Marriage versus common-law in Canada: the surprising financial impact and differences

A couple stands in an apartment in thsi undated file image. (Ketut Subiyanto via Pexels)

Are you living with your significant other? You could be in a common-law marriage without realizing it.

While both common-law partnerships and legal marriages are recognized for tax and legal purposes, the financial privileges and responsibilities often differ between the two. From tax benefits and pension entitlements to property rights and spousal support, these considerations could make or break your decision to officially tie the knot.

If you’re considering marriage, living with a partner, or just curious about how the rules differ, I’ll break down some key financial differences between common-law and traditional marriage.

Marriage vs. common-law partner: legal differences

Traditional marriage requires a legal ceremony and registration. Even if you elect to skip the celebration and have a simple elopement or family ceremony, you and your partner will still need to register for a marriage licence and have the marriage certified by an officiant who serves as a legal witness to the union.

Common-law relationships, on the other hand, are recognized based on cohabitation (living together in the same space). At the federal level, couples are considered to be in a common-law marriage if they have lived together continuously for at least 12 months in a conjugal relationship.

If there is a rift in the relationship, and the couple separates for less than 90 days in a 12-month period, the relationship is still considered intact. If the separation lasts longer than 90 consecutive days, then the common-law marriage can be challenged.

It’s also important to note that some provinces have different criteria, such as requiring a longer cohabitation period or shared financial responsibilities.

Filing your taxes

For general tax purposes, the CRA treats common-law partners the same as married couples once they meet the 12-month requirement. One benefit of this is that both types of couples can claim spousal transfers, access income-splitting opportunities, and qualify for joint benefits such as the Canada Workers Benefit (CWB) and GST/HST credits.

However, you’ll have to file taxes as a couple, even if you’re not legally married.

So, in addition to the personal information you include in your federal return, you’ll also need to include the following information about your partner:

• Their SI number and legal name
• Their net income from the tax year you’re filing for
• The amount of universal child care benefits and repayments received or repaid that year
• Self-employment information (if applicable)

Depending on which province or territory you live in, you may be eligible (or non-eligible) for various province-specific benefits based on your province’s specific rules regarding common-law marriage as compared to traditional marriage.

Property and asset division

One of the biggest (and most important) distinctions between traditional and common-law marriage is how a couple’s property and assets are divided if the relationship ends or one partner passes away.

Typically, married spouses are automatically entitled to an equal share of marital assets, whereas common-law partners don’t always have the same legal protections. This is one of those areas that can differ heavily from one province to another, and the reason why divorce lawyers are often hired during disputes.

Alongside this, another key difference is inheritance rights. Even without a legal will, a traditionally married spouse is usually the automatic beneficiary if their spouse passes away.

However, a common-law partner may not be entitled to the same legal protections unless explicitly named in their late partner’s will. This makes estate planning and legal agreements essential for common-law couples to safeguard their financial future.

Spousal and child support differences

Both married and common-law partners may be required to pay spousal or child support after a separation. However, the ex-spousal responsibilities can differ between traditional and common-law partnerships. Married spouses have clear legal rights to spousal support, while separated common-law partners may have to prove financial dependency to claim it.

In most cases of child support, the child’s primary caregiver is entitled to financial support from the other parent regardless of the parents’ relationship status or whether they’re in a traditional or common-law marriage. That said, if there’s a dispute, common-law parents may need to provide additional documentation to prove their case.

How marital status can affect retirement and pension plans

Since common-law marriages are considered the same as traditional marriages at the federal level, both married and common-law partners can share pension benefits and receive survivor benefits under the Canada Pension Plan (CPP).

However, common-law partners may have to prove their relationship status if this right is challenged. Legally-married couples don’t have to worry about this, as the marriage status itself is proof of their relationship. Common-law partners, on the other hand, will need to prove they’ve been in a partnership and living together.

When it comes to employer-sponsored pensions, though, there may be different eligibility rules for survivor benefits.

Final thoughts

A legal, officiated marriage gives both partners clearly defined rights, tax benefits, and legal protection. However, it can also make the process of separation more difficult.

Ultimately, getting married is a big choice that comes with a lot of responsibility and one that shouldn’t be made lightly.

If you’re not ready to jump into marriage, just be aware that if you and your partner stay and live together for at least 12 consecutive months, you’ll be considered to be in a common-law marriage. This means you’ll be eligible for most federal marriage benefits and possibly some provincial benefits as well.

In a common-law marriage, both partners can protect themselves by creating a legally binding agreement between themselves. This can help ensure that both parties are happy and protected in the event of an unexpected death or separation.

Christopher Liew is a CFP®, CFA Charterholder and former financial advisor. He writes personal finance tips for thousands of daily Canadian readers at Blueprint Financial.