How Living Common-Law Affects Your Finances

How Living Common-Law Affects Your Finances

Written by Lisa Rennie
Fact-checked by Caitlin Wood
Last Updated December 6, 2019

Are you in a common-law relationship? If so, have you ever wondered how your finances may be affected, both while you’re in a relationship and in the event that you break-up? What happens to your assets and debts? And what if there are children involved?

Let’s dig a little deeper into the nuances of common-law relationships as they pertain to your finances.

What Is a Common-Law Relationship in Canada?

You’re considered to be in a common-law marriage in Canada if you live with another person who you are in a conjugal relationship for at least one continuous year. So, if you move in with your partner and live together for at least one year continuously, you will be considered to be in a common-law relationship under the eyes of Canadian law. 

The Difference Between a Common-Law Relationship and Marriage

There’s a common assumption that people who are married and those who are in common-law relationships are subject to similar rules when it comes to how property is owned and divided in the event that the relationship dissolves. But there is a difference between the two.

Essentially, married couples have certain rights that are stipulated under the law that common-law partners do not have. But at the same time, married couples also have certain responsibilities that common-law partners aren’t subject to. Having said that, each province deals with these definitions a little differently. 

Is tying the knot financially beneficial? Learn more here. 

While married couples typically share the value of their property in the event of separation or divorce, this is not the case for common-law couples. The latter has different rights compared to the former. In the case of property, common-law partners each get to keep property they had before the relationship began and property they bought when they were living with each other. Only the property that they shared with each other while they were in the relationship must be divided somehow. 

Married couples typically share the value of their property if they separate or divorce, but this is not the case for common-law couples. While married couples automatically share their property value if they separate, divorce, or if one spouse passes away, the same does not apply to common-law couples.

That said, common-law partners may still be able to stake a claim on their partner’s property in certain situations. Most commonly, this may happen when one partner is able to prove an “unjust enrichment,” which means that one partner shows the courts that it would be unfair for one partner not to share the property with the other. In this case, the partner making the claim would have to prove that they contributed to the property while the other partner benefited from these contributions. 

Should Common-Law Couples Have a Cohabitation Agreement?

For similar reasons why spouses who are married may sign a prenuptial agreement before they exchange vows, common-law partners might want to consider signing a “cohabitation agreement” which will help deal with property in the event of separation or divorce (does divorce affect your credit?). This agreement needs to be signed before any separation and will help determine how property is divided. 

This domestic contract is signed by partners in a common-law relationship who are not married and stipulates how each partner will deal with any issues they have either while they are living together or after their living arrangement changes. It also helps divide property after a partner dies. 

This contract can also be used to stipulate how other issues will be dealt with besides the division of property. For instance, a cohabitation agreement can detail how much spousal support will be paid from one partner to the other. However, it cannot deal with things such as child custody or support.

Since there aren’t any laws that govern how property is divided when a common-law relationship dissolves, it may be helpful to have this contract in place. Otherwise, dealing with issues in court can be costly and time-consuming. 

What Are the Financial Implications of Living Common-Law?

As mentioned earlier, partners who cohabitate but are not married do not have the same rights recognized as married people do. This includes things such as:

  • Protection of family homes
  • Spousal support
  • Inheritance
  • Responsibilities of household expenses 
  • Taxes

Only if these components are included in a cohabitation agreement will common-law partners be entitled to these benefits. Otherwise, common-law spouses don’t have any claim to half of the property or support payments involved in their relationship in the case of divorce or death, which married couples are entitled to.

Will getting married affect your credit score? Check out this article to find out.  

Common-Law Relationship Myths Debunked 

There are certain misconceptions about common-law relationships and the rights and responsibilities that each partner has in this type of arrangement. Here are a few common ones, and the truths behind them.

Myth #1: Common-law relationships are recognized the same way in every province and territory.

Common-law relationships are governed by provincial laws. That means that a common-law relationship in Quebec may not be viewed the exact same way legally compared to in British Columbia, for instance. In fact, common-law partners are viewed similarly to married couples in BC thanks to a recent ruling in the province, while Quebec does not recognize common-law relationships at all. It’s advised to seek out province-specific information regarding common-law relationships and the rights and responsibilities that are expected. 

Myth #2: Assets are evenly divided up when a common-law relationship dissolves.

As mentioned earlier, common-law relationships work a little differently when it comes to dividing assets and property in the event of a divorce. Unless an agreement is made that details how assets will be split up if the partners go their separate ways, the relationship itself doesn’t determine how property is divided in most provinces. 

Again, it’s recommended to find out the exact laws in the province in question, as some provinces might have different laws regarding this issue. In BC, common-law couples who have been cohabitating for at least two years can split their shared assets and debts 50/50 because of the recent ruling, while in Quebec, each partner keeps just what they own because of the province’s lack of recognition of this type of relationship. 

Myth #3: Common-law partners are not entitled to spousal support like married couples. 

While it’s not likely that a common-law couple that splits up will deal with spousal support, it can happen, depending on certain factors. This type of financial support is only given when one party is believed to be entitled to it. In certain provinces like Ontario, Alberta, and Newfoundland, spousal support may be possible if there are financial consequences as a result of the break-up. 

Myth #4: Children have no effect on common-law status.

Children actually can and do impact how a common-law relationship is viewed under the law. In fact, common-law couples with children are typically viewed as such long before a childless couple is. 

The Cost of Raising a Child in Canada
Check out this infographic to learn about the cost of raising a child in Canada. 

Common-Law Relationship FAQs

How long do people have to live together before they’re considered common-law?

To be viewed as common-law partners, couples must have lived together for at least one year continuously, according to the federal government. 

Can common-law couples register their relationship with their province?

Yes, they can register with their respective provinces. However, not in Quebec, as this is the only province that doesn’t recognize common-law relationships.

Who gets custody of children when a common-law relationship ends?

This will have to be sorted out either by the partners in the dissolved partnership or through the courts. Dealing with child custody cannot be determined by a cohabitation agreement.

Am I on the hook for my partner’s debts?

Unless you co-sign for loans with your partner, you are not generally responsible for their debts. 

Learn how to help improve your partner’s credit without jeopardizing your own, click here

How can a common-law relationship end?

Unlike marriages, common-law relationships do not have to go through any formal process to end their relationship under the law. They simply move out and can end their relationship at any time without any legal action required. 

Who takes the property if a partner passes away?

This should be stated in the partner’s will before he or she passes away. If there is no will and your partnership is registered with the province, you may have similar rights as a married spouse. If your partnership was never registered, you might have a claim against your partner’s estate. Any children from the relationship may have a claim against the estate. 

However, if you owned property jointly with your partner, you may have a claim even if no will was drafted prior to your partner’s death. This does not apply in Quebec, as this type of relationship is not recognized in the province. 

Bottom Line

Being in a common-law relationship is not the same as being married when it comes to having a claim in assets and debts. That said, every province is slightly different, which is why it’s important to get familiar with the specifics in the province in which you reside. 

Rating of 3/5 based on 5 votes.

Lisa has been working as a personal finance writer for more than a decade, creating unique content that helps to educate Canadian consumers in the realms of real estate, mortgages, investing and financial health. For years, she held her real estate license in Toronto, Ontario before giving it up to pursue writing within this realm and related niches. Lisa is very serious about smart money management and helping others do the same.

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