The number of Canadians living together — living common-law with no license from city hall — represents about 15% of all unions. But, do these couples know what they are getting into from a legal or tax point of view? Nicole Ewing, tax and estate and business succession planner from TD Wealth, cuts through common misconceptions about common-law relationships.
The number of Canadians living together-- living common law with no license from City Hall-- represents about 15% of all couples. But do these couples know what they are getting into from a legal and tax point of view?
I played a little game of true and false with Nicole Ewing-- she's a tax and estate and business succession planner from TD Wealth-- to cut through these common misconceptions about common law relationships. I asked Nicole, true or false, are you regarded as married if you have been living together for more than two years?
I'll say false, but it depends. So it's half true.
Half true, OK.
So it really depends on why you're asking the question and for which purpose. So from CRA's perspective, from a tax perspective, you are spouses if you've lived together in a conjugal relationship for one year. But from a family law perspective, from property rights, spousal rights-- in Ontario, for example, it's three years. In other provinces, it may be two. So there's a bit of a mismatch between whether it's for tax purposes or family law purposes.
So they're really not in sync. So what happens if you break up after two years?
It really depends on, firstly, where you're living, again, from a tax perspective. If you've been separate and apart for 90 days, then there's been a breakdown in that relationship. But you're not yet a spouse for family law purposes, and you have no claims to support, for example.
OK So let's do another true or false question, then. Once you're regarded as a spouse under common law-- so we'll say, I think, from a legal standpoint, three or two years, depending what province you're in-- you hold all property in common. If you're divorced, each partner gets half. So is that true or false?
That is false. That is false. So it's a big misconception that people have. But in a common law relationship, for the most part, there are no property rights that you have. So even if you are considered a spouse for family law purposes, the three-year mark, you have perhaps claim to spousal support, but you do not take an interest in the other person's property.
So if you break up in a common law relationship, you really could be out in the cold.
You could be. You could be. Now, there's always relief if you have, in fact, contributed in other ways, if there's been an agreement between the parties. But that's involving court. You would need to go and make that argument. There is no statutory relief in terms of the division of property.
OK Let's try another one. Let's say there's a couple who have been living as common law spouses for 15 years, so a long time. The wife and owner of the home dies and leaves everything to her children from a previous marriage and doesn't leave anything to the common law husband. The surviving partner is out of luck. True or false?
Quite possibly, yes. And to a great extent, they would be. If the home is held by the deceased spouse in their name only, it's not a matrimonial home, because it's not been-- they're not married spouses. And so it's simply property of the other spouse. And they have the testamentary capacity to leave that to whomever they wish.
And so there would be, if they were a dependent, a financial dependent, an opportunity to make a claim for dependent's relief for support. If they had contributed to the home but they simply weren't on title, then they could make a claim, again, for a constructive trust, say, or other equitable remedies where you're saying that this is, in fact, the home, even though it was held in legal title. It was beneficially both of ours. But again, this is not an automatic right. And you'd certainly be, in this case, with potential litigation with your spouse's children.
It really calls into question, I think, from a common law relationship standpoint, that there's a lot of disadvantages to it, although I guess it depends on which side you're sitting.
Exactly. Exactly. I think the key is that you need to understand what the rights and obligations are. And people take for granted. One thing-- people think-- they say, well, I'm not going to be common law. It's a matter of fact. You either are or you're not. It's not something you elect or choose.
So from CRA's perspective, from family law perspective, you either are or are not a common law spouse. And with that comes certain obligations and rights. So if you know what they are, you can plan around it. If you don't, you may find yourself expecting a certain result that might not happen.
OK So let's get into preventative measures, so to speak. So if you are in a common law relationship and you decide that you want to protect yourself, protect the other person, or get things clear-- I'll put it that way-- prenups, cohabitations, tell us what they are, what the difference is, and what you should do.
So prenup, marriage contract, cohabitation agreement-- we're talking about all the same things. And you can outline in that not only whether or not you'll have a claim to each other's property in the event of death or breakdown of marriage, but also some of the day-to-day financial responsibilities that you may have within the relationship.
Explain a bit about that, because that's interesting. Because one person spends on one thing, and one spends another. One could be building up assets while the other one gets nothing.
Exactly. If I'm treating you every time we go out for dinner, and that's just the agreement that I'll pay for our vacation, or I'll buy that new couch, and you're taking those funds and putting them into the home, for example, that's in your name, and I'm not entitled to that, then if there's a breakdown on our relationship, you have an asset, and I don't. And so there may be some inequality there.
Nicole, great conversation. Thanks so much for joining us.
Eye-opening conversations. That was with Nicole Ewing, tax and estate and business succession planner from TD Wealth.