Relationship status: it’s complicated

Understanding the ins and outs of commonlaw relationships as it relates to your financial situation

Not too long ago, I wrote about marriage and planning a financial future together after the honeymoon ends.

And while the advice offered at the time holds true for those headed down the aisle — and those jetting off to Niagara Falls to elope — the reality is not everyone will get legally hitched.

Census data from Statistics Canada in 2016 indicates that while most couples continue to opt for traditional marriages, more than 21.3 percent of Canadians were in common-aw relationships, up from just 6.3 per cent in 1981.

Despite the fact the number is on the rise, the rights of people living in conjugal relationships are often misunderstood.

More than that, the precise definition of common law varies from province to province, and from one institution to the next, be it the Canada Revenue Agency, employers and insurance companies.

“There's a feeling among people that common law is the same as a traditional marriage and I think there's a lot of differences,” says Rob Mclernon, a licensed insolvency trustee for Grant Thornton in Nova Scotia.

“From a financial planning standpoint, just because you guys are cohabiting and living under the same roof, you could be together 10 or 15 years, but you may not have any survivor benefits under her pension unless there's a defined beneficiary put in place. A lot of companies have varying of degrees of what they consider to be the spouse.”

In Nova Scotia, for instance, couples living together for two years are considered to be common law, but in order to obtain many of the same rights as legally married folks, they need to register as a domestic partnership.

In Prince Edward Island, the Family Law Act states that two people living together for three or more years, or those in a conjugal relationship that has bore children are considered common law. In Newfoundland — which leads the nation in formal marriage rates — it’s two years.

Even within those time-frame rules, there’s a great degree of differences when it comes to the division of property and assets, spousal support, child support and custody, and estate inheritances.

“CRA, from a federal perspective, has a different definition than the provinces than do, so depending on what you're looking at dealing with, you may be considered common law, you may not be considered common law,” explains Mclernon.

As far as the CRA is concerned, a couple is considered common law if they’ve lived together for more than 12 months, or if they’ve had a child together through natural birth or adoption, or if you together have primary custody of a child under the age of 18.

To get a better idea of the common-law rules across Canada and to avail of services like cohabitation agreements, common-law separation, and estate planning, check out commonlawrelationships.ca.

Despite what many people believe — married and common-law couples alike — Mclernon says there’s no such thing as filing taxes together.

“There are two linkages between the two files because you guys are together, so they want to determine eligibility for certain social programs — GST credits, child tax benefits and things like that — so they want to have a linkage between the two files so they can determine household income, but… they're separate files.”

It’s also important to keep the taxman abreast of your marital status. Under federal law, one must notify the CRA within a month of it changing, but if you’re going through a separation — be it the dissolution of a formal marriage of a common-law relationship — there’s a 90-day waiting period before making the change.

If you fail to correct your status, you will be asked to repay any benefits received since the separation and there’s little to no room for negotiation on the amount owed.