When it comes to splitting finances in a romantic relationship, Ian Harvey has kept one thing clear: his house is under his name, and it’ll stay that way.
Mr. Harvey has owned his home in Toronto since 1981, and after holding on to his house after lengthy divorce proceedings, he decided his future relationships would structure finances in a way that ensured the house belonged only to him.
When partners have moved in with him, he doesn’t charge any form of rent that could be misconstrued as a right to having equity.
Instead, the 67-year-old Torontonian says partners in the past and his current partner of 11 years pitch an amount to help with food, alcohol and other consumables. It started at roughly $500 per month with a partner in the early 2000s, and his current partner pays $850.
Splitting costs in a relationship has always been able to make life cheaper, and it’s something that young Canadians like myself are especially aware of as rent in cities skyrockets. But what about when a couple includes one person who owns a home and another who just lives in it?
It’s a topic I’ve found myself discussing a lot with friends in my community, which happens to have lots of folks in their 20s and 30s who own an affordable home. It’s a common age to be dating someone who you’re close enough with to live with, but not necessarily sure if they’ll be lifelong partner.
When I posed the question “how much would you charge your partner if they lived in a home you owned,” to friends, the answers varied wildly. Some said to charge half of market rent if you’re sharing a 1-bedroom. If you’re in a home with multiple rooms, others said to charge market rent for a single bedroom.
Some people said any amount is fine as long as it’s less than the interest you pay on your loan, so they’re not paying any principal. Others said that any form of rent makes them uncomfortable, and like Mr. Harvey, they’d rather have their partner cover a greater portion of groceries, consumables and other costs instead.
The only thing everyone agreed on is that it would be unfair to split the mortgage costs evenly. That means your partner is paying into your equity, and unless they get to benefit from that, they’re paying too much.
Jason Heath, a fee-only financial planner with Objective Financial Partners, said the above notion is one of the only big truths in this conundrum. Everything else is in a grey area.
There should be some form of contribution from the nonowning partner, but what exactly that is depends on the situation: Is there an income imbalance? Is the relationship serious enough that you want them to have equity at some point? Should the rental charge be based on market rates or a discount rate?
Even if it seems uncomfortable, Mr. Heath says these money conversations are vital.
“If you don’t deal with it early on you run the risk of one or the other party being disgruntled,” said Mr. Heath.
“In a relationship you’re better off fighting about money early on.”
Want to get even more uncomfortable? A verbal agreement could be moot if the relationship ever deteriorated and the nonowning partner felt like they paid enough that they deserve some form of equity.
Family lawyer Diane Klukach says the laws around what kind of relationship qualifies as spousal and how much money they could be eligible for upon break up is extremely muddy.
If a partner ever pays more than market rent or contributes time and money into improving the home, they could argue in court for compensation. And what counts as a spouse isn’t cut and dry either. She says it’s possible for people who happen to live together, occasionally sleep with each other – but also date others and sleep in separate rooms – could plausibly be considered partners in court.
What happens then if the nonowner helped with a renovation or two?
The only way to be absolutely clear on the division of assets is with a cohabitation agreement, which is like a prenup for unmarried couples. Whatever is written is legally sound, even if the nonowning spouse pays half the mortgage but doesn’t gain any equity.
Mr. Harvey has a cohabitation agreement with his current partner, and Ms. Klukach estimates they generally cost between $3,500 to $5,000 with a family lawyer.
That’s not to say getting into a cohabitation agreement is easy.
In my generation, I’ve seen friends move in with their partners to a rental home after just months of dating. Imagine if one of those people just happened to be moving into their partner’s home, only to be asked to sign a cohabitation agreement a few months into your relationship. Sounds like a good way to kill the mood.
Another issue is that couples don’t realize just how tricky it can be to hash out the many financial considerations in a cohabitation agreement.
Mr. Heath says roughly half of the couples that he helps with cohabitation agreements eventually back out of the process because of how unexpectedly complicated and emotional the process can get.
Another factor is that each person generally has to have their own lawyer, and if one of the lawyers feel strongly about their clients rights in a particular area, things can become adversarial.
If you think that it sounds like way too much for a relatively new relationship, I don’t blame you.
Nonetheless, Mr. Heath and Ms. Klukach recommends protecting yourself with a cohabitation agreement, whether you’re the owner or the nonowner.
“Leaving it alone isn’t going to solve it, there’s a pretty good likelihood that at some point you’ll need to deal with dividing assets,” said Mr. Heath.
“It’s easier one way but both ways suck.”
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