Many of us searching for love are not thinking about how a new relationship could end up affecting our financial affairs. In fact, to think about how your new love will affect your financial stability would, to most of us, seem cold, calculating, and a bit distasteful.
Yet it’s not news to anyone that many relationships end at some point or another. When you are in a relationship, whether it continues or not is not always up to you. So even if you know yourself really well and you’re wholly committed to the relationship, there is no guarantee that the other person will always feel the same way toward you.
My argument today is to at least turn your mind to your financial position before you move in together or get married. You don’t have to count your pennies and keep strict accounting between yourself and your new partner to make wise decisions about your relationship finances, but you should know how your choices may affect your position if your relationship breaks down. You don’t want the day you walk into a lawyer’s office to be the first time you realize that you gifted your inheritance to your spouse and didn’t know it.
When you manage your finances in your relationship, you should do so intentionally and mindfully, keeping in mind what will happen if your relationship should come to an end. And if that day should come, it will make the sorting through of practical matters a lot smoother, so you can get back to living and loving a lot more quickly.
End-of-relationship finances can be categorized into three areas: child support, spousal support, and division of debt and property. This article is about one aspect of the division of property and debt. I do encourage everyone to have a look at my spousal-support article here—it is a frequently misunderstood or unknown aspect of relationship breakdown.
The general rule for property and debt division in relationships is that any property or debt acquired during the course of your relationship (that means the day you started living together in a marriagelike relationship) to the day you separated is equally divisible. In short, you split your relationship family property and debt 50/50.
Now, there are certain types of property that are excluded from being considered family property. These include property you owned prior to the relationship, gifts from third parties, and inheritances, among other things.
Here is a common scenario: your father dies and leaves you his mortgage-free house. If he lived in Vancouver, this house is likely worth at least a couple million. Suddenly you and your spouse can afford to buy your own house. You take your inheritance and buy a house and put it in both your name and your spouse’s name. A couple years later, you and your spouse split up. Do you get your entire inheritance back because it was excluded property? Probably not all of it. Not if you didn’t think ahead.
Our Court of Appeal in V.J.F. v. S.K.W., 2016 BCCA 186 recently settled a hot debate that had been going on among family lawyers. It decided that there is a presumption of a gift being made when you take your excluded property and put it into property with your spouse’s name on it.
What this means is that if you take property that you inherited or owned prior to the relationship and put it into your spouse’s name and do not seek any compensation in return, the courts will presume that you are giving your property or part of your property to your spouse. A critical thing to know about making a gift is that part of giving a gift is you can’t take the gift back because you don’t like your spouse anymore.
So what happens then is that the house (or at least your spouse’s portion of the house) goes in the family-property pot and is equally divisible. The only exceptions to this are if you can prove it would be significantly unfair to divide the property equally, or if you had an agreement with your spouse that on breakdown of the relationship you were not gifting your inheritance to them by putting them on title to the home.
It is well worth it to at least keep this in mind when you are deciding what you want to do with the house you owned prior to the relationship or your inheritance from your parents. It also applies to parents who want to help their child by paying off their children’s mortgage. Have you considered how your gift will be split on a potential breakdown of the relationship? Did you intend it to be a gift to your child and his or her spouse? Or just a gift to your child?
I recommend that before you start putting all your property into joint names, ask yourself that if your relationship should happen to turn into a toxic mess, will you want to get your excluded property back? If so, then you need to make sure that it is clear to your spouse that you are not gifting them your inheritance or other excluded property before you take any steps to put your property into your spouse’s name or both your names together.
* Note to readers: this article applies to people living in B.C; if you live in another province, then you should check to see how the law works in your province. Family law differs from province to province.
A word of caution: you should not act or rely on the information provided in this column. It is not legal advice. To ensure your interests are protected, retain or formally seek advice from a lawyer.