There are some important milestones in life when it is imperative for a person to update their will. A later-in-life second marriage certainly is one of them.
If your first marriage ended in divorce, the provisions in your will that refer to your spouse are automatically revoked, as provided by s. 17(2) of the Succession Law Reform Act. Your former spouse will no longer be your executor or trustee or even a beneficiary of your estate unless there is an explicit reference in your will to this.
Keep in mind the same is not true for beneficiary designations relating to assets, such as RRSPs, RRIFs, life insurance policies and pensions. Those will still flow to the individual named in those plans unless you take steps to name new beneficiaries.
If you are separated but not divorced, your will remains entirely valid upon death, in the absence of a separation agreement delineating a married spouse’s entitlement. Therefore, any bequests previously made by a spouse to a surviving spouse remain valid. This situation is not ideal either, since you want to avoid having assets flowing to a person when you are no longer involved with them.
A complicating factor with later-in-life marriages is that they can bring together children from previous relationships. From an estate-planning perspective, this can create complexities.
Perhaps the children from a first relationship resent a step-parent and feel that their step-siblings are now unfairly in line for the estate. Conversely, a step-parent may welcome a spouse’s child as their own or the couple may have a child of their own or adopt one. Where does that leave the other children from previous marriages from an estate distribution perspective?
Aside from the financial implications of having your family members squabble over your estate, there is an emotional component to consider. Children may feel slighted if they do not inherit what they consider to be their fair portion of the estate, even if the intention is that the surviving spouse, in turn, leaves assets to the children upon their death. This approach leaves room for uncertainty, which is the last thing you want to create when drawing up an estate plan.
A common practice for estate planning when it comes to second marriages is to provide a “life estate” to the surviving spouse and a “gift over” to the testator’s children. If the father were to die in this scenario, the matrimonial home and all of his money would be held in trust for his widow for life. She could then make use of these assets but would not have the right to gift them to beneficiaries of her own estate, as the assets would be given to his children upon her death.
Almost any blended-family situation creates tension that can explode into estate litigation if the will is not carefully drafted to address the family’s circumstances. It is important to be clear about your wishes with the lawyer revising your estate plan, taking into account how everyone in your blended family will react to the arrangement.
To sum up, it is crucial to seek the advice of legal counsel about wills before entering into a late-life marriage. Those that do will discover estate planning will be much different than with a first marriage when they had fewer assets and beneficiaries.
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Recent reports suggest that divorce and separation rates are on the rise during the pandemic (with rates of separation cited as having increased as much as 20% to 57% from last year, depending on the jurisdiction). This has been in part attributed to the stresses of lockdown and worsening financial situations.
Many Canadians may not be fully aware of the legal impact that separation and divorce have upon an estate plan, mistakenly believing that there is no real difference between marriage and a common-law partnership. However, the distinction in Ontario remains important from an estate planning perspective – for example:
- A common-law or divorced spouse does not have any automatic rights upon the death of a spouse who does not leave a will, whereas married spouses take a preferential share and additional percentage of a predeceasing married spouse’s estate on an intestacy;
- A married spouse has the right to elect for an equalization of net family property pursuant to the Family Law Act on death, whereas common-law spouses have no equalization rights on death;
- Marriage automatically revokes a will (unless executed in contemplation of the marriage), whereas entering into a common-law relationship has no such impact; and
- Separation (in the absence of a Separation Agreement dealing with such issues) does not revoke a will or any gifts made to a separated spouse, whereas gifts under a will to a divorced spouse are typically revoked and the divorced spouse treated as having predeceased the testator.
While top of mind for estate lawyers, lawyers practising in other areas of law and their clients may not necessarily turn their minds to the implications that separation and divorce may have on an estate plan, particularly soon after separation and prior to a formal divorce. With the potential for family law proceedings to be delayed while courts may not yet be operating at full capacity, combined with elevated mortality rates among certain parts of the population during the pandemic, it may be especially worthwhile in the current circumstances to remind our clients of the importance of updating an estate plan following any material change in family circumstances, including a separation or divorce.
Thank you for reading and stay safe,
Further to my blog on Monday, the Court of Appeal also released another interesting decision last week with respect to the tort of conspiracy in the context of a family law proceeding. Leitch v. Novack, 2020 ONCA 257, is an appeal from a summary judgement motion that was brought by the husband’s father, a family trust, and a family company. Summary judgment was brought because the wife sought damages against the moving parties for an alleged conspiracy that they were intentionally withholding payments to the husband in order to reduce his family law obligations.
The motion judge, in 2019 ONSC 794, held that the conspiracy claim was appropriate for partial summary judgment. The conspiracy claims were dismissed even though the wife could still pursue a claim to impute additional income to the husband for the purposes of determining his income at trial. Over a million dollars in costs were later awarded to the husband and the moving parties and there was a subsequent order for security for costs that effectively froze all of the wife’s assets.
The appeal was allowed. The Court found that there was a material risk of inconsistent results because the wife was allowed pursue her claims that additional income ought to be imputed to the husband despite the motion judge’s finding that there was no unlawful conspiracy.
As for the tort of conspiracy, Justice Hourigan confirms and clarifies the application of this doctrine in the context of family law matters. The tort of conspiracy is part of the judicial toolbox to ensure fairness and for deterrence. It is also there for enforcement purposes because the purpose of the conspiracy is to hide income or assets and “a judgment against a co-conspirator will often be the only means which by which a recipient will be able to satisfy judgment” (paras. 46-47).
Justice Hourigan commented that
“a transfer of funds by loan, gift, or otherwise, is not the only way that the alleged co-conspirators could have acted in furtherance of the conspiracy. If the trial judge is satisfied that [the husband] had an entitlement to funds and that a co-conspirator withheld the transfer of funds to him as part of a conspiracy with the understanding that he would receive the money at some future date, the withholding of funds may itself be an act in furtherance of the conspiracy. It is not necessary to establish more than an acted-upon conspiracy to conceal [the husband’s] entitlement.” (para. 51).
The costs awards and the preservation order were also set aside.
This decision is certainly important to keep in mind when advising trustees of discretionary trusts.
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In the recent decision of Gabourie v Gabourie, 2019 ONSC 6282, the court considered a motion for (among other things) interim support by the deceased’s separated spouse.
The applicant wife had separated from her spouse (now deceased) approximately two years prior to his death in March 2018. At the time of the deceased’s death, he and the applicant had been in the process of negotiating the terms of their separation and divorce. They had already entered into an interim separation agreement, which dealt with the proceeds from the sale of their matrimonial home. After the deceased’s death, the applicant and the respondent (who was the deceased’s sister, estate trustee, and sole beneficiary) were able to agree on the issue of equalization of net family property, and a payment was made to the applicant. The issue of spousal/dependant’s support remained outstanding.
The applicant sought a lump sum interim support payment of $50,000.00. Ultimately, the court awarded the applicant interim support of $30,000.00.
Providing Support or Under a Legal Obligation to Provide Support
The fact that the spouses had been separated at the time of the deceased’s death was considered as part of the court’s determination of whether the applicant was a “dependant” (specifically as to whether the deceased was providing support to her, or was under a legal obligation to provide support to her, immediately before his death) and whether the deceased made adequate provision for the applicant’s support.
The court found that there was no evidence that the Deceased had been actually providing support to the applicant prior to his death. They had been separated for two years; in that time the deceased had several health complications and lost his job. He was not supporting the applicant, nor was the applicant relying on him for support. However, spousal support remained an issue to be resolved as part of the separation between the deceased and the applicant. The court stated that there was no evidence that the applicant had waived her right to spousal support, and that, as a married spouse, the deceased was under a legal obligation to support the applicant.
Amount of Interim Support
In arriving at the amount of interim support awarded to the applicant, the court considered the financial circumstances of the deceased’s estate, and of the applicant. Based on preliminary disclosure from the respondent, the Deceased’s estate had a value of approximately $650,000.00, as well as an insurance benefit of $75,000.00. The applicant’s net worth was around $220,000.00, and she earned only a modest part-time income. The applicant also had a significant amount of debt relative to her assets, which the applicant submitted she was required to incur as she was not receiving spousal support and was unable to meet her expenses.
However, the court was mindful of the amount of support sought relative to the value of the estate. The applicant sought $50,000.00, stating that this amount was sought for legal fees that she had incurred in pursuing her dependant’s support claim.
The court was disinclined to award the applicant the full amount sought given the stage of the proceeding, and that it was not yet known whether the applicant would succeed on her application, stating that it was nearly seven percent of the value of the deceased’s estate.
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Recent amendments to Canada’s Divorce Act will come into effect on July 1, 2020. While many of these changes may not be directly relevant to estate law, estate practitioners may nevertheless wish to familiarize themselves with these developments before July.
The amendments introduced under Bill C-78 serve a number of objectives, including the advancement of the best interests of the child and increased access to justice. They can be briefly summarized as follows:
- New criteria, independent of the Children’s Law Reform Act, in respect of the best interests of the child, taking into account the child’s views and preferences;
- Updates to terminology designed to enhance access to justice and focus on the responsibilities of parents owed to their children: for example, custody orders will soon be referred to as “parenting orders”, and access will instead be known as “contact”;
- The removal of presumptions as to equal parenting time and maximum contact being in the best interests of the child.
The new Divorce Act also imposes a duty upon counsel to encourage family dispute resolution unless clearly inappropriate in the circumstances, in a manner consistent with Rule 3.2-4 of the Law Society of Ontario’s Rules of Professional Conduct. Some provinces are expected as a result to introduce legislation providing judges with the discretion to direct parties to family mediation and/or parenting coordination (as has already happened in British Columbia).
Bill C-78 has also resulted in updates to the Family Orders and Agreements Enforcement Assistance Act. This act, which already facilitates access to information held by financial institutions with respect to the assets of debtors, will soon permit access to income information from Canada Revenue Agency for the purposes of recalculating support. The enhanced act is expected to reduce costs to parties and to courts of obtaining necessary disclosure.
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The transfer of inter-generational wealth has long been a way for families to grow from one generation to the next. Many parents plan the transfer of their wealth at a time when their children are adults, and may be married with families of their own. And while in many respects the saying “what’s mine is yours, and what’s yours is mine” is true when it comes to marriage; it may not always be true when it comes to divorce. This is a key consideration for parents who wish to exclusively benefit their child with a gift or inheritance in the event of divorce.
The Family Law Act (“FLA”) provides guidance on how assets may be divided in the event of divorce. Section 4(2) states that property (outside of a matrimonial home) that was acquired by gift or inheritance from a third person after the date of marriage does not form part of that spouse’s net family property. Donors and/or testators may also expressly provide that income from said property is to be excluded from the spouse’s net family property. The FLA further provides that property (other than the matrimonial home) into which the gift or inheritance can be traced will also be excluded.
If a donor or testator’s intention is to have these assets excluded from a net family property calculation, it is encouraged that they formalize their intentions through proper deeds and/or wills.
Moreover, it is equally important for recipients of gifts and/or an inheritance to be mindful of where those assets are allocated upon receipt. For example, a recipient of a gift of money may want to be cautious of placing these funds in a joint bank account, where the assets may become commingled and difficult to trace.
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In Ontario, by reason of s. 17(2) of the Succession Law Reform Act, if a testator’s marriage is terminated by a judgment absolute of divorce or is declared a nullity, any devise or bequest to his or her former spouse, any appointment of his or her former spouse as estate trustee, or any grant of a power of appointment to his or her former spouse is revoked, and the will is to be construed as if the former spouse had predeceased the testator.
This is subject to a contrary intention appearing in the will.
This provision was enacted in 1974. Prior to that, bequests to a former spouse remained valid until the testator made a new will, revoked the will, or remarried. (S. 16 of the SLRA provides that a will is revoked by marriage, subject to certain exceptions.)
In Page Estate v. Sachs (H.C.J.), 1990 CanLII 6903, the court had to grapple with the question of the retrospective application of this section. There, the testator made a will in 1968. The will gave the estate to the testator’s spouse. The testator and his spouse were divorced in 1974. The testator died in 1986. The question for the court was whether s. 17(2) would apply in those circumstances.
The court found that s. 17(2) has retrospective application. The gift to the spouse was revoked. The testator’s estate was distributed as if the former spouse had predeceased.
In the decision, the judge quoted from the “Report On The Impact of Divorce on Existing Wills” by the Ontario Law Reform Commission. It was said that s. 17(2) “represents remedial reform legislation in aid of those former spouses who neglect to alter their wills following a divorce and thereby bestowed upon their former spouse unintended windfall benefits.” The judge went on to observe that the section “simply asserts the finality which a decree absolute renders to the relationship and status of the former spouses and ties up any inadvertent loose ends which could resurrect the spousal status.”
Note that the provision only comes into play where there is a divorce or the marriage is declared a nullity. Separated spouses should “tie up any loose ends” and ensure that they consider revising their will upon separation. My first exposure to estates law involved a matter where a wife moved to divorce her husband. The husband was so irate that he vowed that she would not get anything from him in the divorce, and committed suicide. He did not revise his will. As a divorce had not yet been granted, his entire estate passed to his wife, which was clearly contrary to his intentions.
Don’t leave your ends loose.
When a marriage breaks down, spouses often have an overwhelming amount of issues to consider. For many, all they want to do is figure out how to split up the assets (and kids) and move on with their lives. Sometimes, spouses will separate without formally divorcing. Although life after marriage may be the key consideration for most, separated spouses should also take time to consider what happens on their death and whether or not they want their spouse to share in their estate.
Draft a Will
The most obvious way of ensuring that your separated spouse doesn’t benefit from your death is to draft a Will. By setting out one’s intended disposition of assets, a testator will avoid the provisions of Part II of the Succession Law Reform Act, which provides for a share of the Estate to pass to the legally married spouse of a person who dies intestate. But remember, including a provision in the will that the spouse is to be excluded from inheriting is not sufficient to keep a surviving spouse from inheriting on an intestacy (see our recent blog on this topic here).
Of course, if property rights between the spouses have not been settled following separation, the surviving spouse may still be at liberty to elect in favour of equalization of net family property pursuant to the Family Law Act.
Separation Agreements and Release of Intestacy Rights
If the parties have consulted lawyers and formally settled all of the issues surrounding their marriage, they are likely to have entered into a separation agreement. Often, parties to such agreements will walk away thinking that they have fully separated out their lives and settled all issues arising as a result of marriage, cohabitation, or the breakdown of the relationship. However, solicitors drafting such agreements should be careful to properly release each spouse’s interest in the estate of the other, in case of an intestacy. In particular, while no one likes to think of it, cases have occurred where a spouse dies only days after entering into a separation agreement and before they have had the opportunity to draft a Will.
In order to properly release a spouse’s intestate interests in the other spouse’s estate, there must be a specific release of such rights using clear, direct and cogent words (see the leading case in Ontario of Re Winter,  DLR 134 (Ont H Ct)). In Re Winter, the wife released the husband as follows:
The wife of the second part covenants and agrees and does hereby release the husband of the first part from all claims present, past or future against the husband for maintenance, alimony or separation allowance and acknowledges that she has no further claims against the husband nor against the estate of the husband of the first part.
The Court found that although there was a release against the husband’s estate, the release only dealt with claims for “maintenance, alimony or separation allowance” and was not sufficiently clear and cogent for the wife to have released her intestacy rights against the husband’s estate. As a result, the wife inherited on the husband’s intestacy (a result likely to have displeased the other intestate heirs and the husband, had he been alive).
Change Your Beneficiary Designations
Finally, in addition to thinking of the potential intestacy rights of a surviving spouse, don’t forget assets passing outside of the estate. Make sure to have all beneficiary designations on insurance policies, registered accounts (RRSPs and TFSAs), and pensions updated following separation.
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Kanye West’s 2005 smash-hit, Gold Digger, includes lyrics that, “if you ain’t no punk; holla, ‘we want prenup! We want prenup!’; It’s somethin’ that you need to have”. Certainly, an individual entering into marriage with prior wealth, should consider a prenuptial agreement. What should spouses do though who do not have a prenuptial agreement and receive wealth after marriage?
Unlike a prenuptial agreement, a post-nuptial agreement, as its name suggests, is entered into after marriage. Post-nuptial agreements are gaining in popularity amongst spouses who inherit property as a beneficiary of an estate or are pulled into the family business on the death of the parent.
Post-nuptial agreements are also being utilized as an estate planning protective measure.
Like a prenuptial agreement, a post-nuptial sets out how the assets of a married couple are to be distributed in the event of death or divorce, and can be as detailed as including the jurisdiction of the divorce and social media rules.
Entering into a post-nuptial agreement shouldn’t necessarily be viewed in a negative light. The process of going through a post-nuptial agreement can be a cathartic experience for couples – it is an opportunity to look at assets and debts, air grievances, and discuss important parameters in a marriage such as payments to children from a prior marriage.
Given that marriage brings about special legal rights and obligations, those considering a post-nuptial agreement should consider speaking with a professional.
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Back in February 2017 I blogged about how, as a result of a recent change in the definition of “spouse” within the confines of Part V of the Succession Law Reform Act (the “SLRA”), divorced spouses could arguably no longer qualify as a “spouse” of the deceased individual for the purposes of dependant’s support. As a divorced spouse would be unlikely to be included amongst any other class of individual who could qualify as a “dependant” of the deceased, the effect of such a change was to potentially deprive divorced spouses from the ability to seek support from their deceased ex-spouse’s estate following death.
The issue centered on the removal of language from the definition of “spouse” within Part V of the SLRA. The definition of spouse previously included language which provided that a “spouse” included two people who “were married to each other by a marriage that was terminated or declared a nullity”. The revised definition provided that “spouse” under Part V of the SLRA had the same meaning as section 29 of the Family Law Act. As section 29 of the Family Law Act did not include similar language to the definition of spouse including two people who “were married to each other by a marriage that was terminated or declared a nullity”, but rather simply provided that “spouse” was defined as including two people who were married to each other or who are not married to each other but cohabitated continuously for a period of not less than three years (i.e. common law spouses), the argument was that divorced spouses could no longer be “spouses” for the purposes of Part V of the SLRA.
Much debate ensued in the profession following such a change in definition about what impact, if any, it would have upon a divorced spouse’s ability to seek support after death. Such debate now appears to be moot, as the Ontario legislature appears to have acknowledged the confusion caused by the change in definition, and has again changed the definition of “spouse” within the confines of Part V of the SLRA with the passage of the Stronger, Healthier Ontario Act (Budget Measures), 2017, S.O. 2017, C.8 (the “Stronger, Healthier Ontario Act”).
In accordance with “Schedule 29” of the Stronger, Healthier Ontario Act, the definition of “spouse” as contained in Part V of the SLRA now reads as follows:
“Spouse” has the same meaning as in section 29 of the Family Law Act and in addition includes either of two persons who were married to each other by a marriage that was terminated by divorce.” [emphasis added]
The revised definition of “spouse” leaves no doubt that divorced spouses can qualify as a dependant of their deceased ex-spouse within the meaning of Part V of the SLRA. Interestingly, while the revised definition of “spouse” clearly includes divorced spouses, it does not contain a reference to those individuals whose marriage was “declared a nullity” as the previous definition of spouse contained. As a result, it is still questionable whether those individuals whose marriage was declared a nullity could be considered a “spouse” within the confines of Part V of the SLRA, and whether they could bring an Application for support as a dependant of their ex-spouse’s estate following death.
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