Gracie and Dave* moved in together during university. It wasn’t planned. Gracie was helping Dave get through an organic chemistry course and Dave was spending so much time at her place that, one thing led to another, and their tutoring relationship turned into a loving one.

The arrangement continued as they both graduated and went out into the working world. They went through internships, working contracts and bouts of unemployment. But after two years, when they both had stable jobs, Gracie wanted to know when they could get married — she didn’t want a huge wedding, but she wanted to make it official for her parents. Besides, Gracie was able to put down a down payment on a home — in her name only — and it needed to be filled with kitchenware, linen and everything else that wedding gifts could provide.

Although Dave wanted to be with Gracie for the rest of his life, he said he didn’t need the government to issue a certificate to “officially” legalize their relationship. While it would never happen to them, he had seen too many lavish weddings result in the couples breaking up a short time later — “What’s the point?” he asked. Besides as individuals, there was more flexibility when reporting income tax as single people, instead of as a couple.

Gracie said he was wrong; There were more benefits to be had tax-wise as a couple. Plus, she said, once they have been living together, the law regarded them as married anyway. There are no real advantages, except saving the costs of a formal wedding and renting a tuxedo. (She thought Dave would look like 007 in a tuxedo.)

Unable to decide, Dave headed to his lawyer for advice while Gracie made an appointment with her financial advisor.

What couples should know about common-law bonds

Becoming common-law usually results in two people living together in a loving relationship without a certificate from City Hall. This represents about 23% of all legal unions in Canada.1 But, many couples in this arrangement are often unclear on what they are getting into from a legal or tax point of view. Nicole Ewing, Director, Tax and Estate Planning, TD Wealth, helps us cut through these common misconceptions about what common-law means.

Ewing says, for many (but not all) purposes, the Canada Revenue Agency regards you as effectively the same as a married couple after one year of living together, and that you must report your common-law status on your tax return. Meanwhile family and estate law regards you as common-law after two or three years or less, if you share a child together.

Gracie and Dave are very much in love but they probably would want to understand where they would stand in case the unexpected happened and their relationship fell apart. And, Ewing says, if they do decide to remain common-law, they may want to make some other legal arrangements around their relationship.

Know the law when you’re common-law


Number of couples living common-law in Canada (Source: Statistics Canada)

That’s because, if they break up as a common-law couple, having never been married, and depending on which province they live in, Dave may not have any claim to property rights in Gracie’s home. That is a big misconception many people have about being common-law: If the relationship ends, the individuals may have no claim on any of their ex’s property. Dave could be left out in the cold even if he had contributed to the mortgage payments, paid for utilities, bought groceries, filled cars with gas and worked to renovate the house every weekend.

The reason is, a court would presume that if the common-law couple wanted to share property rights, they would have made a conscious decision to do so by creating joint ownership arrangement or naming a beneficiary in a will. Not doing so could well be regarded as a conscious decision by Gracie, says Ewing.

What are Dave’s options if things end?

Dave does have options: He may seek recognition of something called a “constructive trust” with the courts which may address certain contributions made by one person which aren’t equitably divided based on the general rules. He would have to demonstrate to the court that he may be entitled to some compensation if he contributed to shared expenses throughout the years, because, for him, not to receive any compensation may be “unfair.” He could also argue that he contributed to the purchase of the home, even though his name was not on the deed of the home. But both these arguments could mean lengthy, expensive, and perhaps emotionally draining proceedings in court.

Ewing says that if the couple wants to stay common-law but also wishes to ensure that neither of them would be left out in the cold if the relationship breaks down, a cohabitation agreement or marriage contract, also known as a prenuptial agreement — or prenup — may be a good option. Cohabitation agreements, marriage contracts and prenups are different names for a couple’s legal agreement to document their obligations to each other as they enter into a relationship, whether it is a marriage or a common-law bond, and provide some kind of equitable division of their assets if they separate.

Note: People who are getting married can also draw up marriage contracts or prenups, however family law varies by province so the applicable legislation may impact a person’s rights differently when they are formally married than if they remained common law.

Know the law when you’re common-law

“A marriage agreement may also be an option for couples who are established and have a significant amount of assets.”


Maybe Gracie needs a prenup

One of the considerations about a marriage contract is that both partners have to lay bare all their financial information and obligations. In this way, for example, if Gracie had creditors that Dave didn’t know about, and Dave had financial obligations to a child from a previous relationship, they would both have to share that information with each other. So while people wish to become partners in a loving relationship and be dedicated to working out a fair prenuptial agreement that would hold up in court, they must be prepared to bare all their financial details to each other.

Ewing says that a prenuptial agreement may also be an option for couples who are established and have an extensive amount of assets and, perhaps, significant financial obligations outside the relationship.

What if Dave met Gracie in later life?

For instance, let’s fast-forward 35 years and imagine Gracie meets Dave later in life: Gracie has a home, a vacation property and retirement savings at age 64 with two adult children from two previous marriages. If she wants to live common-law with her new love-interest, Dave, she may be unsure how her assets would be divvied up between her children and her new partner under various scenarios. Would she want Dave to share her assets after living together for a year? How about after ten years?

A marriage contract may put her mind at ease, since she could make her intent known: For example, one year into the relationship, she may not want Dave to have access to any of her assets other than nominal payments for any money he contributed to the upkeep of her home during their relationship.

But, let’s say Dave and Gracie live common-law for 15 years until Gracie passes away at 79: If Gracie makes those provisions in her will for Dave to inherit some of her assets, Dave will inherit and share the assets of Gracie’s estate with her adult children.

Note: If Gracie wants Dave to inherit part of her estate, she must actively document that in her will. Unlike a married couple, in most provinces, a common-law partner does not automatically have rights to property that is owned by the deceased partner. Again, for the same reasons mentioned above, even if the common-law couple were together for 50 years, an individual may not inherit anything if they are not named as a beneficiary in their deceased partner’s will.

Anyone who is considering or experiencing a major change in their relationship should consider speaking to a financial advisor and lawyer to see what the impact to their financial status will be and whether the change opens them up to any legal risk. While it may not seem romantic to be signing documents with your loved one at a lawyer’s office, it could give you both some assurance that you are going into your relationship with good advice and eyes wide open.

— Don Sutton, MoneyTalk Life

*Gracie and Dave are fictitious.