Money & Career

How to protect yourself financially as a cohabiter

Emma is a diligent saver with a plan for a comfortable retirement. Walter is a free-spending financial basket case who wants to move in with her. Will Emma be forced to choose between love and money?
By Julie Cassin,
boxes, moving truck, van Masterfile

Three years ago, Emma Dudek, 47, started dating Walter Riley and her quiet life changed completely. Walter, who had been a longtime friend, loved attending parties, eating at restaurants and going to sports events, and he always invited her along. Emma, who lived alone, loved the new excitement in her life. But at the end of the evening, she and Walter, a 58-year-old divorced father of two grown sons, always go their separate ways—Emma to her small bungalow in Alliston, Ont., and Walter to the apartment he rents and shares with his youngest son Phil, 30. (All names have been changed to protect their privacy.)

“I think the relationship is perfect just the way it is,” says Emma, a self-proclaimed saver who has spent the last 10 years trying to put away money for a comfortable retirement. “I love this ‘living-apart-together’ arrangement that we have and wish it could go on forever.”

But Walter has other plans, and Emma, who has been divorced from her first husband for 10 years, is scared. “Walter has made it clear to me that he wants to move into my house,” says Emma, who earns $85,000 a year as an office administrator for a large accounting company. “I’m not really happy with the idea. For now, Walter says he won’t push the issue because Phil is still living with him. But he’s assuming that’s going to change soon, and when it does, Walter’s expectation is that he and I will live together.”

The problem is that Walter loves to spend money and, to Emma’s dismay, he has never lived within his means. He’s now retired and receives a fixed $3,500-a-month pension, but has absolutely zero assets to his name. Worst of all, he knows nothing about how to manage money. “He disagrees with me, of course, but the proof is in the pudding,” says Emma. She watched from the sidelines as Walter and his first wife, Debbie, grew unhappy with their marriage and became big spenders. “That was their form of therapy: to max out their credit cards and then consolidate them into the mortgage. They bought new vehicles every couple of years and added that to the mortgage, too,” says Emma. “It got to the point where their debt totaled $520,000.”

When Walter divorced Debbie three years ago, the couple sold their matrimonial home for $490,000. But because they had no equity in the house, they had to come up with another $30,000 to pay off the mortgage, and they took it from their credit cards. “I saw this as the most horrible money management strategy I’d ever witnessed in my life,” says Emma. Her greatest fear is that when she and Walter move in together, he will ruin her retirement plan and eat her out of house and home.

“I left my marriage 10 years ago with nothing but the clothes on my back,” explains Emma. Determined, she slowly rebuilt her life, got a good-paying job and over the years, saved $325,000—enough to pay for her house in cash. As soon as she moved in, she began renting out the basement and adding that money to her retirement savings—a portfolio that now totals $120,000. “Believe me, it doesn’t come without sacrifice,” says Emma.

Right now, Emma deposits the $900-a-month rent she receives from her basement tenants directly into her RRSP, so when she retires at 60 she’ll have built an ample nest egg. But Walter, believing they will need the basement space for their own use, has already told Emma that when he moves in, the tenants in the basement have to go. Emma has explained to Walter that she needs the rent money to secure her financial future, but he says she shouldn’t worry so much. “I do worry,” says Emma. “He has nothing to give me and I’d like to protect myself financially before agreeing to let him live with me.”

Walter says that if Emma insists, he will pay her the $900 a month himself—as long as the tenant goes. “I’m a romantic and would like to share everything with Walter—bank accounts, credit cards and line of credit—but I truly believe he will squander it. Still, I want to be with him, so I’ll agree to live with him if we can find a way to resolve these money issues. Can you help me protect my financial future?”

Emma Dudek grew up in a family of 12 in Saint John, N.B., with her stay-at-home mom and a dad who worked as a truck mechanic. The family was dirt poor and careless with money. “We had nothing,” says Emma. “They fed us, put a roof over our heads and paid for our education. Anything more than that, we had to work for ourselves.”

At 18, Emma studied business administration at a local college, and at 21 she moved to Hamilton, Ont. to take her first job as an administrative assistant. In 1989, she met David, her first husband. The two lived common-law for about a decade and kept their finances separate. Then the couple decided to get married. At the time, Emma was seriously ill with a potentially fatal immunological disease. Shortly after the marriage, David left Emma, but not before he cleaned out her bank accounts and left her with a pile of charges that he racked up on her credit cards.

After Emma regained her health, she put together a plan to become financially independent. “I began to rebuild my life,” she says. “I lived in tiny rental apartments for years, wouldn’t eat out, cut out spending, and three years ago, I finally had enough money to pay cash for a house that cost me $325,000.”

Shortly after she bought her house, Emma began dating Walter. She and the Rileys had been good friends for several years, and once Walter was divorced, the two became romantically involved. Although Emma enjoys the time she spends with Walter, she worries about his free-spending ways. “He buys new cell phones every six months, eats out all the time, and wastes money on unnecessary things.” For instance, Walter likes to fix things around the house, so Emma gave him her credit card to buy supplies. But once he spent almost $100 at Home Depot on screws and plugs to hang a simple $20 mirror. “His answer to every problem is to throw money at it. I have real trouble with that.”

Emma’s goal is to have $500,000 in her RRSP, in addition to her paid-off home, by age 60 so she can retire in comfort. But in order to do that, she needs to make sure Walter doesn’t derail her savings plan. “I have to prevent him from jeopardizing my future while still keeping him in my future. There must be a way I can have both.”

What the experts say

Emma is right to feel uneasy about her situation. If she wants to live with Walter, she has to take immediate steps to protect her financial assets. “I’m a skeptic,” says Barb Garbens, a fee-only financial planner and president of BL Garbens Associates in Toronto. “I see a scenario for disaster unfolding. And while I wouldn’t necessarily run, because I don’t think people should have a loveless life, the fact remains that Walter could see this as a very comfortable arrangement for himself. If he walked away from his previous marriage with zero in his late 50s, that tells you a lot.”

What’s particularly worrying for Ron Thiessen, a Montreal psychologist, is that he has seen these types of relationships several times before, and they almost always end badly. “Emma is repeating a pattern of behaviour from her marriage,” says Thiessen. She slowly gave her previous husband control of all her assets to keep the peace in the relationship.

But there is hope. “She holds all the cards, but I don’t think she fully realizes it,” says Jim Otar, a financial planner in Thornhill, Ont. “Or if she does, she’s allowing her emotions to get the better of her.” Otar cautions Emma to tread carefully before moving in with Walter. “She’s 47 so at this stage, she can’t save for another house.”

The experts agree that if Emma wants to give this relationship a chance to succeed, she has to protect her assets. Here’s what Emma should do:

Put it in writing.
Emma should sign a cohabitation agreement with Walter before they move in together, spelling out exactly what assets each brings to the relationship, how they will handle their finances, and what will happen to the house and Emma’s RRSP if the couple parts company.

But she needs to understand that a cohabitation agreement is not airtight. It can go a long way towards protecting the assets Emma brings into the relationship, but the truth is that common-law couples can acquire interests in each other’s property through “unjust enrichment.” This means one spouse may be able to share the assets of a common-law spouse if they are seen to have contributed in some way and should be compensated.

So once a couple has lived together for one to three years (depending on the province), there could be legal repercussions. For instance, if Emma’s home increases in value for the period of time they are living together in it, that increase may have to be split 50-50—especially if Walter is making renovations and repairs to it. So could whatever gain there is on her RRSP money. “If he sues her, she could fight it, but it will get messy,” says Otar.

As well, since Emma earns more than Walter, he could legally sue for spousal support and, if nothing else, cost her thousands in legal fees. “I’ve seen it several times before,” says Otar. “These all remain possibilities.”

Rent a different home.
“Whatever she does, she should not let Walter move in with her, get rid of her basement tenant and trust that he’ll pay her $900 a month,” says Otar. “He’ll probably pay her for a couple of months and then stop. Then she’s stuck.”

A better strategy for Emma would be to move out of her house completely and rent another home with Walter. Each would pay half the rent, utilities and other common expenses. “See how that goes,” says Otar.

For example, if Emma rents out her house for $2,000 a month, she can continue contributing $900 a month to her RRSP, while the remaining $1,100 can go towards paying the expenses at the new rental home with Walter. In this case, the cohabitation agreement should state clearly that she owns a rental property and a $120,000 RRSP, and that Walter has zero in assets. Under this arrangement, Walter will have no reason to spend money unnecessarily on the rental home, and that will diminish his case for “unjust enrichment” in the future, because he won’t be able to claim that he contributed in any monetary way to her principal residence.

If the couple does decide to move into Emma’s house, Walter should not do any more renovations. “If there’s something to fix, hire somebody else,” Thiessen says. This isn’t just to protect Emma’s claim on her residence: the experts also fear that Walter is starting to act like a husband, and that Emma is just going along with it. Thiessen says that Emma needs to draw some boundaries. “Moving forward, she has to stop putting herself in this codependent position. It’s not financially or emotionally healthy for her.”

Keep all finances separate.
The experts unanimously agree that Emma and Walter should absolutely not share PIN numbers, credit cards or bank accounts, and that all their finances should be kept separate. Instead, Garbens suggests that Emma open an account in her name only, and that she be in charge of paying all living expenses from that account.

To make it work, Walter should give her a fixed amount every month—say $1,500 or so—to cover his share of rent, utilities, groceries and household expenses. Emma should contribute an equal amount to the account and make it her responsibility to pay all of the monthly bills from that account. Thiessen agrees, adding, “Walter never lived within his means and likely never will without strict controls. Emma needs to keep strict financial control and take the lead in this relationship if she wants to have any chance of protecting her financial future.”

How the money is spent

Yearly disposable income

Emma’s income: $85,000

Rental income from basement apartment: $10,800

Minus: taxes and other deductions: – $35,000

Net disposable income: $60,800

Yearly Expenses

Debt repayment

Total debt repayment: $0


Mortgage: $0

Property taxes: $2,600

Home insurance: $1,100

Hydro/gas/water: $3,000

Cell phone/internet/TV: $3,600

Home maintenance: $15,000

Total shelter: $25,300


Car insurance: $2,500

Gas: $3,600

Total transportation: $6,100


Groceries: $6,000

Clothes, haircuts: $3,000

Vacations: $2,000

Gifts and hobbies: $1,000

Restaurants: $2,500

Gardening: $500

Miscellaneous: $1,200

Total personal: $16,200

Total expenses: $47,600

Annual income: $13,200

available for investment (total income minus total expenses)

Where she stands


Home: $375,000

Emma’s RRSP: $120,000

Vehicle: $14,000

Total assets: $509,000

Total Liabilities: $0

Net worth: $509,000

(total assets minus total liabilities)

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