Common Law Partnerships and Marital Property: Time for a Change?

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Introduction

Every family law lawyer is aware of the pervasive, but mistaken, belief that long term common law heterosexual partnerships are now treated in law in the same way as marital partnerships. They can all tell stories of women who learn too late that they cannot rely on marital property laws to make an equal division of property on the breakdown of a partnership or that they do not benefit from laws that make a spouse the primary beneficiary if a partner dies without having made a will.

The Supreme Court of Canada decided in Walsh v. Nova Scotia, [2002] 4 S.C.R. 325, that the constitutional equality guarantees did not require that provincial property laws treat marital and common law heterosexual partnerships in the same way. Recently some Canadian jurisdictions have changed their laws on partnerships and property, usually as part of their comprehensive legislative response to the Supreme Court of Canada’s decision in M. v. H., [1999] 2 S.C.R. 3, which required that same sex partnerships be given some legal recognition. Saskatchewan, Nunavut, and the Northwest Territories laws treat married and common law partners in the same way for most, if not all, property laws if the pair have lived together for two or three years depending on the jurisdiction. This treatment can be called an « ascription » system. Quebec and Nova Scotia treat common law partners who have formally registered their union the same way as married partners for property law purposes. Manitoba has both an ascription and a registration system for recognizing common law partnerships.[1] All of these laws apply to both same and opposite sex common law partnerships, except in Nunavut which only recognizes opposite sex partnerships.

In my view, there are four reasons why the provinces [2] should adopt an ascription system that gives all same and opposite sex common law partners the same property rights as married partners when the partnership ends. I will focus on marital property but the same analysis applies to other property laws.

Rationales for Marital Property Regimes

Three rationales support marital property laws. First, such laws recognise that both partners make equal, although perhaps different, contributions to the financial well-being of a partnership and therefore a presumption of equal division is the fairest presumption to make if the partnership ends, unless the parties have specifically agreed otherwise. Second, they ensure that the more financially vulnerable member of a partnership is protected if that partnership breaks down. Finally marital property laws provide an expeditious process for resolving disputes.

Each of these three rationales for having marital property laws apply with equal force to common law partnerships. Most long term heterosexual common law partnerships are functionally equivalent to married partnerships in terms of, for example, joint planning for the future, especially retirement; gendered divisions of labour, including child caring responsibilities; the strength of a female partner’s labour force attachment or detachment through child bearing or moving to support a male partner. While same sex partnerships are less likely to be characterized by gendered divisions of labour, people in these partnerships do make joint decisions about what is in the best interests of the partnership rather than individual self interest and these decisions will often adversely affect the income earning power of the lower income earning partner to the benefit of the higher income earning partner. Income tax planning provisions, like the income splitting provisions create tax incentives for second income earners to leave paid labour. Intra-couple transfers for tax purposes that apply both to marital and all common law relationships tend to promote economic dependency especially where there are significant disparities between spouses’ incomes.

I should underscore that an ascription model should only apply to a partnership that has lasted for more than 3 years unless there are children. This relatively lengthy time period makes sense because the joint economic decisions and compromises made between couples, which are the rationale for marital property regimes, are unlikely to have been significant in partnerships of less than three years.

Arbitrariness of the Exclusion

Many people in common law partnerships have sought, through litigation and law reform, the public and private benefits and obligations given to married people, and the exclusion of some property rights now seems, at best, arbitrary. As Kathleen Lahey has observed [3], Canadian income tax and transfer income policies have actually moved significantly in the opposite direction of many other countries, that is, toward using the couple as the basic unit in government policy in increasing numbers of programs. Tax policy, in particular, has struggled to bring intra-couple transactions into line with laws relating to family property. Thus if tax policy recognizes all couples as basic units of taxation in a number of programs the lack of symmetry with provincial regimes can be unfair.

Two examples help illustrate this unfairness. There was litigation for years on the inability to register RRSPs that did not permit survivorship rights for common law partners on the presumption that people would make retirement plans relying on these survivorship rights. The division of pension plans on the breakdown of these partnerships is really nothing more than a rearrangement of these plans in light of the fact that the parties will now not be together during retirement. Another example involves the claim for a capital gains tax exemption on the appreciation on a principal residence. Common law partners can only claim the exemption on one principal residence. If the property is held in the name of one partner only, only one party will benefit from the ability to exempt appreciation unless property division regimes apply.

What People Believe the Law to Be

In reading Walsh v. Nova Scotia, I was struck by the Court’s repeated observation that people entered marriages to obtain the contractual advantages of that partnership and that they were in common law partnerships to avoid those obligations. I think the Court is mistaken in this observation and that most people living in common law partnerships (same or opposite sex) have given little thought to what should happen if their partnership breaks down or, in the case of most heterosexual people, that they mistakenly believe that marital property regimes do apply to their partnerships. For example, for about 15 years I have asked law students in a Gender and the Law course to list the reasons why people get married. This spirited discussion usually lasts for close to an hour, but in 15 years no student has ever volunteered that they or others get or would get married to get the legal benefits of marriage. Desire for a commitment, religious reasons, family pressures, the fantasy wedding or « the natural thing to do » are the common answers. Thus while the outcome in the Walsh case is not surprising, especially given the Court’s real reluctance right now to find legislation unconstitutional, their reasoning that the popular rationale for marriage is founded on contract law rests on a weak foundation.

The law should reflect what people believe it to be-especially when the law was one intended to address historic inequities-unless there are good reasons not to reflect these beliefs. In short, since people in heterosexual common law partnerships believe marital property laws apply to them, they should.

What then of those people who have chosen common law unions in order to avoid marital property regimes? People who do not want their partnerships governed by marital property regimes, that is, those few people who have actually come to agreements with their partners on how to deal with property, are not affected by this legislation as long as they have put their agreement in writing, or in the case of some pensions, filled out specific forms. Indeed the most important paradigm shift in including common law partners in marital property legislation by ascription is a change in the « default » position when couples have not discussed what would happen in the event of a breakup. The current regime favours the economically stronger partner (who will likely have greater bargaining power) whereas an ascription regime favours the weaker party.

Recognition of GLBT Partnerships

During the last three years, I and others involved in organizing and law reform in the gay, lesbian, bisexual and trans (LGBT) community have participated in discussions in a variety of forums on whether to support extension of marital property regimes to GLBT partnerships. In my view, a strong, although not unanimous, consensus emerged that marital property laws should apply to GLBT partnerships for the same reason as they apply to married partnerships. Additionally as GLBT people cannot marry in most Canadian jurisdictions, amendments to numerous provincial property laws were necessary to ensure that our partnerships could be treated in an equitable way and, as importantly, were not perceived as second class partnerships not worthy of as full protection as the provincial government could give.

Footnotes

1.The Manitoba law received Royal Assent in August 2002 but, as of February 2004, it has not yet been proclaimed in force.

2. Except, perhaps, Quebec because its laws on property at the termination of a partnership and its overall treatment of common law relationships are based on different principles from the other common law provinces and therefore I do not feel qualified to comment on that regime.

3. « The Benefit/Penalty Unit in Income Tax Policy » (Law Commission of Canada, 2001), and « The Impact of Relationship Recognition on Lesbian Women (Status of Women Canada, 2002).

Karen Busby is a Professor of Law at the University of Manitoba.