While common-law relationships are becoming more common, many couples are still unaware that their situation is not always considered the same as a marriage under the law, according to Ian Adams, senior financial planning consultant with ScotiaMcLeod Inc. in Toronto.

Financial advisors who work with common-law couples must be prepared to inform those clients of some important issues. And those clients must understand how their financial planning may differ from those who are married.

Here are three important points you should discuss with any of your clients who are in common-law relationships:

1. Cohabitation agreements
While a cohabitation agreement should be handled by a lawyer, Adams says, you can be proactive in starting the conversation about this important document.

A cohabitation agreement dictates what will occur if the couple should end the relationship. This agreement covers areas such as division of assets and spousal support.

“While you’re in a happy relationship, you don’t always think about what would happen if you split up or if one party died,” Adams says. “But as a financial planner, you have to be aware that things can happen.”

2. Federal vs. provincial laws
For tax purposes, the federal government considers common-law couples equal to married couples if they have lived together for a year or more.

For example, common-law partners can name each other as beneficiaries on RRSPs; they can have spousal RRSPs; and they can benefit from the splitting of pension income for tax purposes — as any married couple would.

A common-law couple’s status under family law varies by provincial jurisdiction. Depending on the province in which the couple resides, regulation regarding the inheritance of property in the absence of a will can differ.

In Quebec, for example, common-law partners are considered legal heirs only if they are named in a will.

Manitoba’s Common-Law Partners’ Property and Related Amendments Act, on the other hand, allows a surviving common-law partner to receive all or most of the deceased’s property in the absence of a will. This transfer would occur if the couple had registered their common-law status with the province or had lived together for the required number of years.

Either way, wills are critical and you should encourage your clients to undergo the process of creating those crucial documents.

3. Beneficiary designations
Problems can occur when a client leaves his or her common-law partner and begins a new relationship with someone else — but has neglected to change the beneficiary designation on registered accounts or insurance policies.

If your client informs you that he or she has started a new relationship, be sure to bring up the topic of beneficiaries.

“There have been situations where the will might give everything to [the current partner],” Adams says. “But then there’s this insurance policy, where the beneficiary is still the ex-spouse or ex-partner.”