The risk of buying, before marrying

Between today's steadily rising property market and historically low mortgage rates, it's no wonder Canadians are getting the urge to stop investing in their landlord's equity and enter the housing market for themselves.

For many, this also means purchasing a home with a partner — even if marriage isn't yet in the picture.

In fact, according to the recently released 2011 Canadian Census data on families, households and marital status the number of common law couples in Canada increased by 13.9 per cent between 2006 and 2011.

However, what many Canadians may not realize is that your property rights while in a common law relationship differ from those of legally married couples.

In Ontario, couples in a relationship become "spouses" after living together for three years (or less if there are children involved). After you pass that three-year mark, you're considered unmarried spouses.

"Many people don't realize that unmarried spouses don't automatically have the same property rights — for them, it can be an uphill battle to get back what they've contributed," said Jennifer Krob, a Toronto family law lawyer with Heyday Green PC .

Buying a home together

There are two common ways to own with your partner before you're married: you can purchase a house together, or one of you can purchase the home while the other simply lives there.

According to Krob, if you're purchasing a home together, there are two ways to do so on the title: as joint tenants or as tenants-in-common.

Couples who own a home as joint tenants both own the entire home and will always have an equal claim to the house. If a partner in a joint tenancy passes away, the surviving partner automatically receives the deceased's interest in the home.

When couples own a home as tenants-in-common, they have the ability to decide whether they want to own the home equally, or whether one will have a greater share than the other — this is not an option in a joint tenancy. In this situation, if one partner passes away, the deceased party is free to dictate who inherits their portion of the home in their legal will. It's a good idea to consult your lawyer about which type of ownership is right for you and your partner before purchasing the home.

When only one partner owns the home

Sometimes, one partner in a relationship might be ready to become a homeowner before the other, both emotionally and financially. In this case, one partner might choose to own the home while the other simply lives there.

Toronto-based realtor Lauren Haw is a homeowner who lives with her boyfriend — he's not on the title. In Ontario, he could seek a ruling entitling him to a certain percentage of Haw's property on the grounds of his "sweat equity" — his contributions to the home.

For the many couples living together before marriage—including Haw—this is where a cohabitation agreement comes into play.

Cohabitation agreements

In order to protect yourself and your partner, when living together under any arrangement, couples can opt to sign a cohabitation agreement. This is a legal document outlining what you and your partner want the arrangements to be: who owns the furniture you buy while living together, how title will be held (as joint tenants or tenants-in-common), who has to move out should the relationship end, who is responsible for any debts, such as a home equity line of credit, and more.

"The advantage to having a cohabitation agreement is that, should the relationship deteriorate down the line, you've already resolved a lot of the potential issues and, for those you haven't resolved, you already have a system in-place to solve disputes," said Krob. "It's great to do this when the relationship is strong, because creating solutions is easiest when a couple is still working together as a team. Waiting until a relationship has broken down to have these discussions often means the parties can't communicate well anymore and they're left with trying to fight it out themselves, or with a mediator, or with lawyers in court."

For Haw and her boyfriend, discussing—and signing—a cohabitation agreement not only ensured they were both protected, but also helped them talk about their future. "At the time, we were debating between renting and buying, but then the right place came up for sale," said Haw. "We weren't sold on buying together, but we were ready to live together, so a cohabitation agreement seemed like a logical next step."

"Conversations like this are about your relationship, yes, but it's also about the numbers," said Haw. "You can't be filled with woo and romance, letting your emotions get the best of you — you really need to make a realistic business decision, and put on your rational, decision making minds."

A cohabitation agreement is not only a good way to talk about property issues, but it can also encourage couples to talk about planning a life together — like what expectations you each have for the relationship, who is contributing what, and where you see things going long-term.

"You really need to look at the long-term picture when going through this process," said Haw, "because as soon as you buy a place, you're locked into a mortgage for a certain period of time. So what happens if you break up and now have to carry the mortgage on your own?"

If you're going to be the only one on the mortgage, you need to make sure you'll be able to afford the home on your own should something happen, by using a mortgage payment calculator to get an estimate of your monthly payments. In Haw's case, she ensured she was purchasing a home with an extra room she could rent to a friend and that she could still afford the home on her own if need be.

"Although a lot of the cohabitation agreements I deal with are centered around 'I want to protect what's mine and you, what's yours', I have had clients who don't want to protect just themselves, but also want to protect their partner," said Krob. She adds that many couples that come to her in this situation make financial provisions to ensure their partner is taken care of, should the relationship fall apart or one of them passes away.

In the end, Krob believes a cohabitation agreement should be used to strengthen a relationship.

"Everyone is going to look out for themselves a little bit, but it's also about looking out for your relationship going forward," she said. "It's not always about the property, but about finding a way to discuss starting a life together."