The Joy of an Ex - Common Law Relationship Financial Issues

Copyright (c) 2011 Jackie Ramler

There is considerable misunderstanding about the financial rights and responsibilities of common-law couples. Because the division of assets is not clear cut, common-law partners who do not own assets could be more vulnerable in the event of a relationship breakdown. In particular if one partner has managed the finances or earned most of the income the other partner is at great financial risk. In 1999, the Supreme Court of Canada decided that people who live together in a same sex relationship have the same rights and obligations as opposite sex common law couples. In this article "common law couples" refers to both same sex and opposite sex common law couples.

When the decision to separate has been made it is important to set financial goals in light of your changing circumstances. Assets received from the breakdown of a relationship can be used for immediate as well as long term financial needs, but should not be used to supplement monthly cash flow. Depleting assets to make ends meet is trading future financial security for current short term gains.

The following information will help a Common Law partner assess the future impact of financial decisions made during the separation process.

Tax Credits: Canada Revenue Agency (CRA) defines separation as living separate and apart for at least 90 days. Tax advice is important to ensure partners are able to claim the tax credits available to them. Some credits are available to parents who do not have custody of the children, while other credits are only claimable by the custodial parent. Under certain circumstances the higher wage earner may be able to claim child care expenses. Tuition credits cannot be split between separated parents, however it may be possible to alternate who claims the credit. "Equivalent to Spouse" may be claimed in a joint custody situation. Government benefits: Canada Pension Plan credits which the couple built up during the time they lived together can be divided equally between them, and can be split even if one partner did not pay into the Canada Pension Plan. When a common-law partnership ends, credit splitting is optional, and will only take place if one of the common-law partners applies for it.

Intestacy: In the case of a partner who dies without a will, property will go to blood relatives: children, parents or brothers and sisters. To claim part of a partner's property, the common law partner will have to go to court to prove that he or she has an interest in the property.

Estate Planning: If partners have existing wills, they are still valid. Only marriage will void a will, not a common law relationship. A common law partner does not automatically become the beneficiary of his or her partner's estate and must seek a legal remedy if not provided for in the will. Anyone financially dependant on a common law partner must be sure that both partners have properly completed wills in order to be looked after financially in the event that one partner passes away. If there are children from a previous relationship and the parent wishes to ensure the children benefit from his/her estate, a trust can be set up to provide income to his significant other for his or her life and leave the capital to the children. Be sure to review beneficiary designation on Registered Investments and insurance policies. First-Time Home Buyer: When a person withdraws money from an RRSP to which he or she is the annuitant, and the withdrawal is made under the Home Buyers' Plan (HBP) or the Lifelong Learning Plan (LLP), then that person is the one who has the obligation to repay the HBP/LLP balance. This is so even if the participant separates from his or her common-law partner, and the common-law partner is the one who kept the house, or the one who was the designated LLP student. A person does not re-qualify as a "first-time home buyer" under the HBP program simply as a result of separation or divorce.


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