A cohabitation agreement between two unmarried parties who plan to live together can set out their rights and obligations in the event their relationship breaks down. Non-married couples can tailor a financial arrangement to their unique wishes and structure a domestic agreement that can provide some certainty to couples who fall outside the property regime applicable to married spouses. When parties contemplate signing a cohabitation agreement, they should be aware of the effect that reconciliation after separation may have on the validity of an agreement.
The traditional common law principle is that a separation agreement becomes void after reconciliation. How does the common law principle apply to a cohabitation agreement?
Should a Cohabitation Agreement Become Void Upon Reconciliation?
That question was recently put before the Ontario Court of Appeal in Krebs v. Cote. Mr. Krebs and Ms. Cote began an “off-and-on-again” relationship in 2006 with numerous separations. In October 2012, Ms. Cote’s mother purchased a home as a residence for her daughter. Between December 2012 and January 2013, the parties resumed cohabitation and entered into a cohabitation agreement. The agreement provided that upon the breakdown of the relationship, Ms. Cote was to vacate Mr. Krebs’ home upon payment of $5,000. A short time later, Ms. Cote moved out of the house after receiving payment of $5,000 as provided for in the agreement. By 2014 the parties had reconciled, married, and Ms. Cote moved back into Mr. Krebs’ home. By January 2019, the relationship had broken down for the final time.
The motion judge was tasked with deciding whether separation followed by reconciliation terminated a cohabitation agreement. If the agreement were not in force, Ms. Cote would have a right to equalization of net family property. The motion judge found that the cohabitation agreement could not be enforced due to the parties’ reconciliation. This decision was reversed on appeal.
Parties are Encouraged to Define their Rights through Domestic Contracts
The Court of Appeal disagreed with the notion that a cohabitation agreement could not continue to apply after a separation followed by reconciliation. At common law, a separation agreement becomes void upon the parties’ reconciliation, subject to any provision confirming an intent that the agreement would be carried out notwithstanding any reconciliation. However, the Court of Appeal declined to extend that common law rule to cohabitation agreements.
The Court acknowledged that this rule dated from a time when views about marriage and cohabitation were very different. However, today marriage contracts, cohabitation agreements, and separation agreements are part of the legislative landscape, and parties are encouraged to enter into agreements that define their rights and obligations. Justice Pardu, writing for the Court, accepted that legal constructions that unnecessarily invalidate agreements are in conflict with that goal.
No Presumption in Favour of a Cohabitation Agreement’s Validity After Reconciliation
In distinguishing cohabitation agreements from separation agreements, the Court of Appeal found that separation agreements provide for a set of circumstances that come to an end on the parties’ reconciliation. The same is not true in the case of a cohabitation agreement, where reconciled parties merely return to the same circumstances originally contemplated by the agreement.
The Court of Appeal declined to find that there is a presumption in favour of a cohabitation agreement’s continued validity following a reconciliation, instead finding that the applicability of an agreement depends on the interpretation of the document and the intentions of the parties in each case. In this instance, the motion judge made errors in interpreting the cohabitation agreement by failing to analyze the intentions of the parties at the time they entered into the agreement. Rather than being restricted in time, the contract was intended to be long-lasting, with one clause noting that “the parties have considered in developing this Agreement future untold events, such as loss of income and major illness or disability.” Consequently, it was reasonable to find that if the parties cohabited under any circumstances, the agreement would continue to apply.
Include a Reconciliation Clause to Ensure Your Intentions are Reflected
In Krebs v. Cote, the Court signalled that common law principles applicable to voiding separation agreements upon reconciliation will not presumptively carry over to nullify an existing cohabitation agreement. The decision reveals the courts recognize the value of negotiated domestic contracts and are reluctant to develop legal principles in a manner that may override the couple’s intentions. Courts prefer to respect arrangements that spouses make for the division of property on the breakdown of a relationship, especially when they are negotiated with independent legal advice.
A second takeaway from the case concerns the value of tailored clauses within cohabitation agreements to ensure the intention of the parties is properly reflected. Indeed, Justice Pardu noted that it would have been preferable if the cohabitation agreement in question had included provisions dealing with the possibility of separation and reconciliation. If parties have contemplated specific scenarios and have preferences concerning property and financial matters, they should be expressly set out in a cohabitation agreement.
Contact Boulby Weinberg LLP in Toronto for Experienced Drafting of Marriage Contracts and Cohabitation Agreements
The lawyers at Boulby Weinberg LLP in Toronto focus exclusively on family law matters and can craft comprehensive marriage and cohabitation agreements that are tailored to your unique circumstances. To discuss your matter further or arrange a consultation please complete our online questionnaire or contact the firm at 647-494-0113 ext. 102.