Tag: equalization of net family property
Two weeks ago, I blogged about the priority of assets out of which an Order for dependant’s support might be paid. Today, I’ll look at the priority of claims for dependant’s support in relation to other claims against an estate.
Priority of Net Family Property Equalization Claims
Section 6(12) of the Family Law Act, RSO 1990, c F3, as amended, provides a statutory priority when it comes to a spouse’s entitlement to an equalization payment out of a deceased spouse’s estate. Such a payment has priority over gifts made in the deceased spouse’s will or the rights of a person to inherit on the intestacy of the deceased. Interestingly, such payments also have priority over any order for dependant’s support, except an order in favour of a child of the deceased spouse. Thus whether a dependant support claim will prevail over a claim to equalization of net family property will depend on whether or not the dependant is a child of the deceased.
Priority of Support Claims over Other Claims
In Grieco v Grieco Estate, 2013 ONSC 2465 (Grieco), the Court considered whether claims for dependant support might have priority over other claims against an estate. In that case, multiple family members, including the Deceased’s estranged wife, his common-law spouse, and his adult children claimed to be dependants of the Deceased. There were also various persons or entities with other claims and actions against the Estate (referred to as the “aviation claimants”).
The Court looked to section 4(1) of the Creditor’s Relief Act, 2010, SO 2010, c 16, Sched 4, and found that, where the estate is not bankrupt, the Creditor’s Relief Act applies such that Orders for support, including dependant’s support, prevail over other judgment debts. Where the estate is bankrupt, the claims of unsecured creditors rank equally such that the claims for an equalization payment would rank equally with other claims against the estate (see Thibodeau v Thibodeau, 2011 ONCA 110).
Thus where an estate is not bankrupt, the following hierarchy appears to exist among unproven claims brought against an Estate:
- Dependant support claims of children of the deceased;
- Equalization claims of the surviving spouse of the deceased;
- Dependant support claims of dependants who are not the children of the deceased; and
- other claims brought against an Estate.
The Creditor’s Relief Act, 2010 also speaks to the priority of certain other claims, such as judgment debts owing to the Crown in right of Canada.
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When is it Appropriate to Extend the Time Granted in Favour of Equalization under the Family Law Act?
Applications for an extension of time (beyond six months from date of death) to elect under the Family Law Act (“FLA”) are regularly brought before the Court. Decisions with respect to that are often dealt with by way of short endorsements.
Justice Dunphy, in Aquilina v Aquilina, 2018 ONSC 3607, a recent court decision, made some interesting comments regarding applications for an extension of time in such circumstances.
The Deceased passed away in December, 2017, leaving the Applicant (his wife) and their three adult children. The Applicant was primarily a homemaker and as such, her level of information regarding the family financial affairs was imprecise. The Estate was not a simple one to administer, in part due to a number of business interests the Deceased had in the family’s native country, Malta, held through various corporations, real estate holdings and an active business.
At the time of the hearing, the Estate did not have an administrator. It was determined that the Deceased did not leave a Will.
The Applicant in this matter had two options – making a claim under the Succession Law Reform Act (“SLRA”) or the FLA.
Under the SLRA, in the event of an intestacy, the beneficiaries of the Deceased’s estate are the Applicant and their three adult children. Under s. 46(2) of the SLRA, where there is no Will and there is more than one child of the Deceased, the surviving spouse is entitled to 1/3 of the Estate plus the “preferential share” prescribed by s. 45 of the SLRA.
In contrast, s. 5(2) of the FLA provides that the surviving spouse will receive 1/2 of the difference between the value of the net family property of each of the spouses where the Deceased had the higher of the two amounts.
The Applicant has a period of six months from the date of death to make the election as per s. 6(10) of the FLA. Absent an election, the surviving spouse takes under the SLRA.
Criteria for Extension
The Applicant requested that the court: (i) extend the time to make an election until two years from the date of the application; (ii) extend the time for the deemed election to the same date; and (iii) extend the time during which distributions from the Estate are suspended until the same date.
In making a finding, the Court must consider:
- Whether there are apparent grounds for relief;
- Whether delay, if any, was incurred in good faith; and
- Whether anyone will be substantially prejudiced by the delay.
It is important to note, that the surviving spouse does not have to have precise and accurate information but that he or she must have sufficient information to make an informed choice. Justice Dunphy noted that extensions are intended to be the exception and not the rule.
Analysis and Decision
Justice Dunphy held that it was going to take a period of time – very likely a year or more – to be able to gather the facts necessary to understand the value of this Estate and the Applicant’s intersecting interests within (meaning the consequences flowing from her different roles as a shareholder, widow and spouse). Therefore, Justice Dunphy held that there are some grounds for relief in the circumstances of this case.
In considering whether there was any delay that was not incurred in good faith, though Justice Dunphy noted that the Application was brought very close to the six month anniversary of the Deceased’s date of death, he placed weight on the fact that the death was “sudden, unexpected and shocking” and the relative complexity of the Estate. He held that the delay was incurred in good faith.
Justice Dunphy found that there would be no substantial prejudice in this case if an election was granted because the only other beneficiaries of the Estate are the three adult children of the Deceased and the Applicant, who confirmed that they did not oppose the motion. He did balance against that finding, however, the inherent prejudice in having all or a substantial portion of the Estate frozen. In making this consideration, Justice Dunphy found that any prejudice in this matter was slight.
Based on the facts, Justice Dunphy held that more time would be required to consider the rights of the Applicant, as the surviving spouse, under the SLRA as compared to the FLA. As such, he granted the Applicant all the relief sought, but reduced it to one year from the date of the Application instead of the two years that the Applicant was seeking.
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Find this blog interesting? Please consider these other related posted:
This week on Hull on Estates, David Morgan Smith and Lisa Haseley discuss equalization claims and the court’s discretion to award an unequal division of the net family property. Chechui v. Nieman, 2016 ONSC 1905, 2016 CarswellOnt 7547 (http://bit.ly/2cUY8bk)
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In most common law jurisdictions, the devolution of an estate begins with the principle of testamentary freedom. That is, that a testator is free to dispose of his or her property in any way he or she sees fit. However, in practice, this is rarely the case. Testamentary freedom has many restrictions that significantly curtail a testator’s ability to freely dispose of his or her assets.
For instance, family law legislation provides certain rights to a surviving spouse which allow for an election to be made to receive an equalization of net family property rather than taking an interest under the estate. Dependant’s relief legislation also steps in to provide relief to dependants who were not adequately provided for by the deceased’s estate. Furthermore, there are contractual arrangements, such as cohabitation agreements, as well as equitable claims in unjust enrichment, constructive trust, and quantum meruit, that may be available to further restrict the testator’s dispositions made in a will or under the laws of intestacy.
In contrast, in many civil law jurisdictions, there exists what appears to be a more rigid system of forced heirship. Forced heirship essentially starts with the premise that there are certain individuals to whom a testator has a moral and legal obligation to support after death, notably their descendants and spouse. Accordingly, it limits the ability to disinherit these protected heirs by setting out that a specific percentage of an estate’s value is to be reserved for their benefit. This amount can vary widely depending on the number of descendants as well as other variables such as whether any of them are disabled.
Provided that the will respects these percentages by making dispositions that provide at least the minimum required, there will be no issue of a claim against the estate. However, in circumstances where the testator has not met the minimum requirement, the protected heirs have the ability to make a claim against the estate enforcing their rights to the reserved portion.
It is important to note that a protected heir enforcing his or her forced heirship rights is not automatically an heir. He or she simply has a pecuniary claim against the estate which can be satisfied by the estate’s assets. In the event that the estate does not have sufficient assets, the protected heir can seek to enforce various clawback provisions. These vary by jurisdiction but may include inter vivos gifts made within a period of time prior to death or with the intention of subverting forced heirship rules, as well as the creation of any trusts for similar purposes.
There are similarities between forced heirship regimes and our own dependant’s relief legislation. For instance, section 72 of the Succession Law Reform Act (“SLRA”) provides for a similar clawback provision in order to ascertain the value of an estate in making an award for support. Forced heirship claims are also subject to strict limitation periods much like dependant’s relief and equalization claims. Moreover, forced heirship is not an automatic transfer of wealth upon death simply by virtue of being a descendant of the deceased. In many jurisdictions, the protected heirs have the ability to renounce these rights prior to death or may choose not to make a claim after death at all.
The main distinction is that in a dependant’s relief context, the claimant has the additional burden of proving that the testator owed them support, whereas under forced heirship, simply being a descendant can be sufficient. However, the common law courts have construed the test of whether a dependant was owed support under the SLRA quite broadly. Moreover, the definition of a dependant under the SLRA encompasses many more potential claimants then most definitions of a protective heir will permit.
Despite the fact that forced heirship starts from the opposite end of the spectrum of testamentary freedom, it reaches a similar end result. Where forced heirship applies a more rigid starting point and then gradually loosens its grip, testamentary freedom begins with an open ended proposition that is subsequently restricted. Regardless of the approach taken, both systems seek to address a shared concern of public order: the duty to provide for your dependants after death.
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While the Judgment in Webster v. Webster Estate , 25 E.T.R. (3d) 141 (Ont. S.C.J.) was rendered in July 2006, Justice Robertson’s Endorsement regarding the costs award in the matter was released in February 2007 (see  O.J. No. 371).
In Webster, the Applicant, Mrs. Webster, was seeking an Order extending the time in which she may file an election to make an equalization claim under s.5(2) of the Family Law Act, R.S.O. 1990, c. F.3 (the “FLA”) from the Estate of her deceased husband, Mr. Webster. The six month limitation period in s. 7(3)(c) of the FLA prevented the claim from succeeding unless an extension order was granted.
According to the Decision on the motion, Mr. and Mrs. Webster were married for 29 years; it was a second marriage for both parties. During their married life, Mr. and Mrs. Webster gave generously to the community. They lived happily ever after until the death of Mr. Webster on October 11, 2003. Mrs. Webster was a devoted wife. Mr. Webster was 87 years old when he died. Mrs. Webster was then 81 years old. Mrs. Webster developed Alzheimer’s disease, which progressed to the point where she was unable to testify as a witness in the proceeding.
Mr. Webster’s Estate was valued between $22 and $24 million. The bulk of the Estate was left to charity. The named executors of the Estate were Mrs. Webster, Mrs. Webster’s son by her first marriage, Mark Armitage (who was also her legal representative), Mr. Webster’s son by his first marriage, Norman Webster and the long-time trusted financial advisor to the testator, Mr. Ferguson. On consent, Mrs. Webster and Mr. Armitage were removed as executors of the Estate by Court Order dated January 12, 2006.
Mr. Webster’s Will provided Mrs. Webster with use of Ottawa and Florida residences (both owned by a company of which Mr. Webster was the sole shareholder), as well as $250,000.00 per year, net of tax income, for her life from a spousal trust. Subject to Mrs. Webster’s life interest, the Will required that the remainder of the Estate be paid out, within five years of the death of Mrs. Webster, to Mr. Webster’s Foundation and such other charities as the Executors might select. The designated charities were mostly schools and hospitals.
Justice Robertson dismissed the motion finding, among other things, that the case did not meet the criteria set out in s. 2(8)(b) and (c) of the FLA and that it would be unjust and contrary to the objectives of the FLA to use the extension provision in the manner pursued in this case.
The Respondents sought costs on a full recovery basis in the sum of $176,006.89 arising from the proceeding. Mrs. Webster, by her representative, was opposed to an Order granting costs to the Respondents.
Justice Robertson found that the Respondents’ legal costs and disbursements in the amount of $176,006.89 were reasonable and ordered that they be paid by the residue of the Estate of Mr. Webster. Mrs. Webster was responsible for paying her own legal costs.
In his Endorsement, the Judge noted that cost rules are designed for three fundamental purposes: (i) to indemnify successful litigations for the cost of litigation; (ii) to encourage settlements; and (iii) to discourage and sanction inappropriate behaviour by litigants. When success is divided, he noted that costs are apportioned. His Honour also noted that Rule 24 of the Family Law Rules is the primary rule dealing with costs. Although Rule 24(1) presumes that the successful party is entitled to costs, His Honour added that while the emphasis on the outcome is a significant factor, consideration of other factors must be carefully weighed.
His Honour also noted the following, among other things: (i) the nature of the relief sought could result in an Order with only two options: to extend or not to extend; (ii) the legal test was more complex and in that regard the success on individual points was more divided; (iii) the ability to pay a cost order was not an enumerated factor in determining liability or quantum pursuant to the cost rules (here, both parties had the means to satisfy any order made); (iv) the parties had acted in good faith; (v) neither party should be sanctioned for behaviour reasons; and (vi) both lawyers were well prepared and learned.
In addition, apparently, paragraph 19 of the Will specifically discouraged litigation and encouraged alternative dispute resolution. Despite this direction, there were no formal offers of settlement and the parties chose to waive a case conference. Given the experience and cooperation of the counsel, however, the Judge found that waiving the case conference in the face of a defined legal problem may have been practical and saved money.
In exercising discretion, Justice Robertson stated that after having balanced the amount claimed with the necessary considerations, including the complexity and importance of the legal issue, it was not appropriate to award costs against Mrs. Webster.
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