Many Canadians are confused about the key differences that govern common-law spouses who separate and married partners who divorce.

The confusion is understandable, because the answers to these questions are complex and vary from province to province, as well as between the federal Divorce Act and provincial family-law legislation. Another key reason is that while many people now live in common-law arrangements, it is a relatively recent trend and the rules for married couples remain the best known.

However, the distinctions between the two situations can make a significant difference to the financial stability of former partners. Indeed, all clients who are considering cohabiting, whether married or not, are well advised to become informed of their legal rights and their obligations to their partners.

As an advisor, you are in a strong position to help couples sort out these issues, no matter the stage of the process your clients may find themselves in. If you can answer the most common questions and understand which areas require legal advice (before or after separation), you are likely to bolster your client relationships.

Probably the single most misunderstood — and significant — issue is that of communal property. Many common-law spouses believe they have the same property rights as married couples. But the majority do not. When married spouses separate and divorce, the division of their property is governed by provincial family legislation. Generally, divorcing couples divide the increase in the value of property they have used together or acquired during the marriage, no matter who is the owner, with certain limited exceptions.

But the rules for common-law couples are different. In most provinces, there is no right to a division of property owned by either spouse. So, in most cases, what matters for common-law couples is: who actually owns the property, including the home in which they live. Only in Manitoba, Saskatchewan, the Northwest Territories and Nunavut are common-law couples generally treated as if they were married. British Columbia is considering revising its legislation to treat common-law couples as if they were married. In all jurisdictions, both married and common-law spouses can contract about support and how they will share assets, with certain limits.

Rules governing support for divorcing spouses and their children fall under the Divorce Act. Support for common-law couples is dealt with under provincial legislation. But federal guideline tables for support of both children and spouses are often used by separating common-law couples.

So, some of the most important advice you can give clients considering or already in a common-law relationship is: “Know your rights” in the jurisdiction in which you are or will be living, says Debbie Hartzman, a certified financial planner and certified divorce financial analyst with Professional Investments Inc. in Kingston, Ont.

There are some exceptions to the general rule that common-law spouses do not share in property they do not own. One is the principle of “unjust enrichment.” In essence, if one partner provides a service that makes a measurable economic contribution to wealth that the other partner accumulates during the period of cohabitation, the value of that wealth may be apportioned between the two partners. This situation often arises when one spouse has left the workforce to care for children.

In the past, these types of claims have been difficult to enforce. However, the Supreme Court of Canada recently ruled on this issue and has substantially widened the number of situations in which this type of claim may succeed. Two cases were heard by the court at the same time, both involving common-law spouses in relationships of significant duration (25 years and 12 years, respectively).

The SCC concluded that unjust enrichment is no longer confined to calculating the value of a service that a non-owning spouse contributes; it should be based on whether the parties intended to have a “joint family venture.”

Both non-owning spouses were awarded a share of the other spouses’ property accumulated while they lived together. In a note, law firm Aird & Berlis LLP wrote: “Persons entering into common-law relationships will now have much more reason to ensure there is a domestic contract in place if they want to protect their individual assets.”@page_break@Common-law partners can gain the property rights of married couples without ending up in court. They can register as a “civil union” in Quebec or as a “domestic partnership” in Nova Scotia. In Alberta, couples can register as an “adult interdependent relationship.” Doing so, notes Christine Van Cauwenberghe, director of tax and estate planning with Winnipeg-based Investors Group Inc. , will give unmarried couples rights similar to those of married couples.

Another way common-law spouses can acquire property rights is through a cohabitation agreement or domestic contract. The partners should also have a will. Such contracts, if executed properly, supersede many statutory family and estate laws.

These contracts can cover support for either partner, among many other matters. The main area in which partners, whether married or not, cannot “contract out” of statutory law is in situations in which the rights of children are involved, Hartzman says. In general, support obligations toward children arise as soon as the child is born. “Children are dealt with cleanly and strongly under family law; they are always protected,” says Linda Cartier, CFP, financial divorce specialist and president of Financial Decisions Inc. and of the Academy of Financial Divorce Specialists. (Both organizations are based in Sudbury, Ont.)

Hartzman emphasizes the need for independent legal advice to ensure such agreements are valid. She mentions two key areas: your client must make complete financial disclosure; and sufficient time must be provided for negotiating the agreement to avoid the argument that one of the partners was “under duress” when he or she signed.

Financial advisors can and often should be involved. But, Hartzman says, they should also take care not to give legal advice.

What’s included in a cohabitation agreement is up to the two parties, but some matters are essential. First, there must be agreement on what assets each partner is bringing into the relationship and whether those assets are to be shared on death or separation, and in what proportions.

Second, the couple must discuss the home they will be living in. If they are acquiring a house and both partners are contributing equally to the down payment and mortgage payments, the property’s title should be in both names. If one partner contributes more to the house purchase, the partners can agree on how they will apportion their shares — it need not be an equal division.

Similar decisions will have to be made if the couple acquires other property while living together. Those decisions should be included in updated agreements.

The couple should also discuss financial assets as well as responsibilities for household expenses and retirement income. Cartier warns that if a common-law spouse co-signs a loan related to a debt of his or her partner and the partner subsequently defaults, the non-defaulting spouse will be responsible for the entire debt and, in the case of separation, that debt may not be offset, as happens with a married couple’s assets when considering division.

Inheritances can be an issue. For married couples in most jurisdictions, these are excluded from the shared assets unless the inheritor gives or leaves the money to the partner, or if the inherited assets become commingled with the couple’s finances.

Commingling can include the use of inherited assets to pay off some or all of a mortgage on any property that is jointly owned or adding to a joint account. But the partners can use a properly executed agreement to exempt an inheritance from shared assets, even if used for a joint purpose.

Being named the beneficiary for RRSP assets does not guarantee your client will get them; the owning partner can change the beneficiary at any time. Pensions are different: once a spouse, common-law or married, has been named the beneficiary, Hartzman explains, they cannot be removed unless the beneficiary agrees to the change in a properly executed document.

The same principle applies to wills. Most provinces have legislation that prevents married testators from excluding spouses from their wills, unless the spouses have agreed otherwise in a domestic contract. IE