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Beyond a will: how the death of a spouse is similar to separation

By Emma Katz

The Election

A surviving spouse can choose whether to take what the deceased has left under their will or under intestacy as the case may be, or elect to receive the equalization entitlement under section 5 of the Family Law Act (“FLA”).

Why elect to receive equalization?

A spouse will elect to take under the FLA if they believe they will be entitled to more by way of equalization than what their spouse left them under the will.

Married couples are subject to the division of property by way of an equalization process under the FLA. In Ontario, these property rights do not apply to common law partners, though non-married partners may be able to pursue trust claims in certain circumstances.  Subject to specific exclusions, the financial growth of either party is to be shared equally between spouses and a calculation is done separately for each spouse upon separation or death to determine the increase in their wealth during the marriage. This net family property is the value of the net assets of the valuation date (separation or death) less the value of the net assets at marriage date. The spouse with the higher net family property makes an equalization payment to the other in the amount of one-half the difference between the figures. On death, there will only be an equalization payment if the net family property of the deceased spouses exceeds that of the surviving spouse.

The assets of each party are calculated on a specific date. The valuation date is the earliest of the following dates:

  • The date the spouses separate and there is no reasonable prospect that they will resume cohabitation.
  • The date a divorce is granted;
  • The date the marriage is declared a nullity;
  • The date one of the spouses commences an application based on subsection 5(3) (improvident depletion) that is subsequently granted; and
  • The date before the date on which one of the spouses dies leaving the other spouse surviving.

 

If a spouse who has separated dies, the date would be the date of separation and not the date before the date death, assuming they had not reconciled.

It is very useful if spouses have kept records that include the value of their assets and liabilities on the date of marriage as well as records of transactions throughout the marriage as it is helpful with determining whether to make an election.

Consequences of the election

If the surviving spouse elects equalization they will forfeit all gifts outlined in the will which are revoked unless the will specifically states that the surviving spouse is to receive the gifts under the will in addition to their entitlement under the FLA.

The receipt of insurance proceeds and lump sum payments under a pension plan as well as property received by the surviving spouse by right of survivorship or otherwise on the death of the deceased spouse are deducted from any equalization payment.

When to elect?

The election must be filed within six months of the death of the deceased spouse. If the surviving spouse does not file an election within that time frame, they are deemed to have taken under the will or under intestacy. In limited circumstances, the time for making the election may be extended by the court.

Once an election is made it cannot be revoked unless the court chooses to exercise their residual discretion to authorize a revocation of election in restrictive circumstances. The court can also make a declaration that no election was made if it was improperly prepared or unclear.

The process does not end with the election. The spouse must also file a court application for an equalization of net family property within the relevant limitation period, being the earliest of:

  1. two years from divorce;
  2. six years from separation; and
  3. six months from the first spouse’s death.

Again, this could have the effect that the application has to be filed earlier than six months after date of death if the spouses had been separated for some time before the death of one spouse.

How can a domestic contract interfere with the election?

The FLA can interfere with estate planning given the right of the deceased spouse to make this election. An equalization payment is a judgment debt of the estate charged in priority to other distributions and determining and/or litigation the equalization payment could interfere with the distribution of the estate.

The parties can agree by domestic contract, such as a marriage contract that they will not make a claim under the FLA for equalization. We frequently negotiate and draft domestic contracts as an estate planning tool particularly for couples with children from previous marriages.