Understanding the Financial Implications of Common-Law Partnerships in Canada

Navigating the financial consequences of being in a common-law relationship in Canada can be complex. While the legal rules may seem straightforward, many individuals underestimate the financial impact of these partnerships. As a Certified Financial Planner (CFP), I’ve observed that even without being legally married, common-law partners may have claims on each other’s assets and property, especially in cases involving unjust enrichment.

What is Unjust Enrichment?

Unjust enrichment occurs when one partner significantly contributes to the other’s property or assets—whether financially or through improvements—and the other partner benefits disproportionately. In such cases, courts may award the contributing partner a share of the property or its equivalent value. For example, if one partner helps pay down a mortgage or undertakes major renovations on a home they don’t legally own, they may be entitled to a portion of the property’s value.

Determining Common-Law Status

Establishing whether you are in a common-law relationship isn’t always straightforward. Courts take multiple factors into account, including:

Cohabitation
How long have you been living together continuously? The duration of cohabitation is a key factor.
Example: Living together for two years without interruptions may establish common-law status in many provinces.
Financial Interdependence
Do you share financial responsibilities such as expenses, accounts, or financial commitments?
Example: A joint bank account or shared mortgage is a sign of financial interdependence.
Public Perception
How do others view your relationship? Do you present yourselves as a couple to family and friends?
Example: Attending social events together and being recognized as partners contributes to this perception.
Shared Responsibilities
Are household duties and caregiving responsibilities divided between you?
Example: Both partners taking on equal roles in raising a child or managing household chores indicates shared responsibility.
Relationship Nature
Is your relationship similar to a marriage in terms of emotional and financial support?
Example: Providing each other with mutual emotional and financial support, like in a marriage, can be an indicator of common-law status.

Common-Law Rules by Province

Common-law rules vary across Canada depending on the province:

Quebec
Common-law partners (referred to as “de facto spouses”) do not have the same rights as married couples, even after years of living together.
British Columbia and Ontario
Common-law rights typically apply after two or three years of cohabitation or sooner if the couple has a child together.

Co-Parenting and Common-Law Status

Co-parenting does not automatically qualify a couple as common-law partners. Courts look for evidence of a committed relationship beyond raising children. In some cases, even living separately may not disqualify a couple from being considered common-law if they are financially and emotionally interdependent.
Example: A couple living in separate homes, sharing financial duties, and raising children together may still be recognized as common-law partners.

Importance of Financial Milestones and Record-Keeping

The start date of a common-law relationship is critical for determining rights related to spousal support, property division, and pension sharing. Keeping detailed records of joint accounts, lease agreements, and significant purchases can help clarify the timeline of the relationship in case of legal scrutiny.

Protecting Yourself in a Common-Law Partnership

If you are in a common-law relationship or believe you might be, here are some steps to protect yourself financially:

Cohabitation Agreement
Draft a cohabitation agreement with the help of a legal professional. This document clearly outlines each partner’s financial rights and obligations, helping prevent disputes if the relationship ends.
Example: The agreement can specify that one partner will not claim ownership of the other’s home, even if they contribute to household expenses.
Create a Will
Unlike married couples, common-law partners do not automatically inherit from one another without a will. Ensuring that your wishes are documented in a will is crucial in case of death.

Planning for the Future

The financial and legal complexities of common-law relationships can have a significant impact on your long-term financial planning. Consulting both legal and financial advisors is essential to protect your assets and ensure your financial security.

Understanding the nuances of common-law partnerships is not just about legal compliance—it’s about taking control of your financial future and making informed decisions for the long term.