Homeownership rights for cohabiting clients

Whether clients are taking a new relationship to the next level or have already made a trip to the altar, it’s important they know their rights when it comes to owning real property with a partner.

These days, relationships come with a host of considerations. One or both members may have been previously married or purchased property prior to the new relationship. And usually, one partner has more financial capital than the other.

When co-buying or sharing a home, a person’s rights and obligations depend on a number of factors, including who is listed on the title, the relationship status, and the overall financial contributions made toward the house.

Title is important

When it comes to homeowner rights, choosing how to take title is important.

Title can be taken as joint tenants with the right of survivorship (i.e., the other owner becomes the sole owner if one dies), or as tenants in common, where a person’s ownership passes to their estate on death.

If a couple puts down different amounts toward their down payment, they have to decide whether they are willing for the title to be 50-50, or for the title to reflect their disproportionate contributions. If title is taken disproportionately, the only option is to take title as tenants in common.

Read: What to do when friends want to buy property together

If the couple separates in the future, there are issues relating to the property to consider.

Married couples

In Ontario, financial issues resulting from a marital breakdown are governed by the Ontario Family Law Act (FLA). Under this act, the matrimonial home is taken seriously and there are several rights that are designed to protect the non-titled spouse. For example:

• The title owner cannot take on a mortgage without the consent of the non-owner; the consent of the non-owner is also required to sell the home.

• If there is a separation, the home will be part of the common properties that will be divided as part of the overall equalization payment of all of their assets.

• If there is a separation, the title owner cannot force the non-owner to leave. They have to work it out or obtain a court order.

Should one spouse try to sell the property without the knowledge or consent of the other, the sale will not go through, because at the time of transfer the seller must sign papers indicating if they have a spouse. If the answer is yes, the lawyers won’t proceed with the title transfer without obtaining the other spouse’s consent.

Read: How to handle tricky spousal support issues

A word of caution, too, for couples planning on living in a home that was bought by one spouse prior to getting married. The FLA does not provide a credit back to the owner for the pre-marriage value of the matrimonial home. This means that upon separation, the entire value of the matrimonial home, not just the increase in value, will be divided equally (even if the house was purchased by one spouse before the marriage) unless a pre-nuptial agreement says otherwise.

It’s important to note that in Canada the laws governing domestic relations differ by province and territory. Additionally, family laws in each region can change as new federal and provincial laws are created.

Read: Estate pitfalls for common-law partners

Common-law couples

In Ontario, if your clients are living together but are not married, then they are not subjected to the Family Law Act. In the event of a separation, the home will most likely be divided according to the proportion reflected in the title, rather than by how much each person invested into the property (via down payment or monthly payments).

It’s important to consider the payment arrangement when it comes to common-law couples. There are cases where one person will make most or all of the mortgage payments, while the other pays for living expenses such as food and trips. Under those circumstances, the person who makes mortgage payments is able to ‘prove’ they contributed more toward the equity of the home, when in reality, both contributed to the family expenses. If your clients have such a payment arrangement, suggest the spouse who pays expenses shift some payments toward the mortgage to accumulate equity in the property. The agreement to give that spouse equity, however, needs to be clearly set out in a cohabitation agreement, since verbal agreements are rarely enforceable.

Domestic agreements

Regardless of the title, a couple may decide on rights and responsibilities regarding a house in a domestic agreement (marriage agreement or cohabitation agreement). They could, for example, agree on who gets what proportion of the proceeds of sale — regardless of who is on the title.

Read: 4 ways to negotiate a marriage agreement

Conclusion

Homeownership rights are complicated. Getting the proper legal and financial advice before you invest is critical and will avoid additional financial stress down the road in the event of a relationship breakdown.

Nathalie Boutet

Tax & Estate

Nathalie Boutet is a family lawyer, mediator and certified Family Enterprise Advisor™ specializing in high-net-worth families and business owners. She can be reached at nboutet@boutetfamilylaw.com.