Don’t marry debt

Before getting married or moving in with a common-law partner, have a talk with your significant other about each other’s financial situations. Otherwise, relationships bliss can turn into a financial nightmare.

Take the hypothetical case of Tina, who is moving in with Mark, a 30-year-old senior consultant in Toronto. He earns $78,000 yearly and rents a condo with carrying costs of $1,400 a month. His 58-year-old father, Roger, is a serial entrepreneurial failure.

The problem is Mark co-signed on a $500,000 business loan for his father three years ago. The loan rate is 5.6% and there’s still $390,000 in principal remaining to be paid. If his father can’t pay, Mark could be on the hook for his father’s loan.

This type of debt is something that Tina should consider. Katherine Cooligan, partner and manager of the Ottawa Litigation Department of Borden Ladner Gervais LLP, weighs in on her options.

Tina has to ensure she doesn’t walk into a $390,000 debt, she says. If she moves in with Mark and they become common-law spouses, she doesn’t have to worry. That’s because in Ontario, common-law partners don’t have the same property rights as married couples. (In some other provinces, living together is essentially the same as being married when it comes to property division).

If she marries Mark, Colligan notes it doesn’t mean she has legal responsibility for his debt. Problems would arise with separation. If that happens, the couple’s assets are equalized based on net family property, under Ontario family law. Neither member of the couple can have a net asset value less than zero. So, even if Roger dies, for instance, and Mark’s saddled with the debt, his side of the equalization calculation would show a value of zero.

Let’s say Tina has a pension and savings totalling $200,000. Separation would mean $100,000 goes to Mark, says Colligan. If they stay common law, that wouldn’t happen. Her advice to Tina is either don’t get married, or if she marries, have a marriage contract that says she and Mark are separate when it comes to property.

These agreements are usually difficult for couples to discuss. But in a situation like this, it’s different. Cooligan can see Mark taking the initiative to draw up a contract protecting Tina from debt problems inherited from his father. If he’s a decent guy, he wouldn’t want to put her through that.