Note: This article was originally published on LawNow.org by our attorney, Mathieu Maillet. We are pleased to share it here for our readers. For the original version, please visit the original article on LawNow.org.
The Family Property Act says how adult interdependent partners (AIPs) divide their property on separation. But it seems to prohibit unmarried couples from signing a cohabitation agreement about property before they become AIPs.
There is a gap in Alberta’s Family Property Act (the Act) that has not really been discussed since it became law on January 1, 2020 and replaced the Matrimonial Property Act. The Act instructs how Adult Interdependent Partners (AIPs), also colloquially known as “common law,” will divide property if they separate.
For context, individuals become AIPs in one of three ways:
- they live with a partner for 3 years or longer,
- they live with a partner and a child by birth or adoption, or
- they sign an agreement which turns them into AIPs.
The Act says that AIPs, when they separate, will equally divide most of the property they acquired during the time that they lived together. This used to only be the case for married spouses. To be clear, this period starts on the date they begin living together, not on the day that they legally become AIPs. This means that property acquired in the three years before they became AIPs is included in the property that is equally divisible.
The Act allows AIPs and spouses to agree in writing not to follow the Act’s rules and to divide their property some other way. Where the Act falls short is that it does not allow unmarried couples to sign a cohabitation agreement opting out of the Act’s rules before becoming AIPs. However, spouses can enter prenuptial agreements contracting out of the Act before getting married. The Act goes further and says cohabitation agreements are unenforceable if someone signs one when they know or ought to have known they were not AIPs at the time of signing the agreement.
What are the consequences of this gap?
The Act does not allow AIPs to contract out of having to equally divide most of their property until after they have already become entitled to an equal part of their partner’s property. Further, there are potentially many couples who have signed cohabitation agreements before becoming AIPs, believing that it will protect their property, which may not end up being enforceable after they become AIPs. Instead, their property may be divided equally under the Act.
How to address the gap?
Unfortunately, the courts have not yet said how to address this gap. As a result, there are no clear options for guarding against the gap and the risk it poses to a couple looking to live together but not risk being sued in the future for 50% of their property. Some of these options are described below.
1. Use the cohabitation agreement to turn the couple into AIPs
The Act allows a couple to become AIPs if they sign an adult interdependent partner agreement, even if they have not yet lived together for three years or do not have a child together. This option involves declaring the couple to be adult interdependent partners in the cohabitation agreement. The couple, upon becoming AIPs, are allowed to contract out of the family property rules.
The drawback of this option is that the newly formed AIPs now have the other responsibilities that come with being AIPs, including potentially being liable for partner support under the Family Law Act. If a couple separates before becoming AIPs and didn’t sign a cohabitation agreement, then neither person can bring a partner support claim under the Family Law Act. If the agreement turns the couple into AIPs, then one of them could bring a claim for partner support, even if their relationship is short or if they never had a child together. However, starting a claim does not mean the claim will be successful. It only means a partner can bring the claim, which they could not do if they had not become AIPs through the agreement.
When using this option, a couple can address partner support in their cohabitation agreement. If the couple cannot agree on how they would like a court to allow or not allow partner support, then this strategy for protecting property from division under the Act may not be appropriate.
This strategy may be reasonable for a couple who is close to naturally becoming AIPs, such as a couple who has been living together for nearly three years, or who is actively trying to conceive or adopt a child. These couples may be less concerned with the risk of claims under the Family Law Act since they are likely to become AIPs even without signing the agreement.
If a couple signs a cohabitation agreement that also turns them into AIPs, there must be two witnesses for each partner’s signature. The Adult Interdependent Relationships Act requires this when signing an adult interdependent partner agreement.
2. Have the cohabitation agreement direct the couple to re-sign it when they become AIPs
The cohabitation agreement can include a term that says the couple must re-execute (re-sign) the agreement as soon as they become AIPs.
The benefit of this option is that, if the couple complies and re-executes the agreement after becoming AIPs, the agreement will be fully enforceable under the Act.
The drawback to this option includes the time and cost associated with returning to the lawyer’s office. There is also a risk of one person refusing to re-execute the agreement, and the other person having to sue them to enforce the terms of the contract. The court has not given a decision directly on this issue, and so it is unclear what sort of damages for breach of contract the suing person can ask for.
It is also not clear if a court would enforce this type of agreement. Section 38 of the Act requires each person to acknowledge they are executing the agreement freely and voluntarily without pressure from the other person. Because of this, it is uncertain if an agreement signed under the pressure of having to re-execute the agreement would be enforceable.
3. Include a re-execution clause in the cohabitation agreement
A re-execution clause deems the agreement to be re-executed by the couple after they naturally become AIPs under the Act. An example of this kind of clause might read:
In the event that the parties are deemed to become Adult Interdependent Partners under the Adult Interdependent Partnership Act and the Family Property Act, then they are deemed to have re executed this Agreement in compliance with Section 37 and 38 of the Family Property Act such that its terms remain enforceable and in full force and effect.
The benefit of this clause is that it is a simple and elegant solution to the gap in the Act. The couple only needs to sign the cohabitation agreement once, which saves them the time, money, and the effort of returning to the lawyer’s office to re-execute the agreement. It also honours the original agreement and doesn’t allow a partner to later renegotiate the agreement if they are unhappy with it after becoming AIPs.
The drawback of this option is that there is no case law confirming whether this type of clause is enforceable under the Act. If a court were to find the clause unenforceable, then the equal division of property rules under the Act may apply.
That being said, there is case law that discusses the concept of Evergreen Contracts and Perpetual Contracts in different contexts that do not involve the Act. Evergreen Contracts are contracts that automatically renew once they expire without the parties having to re-execute the contract. Perpetual Contracts bind parties to its terms forever without the need for re-execution or extension. In the 2017 decision of Uniprix inc. v Gestion Gosselin et Bérubé inc., the Supreme Court of Canada found that both Evergreen and Perpetual Contracts can be enforceable, even if their renewal is controlled by one party or is automatic, or if they continue in perpetuity without a need for re-execution. Given that Evergreen and Perpetual Contracts can be enforceable, it is possible that re-execution causes in a cohabitation agreement may also be enforceable.
As always, a court decides a contract’s enforceability on a case-by-case basis. This means a court may find that cohabitation agreements executed before the parties became AIPs are unenforceable for reasons such as them not being regular contracts and instead being contracts that have specific legislative requirements to be enforceable.
It may not be wise to rely solely on a re-execution clause to ensure the cohabitation agreement is enforceable.
4. Have the cohabitation agreement recognize that its terms are a just and equitable division of property
This option should be used alongside the re-execution clause described in option three.
The court can decide that AIP’s property should not be divided equally if it would be just and equitable to do so. One of the factors the court considers when determining a just and equitable division of family property is the terms of any oral or written agreement between AIPs.
If the court finds the re-execution clause is unenforceable, then the couple can rely on their intention to have the contract govern the just and equitable division of their property. To do this, the contract will likely need to say the couple intends to divide their property in the way described in the agreement after considering Section 7 and Section 8 of the Act. In the agreement, the couple will also have to agree that the property division they have described is just and equitable.
When drafting the agreement, a couple should be careful not to accidentally claim themselves to be AIPs. They may even want to explicitly say in the agreement that they are not AIPs at the time of signing it and that the agreement is intended to bind them even if they become AIPs.
A benefit of this option is that the couple gets to rely on the potential security of a re-execution clause while also being able to argue the agreement sets out their intentions for a just and equitable division of property if the re-execution clause is unenforceable. The parties also do not have to return to their lawyer’s office to sign the agreement again. Further, these terms do not nullify the agreement under the Act as the agreement does not claim the parties are already AIPs.
The drawback to relying on these terms is that the court could find other factors to justify dividing property in a way that does not reflect the agreement. This risk is lessened as current case law already recognizes the right of parties to rely on fairly negotiated agreements despite failing to comply with the Act’s requirements. The court has gone as far as enforcing agreements orally agreed to by couples during mediation because the agreement reflected the intention behind the Act.
No perfect solution
Overall, there is no perfect solution to this issue. However, knowledge of some of the options available can ensure a couple is best situated to confidently rely on their cohabitation agreement for dividing property if they were to ever separate.
AUTHOR’S NOTE: Thank you to Ken Proudman, partner at BARR LLP, for providing editorial assistance in preparing this article. Photo by Karolina Grabowska from Pexels
