own definition of common-law for tax filing purposes, for property division and support payments the rules vary depending on where you live.

I asked Andy Hayher, a family law lawyer in Calgary with Vogel LLP, to weigh in on some differences in the law across Canada.

“In British Columbia, as of March 2013, parties who are unmarried but have cohabited together for a period of longer than two years are now entitled to an equal division of property. A right that was previously reserved for married couples," says Hayher.

Things are quite different in Quebec. “In 2013, the Supreme Court of Canada in a 5-4 decision held that Quebec's Civil Code does not give unmarried couples the same rights as married couples. Individuals in a common-law relationship do not have the right to property division upon the breakdown of the relationship, nor are they entitled to apply for 'partner support,' which is the equivalent of spousal support under the Divorce Act."

Of course, few people enter long-term relationships focusing on how they will end and what the financial ramifications may be. At least not the first time. But Hayher argues that understanding the rules ahead of time is important: “Property rights for unmarried couples are not universal across Canada and differ from province to province. If you are entering into a long-term cohabitation where you do not plan to get married, it is important to understand the legal implications and enter the relationship with your eyes wide open with respect to your legal rights. A consultation with a family law lawyer at the outset of the relationship will provide you with information and options and may save you a significant amount of stress and money down the road if your relationship does end at some point."

An ounce of prevention?

Many younger couples may not even think to seek legal counsel since they have relatively little to protect. Others see bringing up the idea as a surefire way to guarantee the end of the relationship in the first place. But there are other considerations to keep in mind. You should have "the talk" about money as soon as you see the relationship getting serious. You don't have to plan out your retirement right away, but early on you should get some kind of a handle on whether or not there's any financial baggage or incompatibility issues. Finding out a partner has multiple, maxed-out credit cards totalling over $20,000 after you've moved in together will make your stomach sink.

No one's perfect, and financial issues can be overcome. Sometimes a financial red flag has a legitimate explanation. You won't know unless you communicate.

If a relationship is serious enough where living together is on the table, it's serious enough to have an open conversation about finances. Openness about your individual finances may be awkward in the beginning, but it's an important component of a healthy long-term relationship.

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