Matrimonial Home a Trap for the Unwary: Issue #1

The “matrimonial home” is given special treatment in the Family Law Act and that special treatment can involve huge unfairness to one of the parties to a marriage following marriage breakdown. One way in which this unfairness can arise involves a provision in the Family Law Act (paragraph 4(1)(b)) which defines “net family property” –a fundamental legal concept which is used to equalize property upon the breakdown of a marriage.

When equalizing property accumulated by the parties during the marriage, the parties are each allowed to deduct from the value of their property at date of separation the value of the property which each of them brought into the marriage. However, (and this is where the unfairness comes in) a party is not allowed to deduct the value of the “matrimonial home” if a party owned it at the time of the marriage.

The easiest way to illustrate this issue is by a series of examples.

Example Number 1

Harold has $400,000.00 in cash when he gets married. Wendy has $0.00 at the date of marriage. The parties are married for 10 years and then separate. At the end of the marriage Harold has a net worth of $1,100,000.00 and Wendy has a net worth of $600,000.00. In this case Harold would be entitled to deduct the $400,000.00 he had at the date of marriage. That would reduce his net family property to $700,000.00. Harold would then pay Wendy ($700,000.00 - $600,000.00 = $100,000.00 / 2 = $50,000.00. Harold would then have ($1,100,000.00 - $50,000.00 =) $1,050,000.00 and Wendy would have ($600,000.00 + $50,000.00 =) $650,000.00. In other words, Harold would end the marriage with $400,000.00 more than Wendy and Harold and Wendy would both have shared equally in the wealth accumulated during the marriage. The parties would be in exactly the same relative property position property at the end of the marriage as when they started the marriage (i.e. Harold would have $400,000.00 more than Wendy). That is considered fair by most people.

Example Number 2

Now consider the same facts as in Example number 1, except, the day before getting married Harold purchased 123 Elm Street so that the happy couple would have a nice home to which to return after their honeymoon. The parties live in the home for 10 years and Harold still owns the same home at the date of separation. In this case Harold is not entitled to deduct the value of the home from his Net Family Property. The math in this example would be as follows:

     Harold $1,100,000.00 - $0.00 = $1,100,000.00

     Wendy $600,000.00 - $0.00 = $ 600,000.00

     Harold pays Wendy ($1,100,000.00 - $600,000.00 =)

     $500,000.00 / 2 = $250,000.00

     Wendy and Harold both end up with $850,000.00.

In example number 2 Harold lost half of the $400,000.00 which he brought into the marriage because he purchased a home prior to the wedding day and owned that home at the date of separation. Had Harold waited until after the wedding to purchase the home and brought cash into the marriage he would have been entitled to keep all of the $400,000.00 following marriage breakdown. Most people consider this result to be unfair.

As couples marry later in life or marry for a second time it is increasingly likely that one party to the marriage will bring a home into the marriage in which the parties will reside until the breakdown of the marriage. The treatment of the matrimonial home on separation has many traps for the unwary. More to follow.

— Philip W. Augustine for abblaw.ca

Wills & Estates 101 Mini-Series: Part III: Attorney Compensation

In our last post we covered some of the primary responsibilities and basic legal requirements of powers of attorney for property and personal care. We now turn to some questions people often have about a person getting paid for being an attorney, questions such as:

     Will the person designated as attorney be paid for his or her work?

     How much and when would the attorney get paid?

In Ontario, the answers to those questions are very different for attorneys under a power of attorney for personal care and under a power of attorney for property.

Power of Attorney for Property: The starting point for compensation for this kind of power of attorney is the Substitute Decisions Act [SDA], which provides that a continuing power of attorney for property may take annual compensation from the property in accordance with the prescribed fee scale. Currently, the prescribed fee scale is:

     • 3% of capital and income receipts;

     • 3% on capital and income disbursements; and

     • 3/5’s of 1% on the annual average value of the assets as a care
     and management fee.

This is not a fixed entitlement applicable to all cases. The amount of compensation for acting under a power of attorney for property, and even the right to any compensation, is subject to challenge and to review by the courts. The prescribed fee can eventually be reduced or increased depending on the case and a number of factors such as the size of the estate, the complexity of the required work, and the skill and success of the attorney in the management of the estate.

Unlike executors under a will, attorneys for property have the right under the SDA to “pre-take” compensation, that is to get paid while the work is ongoing, before their accounts have been reviewed and approved by the court. The statute specifically refers to compensation being taken monthly, quarterly or annually. As we mentioned though, any amount taken improperly may be subject to a court challenge and adjustment.

The statute also makes compensation for attorneys for property subject to any provisions regarding compensation contained in the actual continuing power of attorney document. This flexibility allows the grantor to expressly set out the amount of compensation the attorney for property is to be paid.

If the grantor expressly provides that he or she does not want the attorney to take compensation, the attorney will not be entitled to compensation despite the entitlements contained in the SDA and its regulations. Anyone named under such a power of attorney such therefore review the document itself very carefully before deciding whether to accept this responsibility.

Power of Attorney for Personal Care: Curiously, the SDA does not say anything at all about compensation for attorneys for personal care. There is therefore some doubt about whether such attorneys are entitled to be paid for their services at all. There is some authority for such claims, but the amount, the timing and other rules about getting paid are unspecified and very uncertain.

Therefore if one wishes to provide for the compensation of their attorney for personal care, this should be discussed with the lawyer as early in the drafting process as possible and set out clearly in the power of attorney document, expressly stating this intention and a method for calculating the amount of the entitlement and when the attorney can pay himself or herself.

As discussed in our last post, attorneys for property and personal care take on an onerous responsibility and are generally held to high standards by the courts. Consequently, it is important when drafting a power of attorney to be mindful of the fact that if you only provide a nominal amount of compensation or deny any right to compensation entirely this could result in the attorney refusing his or her appointment.

Although this posting has summarized some of the fundamentals of attorney compensation, it is always best to discuss your power of attorney needs with a lawyer within the context of your overall estate plan and unique personal circumstances.

     — Craig M. Bater and Michael D. Heikkinen for abblaw.ca

[If you live in the Ottawa area and would like Augustine Bater Binks to prepare your will or power of attorney, please email us or call 613-569-9500 to speak to one of our lawyers or a member of our staff.]

Wills & Estates 101 Mini-Series: Part II: Powers of Attorney

As the second installment in our mini series on wills & estates, we will review some of the basic legal principles about powers of attorney in Ontario, why they are important and how they fit into your overall estate plan.

A will is only effective from the date of the death of the testator. People however often need assistance in managing their “estate” (their property) or their personal care while they are alive if they are unable to do so themselves. This could be because of mental infirmity or because of an accident or physical limitations.

Therefore it has become customary when making a will to also prepare two power of attorney documents in order to have a complete estate plan in place. There is a Power of Attorney for Property and a separate one called a Power of Attorney for Personal Care. These documents give the “Grantor’s” power or authority to the appointed person(s), the “Attorney”, to manage his/her affairs and property and to make care decisions such as giving legally binding consent to proposed medical treatment or withdrawal of medical treatment or life support systems.

You should carefully consider who you wish to have this authority. These two kinds of Powers of Attorney are very different. There are different rules for when they come into effect and they involve very different kinds of decision making. You can appoint one or more attorneys, and if you appoint more than one, you can decide if they have to make decisions together or can act on their own. Your attorney for property and your attorney for personal care can be the same person or different people and they can be the same person as your executor. You could consider appointing an alternate attorney(s) in case the primary one is unable or unwilling to act.

Many people consider the appointment to be a statement about who the Grantor trusts more or who is the favourite, and worry that someone will be offended if not appointed. The duties of an attorney can however be very onerous. The law requires an attorney to keep very detailed accounting records, more detailed than a lot of people realize. The law sets out various duties to consult before making decisions, and requires attorneys to always act in the best interests of the grantor, not for one’s personal benefit. There are investment rules and other limitations on what an attorney can do. There are numerous court disputes over whether the attorney kept proper accounts or made proper decisions. Once the initial glow of being appointed wears off most attorney’s find out it is a lot of work and leaves them open to complaint or second guessing by various other people with the benefit of hindsight.

You should also keep in mind that a power of attorney made in Ontario might not suffice if the “grantor” moves to another province or country.

The bottom line is that powers of attorney for property and personal care are vital parts of any good estate plan, but you should understand and discuss all of these issues with your lawyer carefully before completing them.

— Craig M. Bater for abblaw.ca

[Watch for our next session on Powers of Attorney – hard work, good pay? Compensation for attorneys.  If you live in the Ottawa area and 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.]

Wills 101 Mini-Series: Part I: Choosing an Executor

This first installment of our mini-series on wills is meant to provide some basic information about the selection of an executor.

The estate trustee, also known as the executor, is the person named in a will who will be responsible for administering affairs after the death of the testator (the person making the will). This person will ultimately be responsible for ensuring that the testator’s final wishes are respected. Choosing who to appoint as an executor is a critical decision which a testator must make during the estate planning process.

A testator needs to instruct his or her lawyer as to the person (or people, if more than one) who he or she wants to act as the executor of their estate.

It is possible that the person selected will predecease the testator or be otherwise unable to act as executor. It is therefore advisable to appoint a secondary executor to act in the place of the primary executor in the event that he or she is unable to act.  It is also possible to appoint more than one executor (i.e. a group of 3) with an express statement that either the group of executors must act unanimously or by majority.

There are many considerations that go into the choice of executor, but frequently it is a trusted family member or close friend.  Ideally, the person is able to handle business affairs (i.e. opening an Estate bank account, sell a house).  If an estate is complex, it may be prudent to consider appointing a professional estate trustee, such as a lawyer or an accountant.

It isn’t essential that the person live in the same town as the testator, but it is more convenient.  If the executor is an Ontario resident it eliminates the issue of the possibility of having to post a bond. Moreover, it is important to note that the executor can also be a beneficiary of the estate.

It is generally wise for the testator to consult with the person he or she has chosen as executor prior to finalizing the will. Not only is it courteous to do so, but making appointees aware of their selection by the testator at an early stage will minimize the likelihood of them declining the role when it comes time to act.

If the testator has any doubts about appointing a particular person as executor, these concerns should be raised with the testator’s lawyer as early in the drafting process as possible. Likewise, if a testator appoints an executor and later becomes uncertain or apprehensive about the person chosen, the testator should act without delay to meet with a lawyer in order to discuss amendments to the will. Doing so will not only increase the probability that the estate will be administered smoothly, but it will also provide the testator with peace of mind.


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

[In next week’s Wills 101 blog, we will be discussing the fundamentals of powers of attorney for property and personal care. If you live in the Ottawa area and 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.]

 

Full & Honest Disclosure Integral in Family Law Disputes

Subrule 13(6) of Ontario’s Family Law Rules states that any party serving a financial statement must make “full and frank disclosure of the party’s financial situation.” Financial statements must also be fully complete and submitted with supporting documentation.

Despite the fact that full and accurate disclosure from both sides is an essential component to the swift resolution of virtually any family law matter, the rule can sometimes be loosely adhered to or disregarded in its entirety by litigants.

As the following case illustrates, a failure to make open and honest disclosure can lead to extreme delays, inflated legal costs and a very undesirable outcome for the party failing to disclose.

In Oelbaum v. Oelbaum, 2010 ONSC 4874 (CanLII), a husband and wife separated after 22 years of marriage. The litigation began in October of 1996. Throughout the 14 years of litigation, the husband refused to provide meaningful financial disclosure.

Although having been warned that not making disclosure would lead to his Answer being struck, the husband continued to disregard the rules. His Answer was eventually stuck, and the trial proceeded on an uncontested basis.

One month after the issuing of the trial judgment in favour of the wife (which included an order of $183,158 in costs) the husband filed a financial statement and brought a motion for the reinstatement of his Answer. Unfortunately for Mr. Olebaum, Murray J. found the new financial statement to be both incomplete and inadequate. In the end, the Court dismissed the motion, noting that the Respondent’s latest attempt at disclosure was “too little and too late.”

After a thorough review of the history of the husband’s failure to disclose his finances, Murray J. stated the following:

[21] … It is fair to conclude that Mr. Oelbaum elected to treat court orders and the applicant with complete disdain behaving as if the Court and the applicant had no business knowing the details of his financial situation. He refused to provide accurate financial information that was of fundamental importance in fairly determining issues of property allocation and child and spousal support in accordance with the applicable legal principles.

In his endorsement, Murray J. highlighted some of the broader policy considerations weighing against a decision in favour of the Respondent. On the importance of full disclosure to the administration of justice, his Honour stated:

[38] What would be the effect of any order the motions judge might make on the overall integrity of the administration of justice? Without meaning to trivialize the importance of candour and honesty in uncontested proceedings, I conclude that the overall integrity of the administration of justice would be tainted by granting the respondent's motion in this case. The respondent has bullied this applicant for years. The respondent's refusal to provide accurate and complete financial information was intended to be, and was, a barrier to the applicant's ability to obtain relief.

And later,

[47] … If the respondent were to be successful in this case, it would be an invitation to like-minded spouses in other matrimonial cases to stonewall, not to pay interim child and spousal support, to refuse financial disclosure and to be extremely contentious in litigation. It would encourage “gaming the process.” Such a result would be antithetical to the notion of fair and efficient dispute resolution in matrimonial cases.

The respondent was finally ordered to make payments to his wife for support arrears, costs and ongoing support totaling well in excess of $1.5 million.

One can’t help but wonder how much time and money could have been saved had the husband simply adhered to subrule 13(6).

— Michael D. Heikkinen for abblaw.ca