DIVORCE TIPS

Want an answer to a question about your separation or divorce?  I'm not a lawyer, but I do have some good common sense, from having been there.   Email your questions to me at 
eric_dormer@DivorceSupportServices.ca   

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Legal Disclaimer:
Note that the author is not a lawyer and any information provided is just helpful knowledge from someone who has been there. You should not interpret it as legal advice. The author is not responsible for adverse outcomes related to acting upon any information offered.  Consult a lawyer  when necessary. 

All tips are (c) 2008, Eric Dormer.

DIVORCE TIP 006

DIvorce Tip #006: Purchasing A Home with a Common-Law Partner 

08-Mar-28

Hi Divorce Tip Guy,

I am buying a condo with my girlfriend.   She doesn't have any savings, but she does have a job. We are not planning on getting married any time soon. Any suggestions?

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The information contained below in this tip is
Copyright (c) Eric Dormer, 2008.

Legal Disclaimer:
Note that I am not a lawyer and any information provided is just helpful knowledge from someone who has been there. You should not interpret it as legal advice. The author is not responsible for adverse outcomes related to acting upon any information offered.  Consult a lawyer  when necessary. 

Since you are not married, you will be cohabiting, and owing your own home. I assume your intention is to be joint tennants in common, and to own the home jointly.
I assume you will both move in together and be living as
common-law spouses.

The thing to remember is that if a common-law relationship ends, you take out of it whatever you own.  Your girlfriend takes out of it whatever she owns.    Anything where ownership is ambiguous is a source of potential conflict, and often hard feelings since whoever grabs it first generally keeps it.

You mentioned that your girlfriend does not have savings, but she does have a job.  The implication is that she will be contributing to the mortgage payments. 

Its pretty important to keep very good records.  This includes having a clear written document setting out your  intentions when arranging to buy the house, and also good records as you go along later.

One workable idea is to have an agreement that any
future equity in the home when the commmon-law relationship ends will  be split in proportion to the money put into the home by the two parties.  This includes all funds advanced to purchase the home (down payment, admin fees, legal fees, title insurance, land transfer taxes and so on), plus ongoing mortgage payments, plus any capital improvements, plus shelter costs including repairs, property taxes, and property insurance.    

Its a good idea also to indicate that all funds are discounted back to the date when the home was purchased using a prescribed interest rate.  Generally
this is set to the interest rate of your mortgage.  The point of the interest rate is to give more weight to money that was put in long in the past.   Using this approach,  any contributions to the home by either party are properly valued if the home is sold and the proceeds divided.  Thus it won't matter who put the money in for the downpayment, who paid the taxes, etc.  It all comes out in the wash later if the relationship ends and the equity in the home has to be divided.  If you renew your mortgage later at a different rate, record that too along with the new date, and it will apply subsequently.

However to make this work in practice you need 2 things.  First, you need a clear written legal agreement that both parties freely  sign after having a chance to obtain independent legal advice. Ensure it is signed by both parties, dated, and witnessed.  Contact me to obtain an example for an agreement that you can use
as a basis to evolve to suit your particular needs.

Second, you need good record keeping as you go along. I suggest that you have a book or excel spreadsheet
where you record on a monthly basis funds put into
the house in the varous catagories outlined above. Ensure you record the date, and who put the funds in (and perhaps how the funds were transferred, cheque, cash, direct withdrawal, etc). Be clear about what the funds were for (ie: down payment, mortgage payment, replace a broken toilet, put in a new marble kitchen countertop, and so on.)

Every 3 months, both parties should photocopy the most recent pages of this book, or take a fresh copy of the computer file.  If its a book with paper, you should both initial the copied pages, and keep your pages safely for your records. If you are using a computer file, print out the final summary of this account, and both parties should take a one page copy, and have them initialed by both parties.   Put these 1 page summary records away safely.

You dont have to actually compute anything unless you later end the relationship. Then its a fairly simple matter of discounting all funds back to the date you bought the home, to determine how much money was put in by each party.  If you need help with this, any financial planner or mortgage broker can assist easily. Once you have this ratio, you know how to divide any profits that arise on selling the home (ie: the sales price minus mortgage balance minus real estate fees minus any other expenses related to selling the home).

Even if you are not planning on getting married, you should also indicate in the legal agreement that in the event you and your partner later choose to legally marry, the records to that date shall be used to compute the value of assets each of you brought into the marriage in respect of the home.  Effectively, you deem that you disposed of the home just prior to marriage, computed how much each of you then owned, document it, and then get married.  The point of this is to ensure that if the marriage later fails, you have a concrete value to record as the assets you brought into the marrage on your Net Family Property Statement.  This ensures that what you brought into the marriage, you take out of the marriage.