So you've decided to purchase your first home with your significant other. But wait—you and your partner haven't tied the knot. Instead, you're cohabitating, perhaps as common-law spouses.
What kinds of challenges are likely to arise when buying property with someone to whom you're not married? And what happens if (heaven forbid) you split up after you've bought a place together? Let's take a look at some of the issues unmarried couples typically face when purchasing a home together.
Mortgage and down payment
Ideally, you'll be splitting your mortgage and down payment equally. However, lopsided arrangements are common because it's rare for two individuals to be in the same financial situation. Sharing the financial burden has a lot of benefits, such as increased affordability and lower down payments, but it also has its risks. When Josh, 42, and Suzy, 37, purchased their first home together, Suzy paid half of the purchase price outright. Josh, however, put down 25% of the value and took out a mortgage for the remaining 25%. Yet their bank required Suzy to co-sign the mortgage. This is because lenders typically insist both owners take responsibility for debt on the property. “Even though Josh is technically paying the mortgage,” Suzy explained, “I'd still be on the hook for his portion if we broke up and he couldn't, or wouldn't, pay.” To find out what you and your partner can afford, try the REALTOR.ca affordability calculator.
This is where marriage and common law diverge sharply. Being married means you're automatically entitled to 50% of your home's value, whether you're listed as the owner or not. This is not the case with cohabitating couples. As a result, it's crucial for unmarried couples to co-own any property they're both paying for, even if finances are uneven. If only one person is listed on the title, then any contributions from the other person will essentially be seen (in the eyes of the law, at least) as paying rent to the owner. Furthermore, according to Toronto-based tax and estate lawyer Ed Esposto, “if you're in a common-law relationship and one spouse is not on the title, then he or she has no right to the home upon separation.”
Sign a cohabitation agreement
A cohabitation agreement is a legal document between two unmarried individuals who wish to live and own property together, but who want to protect their individual interests and assets in the event of a split. Along with documenting the details of the down payment, title and mortgage you've already hashed out, a cohabitation agreement should address how other expenses—taxes, maintenance fees, utilities, and repairs—will be handled. Bear in mind a cohabitation agreement needs to be reasonably fair in order to be valid.
What happens if you split?
Now for the awkward part. Cohabitating with someone, even if you're common-law spouses, does not afford the same legal protections as being married, especially when it comes to your shared home. You'll want to spell out in your cohabitation agreement exactly how the home value will be divvied up if you part ways, or in the event one person passes away (in the latter case, the surviving owner typically inherits the portion of the property belonging to the deceased). If you break up, you might choose to sell your home and split the proceeds 50/50. Or perhaps one person wants the opportunity to buy the other out, in which case a reasonable scenario would be to offer the exiting partner's half to the remaining partner at fair market value for a predetermined window of time.
Build your support team
You and your partner will undoubtedly have a lot of questions, so be sure to find an experienced REALTOR® to help you pick the right home and a knowledgeable lawyer to assist you in drawing up a cohabitation agreement. Lastly, be sure to familiarize yourself with the ins and outs of common law in Canada, which vary greatly by province.
Source CREA march 2019