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SMART COOKIES

Living in a common-law relationship? You need an 'agreement' Add to ...

If you and your common-law partner, defined as living together continuously for three years or having a child together, agree that you will split everything you currently have or will have in the future, then you probably don’t need a cohabitation agreement. But “it’s rarely the case that you don’t have assets you’d like to protect,” says Sara Mintz, a lawyer in the family law group at Torkin Manes LLP, in downtown Toronto.

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She recommends a cohabitation agreement in three scenarios: you’re an entrepreneur or have a family business, you have assets you want to protect (like a condo or RRSPs), or you significantly out-earn your partner or expect you will in the future.

“It’s a common misconception that if it’s in my name it’s mine, and if it’s in our name it’s ours,” Ms. Mintz says. If a property is in your name, but your partner has contributed sweat equity, for example, he or she may be entitled to a share of it. Or, if you agree you would financially support your partner’s decision to go back to school and he or she is only halfway done during your split, you could be on the hook to provide financial support.

As Ms. Mintz rolls through a number of similar scenarios, I see why splits without upfront agreements could become a financial mess.

Over drinks with friends later on, I ask if they have a cohabitation agreement. Nope. She says that since she moved into his house and it’s his mortgage, she wouldn’t fight for anything if they separated – except, of course, compensation for the hours of yard work, painting, and the small renovation projects that ate up a lot of her weekends. I sip my drink quietly while they debate the dollar value of her efforts. Before changing the subject, I mention it might be worth looking into.

Not many of my friends have an agreement, but they probably should. The beauty of drafting one is that it can be as broad or as detailed as you like. The more detailed, the more expensive, but it’s a small cost compared with the legal fees you would incur to battle it out after a breakup. It could cost $3,500 to $10,000 or more, but you can reduce the cost by getting your finances in order as a couple and outlining what you want your agreement to say prior to meeting with your lawyers.

More couples are living together before marriage and putting off tying the knot until later in life. If you’re in a common-law relationship, or about to be, then it’s worth having the “what-if” conversation or, even better, investing in a cohabitation agreement that will protect you and your assets if you part ways.

Angela Self is one of the founders of the Smart Cookies money group. Read her weekly column on managing debt and saving money at the Globe's personal finance site.

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