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Living together, farming together

Common-law is the choice for more and more young farming couples

As Eric Walker tells me about his farm, there’s lots of talk about complex business structures and about his ambitious plans. And there’s lots of talk, too, about family, hope and love.

“It’s been a constant whirlwind of expansion, a blur of building, and three babies… that’s on top of the three we already had,” says the 35-year-old farmer from Sussex, N.B.

Eric and his father, Daryl, are in the middle of building a new robotic dairy barn, with three robots to milk 165 cows, just over twice the size of the herd when Eric moved back to farm with Krystal six years ago.

Since then, the farm has become one of the first in Canada to use sand bedding with a gravity sorting system, and they’ve improved production per cow.

Eric is also the province’s representative on the Canadian Federation of Agriculture, and Krystal worked off-farm as an accountant until after the last baby, when she decided to stay home to look after the children and do bookkeeping from a home office.

It’s the kind of story that renews your faith in the future of the family farm.

Except, this isn’t a traditional family structure, because Eric and Krystal are cohabitating. They’re living common-law.

More farm families across Canada live outside the traditional ideas that their parents and grandparents accepted without question.
photo: Images by Ceci

Today, more and more Canadian couples are choosing to live together, i.e. not to marry. And that includes a growing number of farming couples.

“We are seeing far more cohabitations,” says Robin-Lee Norris, a lawyer who specializes in agriculture and is a partner at Miller Thomson in Guelph, Ont.

That’s not all that surprising, considering how Statistics Canada’s numbers reflect a sweeping demographic change toward living together. Between 2006 and 2011, the number of common-law couples in Canada rose 13.9 per cent, compared to a 3.1 per cent increase for married couples.

In 2011, for the first time, the number of common-law-couple families (1,567,910) surpassed the number of lone-parent families (1,527,840), with common-law couples accounting for 16.7 per cent of all census families, compared to lone-parent families at 16.3 per cent.

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If that growth rate still holds, about a fifth of all Canadian families today are based on unmarried partners living together. And it’s not just in Canada. More than two-thirds of married couples in the U.S. say that they lived together before getting married.

Often, living together is seen as a way of trying out marriage, giving the couple a chance to test their compatibility while still keeping the option open to end the relationship without legal implications.

However, sociological research also points to other contributing causes, such as secularization, increased participation of women in the labour force, changes in the meaning of marriage, risk reduction, individualism, and changing views on sexuality.

Sometimes timing and geography become big factors too. It’s just not as simple as in days gone by, when it was common to fall in love with someone who lived in the same community. Back then, there were fewer options and less distance to consider. For example, Eric’s parents and grandparents all grew up on the same road.

Conversely, Krystal was raised in the Okanagan Valley, B.C., and the couple met in Alberta.

Like many others from the Maritimes, Eric had packed up and headed to Alberta’s oil country. (After graduating from McGill University, he did try working for his dad for a couple of years, but his dad wasn’t ready yet to talk about succession, so Eric put his resumé out and got hired to work in loans in Grand Prairie.)

The second day there, he met Krystal who was doing an evening shift as a waitress after working her day job as an accountant, and they soon became close friends, although they didn’t start going out for a couple of years.

In fact, Krystal didn’t even know Eric had grown up on a farm until after they’d been dating a while and they were visiting one of her friends, who operates a purebred Holstein herd in B.C. “I was in awe of the cows,” Eric says. “It wasn’t until then that she knew how engaged I was in farming, and how much I wanted to farm.”

When Eric got a promotion in his banking career and had to move, he asked Krystal to move with him. But although they were in love, neither was ready to rush into marriage. Krystal had her children to think about. Plus, she had grown up in a split family, so for her a marriage license didn’t seem as important as love and commitment — a shift in thinking that is becoming more common among younger Canadians.

They settled into their new life together, raising children and working, with Eric often travelling for work.

But with a schedule that meant they barely had time to eat together as a family, it didn’t seem the right way to live for Eric. “For me, a banking career was a great learning opportunity but it was not a fulfilling way to raise a family,” he says.

Eric had been raised in a traditional farm family with all the extras, including 4-H, community involvement, siblings and a big extended family who all love weddings.

Krystal first met his family at one of those big family gatherings. In fact, one of those gatherings would change their lives.

On that weekend, Daryl sat down with Eric and his two siblings and asked which if any would be interested in taking over the farm. A few days before affirming his interest with his family, Eric had a big conversation with Krystal. “It meant that she (and her children) would have to move across Canada for me,” says Eric. “Up to that point, I had mostly kept my desire to farm inside.”

She supported his dream. “My parents liked her from day one,” says Eric. “Although they are very conservative, they’ve accepted it (not being married but living together).”

The community has welcomed her with open arms. Eric says that folks don’t even question their marital status, but it helps that he calls Krystal his wife, she has a ring on her finger, and they’ve had babies together.

Reality is that living together in some parts of the world and cultural pockets is more prevalent and accepted than others. In some Scandinavian countries, more babies are born to unmarried mothers than to married ones, mostly due to cohabitation. In Quebec, cohabitating has emerged as a substitute for marriage, with about half of births to non-married mothers.

For some couples the decision to live together is about setting financial priorities. Today weddings can be very expensive, and many prefer to use their resources and time to buy a house or to save to have the wedding of their dreams. Eric and Krystal wanted to focus their energy and assets on building the farm.

Matrimonial home

When Krystal and her children first moved into Eric’s house in Alberta, it was a home he alone had equity in. They created a lease agreement so legally she was renting from him.

Then, when they moved to New Brunswick, Eric bought a separate one-acre parcel with a small house for them to share (for only $50,000).

At first Eric had a verbal agreement with his parents to buy shares in the farm at a set price and it didn’t involve Krystal. Then after a few years of adjustments and expansion, and after the farm helped his other siblings start their own farms, they worked out a formal written agreement for quite a bit more than the original handshake deal.

“It was worthwhile to keep all our family relationships intact,” says Eric.

In this agreement, Eric bought common shares from his mom that increase with the growth of the business, and his dad got preferred shares giving him voting control but not the value of the growth for 10 years. They also have a cross life insurance policy, in case one of them dies. The spouses will get the shares via the life insurance policy going to the farm corporation to be used to buy them from their spouses.

Eric and Krystal also formed another company, i.e. a management company, with 50/50 ownership. That company is paid for the work they do for the farm, including Krystal’s bookkeeping and Eric’s management. He says this structure keeps the farm at arm’s length and it adds a level of professionalism and perspective. “We can focus on the farm’s cash flow,” says Eric.

Eric and Krystal want to raise their children on the farm. Their current house isn’t where the barn is, however, so it doesn’t allow for that type of lifestyle, and his parents aren’t ready to move out of the home farmhouse yet. So once they get the new barn done, they’ve decided to build a new house across the lane. However, all the properties are on separately deeded land.

Usually, explains Miller Thomson’s Norris, as long as the property is still in the farmer’s name only, it will remain as that person’s after the common-law relationship breaks up, subject to a claim for its increase in value.

The value of the property a spouse brings into the marriage on the date they get married is not part of the net family property, but the increase in value during their marriage may be. (To give some protection, consider not transferring gifts to a child until after marriage. In most provinces, gifts or inheritance after the wedding date are not joint property.)

However, the matrimonial home is split evenly.

Farm families need to be aware of this, legal advisers say. One mistake that’s often made with farm couples living together is that they build a new house on some key farmland, close to a barn. The house is the matrimonial home so the common-law partner legally owns half of the farm that the house is sitting on.

Some pieces of land are more important to the operation than others, so keep them in the farmer’s name only, especially if it was a gift. Instead, encourage the new couple to buy a house or small acreage as their matrimonial home, in contrast to a house on a larger acreage or on land with barns that are essential to the operation.

Sometimes you may be encouraged to put joint names on property to avoid probate fees, but remember, if it’s in joint names, the spouse or common-law partner legally owns half.

To protect against this, the common-law spouse who doesn’t own the property needs to be compensated fairly for what they were doing on the farm so they don’t have a claim. Pay the cohabitating partner a reasonable salary all along for what they were doing on the farm. Track it, claim it on your taxes and keep the paperwork clear as to who was paid for what jobs when.

Things get cloudier if there are children. The rights of children born to common-law and married couples are the same when there is voluntary separation. Also, the non-owning parent spouse has the right to stay in the matrimonial home, even if he or she does not prove a resulting or constructive trust. This may be granted if there are children involved, whether the spouses are married or common-law, says Norris.

Confusing legalities

Whatever the reasons or acceptance, cohabitating is happening more for this generation. Farm families need to put their pre-conceived notions aside and try to understand the implications, as well as to plan and structure their farms to accommodate this change.

“There is an incorrect assumption among many farm families that if they are living common-law, the farm is safe from claim if the spouses cease to cohabit,” says Norris.

However, following the trend of more common-law marriages, there are more legal situations because of this, and there are more lawsuits claiming constructive and resulting trusts for farm assets when common-law spouses separate.

The confusing part is that the courts are still sorting out the rights and responsibilities involved with cohabitation. In Canada, every province has its own rules about family law, and those laws are often complicated. Even the definitions are changing.

It isn’t as much a case of whether the couple is married or common-law. When big assets are involved, it’s whether the legal ramifications of any kind of split have been considered.
photo: Images by Ceci

For example, a 2013 ruling in B.C. changed the definition of spouse in B.C. so common-law partners enjoy the same rights as married couples after two years of co-habitation. So now, couples who have been living together for two years are entitled to a 50/50 split of shared debts and assets — excluding any pre-relationship property or inheritances.

In Alberta, meanwhile, common-law relationships are referred to as “adult interdependent partners” and come into effect when the couple has lived together for three years or more, or has a child and live together. The law is quite a bit broader than most other provinces. If you live in a relationship with another person outside of marriage, and if you share one another’s lives, are emotionally committed to one another and function as an economic and domestic unit for a period of not less than three years, there could be legal obligations between the parties. In Newfoundland, after two years of living together in a conjugal relationship, a couple can be considered common-law.

In other provinces, for unmarried couples to have rights they can register as being in a domestic partnership. For example, under the Nova Scotia Vital Statistics Act, a couple must live together for two years before being entitled to any possible spousal support. Similarly, in Manitoba, the couple could register their common-law relationship at the Vital Statistics Registry but they must be living together in a conjugal relationship for three years or more, or one year with a child.

The rules for settlement after living together also seem to be evolving for farming couples. Recently, the Supreme Court of Canada decided where there’s a joint family venture, such as a farm, the value created during the relationship may be split. In 2010 an Alberta court awarded 35 per cent of the increase in value of a dairy farm during the period of cohabitation to a common-law spouse for farming and domestic services provided during this period. The judgment contains a good summary of the law with respect to “unjust enrichment,” as applied to common-law spouses involved in farming operations. Furthermore, the judgment was awarded against both the common-law husband (who owned the farm land) and the farming corporation (in which the farmer’s sons had an interest) that held livestock and a dairy quota.

In Ontario the law doesn’t even recognize assets as matrimonial property in these relationships. Instead the province uses the law of constructed trust to protect people’s property rights. In this province the right to claim support on separation is the same if a couple is married or living common-law, but the right to make claims against assets is different. A domestic contract can be entered into under the Family Law Act by either common-law spouses or married spouses and that can determine both asset division and support obligations.

“However, if there is no domestic contract, then when a cohabiting couple separates voluntarily, the initial position is that assets are divided based on ownership,” says Norris.

If the farm is entirely in the name of one spouse, the other has no right to automatically claim half of that interest, even though the spouse would if they were legally married.

So on the face of it, says Norris, common-law is safer from an asset protection perspective. The difficulty is that if the non-owning spouse can prove to the court that she or he contributed to the growth of the asset, such as working on the farm, helping build fences or barns, or contributing cash to home expenses, she or he can claim something called a “resulting trust,” also called a constructive trust, and be given some of that asset by the court.

Estate law

It’s also a little messier when it comes to common-law spouses, children and estate laws. Estate law treats common-law and married spouses differently in Ontario. Married spouses without a domestic contract have a claim against the other person’s estate for an equalization payment if they are left out of a will, says Norris. Conversely, common-law spouses do not, and again would have to start a lawsuit and prove a resulting trust exists to get a share of the assets.

If there is no will, the law provides for married spouses. The first $200,000 of the estate goes to the surviving spouse and the balance is divided between the children and spouse based on a formula that looks at the number of children.

However, there’s no such provision for common-law spouses, says Norris. It all goes to the children, if there is no will. The common-law spouse would have to make a dependency relief claim for support with a resulting trust claim for asset division against his or her own children and the estate.

“Again, a domestic contract and a will are the best solutions to the inequities that exist in the legal treatment of common-law and married spouses,” says Norris.

Co-hab agreements

“It is every bit as important to have a domestic contract when parties are living common-law as when they are married,” says Norris.

Cohabitation agreements are written, legal structures to help ensure the family farm legacy will be intact and a partner will be taken care of if the couple splits or one person dies. To ensure they’re enforceable if challenged in court, such agreements should be carefully drafted and the other partner or spouse needs to be given an opportunity to obtain independent legal advice.

When done properly, the great thing about doing a formal cohabitation agreement is that couples and families fully discuss the couple’s present finances and future goals. “The discussion around a prenuptial or cohabitation agreements is what is valuable,” says Gayle Langford, lawyer and registered family mediator at Red Deer. “Anything that helps families discuss all the what-ifs and to come to an agreement before the what-if occurs makes things more predictable and easier when those what-ifs happen.”

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