Marriage is a wonderful institution — but who wants to live in an institution?

This Groucho Marx quote tidily sums up how some Canadians feel about married life. For whatever reason, many Canadians try living together before getting married, or bypass marriage altogether and live common-law. In fact, according to an Ipsos-Reid Corp. poll conducted this past spring, almost half of Canadian adults have lived or are living with a romantic partner without being married.

The same poll, conducted for www.lawyers.com, discovered that most of these couples (59%) believe that their partnership qualifies for the same rights upon separation as a married couple’s.

As any advisor will attest, they’re mistaken. And this misconception can be costly.

Consider the case of one of Janet Freedman’s clients who, more than a decade ago, had her partner move into her house in Toronto. For several years, she threw money into the house he still owned north of Toronto. “He kept talking her into mortgaging her house to bail out the property up north,” says Freedman, a fee-only certified financial planner and registered financial planner with Finance Matters in Toronto.

The only problem with this strategy is that the house was in his name and, after the relationship disintegrated, she had no rights to it. “She was under the illusion that they owned everything jointly, just the same as in a marriage,” says Freedman.

Part of the blame for the confusion lies with the Canada Revenue Agency. For tax purposes, the CRA has long considered common-law relationships, defined as a relationship in which a couple has lived together as partners for more than 12 months — less, if they are raising a child together — on par with marriages.

This can lead to a false sense of security, according to Linda Cartier, a CFP and RFP with Financial Decisions Inc. in Sudbury, Ont.

Common-law couples should be looking to provincial family and property laws. Those are the laws that count when a relationship breaks down or a partner dies. And they do not offer common-law couples the same protection they offer married partners.

“I don’t think we’re a society that’s really very good at common sense,” says Cartier. “It’s harsh but true. There’s the assumption that you would be protected.”

As co-owner of the Academy of Financial Divorce Specialists, Cartier is all too familiar with the fact that couples, whether common-law or married, are fighting the odds when it comes to spending a lifetime together. There are well-known trigger points in relationships that many couples have trouble surviving: the four- or seven-year itch, children leaving home and even retirement are ripe times for partners to step back and re-evaluate a relationship, she says.

Besides, says Freedman, “Being common-law is not a choice.” Once a couple has lived together for a certain number of years — and this varies by province (see sidebar) — they are considered common-law, with all the rights and obligations that entails.

Other societal factors can complicate matters even more. Serial relationships and blended families, for example, can make planning more complicated for common-law couples, according to Hans Ludwig, a CFP at First Financial Securities in Kelowna, B.C. People can essentially get into a common-law relationship without realizing what’s at stake.

For instance, after a certain period of time, a partner might be responsible for the other partner’s children, even if the couple splits up. This can come as a surprise to those who are just following their hearts. “With a married couple, it’s very straightforward,” Ludwig says. “But with common-law, many of them aren’t aware what they’re getting into.”

There are several things advisors need to keep in mind when dealing with common-law clients:

> Investigate. Relationships can be nuanced, and it’s important that an advisor avoid making assumptions in order to understand exactly how a couple wants to combine assets. “They have to decide whether they’re just going to pool everything or keep certain things separate,” says Ludwig. When there are children from a previous relationship, for example, the couple may want to keep some assets separate so they can be passed along to the children upon the death of the parent.

> Know The Different Rules For Property And Family Law — Or Find Someone Who Does. Advisors need to understand the legislation in the province in which they operate. Not all provinces provide for sharing of pension benefits upon a relationship breakdown, for instance. Ludwig finds it is best to encourage clients, especially those who are entering a relationship but have their own children and/or assets, to seek legal advice. He prefers that couples get this information “directly from the horse’s mouth” because the laws can be interpretative.

@page_break@Advisors should go over the couple’s paperwork with a fine-tooth comb to make sure both partners understand where the assets — pension, property, RRSPs — would go if one partner were to die.

The couple also needs to be aware that moving to another province will mean they need to revisit, and often revise, certain documents to make sure they are still protected in the new jurisdiction, Freedman says. Out-of-province vacation properties fall under their own jurisdiction, so they need to be protected through a will or they may not be inherited by the surviving partner.

> aim for honesty. “As financial planners, we have to be very blunt with clients,” says Freedman. For example, it’s important to know not only whether anyone has been declared power of attorney for property and health in each partner’s case, but also the possible ramifications of this appointment. Freedman recounts a case in which one partner in a common-law relationship became very ill and had to be hospitalized. “His children invoked power of attorney, took over everything and cut the common-law partner out,” she says.

> discuss the importance of cohabitation agreements. The Ipsos-Reid poll indicated that less than one-third (30%) of Canadians that have lived with a romantic partner had a cohabitation agreement. “That leads me to believe that there’s some degree of awareness of these documents,” says Paul Orovan, research manager for the public opinion research firm.

But such awareness is still not widespread. It’s important to have a cohabitation agreement in place to outline exactly how assets will be split if the relationship crumbles, says Freedman.

> recommend that clients leave a paper trail. Because rights and obligations begin only after you’ve lived together for a certain length of time, clients must keep a record of the date they moved in, says Sandra McLeod, a CFP and chartered accountant for McLeod Associates in Toronto. “When you get married, you get a marriage certificate,” she says. “In a common-law relationship, it’s not always clear.” It also helps to record these dates with a number of professionals so that there is some evidence in place if there is a dispute.

> create an estate plan that makes sense. It’s typical to look at strategies for switching assets from one married spouse to another, but this isn’t necessarily advisable for common-law couples, says Mc-Leod. Again, if there are children from previous relationships, some assets might need to be left out of the communal pool, for example.

> have clients sign off on their decisions. Because couples are reluctant in general to prepare co-habitation agreements, it’s important advisors put their recommendations in writing and repeat them at subsequent meetings, says Ludwig. This strategy protects the advisor and gives the message more weight, he says: “The moment they have to sign something, they want to know what they’re signing.” IE