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The Intersection Of Family Law And Estates

01/26/2017 07:30 EST | Updated 01/26/2017 07:30 EST
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There are two Ontario statutes to be considered in the family law context of estate administration. The first statute is the Succession Law Reform Act, and specifically Part V thereof, which governs the distribution of a deceased’s assets to a dependant when adequate provisions have not been made. The second statute is the Family Law Act, which addresses the issue of how family property can be divided upon the death of a  married spouse.

From a policy standpoint, it is very important to have available remedies found in both the Succession Law Reform Act and Family Law Act, to provide protection for individuals whose partners did not leave a will, or who did have a will but did not leave the surviving partner adequate support.

Succession Law Reform Act

Part V of the Succession Law Reform Act (“SLRA”) allows for the provision of continuing support to dependants, in the event that a parent or spouse (either married or common law), who previously provided financial support, has died. Pursuant to s. 58(1) of the SLRA, “where a deceased, whether testate or intestate, has not made adequate provision for the proper support of his dependants or any of them, the court, on application, may order that such provision as it considers adequate be made out of the estate of the deceased.”

The SLRA can provide support for surviving partners, either married or cohabitating for a period greater than three years, whose deceased spouse had ongoing support obligations. An application under the SLRA allows the courts to determine how the estate will fund an ongoing support obligation.

While individuals do not earn income after death, there are certain estate assets that continue to earn income such as stocks, that can assist in funding support obligations of the deceased. The SLRA can also bring assets passing outside of the estate, such as life insurance policies or other assets for which a beneficiary has been designated, back into the estate in order to fund awards of dependant support.

Family Law Act

A second intersection of family law legislation and estates can be found within the Family Law Act. The Family Law Act (“FLA”), includes a provision that allows an individual to treat the death of a married spouse as a separation, to receive his or her fair share of assets of the marriage.  In order to receive a deceased spouse’s property pursuant to the FLA,, the surviving spouse must forego any of his or her entitlement under the will, or the preferential share to which he or she is entitled in the absence of a will.

Equalization is done by balancing the Net Family Properties (“NFP”) of each spouse. NFP is defined at section 4(1) of the FLA as:

the value of all the property, [subject to certain exclusions found in s. 4(2)], that a spouse owns on the valuation date, after deducting,

  1. (a) the spouse’s debts and other liabilities, and
  2. (b) the value of property, other than a matrimonial home, that the spouse owned on the date of the marriage, after deducting the spouse’s debts and other liabilities, other than debts or liabilities related directly to the acquisition or significant improvement of a matrimonial home, calculated as of the date of the marriage

Certain assets are not considered as part of a married spouse’s assets for the purposes of calculating an equalization payment. Pursuant to s. 4(2) of the FLA, the excluded property from NFP excludes, for example,:

  • gifts or inheritances from a party, received after the date of marriage..
  • damages or a right to damages for personal injuries, nervous shock, or mental distress or the part of a settlement that represents those damages; and
  • property that the spouses have agreed by a domestic contract is not to be included in the spouse’s net family property.

The entire value of the matrimonial home is included in the NFP of the spouse on title as at the valuation date, being the date before the death of a spouse in the context of an equalization calculation.

Unless the deceased’s will allows the surviving spouse to have his or her entitlement under the will, in addition to equalization, the surviving spouse will have to choose to receive either the entitlement under the will, or an equalization payment. Where there is no will, the surviving spouse will have to choose between their entitlement according to the SLRA intestacy provisions found in Part II, or an equalization claim. This is known as an election.

In certain circumstances, an equalization payment pursuant to the FLA provides more for the surviving spouse than entitlement through intestacy provisions or the will of the deceased and an election for the equalization of NFP should be considered..

Equalization allows  surviving married spouses to share in the growth of assets over the course of the marriage. Calculating relative NFP’s is a complicated and time-intensive task with which legal assistance may be required. Spouses considering making an equalization claim must take their time to consider what is being left to them in the will, as certain insurance proceeds, survivorship benefits, and entitlements arising by right of survivorship may be eliminated by the election. However, an election must typically be made within six months from date of death, unless the deadline is extended by court order. Equalization claims can be an especially important option if the spouse died intestate or if his or her testamentary document did not provide enough support for the surviving spouse.

While there are Ontario statutes [such as the SLRA and FLA] in place to protect married, and/or common law spouses, the rights of individuals in short-term cohabiting relationships without estate plans remains limited. Pursuant to the FLA, family law protections are premised around marital status. While in real life there may be no meaningful difference between a married or cohabiting spouse, in the law, there is a big division, creating the need for cohabiting couples to take extra considerations when deciding whether or not to create or update a formal estate plan to provide the necessary protections for a surviving spouse in the event of death.

 

Ian Hull and Suzana Popovic-Montag are partners at Hull & Hull LLP, an innovative law firm that practices exclusively in estate, trust and capacity litigation. To watch more Hull & Hull TV episodes, please visit our Hull & Hull TV page.

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