Cohabitation and Protecting a Business

Joshua and Ruth have lived together for a year. They are worried about family law being extended to cover common-law relationships, and have decided a cohabitation agreement is necessary in their situation. A business is involved.

Joshua has owned and run a plumbing business for many years. He has been thinking of putting Ruth on the books for tax reasons, but he doesn’t want her to have a right to half the business in the event that they separate. If he incorporates his business and gives Ruth shares, he believes that she might, under family law, have a greater or additional entitlement to the business.

He is probably right. Any increase in the value of the business from the time they began living together to the time they separate could be included in the valuation of the net worth of the family property, which is especially likely if Ruth’s contribution to the home would be considered as having enabled Joshua to keep more money in the business and thus increase its profitability.

To avoid this situation, Joshua wants a cohabitation agreement that clearly states that any increase in the value of the business is his alone, save and except for the amount to which Ruth would be entitled as a shareholder.

Ruth understands that by agreeing to those terms, she is decreasing the amount of property in which she would share if the relationship breaks down. She has therefore asked Joshua to transfer title of the house from himself to the two of them as joint owners. That way there can be no question that they are equally entitled to the house. Since it was Joshua’s house before they began living together, she feels that she would likely be the one who would have to move, were they to separate. She would then have all the expense of moving and setting up a separate household.

She also believes that Joshua’s income and the profit from his business is considerably greater than her income as an office administrator. Thinking about her future, she wants the agreement to include a statement that each understands that he or she has an obligation to support the other, at least for a couple of years following the separation.

Ruth feels that in this way, she will be compensated for her contributions to the household, but she is likely entitled to some level of support regardless of the agreement. She would be better to negotiate a specific entitlement to some other substantial asset, such as Joshua’s RRSP, in return for giving up her right to a share in the business.

About This Article if-you-love-me-large
This is an excerpt from the book and CD kit, If You Love Me, Put It In Writing, by Alison Sawyer, BA, LLB. The book explains how you can write your own prenuptial agreement, cohabitation agreement, or marriage contract, and includes the forms you will need.

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