The start of a new romantic relationship is always a happy occasion. Most couples start without worrying much about what happens if the relationship ends. Others who may be more cautious or savvy may opt to enter into cohabitation or pre-nuptial agreements to protect their assets and property. However, these agreements are not as bulletproof as people likely want them to be. And some people have learned that lesson the hard way in court.
Background and Timeline
Peter and Kathy began a marriage-like relationship in January 2017 and married in October 2020. Both were in their late fifties/early sixties at the time, were previously divorced, and had their own adult children from previous marriages. Kathy was a lab technician, and Peter worked on jobs relating to the design of boats and designing or renovating homes.
In the fall of 2018, Kathy approached Peter about signing a cohabitation agreement. Kathy wanted to protect the assets she acquired prior to their relationship including the Vancouver home that they were both living in mortgage-free. Peter, on the other hand, only had a boat, a truck, some work tools, and debt. Peter agreed. He had no desire for any of Kathy’s assets anyway.
The cohabitation agreement contained the following:
- Peter and Kathy’s assets would remain separate and continue to be separately owned in the event of a separation or on death,
- Any increase in value of their respective assets and any assets later acquired using their respective assets are also considered separate assets,
- If they wished to co-own any assets, they must: (1) register the property in joint names; or (2) record in writing that they co-own the property,
- Co-owned property is considered co-owned in proportion to the direct monetary contributions made by each of them as opposed to indirect contributions such as labour, and
- The cohabitation agreement continues to apply regardless of any material changes in circumstances including if the parties get married.
The cohabitation agreement also had a clause which acknowledged that the agreement may be set aside in the event of court intervention.
In 2019, Peter and Kathy dreamed about building a home for themselves during their retirement years. They purchased a plot of land to build their dream home for $260,000 in Naramata, BC, a small unincorporated community about an hour drive south of Kelowna. Peter was eligible for the first-time home buyer’s plan (“HBP”), so Kathy asked him to contribute $5,000 of his savings to a registered retirement savings plan (“RRSP”) in his name to be used for the HBP. Kathy also added $30,000 to the RRSP giving them $35,000 to be used for the HBP. The balance was financed by a mortgage registered against Kathy’s Vancouver home. The dream home was registered in Kathy’s name.
Construction of the dream home was largely self-handled. Peter designed the home and worked on the construction site most days while living in a trailer on site. Kathy worked in the Lower Mainland on weekdays but remained very much involved.
They set up a company called Sarabande to pay for constructions expenses. Kathy was the sole director and shareholder of Sarabande as Peter’s bankruptcy hindered Sarabande’s ability to open a corporate bank account.
Contribution of funds into the Sarabande account were not equal. Peter would deposit his earnings from other construction projects he was working on for other clients. Kathy also contributed her own funds and obtained a construction loan for $445,000 secured against her Vancouver home—all of which was deposited into Sarabande’s account.
In the summer of 2020, Peter was struck in a car accident and sustained significant injuries. Despite this, Peter resumed working on the dream home a few days later. His accident caused Kathy’s mental illness to decline rapidly, and she took disability leave with reduced pay as a result. She ended up retiring without ever returning to work. Instead, Peter and Kathy dedicated their full time to finishing the dream home.
Construction of the dream home ran significantly over budget. Most of the balance was covered by Kathy who cashed out investments she owned before the relationship and borrowed additional loans and lines of credits from lenders and siblings.
The dream home was finally finished in December 2021. Around that time, Kathy told Peter that she wanted to leave the dream home to her daughter in her will, shocking Peter and straining their relationship. They separated around May 2022. Peter moved out of the dream home in April 2022, and Kathy remained while renting out a portion as an Airbnb. The Airbnb proceeds were used to pay for property taxes, home insurance, and the various mortgages and loans used for the dream home. Kathy later moved back to her Vancouver home with her son.
Peter commenced divorce proceedings and sought for unequal division of the dream home. Kathy claimed that the dream home was entirely her property based on the terms of the cohabitation agreement. The dream home was solely registered in Kathy’s name and under the cohabitation agreement, ownership of property is determined primarily by monetary contribution and not labour.
The Court’s Analysis
The case Nicol v. Lau, 2024 BCSC 1866, in part determined whether the cohabitation agreement should be upheld or set aside. Sections 93(3) and 164(3) of the Family Law Act provide a property agreement may be set aside or replaced in whole or in part if the agreement is “procedurally unfair”—namely if one or more of the following circumstances existed when the parties entered into the agreement:
- a spouse failed to disclose significant property or debts, or other information relevant to the negotiation of the agreement;
- a spouse took improper advantage of the other spouse's vulnerability, including the other spouse's ignorance, need or distress;
- a spouse did not understand the nature or consequences of the agreement; or
- other circumstances that would, under the common law, cause all or part of a contract to be voidable.
The judge found that the cohabitation agreement was procedurally fair. The agreement contained a schedule listing all of Peter and Kathy’s assets. There was no evidence that Kathy hid her full financial picture or pressured Peter into signing the agreement. Peter also received independent legal advice before signing.
The judge then had to determine whether the agreement in substance is “significantly” unfair. The term “significant” is defined in Remmem v. Remmem, 2014 BCSC 1552, as something “weighty, meaningful or compelling” that is “extensive or important enough to merit attention” Section 93(5) sets out factors to consider:
- the length of time that has passed since the agreement was made;
- the intention of the spouses, in making the agreement, to achieve certainty;
- the degree to which the spouses relied on the terms of the agreement.
This step tipped the balance in Peter’s favour. Though there was little time that passed since the cohabitation agreement was made, the judge held that the construction of the dream home, plus all the steps that were taken to finish construction, were changes that were too significant to have been contemplated when devising the cohabitation agreement.
Kathy’s claim to the dream home relied significantly on the facts that she shouldered most of the financial burden of construction, most of the property at issue was under Kathy’s name, and the cohabitation agreement had specific guidelines as to the steps needed designate property as jointly owned. However, other circumstances, including Peter and Kathy’s consistent representations to each other and other people that the dream home was their property and Peter’s extensive dedication to constructing the dream home from start to finish, were too much for the judge to disregard. If either was truly concerned about how ownership of the dream home would be decided under the cohabitation agreement, they should have had such discussions earlier. However, they did not have any formal discussion about ownership until after the dream home was constructed in December 2021.
Thus, the judge found that neither Peter nor Kathy relied on the cohabitation agreement to determine ownership of the dream home. This led the judge to rule that the cohabitation agreement should be aside when determining the ownership of the dream home and that the dream home ought to be considered family property to be divided.
Key takeaway
This case is an important reminder that certain agreements, such as cohabitation agreements, can only protect you to a certain extent. If you and your partner make decisions or act in a way about a property that suggests that you are not relying on the cohabitation agreement, the courts may find that such property is outside the bounds of the cohabitation agreement. Make sure that you always keep in mind the terms of your agreement and follow those terms, especially when dealing with property ownership.
In the end, the courts will care less about words in a document and more about the actual reality and facts surrounding your situation.
Cases
- Nicol v. Lau, 2024 BCSC 1866
- Remmem v. Remmem, 2014 BCSC 1552