Equalization Claim by a Surviving Spouse

The Family Law Act (the Act) makes provision for an equalization claim by a surviving spouse. Section 6(2) of the Act allows a surviving married spouse (i.e. not a common law spouse) to elect between his or her succession rights under a will and his or her equalization claim under the Act.

For example, a husband dies and leaves an estate worth $2,100,000.00. In his will he leaves a bequest of $100,000.00 to his wife and the balance of his estate to his secretary. The surviving wife has a period of 6 months from the date of death to file her election if she wishes to make an equalization claim under the Act. In order to determine what is most beneficial for the surviving spouse she has to make a calculation of the value of her equalization claim. In order to make that calculation the surviving wife has to determine her Net Family Property (NFP) and the NFP of the husband. This requires knowing the values of all assets and debts of the parties at the date of marriage and at “valuation date”.

To continue with our example lets assume that that at the date of marriage they had no property. At “valuation date” the husband had $2,100,000.00 and the wife had $1,000,000.00 in net assets. [Note: In the case of a separation “valuation date” is the date of separation. In the case of an equalization claim following a death “valuation date” is the day before death]. Based on the facts set out above the surviving wife’s equalization claim would be ($2.1M - $1.0M = $1.1M / 2 = $550,000.00). Based on those facts, it would be financially advantageous for the wife to make an election to make an equalization claim (worth $550,000.00) rather than take her bequest under the will.

If the wife made the necessary election within the 6 month time limit, her right to an equalization claim would have priority over bequests in the will and dependents relief claims (other than dependent relief claims by the deceased’s children).

Recent statutory amendments have clarified the credits which are to be made against a surviving spouse’s equalization entitlement. The credits listed are as follows:

a) Benefits payable to the spouse pursuant to a life insurance policy on the life of the deceased spouse;

b) Lump sum benefits payable to the spouse pursuant to pension or similar plan payable as a result of the death of the deceased spouse; and

c) The value of property or a portion of property to which the surviving spouse becomes entitled by right of survivorship on the death of the deceased spouse.

So, in the example above, if the wife was, together with her husband, the joint owner of a home which had equity of $1.1M she would receive a benefit of $550,000.00 by way of survivorship. This “credit” would eliminate her equalization claim. In this circumstance the wife would be advised to take the said survivorship interest and the bequest under the will.

It quickly becomes apparent how complicated these sorts of cases can become. In real cases this complexity is often magnified by the difficulty in getting the necessary financial disclosure to make the necessary calculations in a timely fashion. Anyone considering making an election pursuant to the section 6(2) of the Act should obtain good legal advice and should do so as soon as possible.

- Philip W. Augustine for abblaw.ca

[The above article is for general informational purposes only and is not legal advice. If you live in the Ottawa area and would like advice about a legal issue please email us or call 613-569-9500 to speak with one of our lawyers or a member of our staff.]

Understanding Separation & Divorce

The term “divorce” has a very distinct legal meaning, yet many people fail to understand the difference between separation and divorce. Often the meanings of the two concepts are blurred together.

To illustrate, a conversation around a water cooler somewhere in Ontario might go as follows:

     MAURICE:   Did you hear the news? Moe from marketing and
                         Sylvie from accounting are separating!

     MARTHA:    That’s funny, I heard they got a divorce.

     MAURICE:   What’s the difference, all I know is that
                          she’s getting the house and he’s getting  
                          a lawnmower.

     MARTHA:    I don’t know the difference either…
                         at least it was one of those new cordless
                         mowers…

To alleviate the confusion between the terms ‘separation’ and ‘divorce,’ it is helpful to begin with section 8 of the Divorce Act, which allows either or both spouses to apply to the Court for a divorce when there has been a “breakdown of the marriage.”

Parties must apply to the court if they want to be divorced. So, if Moe and Sylvie are separating but are not applying to court, then it would be appropriate to say they are “separated” but not “divorced.”

To obtain a divorce, the parties must first be “spouses” within the meaning of the Divorce Act. This definition excludes people merely living together and “common law” spouses and means that the two persons must be legally married to one another. The issue of whether two people are legally married is an entirely separate, and sometimes complex, issue that will be canvassed in a future blog.

The Divorce Act also states that to be granted a divorce order, there must be a “breakdown of the marriage.”

According to the Divorce Act, a “breakdown of the marriage” can only be established where:

1. the spouses have lived separate and apart for at least one year immediately preceding the determination of the divorce proceeding and were living separate and apart at the commencement of the proceeding;

or

2. the spouse against whom the divorce proceeding is brought has, since celebration of the marriage,

(i) committed adultery, or

(ii) treated the other spouse with physical or mental cruelty of such a kind as to render intolerable the continued cohabitation of the spouses.

It is not possible to be divorced unless the parties fit into one of the above three categories.

While separation is necessary to establish first ground of marital breakdown, it is not relevant to the less commonly used grounds of adultery or cruelty.

“Separation" under the Divorce Act doesn’t just mean physical separation. The Act states that “spouses shall be deemed to have lived separate and apart for any period during which they lived apart and either of them had the intention to live separate and apart from the other…”.

Therefore, in addition to living apart for one year, the Divorce Act adds the additional element that at least one of the parties must have had the intention to live separate and apart from the other.*

Of interest, subsection 8(3)(ii) of the Divorce Act allows spouses to resume living together with the intention of trying to resolve their marital differences without interrupting the 1 year period, so long as it doesn’t last longer than 90 days. This subsection is consistent with other sections of the Divorce Act designed to encourage the spouses to reconcile. For example, the Divorce Act places duties on legal advisors and the courts to advise and assist spouses in reconciliation where appropriate.

The distinction between separation and divorce can also be relevant to the division of family property. In fact, determining the date of separation is often crucial for dividing marital property under the Family Law Act.

“Separation” is given the following meaning by the Family Law Act:

     The date the spouses separate and there is no reasonable prospect

     that they will resume cohabitation.

This definition implies that equalization of family property can occur whether or not the spouses are divorced. Going back to the water cooler conversation, just because Moe and Sylvie seem to have sorted out their property issues doesn’t necessarily mean that they are divorced or that they will ever get divorced in the future. Perhaps the two had settled all of the issues stemming from their separation in a separation agreement and were content not to apply for a divorce.

It is helpful to remember that while the concept of separation is often relevant to obtaining a divorce and to the determination of the valuation date for the purposes of equalization, it is legally distinct from divorce.

Who knows when this distinction might come in handy around the water cooler!

*[While there is an entire body of case law examining what constitutes living separate and apart for the purpose of establishing marital breakdown, a review of such law is outside the ambit of this blog posting. For an extensive review of the factors courts in Ontario use to determine whether parties are living separate and apart, the decision of Greaves v. Greaves [2004] CanLII 25489 (ON SC) provides a helpful starting point.]

- Michael D. Heikkinen for abblaw.ca

[The above article is for general informational purposes only and is not legal advice. If you live in the Ottawa area and would like advice about a legal issue please email us or call 613-569-9500 to speak with one of our lawyers or a member of our staff.]

Wills and Estates 101 Mini-Series Part IV: Did He Die or Did He Separate?

In Ontario there is a family property regime set out in the Family Law Act (FLA) which provides for the equal sharing of property accumulated by married parties during their marriage. Note, this provision does not apply to common-law spouses. What happens if, after the death of one married spouse, it is discovered that the deceased spouse has given all of his or her wealth to someone other than his or her surviving spouse?

Suppose Harold was married to Wendy for 42 years. After his death his last will and testament left most of his estate to his “close friend” Susan. Harold left Wendy $50,000.00. Wendy feels betrayed (especially if her will left everything to Harold). What can Wendy do?

In Ontario the FLA permits the surviving married spouse of the deceased to elect to take either under the will or to make a claim against the estate for an equalization of net family property (NFP) pursuant to Part I of the FLA.

Assuming Harold had a NFP greater than Wendy, Wendy may wish to elect to make a claim for a monetary payment equal to one-half the difference her NFP and Harold’s NFP. For a more thorough discussion of NFP equalization, please click here to read a post by Philip W. Augustine.

When spouses separate, the valuation date is typically the date of separation. This means that the assets and liabilities of each spouse would be calculated based on their value at the date of separation. But, where one of the spouses has died, the FLA deems the valuation date to be the day before the date of death.

The surviving spouse has six months from the date of death to elect to take an equalization payment pursuant to the FLA rather than taking pursuant to the will of the deceased.

An example will illustrate how this election works.

At the date of his death Harold had Net Family Property of $600,000.00

At the date of Harold’s death Wendy had Net Family Property of $300,000.00.

Pursuant to the FLA Wendy is entitled to $150,000.00 calculated as follows: $600,000.00 - $300,000.00= $300,000.00

$300,000.00 /2 = $150,000.00

Pursuant to the will Wendy is entitled to $50,000.00 (see facts above)

Unless Jim’s will had expressly provided that Sally could both make the election under the FLA and take under the will, Sally would be forced to choose only one of the two options.

If forced to choose, it is obviously more beneficial for Wendy to take pursuant to the FLA ($150,000.00) than pursuant to the Will ($50,000.00). Wendy would be well advised to make an election to take pursuant to FLA. Wendy has 6 months to make that election, failing which she shall be deemed to take pursuant to the will.

Should a surviving married spouse feel that he or she has not received a proper division of property upon the death of their spouse they should promptly seek out legal advice so they are in a position to make the necessary election should it be in their interests to do so.

     – Michael D. Heikkinen and Philip W. Augustine for abblaw.ca

[The above article is for general informational purposes only and is not legal advice. If you live in the Ottawa area and would like advice about making an FLA election or would like Augustine Bater Binks to prepare your will, please email us at info@abblaw.ca or call 613-569-9500 to speak to one of our lawyers or a member of our staff.]