Protecting a Family Business After Three Years of Cohabiting

The situation

Hodan and Ifrah had been living together in Stratford for just over three years when they first called our office. Both worked as air traffic controllers, a career that pays well but moves people around the country on postings, and their household income sat comfortably in the $150,000 to $300,000 range. What made their situation different from most couples was a manufacturing business Hodan had inherited a half-interest in from her parents, run jointly with her sibling, Craig, who held the other half.

Hodan wanted a cohabitation agreement — a written contract between unmarried partners who live together, setting out how property and finances will be handled during the relationship and divided if it ends. Her goal was simple: keep the business, and any growth in its value, out of any future claim Ifrah might have if they separated. She assumed that because the business had been hers before the relationship began, it was already safe, and that a cohabitation agreement was mostly a formality to put that protection in writing. That assumption turned out to be only partly true, and the gap between what she assumed and what our review actually found became the real work of the file.

What the review found

Under Ontario family law, common-law partners are treated very differently from married spouses. Married spouses split the increase in value of most property under the Family Law Act's equalization rules. Common-law partners have no equivalent automatic entitlement — a business owned by one partner before or during the relationship generally stays that partner's property when the relationship ends. This is exactly why Hodan believed her share of the business was already protected.

But 'no automatic entitlement' is not the same as 'no possible claim.' Ontario courts recognize equitable claims — remedies built on fairness rather than a specific statute — including unjust enrichment, which has three parts: one partner was enriched, the other partner suffered a corresponding loss, and there is no legal reason — such as a contract or a gift — for the transfer. Having received some benefit in return does not defeat a claim on its own; partners almost always benefit each other in both directions, and a court looks at the overall balance of what each contributed and received. If a partner has directly or indirectly contributed money, labour, or foregone income toward growing a business that isn't in their name, a court can order compensation for that contribution even without a written agreement.

During our intake review, this stopped being theoretical. Two years into the relationship, when the business needed working capital during a slow stretch for a new production line, Ifrah had transferred roughly $40,000 from a personal investment account directly into the business's operating account. It was recorded in the company's books as a shareholder loan from Hodan personally, not from Ifrah — but the bank record on Ifrah's side showed exactly where the money had come from, and text messages between the two confirmed it had been Ifrah's decision to move the funds to help the business through a rough patch. Over the following eighteen months, the business had also grown in value by roughly $180,000, partly attributable to that capital injection staying in the business rather than being repaid.

That combination — an identifiable financial contribution, a benefit to the business, and no clear repayment or gift — is close to a textbook unjust enrichment scenario. A cohabitation agreement signed at that point could set clear rules for the future. It could not undo what had already happened.

What we did

1. Separated the two problems. We explained to Hodan and Ifrah that they were really dealing with two distinct issues, and treating them as one would have muddied both: a forward-looking cohabitation agreement to govern the relationship going forward, and a backward-looking exposure from the $40,000 contribution that already existed in the company's books and would not disappear just because a new agreement was signed. Naming the two problems separately let us solve each on its own terms instead of drafting an agreement that quietly tried to paper over a debt.
2. Obtained independent legal advice for Ifrah. A cohabitation agreement that limits one partner's rights is far more likely to be upheld later if that partner had their own lawyer, separate from the one advising the other partner, and fully understood the value of what they were giving up before signing anything. We referred Ifrah to independent counsel before any agreement was finalized, and Hodan's business partner, Craig, was kept informed throughout, since the company's ownership structure and its cash flow were both directly affected by whatever was negotiated.
3. Valued the historical contribution rather than guessing at it. Working from the bank records and the company's financial statements, we quantified the $40,000 loan, calculated simple interest at a reasonable commercial rate for the period it had been outstanding, and set out the business's documented growth in value since the funds were advanced. Putting an actual number in front of both partners, rather than leaving the size of the exposure vague, turned what could have been an open-ended argument into a straightforward negotiation over a defensible figure.
4. Negotiated a repayment as a condition of the agreement. Rather than let the historical contribution sit as an open, undocumented claim that could resurface later if the relationship ended badly, we built its resolution directly into the cohabitation agreement: the business would formally repay Ifrah roughly $46,000, reflecting the original $40,000 plus accrued interest, structured as instalments over a defined period so the payout did not strain the company's cash flow or force Craig to fund it from his own share.
5. Drafted the agreement to close the door going forward. With the past contribution settled, the agreement addressed the future clearly: Hodan's interest in the business, including all further growth in value, would remain her separate property; any future funds Ifrah wanted to advance to the business would require a written loan agreement with defined terms before the money moved, not after; and household expenses and the couple's shared home would be handled under a separate, more conventional property-sharing arrangement.
6. Documented full financial disclosure. Ontario courts can set aside a domestic contract years later if a party did not honestly disclose their significant assets, debts, and income before signing — which would have unravelled the exact protection Hodan was paying for. We attached current financial statements for both partners and for the business as schedules to the agreement, so neither side could later argue, in a courtroom or otherwise, that they had signed without knowing what the other actually held.

The outcome

Hodan and Ifrah signed the cohabitation agreement roughly four months after their first meeting with us, once the business's board — really just Hodan and Craig — had approved the repayment schedule and the company's accountant had built it into the year's cash flow projections. The business now repays Ifrah in fixed instalments, a manageable cost against a company generating solid revenue, and every dollar of the company's future growth belongs to Hodan alone under the agreement's terms.

The lesson for Hodan was a hard one to hear: the business had not been as insulated as she believed, and the informal way the loan had been booked in the company's records — as coming from her rather than from Ifrah — had actually made the eventual conversation more difficult, since it looked, on paper, like something other than what had really happened. Nothing dishonest had occurred, but the bookkeeping had not matched reality, and that gap had to be corrected before it could be resolved cleanly.

The outcome was a contained loss rather than a clean win. Roughly $46,000 left the business that would not have been owed if a cohabitation agreement — and a proper loan agreement for the earlier contribution — had been in place from the start. But it was a known, negotiated, bounded amount rather than an open-ended court claim that could have taken years and cost far more to resolve, with no certainty about how a judge would value the business's growth or apportion the contribution. Craig's half of the business was never at risk, since the claim related only to Hodan's interest, and the company's operations were never disrupted.

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