Given that the sheer number of spouses who separate has increased cumulatively over the years, then the number of people who re-partner must also be increasing. This results in an increase in the number of people who should protect themselves, and their net worth in the event of a separation from their second (or third or fourth) spouse, whether that is a married spouse or a common-law spouse. However , I am sometimes surprised by the number of people I meet, not only in my professional world but also in my social circles who will tell me that they are in a new relationship and that things are great. When I casually ask them if they took any steps to safeguard their assets from having to be shared with their new spouse in the event of a separation, I am often greeted with a surprised look or a blank stare.
Once the initial surprise wears off, they sometimes will ask for more information. In general terms I will tell them that in most jurisdictions, married spouses are entitled to share in the growth of the other spouse’s net worth during the marriage. In Ontario, in general terms, if a husband is worth $200,000 upon remarriage and he is worth $300,000 at the time of separation and his wife was worth $100,000 at the time of the marriage and is worth $120,000 at the time of separation, then the husband would owe the wife an “equalization payment” of $40,000. The husband could have been able to avoid this eventually through the use of a marriage contract in which both spouses would have agreed not to share in the net financial growth of the other spouse at the time of separation.
Even greater inequities could result in the circumstances where one spouse brings a house into the marriage and that is the same house at the date of separation. In Ontario, the owning spouse could lose the ability to deduct the net equity in the house at the date of marriage and have to share the entire equity in the house at the date of separation with the other spouse. Again, this “unfair” result could have been avoided through the use of a marriage contract.
Couples that cohabit in a common-law relationship could face even more challenges in the event of a separation. There are no clearly defined legislative provision governing how common-law couples are to divide their property if they separate. Depending on how long the couple are together, there could be very complicated negotiations as to whether one spouse is entitled to an interest in the other spouse’s property. This could arise if one spouse has contributed to the mortgage payments, payments made for improvements to the property, or “sweat equity” being contributed to the upkeep of the property. This analysis can become very detailed and time consuming. Common-law spouses can minimize the possibilities for disputes by entering into a cohabitation agreement.
If you are considering a new relationship please consider taking some steps to protect what you are bringing into the relationship, or , “love may NOT be sweeter, the second time around”