no-support-phone

Your client, Anne, separated from her husband about four years ago. She’s a professional, earning about $150,000 a year, and pays child and spousal support to her ex, Geordie, with whom she shares custody of their two children. Geordie works seasonally, pulling in about $50,000 annually.

Anne has been dating Luc, who manages a restaurant, for the past three years. Luc, who co-owns a house with his brother, spends pretty much every night at Anne’s place. He’s started giving her $500 a month in cash to offset the expenses his presence adds to the household: food, utilities, the fancy cable channels he loves that she would never subscribe to.

With their relationship at roughly the three-year mark, though, Anne has some concerns. Are she and Luc considered common-law? In the event that they split up, could he have any claim for support, meaning she’ll be supporting two ex-spouses? What weight does the $500 a month he pays her have in relation to current or future obligations, both to her ex and her current partner?

Most pressing, what should Anne be doing to protect her finances going forward?

Read: What to do with insurance after a divorce

It’s unlikely that Luc’s presence, or the $500 a month he pays to Anne, will have any significant impact on her support obligations to Geordie, says Timothy Matthews, an associate at Henderson Family Law in Thunder Bay, Ont. The amount, he notes, is minimal compared to Anne’s total income, and is offset by the extra costs Luc brings to her household.

More concerning, he says, are Anne’s potential obligations to Luc. Partners are considered to be in a common-law relationship in Ontario, he says, after they have cohabited continuously in conjugal relationship for no less than three years.

The fact that Luc, technically, has his own home and a different mailing address is less relevant than the actual substance of their living arrangements, says Matthews. The main test to determine common-law status, he says, is the amount of time the two partners spend under one roof. Given that Luc sleeps at Anne’s almost every night — and that his presence is significant enough to warrant the $500 payments — it’s likely the law would view them as a common-law couple.

Anne and Luc should strongly consider a cohabitation agreement, says Matthews, and one that would convert into a marriage contract should they eventually tie the knot. As long as such agreements are executed properly (for example, both parties fully disclose their assets and the agreement is not made under duress), they are “surprisingly enforceable.”

Such an agreement, says Matthews, could address all of Anne’s concerns. For example, she and Luc could waive each others’ rights to spousal support under Ontario’s Family Law Act.

Read: Help clients figure out when child support ends

Timothy Henderson, principal and managing partner of Henderson Family Law, says that in the event that they do marry and then separate, a cohabitation-turned-marriage agreement could be useful in establishing each party’s assets going into the relationship.

Perhaps the biggest reason Anne should consider entering into a domestic contract with Luc involves her home, says Matthews. Assuming that Luc continues to spend the bulk of his time at Anne’s, or perhaps formally moves in, the question arises as to whether he’ll have any entitlement to it. “Say he lives there for 20 years, builds a porch, helps pay the mortgage, makes repairs: he could potentially have a claim against her with respect to the home under the category of unjust enrichment, especially if they are found to have engaged in a joint family venture. It’s a very good idea to deal with that issue in advance.”

Anne and Luc could agree, for example, that both are entitled to their own homes and that neither will have a claim on each other’s homes, unjust enrichment notwithstanding. “They can completely opt out of the family law equalization regime and just say, ‘Whatever is in my name I’ll keep; whatever’s in your name you’ll keep,’” says Matthews.

The biggest reason that most people enter into domestic contracts has to do with the matrimonial home, says Matthews. He points to a “quirk” in the Family Law Act that prevents the original owner of the shared home from getting credit for the value of the home on the date of marriage. If Anne and Luc marry and continue to live in her house, “that could be significantly to her detriment. Because if she brings $200,000 or $300,000 of equity into the relationship, even though she had those assets before the marriage, her partner will be entitled to share in half those assets.” Anne and Luc should address that concern in their agreement.

Read: Are marriage contracts enforceable?

As well, point out both lawyers, if she hasn’t already, Anne needs to update her will, powers of attorney and any beneficiary designations for her pension or registered investments, so that they are in line with her separation agreement and also reflect her current wishes and relationship. If she doesn’t have a will, then Geordie would be entitled to the first $200,000 of Anne’s assets, with the remainder split between him and their two children; Luc would have no claim at all to her estate.

Given her support obligations, her assets and her income, Anne is an ideal candidate for a domestic contract, says Henderson. If she’s comfortable raising the issue with Luc, it would be to her benefit to do so.

Originally published on Advisor.ca
Add a comment

Have your say on this topic! Comments are moderated and may be edited or removed by
site admin as per our Comment Policy. Thanks!

See all comments Recent Comments

Cathie Hurlburt CFP CLU RFP FMA CFDS CHS

Also the impact of the new principal residence exemption rules, and their impact in this circumstance should be considered as one party may find their access to this exemption impaired at the end of the day.

Friday, Sep 22, 2017 at 9:22 pm Reply