Toronto’s housing market is so expensive that couples are resorting to prenups

Home ownership is a dream for many in the pricey Toronto real estate market, but some are also finding buying a home comes with strings attached when one member of a couple contributes significantly more to a property.

As the owner of a two-bedroom downtown condo, Elizabeth Smith (not her real name) is worried about what could happen to her investment if she marries her fiancé — who doesn’t currently have a stake in the unit — and then the relationship later goes south.

“I’m finding it difficult to navigate,” said the 37-year-old, who asked to remain anonymous for privacy reasons related to her relationship. “It’s [a source of] awkward conversations for sure,” she said of her current living arrangement, one where her partner pays her below-market rent to help out with monthly expenses. “I make more money than him — he has some savings but not significant enough to contribute meaningfully to a down payment.”

As a result, she’s considering holding off on marriage — there’s no date set, she notes — or proposing a contract stipulating that in the event of a breakup, she maintains her full interest in the primary residence. Smith is not alone. The high value of Toronto real estate has more couples in situations like Smith and her fiancé’s signing so-called prenuptial agreements before tying the knot, legal experts say.

“I’m dealing with it on an ongoing basis. What’s been happening is because of the economy and for various reasons, I think, people appear to be taking more care to protect their right or their interest in real estate or the family home,” Mathew Fordjour, a family-law lawyer, said.

Fordjour, who has been practicing family law for 29 years, noticed the trend emerge during the pandemic and, he says, it hasn’t slowed down since.

“At least in my practice, I’ve seen a notable rise in doing what people call prenuptial agreements, which are basically cohabitation agreements or marriage contracts,” Fordjour said. (A cohabitation agreement applies to common law relationships, while a marriage contract is for couples who are legally married.)

While such domestic agreements can lead to awkward conversations for couples, legal experts said they’re by far the most effective way for an individual to maintain their interest in the matrimonial home should a relationship end in separation — especially if they contributed more financially than their partner. That’s because, unlike other assets one might own before marriage, the matrimonial home, or the couple’s primary residence, is divided up by the courts during a separation through a process called equalization, as per the Ontario Family Law Act.

In these cases, it doesn’t matter whether only one partner is on title or had contributed more towards the down payment or related ownership costs like mortgage or insurance payments when buying a home.

“Under Ontario law, when a couple gets married, the matrimonial-home equity belongs to the two of them equally,” Fordjour said. “A lot of people aren’t aware of that aspect of Ontario law, but those who are, they take care — or they go to the effort — to have an agreement in place to make sure they protect that particular asset,” he said, noting there are a few exceptions.

“[Exceptions include] a spouse’s failure to disclose debts existing at the date of the marriage; incurring debts or other liabilities recklessly or in bad faith; the fact that the amount a spouse would otherwise receive is disproportionately large in relation to a period of cohabitation that is less than five years; and the fact that one spouse has incurred a disproportionately larger amount of debts or other liabilities than the other spouse for the support of the family,” Fordjour said. 

Common law couples face similar risks. “If a couple’s common law, there can also be instances where a common law spouse can try and claim an interest or share in the equity in the home that they’re living in,” he explained — hence the need for a cohabitation agreement. “Very often in these agreements you’ll also see a line or paragraph that says if a couple decides to get married, it turns into a marriage contract.”

Sometimes, Fordjour said, concerned parents approach him to draft a contract for their kids when they’re buying a home because the parents helping out with the down payment and want to make sure that whatever they contribute stays in their family — regardless of what happens with a marriage.

“Even if the property is in one’s own name alone that doesn’t necessarily guarantee that if there’s a split, you’re going to be able to call all of the equity your own,” he said.

 If she marries her partner, another option Smith is considering is the two rent a separate place together so that her two-bedroom unit isn’t technically the matrimonial home under Ontario law. “I’m more than happy to be engaged for a while,” she added.

The high cost of housing in the city certainly plays a role in the rise of domestic contracts; if a Torontonian loses substantial equity in their current home, it’s going to present challenges when the time comes for them to buy another. “It makes it more difficult to re-enter the housing market,” Fordjour said.

While a domestic contract is the best way to ensure each partner maintains their fair share of a property in the event of separation, it’s not necessarily foolproof.

“There are always risks in life,” Jonathan Hacohen, a real estate lawyer and a partner at Toronto-based firm Kormans LLP said. For example, Hacohen says it’s “very important” for each partner to have their own legal representation so that nobody can later claim that they didn’t understand what they were signing. Seeking bargain legal advice could also result in a contract that doesn’t hold up, he added.

“You get what you pay for.”

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