How To Protect The Bank of Mom & Dad

Home ownership has become ever more difficult due to the most prolonged rise in real estate prices in history. 

The rise in house prices is being matched by an increase in money that parents and grandparents are willing to give to their adult children to help them buy their first condo or home. Sadly, most people don’t take the necessary steps to protect their family’s significant investment.

It’s understandable. It’s exciting when a young couple is getting married or moving in together. There is a lot to prepare and organize, everyone is optimistic, and very few people are wise enough to listen to that little voice in the back of their head that says, “What if things don’t work out?”

But listening to that voice and creating a Cohabitation Agreement or Marriage Contract (also known in the USA as a Prenuptial Agreement), can protect the couple and family members who have invested in the couple’s living arrangements and other benefits.

Donít Skip This Step

Many people realize that when a couple marries, their home becomes a protected asset within the marriage and is shared by the spouses upon separation. Likewise, it is common knowledge that if the couple wants to avoid a lengthy and expensive legal battle, if they ever get divorced, they should sign a Marriage Contract before they get married.

For married spouses, Ontario’s Family Law Act states that any property that is occupied by the spouses at the time of separation is labelled a “matrimonial home”. The statute states:

18 (1) Every property in which a person has an interest and that is or, if the spouses have separated, was at the time of separation ordinarily occupied by the person and his or her spouse as their family residence is their matrimonial home. 

In other words, this can include the home in the city, the cottage, the ski chalet, the recreational vehicle and the Florida condo. It can include them all; hence, these assets could all be subject to an equalization of their net values.

In fact, the law even disallows any act to exclude the other spouse from occupying the property irrespective of title ownership. The statute states:

19 (1) Both spouses have an equal right to possession of a matrimonial home.

In high conflict divorce cases, one spouse may even direct a real estate lawyer to unilaterally register a designation on the title to prevent the property from being encumbered or sold. The statute states:

20 (1) One or both spouses may designate property owned by one or both of them as a matrimonial home in the form prescribed by the regulations…

(3) The designation may be registered in the proper land registry office.

(5) On the registration of a designation made by one spouse only, any other property that is a matrimonial home under section 18 remains a matrimonial home. 

21 (1) No spouse shall dispose of or encumber an interest in a matrimonial home unless,

(a)  the other spouse joins in the instrument or consents to the transaction;

(b)  the other spouse has released all rights under this Part by a separation agreement;

(c)  a court order has authorized the transaction or has released the property from the application of this Part; or

(d)  the property is not designated by both spouses as a matrimonial home, and a designation of another property as a matrimonial home, made by both spouses, is registered and not cancelled.

Although these laws apply to married spouses in Ontario, it is less well-known that it is equally important to sign a Cohabitation Agreement when not married and moving in together. Most people don’t realize that when they move in together, their lives become financially intertwined and that there are laws that can force unmarried spouses to share property and pay spousal support.

Ontario law considers two persons to be legal spouses (i.e., common-law spouses) if they cohabit for three years or more or have a child together. Once they are considered spouses, then the laws of spousal support apply, which include the payment of spousal support or rights to enforce such rights to property.

Sections 30 and 34 of the Family Law Act regarding spousal support state (note the sections in bold):

30 Every spouse has an obligation to provide support for himself or herself and for the other spouse, in accordance with need, to the extent that he or she is capable of doing so. 

34 (1) In an application under section 33, the court may make an interim or final order,

(a)  requiring that an amount be paid periodically, whether annually or otherwise and whether for an indefinite or limited period, or until the happening of a specified event;

(b)  requiring that a lump sum be paid or held in trust;

(c)  requiring that property be transferred to or in trust for or vested in the dependant, whether absolutely, for life or for a term of years;

(d)  respecting any matter authorized to be ordered under clause 24 (1) (a), (b), (c), (d) or (e) (matrimonial home);

(e)  requiring that some or all of the money payable under the order be paid into court or to another appropriate person or agency for the dependant’s benefit;

(f)  requiring that support be paid in respect of any period before the date of the order;

(g)  requiring payment to an agency referred to in subsection 33 (3) of an amount in reimbursement for a benefit or assistance referred to in that subsection, including a benefit or assistance provided before the date of the order;

(h)  requiring payment of expenses in respect of a child’s prenatal care and birth;

(i)  requiring that a spouse who has a policy of life insurance as defined under the Insurance Act designate the other spouse or a child as the beneficiary irrevocably;

(j)  requiring that a spouse who has an interest in a pension plan or other benefit plan designate the other spouse or a child as beneficiary under the plan and not change that designation; and

(k)  requiring the securing of payment under the order, by a charge on property or otherwise.

This statute does not even address the further claims that a common-law spouse can make to real estate or business interests under trust laws.

Signing a Cohabitation Agreement will help avoid future conflicts and unnecessary costs, as well as protect your assets and your family’s investment in your house or condo. It could outline who owns the property, how that money from the Bank of Mom & Dad is treated, what occurs if you separate, what rights you acquire and what rights you waive by living together.

Itís Counterintuitive, But An Agreement Can Enhance The Relationship

Cohabitation Agreements or Marriage Contracts may seem unromantic or even pessimistic, but research shows that they can actually strengthen a relationship. Since money is one of the most significant topics couples fight about, having transparent financial conversations at the beginning of a relationship can provide a framework for handling important decisions as a couple begin their lives together. So, in addition to helping avoid future conflicts and protecting the family’s investment (Thank You, Mom & Dad), the process of signing a Cohabitation Agreement or Marriage Contract can help a couple embark on the new stage of their relationship with clarity, security, and mutual respect.

Stop The Stigma

We, as a society, need to change the way that these domestic contracts are viewed. These essential documents can inform, empower, and strengthen a couple’s financial plans, avoid future conflict, and protect the money generously given by their family.

Steve Benmor is a Senior Family Law Lawyer and Principal at Benmor Family Law Group. He has prepared thousands of Cohabitation Agreements and Marriage Contracts. He can be reached at steve@benmor.com