Courtesy: Star Phoenix
They say that two can live cheaper than one. Since it takes so much to afford a decent home, some couples live common-law. Combining two incomes usually provides a nicer lifestyle.
Sometimes engaged couples purchase their first home before walking down the aisle, while they save and prepare for their upcoming wedding.
Even if you have not yet decided to make any commitments to each other, the government will make some commitments for you. All it takes is the passage of time.
After one year
When you file your tax returns, you must declare your marital status as a common-law couple rather than as two singles after you have lived together in a conjugal relationship for one year (or sooner if you have a child).
For a retired common-law couple, pension splitting becomes an option. Age, pension and disability tax credits are transferable. You can combine medical expenses. Be sure to use the same tax preparer.
Upon death, RRSP and capital gains rollovers become possible. As well, the surviving partner can apply for survivor benefits from Canada Pension Plan (CPP) and the deceased partner's employer pension plan.
On the other hand, entitlement to GST credits, Child Tax Benefits and Guaranteed Income Supplement could be reduced, or come to an end. You must combine your incomes for such income tests.
After two years
Each province sets its own rules for dividing property of common-law couples.
In Saskatchewan, two years of cohabitation mean that common-law partners become spouses, the same as newlyweds, for the purpose of dividing family property on death or if the relationship breaks down.
If a common-law spouse dies without a will prior to the second anniversary, the survivor cannot claim any of the deceased partner's estate. Even though living together for one year is enough for tax-free rollovers, you need a valid will (or joint ownership or a beneficiary designation) to ensure your partner inherits.
Note that in Saskatchewan wills are automatically revoked on the second anniversary of cohabitation. This rule is unique to Saskatchewan. If you die after two years of living together, with no valid will, your surviving spouse can make a claim under Saskatchewan laws for much or all of your estate.
What if you were to die (or break up with your partner) shortly after your second anniversary? Your cohabitation start-date determines when your spouse gains and your adult children lose valuable property rights.
Worse yet, a person can be married and have a common-law partner at the same time. Imagine two spouses competing to inherit.
What if you die and your surviving partner has to ask the court to defend entitlement to pensions and property? Your estate may be tied up in litigation for years. Legal fees reduce the size of your estate.
If you have lived common-law for less than two years, or have acquired real estate together, you need to understand and clarify your mutual inheritance and family property rights.
Seek legal advice about signing a cohabitation agreement spelling out mutual property rights, support obligations and providing for children from a previous relationship. If you have lived together for less than two years, draw up new wills in contemplation of becoming spouses once the second anniversary date arrives.
Joint ownership of real estate with an adult child does not guarantee that your child will automatically inherit that property.
Buy life insurance if you want to guarantee that your loved ones receive a cash inheritance even if your will is overturned by a court order.
Why not get married? Then, you'd have statutes to provide clear rules from Day 1.
If you live common-law, seek legal advice. If you do nothing, be prepared for the government to impose the rules for you.
Terry McBride is a member of Advocis and works at Raymond James Ltd, which is a member of CIPF. Financial planning and insurance are offered through Raymond James Financial Planning Ltd., which is not a member CIPF. The information contained in this article was
obtained from sources believed to be reliable but should not be considered personal advice.