Tag: equalization

11 Dec

Preserving the Right to an Equalization of Net Family Properties

Nick Esterbauer Estate & Trust, Support After Death, Wills Tags: , , , , , , , , , , , , , 0 Comments

A recent decision of the Ontario Superior Court of Justice highlights the importance of preserving a surviving married spouse’s ability to elect for an equalization of net family properties within the six-month limitation period.

Upon death, a surviving married spouse in Ontario can elect for an equalization of net family properties under Sections 5 and 6 of the Family Law Act instead of taking under the predeceasing spouse’s will or, if the spouse has not left a will, on intestacy.  Subsections 6(10), 6(11), and 7(3)(c) of the Family Law Act provide that the surviving spouse must ordinarily make an election within six months of date of death and not after that date.  The Court may, however, extend the election deadline in the event that: (a) there are apparent grounds for relief; (b) relief is unavailable because of delay that has been incurred in good faith; and, (c) no person will suffer substantial prejudice by reason of the delay (subsection 2(8) of the Family Law Act).

Courts have reviewed the circumstances in which an extension is typically ordered.  The requirement that the delay be incurred in good faith has been interpreted as meaning that the party has acted honestly and with no ulterior motive (see, for example, Busch v Amos, 1994 CanLII 7454 (ONSC)).

In Mihalcin v Templeman, 2018 ONSC 5385, a surviving spouse had commenced two claims with respect to the estate of her late husband and an inter vivos gift made to a live-in caregiver.  However, neither of the proceedings had sought any relief relating to an equalization of net family properties, nor did the wife take any steps to make an election or to extend the time within which she was permitted to do so.  The Court reviewed whether the delay in making the election was in good faith.  The evidence regarding the reasons for the delay in electing for equalization were considered to be vague and insufficient to satisfy the evidentiary burden that the delay was incurred in good faith.  Accordingly, the applicant was not permitted to amend her pleadings to incorporate this relief.

Justice Bruce Fitzpatrick commented as follows with respect to the importance of limitation periods, generally (at para 48):

I am mindful of the general importance of limitation periods for the conduct of litigation. There is an obligation on parties to put forward all known legitimate claims within certain time limits. In this case, the time limit was relatively short. I think it cannot be readily ignored. The evidentiary record is not sufficient for me to say that justice requires me to exercise my discretion in favour of allowing [the applicant] to amend her claim so as to include a claim for equalization in all of the circumstances.

Where an equalization of net family properties may be sought at a later time (for example, pending the outcome of a will challenge or dependant’s support application), it is prudent to seek an extension well before the expiry of the six-month limitation period as courts may or may not assist a surviving spouse in seeking this relief down the road, if and when it may become advisable.

Thank you for reading,

Nick Esterbauer

 

Other blog entries/podcasts that may be of interest:

 

18 Jun

When is it Appropriate to Extend the Time Granted in Favour of Equalization under the Family Law Act?

Kira Domratchev Estate & Trust, Litigation Tags: , , , , , , , , , , 0 Comments

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.

Background

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.

Statutory Regime

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:

  1. Whether there are apparent grounds for relief;
  2. Whether delay, if any, was incurred in good faith; and
  3. 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.

Thanks for reading.

Kira Domratchev

Find this blog interesting? Please consider these other related posted:

Lundy v Lundy Estate: Delay in Seeking Extension to Make Family Law Act Election

Revoking a Family Law Act Election

Family Law Elections: Inclusion/Exclusion of Assets in the Net Family Property of the Deceased

21 Apr

Lundy v Lundy Estate: Delay in Seeking Extension to Make Family Law Act Election

Hull & Hull LLP Estate & Trust, Wills Tags: , , , , , , , , , 0 Comments

Under the Family Law Act, R.S.O. 1990, c. F.3 (the “FLA”), section 6(1), when a spouse dies leaving a will, the surviving spouse can elect to take their entitlement under the will, or to receive their entitlement pursuant to an equalization of net family property pursuant to section 5 of the FLA. If a surviving spouse wishes to make an election for an equalization payment, they must file such election within six months after the deceased spouse’s death in accordance with s. 6(10) of the FLA, and if they do not do so within the prescribed time, pursuant to s. 6(11), the surviving spouse is deemed to elect to take under the will.

Pursuant to section 2(8) of the FLA, the court may extend the time prescribed by the FLA, in this case being six months after the date of death, if it is satisfied that,

(a) there are apparent grounds for relief;
(b) relief is unavailable because of delay that has been incurred in good faith; and
(c) no person will suffer substantial prejudice by reason of the delay.

In Lundy v Lundy Estate, 2017 ONSC 2101, a recent Ontario decision, the court considered a motion by a surviving spouse to extend the limitation period for an equalization election under the FLA. The spouse’s husband (the “Deceased”) died on June 29, 2015. Accordingly, the spouse would have had to make her FLA election by December 29, 2015. The motion in question was not brought until January 2017. The Deceased’s son, the residual beneficiary of the Deceased’s estate (the “Estate”) opposed the relief sought by the spouse.

The spouse claimed that she had not been provided with timely or complete information regarding the value of the Estate as at the dates of marriage and death, which is required in order to calculate a possible equalization payment. She claimed that she did not have a complete picture of the assets of the Estate until July 2016, and that she still needed valuation information regarding the Deceased’s company.

On the other hand, the son claimed that the spouse was aware of the Estate assets, as she was the named co-estate trustee of the Estate, along with the son, and was also in possession of the Deceased’s financial records. There was evidence that the spouse had accepted her role as co-estate trustee, accepted bequests made to her under the Deceased’s will, and had not expressed any intention of making an equalization claim or seeking an extension to make such a claim. Furthermore, there was evidence of an email from the spouse’s son from October 2015 in which he provided his preliminary estimate of the market value of the Estate assets and expected tax liability, indicating that the spouse did have some information regarding the size of the Estate and her share of it.

The court in this case dismissed the spouse’s motion for an extension, concluding that the spouse did not show that her delay in bringing the motion was incurred in good faith. The court held that the spouse did not explain why she failed to assert a claim or failed to seek an extension of the FLA limitation periods if she believed she needed further time and information in order to investigate and evaluate her FLA claim. In denying the extension sought by the spouse, however, the court noted that doing so would not leave the spouse without any remedy, as she may still be able to pursue a claim for dependant’s support under the Succession Law Reform Act, R.S.O 1990, c. S.26.

The decision in Lundy Estate v Lundy provides a reminder to surviving spouses to act quickly and diligently with respect to their entitlement to their deceased spouse’s estate, and any potential claims they may have in this regard. It is advisable for a surviving spouse to seek advice from a trusted legal professional to ensure that they are aware of their rights, assert them within the applicable limitation period, and do not lose the opportunity to pursue any potential claims.

Thanks for reading and have a wonderful weekend!

Rebecca Rauws

Other blog posts you may enjoy reading:

12 May

Hull on Estates #418 – Equalization of net family property under the Family Law Act

Hull & Hull LLP Hull on Estates, Hull on Estates, Podcasts, PODCASTS / TRANSCRIBED, Show Notes, Uncategorized Tags: , , , , , , , 0 Comments

This week on Hull on Estates, Paul Trudelle and Josh Eisen discuss some issues that can arise in equalization of net family property under the Family Law Act and why it might not be appropriate to elect in favour of equalization even when the spouse receives nothing under the will.

Should you have any questions, please email us at webmaster@hullandhull.com or leave a comment on our blog.

Click here for more information on Paul Trudelle.

Click here for more information on Josh Eisen.

18 Oct

“Ordinarily Occupied” When Not Occupied

Hull & Hull LLP Litigation Tags: , , , , , , , , , , 0 Comments

Yesterday, I blogged on a case that considered whether a cottage could be considered a second “matrimonial home” for equalization purposes under the Family Law Act. Today, I would like to consider a case that addresses whether a home that was vacated by a claimant prior to the spouse’s death could be considered to be a “matrimonial home”.

In Brash v. Zyma, 2013 ONSC 2800 (CanLII), the 90 year old widow vacated the home and moved into an assisted care facility as a result of her medical condition. Her husband remained in their home. The husband subsequently died. The surviving spouse commenced an equalization claim under the Family Law Act. The husband’s estate argued that the home was not a “matrimonial home” at the time of death, and therefore the value at the date of marriage should be deducted from the husband’s NFP.

The court considered the wording of s. 18(1) of the Family Law Act, and the question of whether the fact that the spouse was not residing at the property on the date of death impacted on her claim for equalization.

Section 18(1) reads: “Every property in which a person has an interest and that is or, if the spouses have separated, was at the time of separation ordinarily occupied by the person and his or her spouse as their family residence is their matrimonial home.”

The court had to consider whether, at the time of “separation”, the property was ordinarily occupied by the wife and her spouse. The court noted an earlier decision of Gray v. Brusby, 56 R.F.L. (6th) 165, where Greer J. stated that “there are many cases where only one of the spouses remains in the home, either on consent of the parties or under court Order. In those cases, the matrimonial home remains such for NFP purposes.” The court went on to observe that physical separation does not equate to a separation of the parties. Here, the parties never intended to separate, or ceased to be married, or ceased to be a couple, or commenced living their lives without the other. 

As the widow ceased to reside in the matrimonial home as a result of her deteriorating medical condition, and not by reason of any intention on her part, the court concluded that the home was “ordinarily occupied” by her on the date of death, and thus was a matrimonial home, and the value of the home at the date of marriage could not be deducted in the equalization calculation.

Have a great weekend.

Paul Trudelle

17 Oct

Intention Matters: Matrimonial Homes

Hull & Hull LLP Litigation Tags: , , , , , , , , 0 Comments

At a recent Trusts and Estates Brown Bag Lunch (held on the third Tuesday of most months at various locations: see the OBA web page, here), we discussed the case of Egan v. Burton, 2013 ONSC 3063 (CanLII).

There, in the context of a family law proceeding, the issue was whether a cottage was a matrimonial home, thereby affecting the spouses’ Net Family Property and equalization. If the cottage was a “matrimonial home”, then the husband, who owned the cottage, would not get the credit for the value of the cottage at the time of marriage.

The court held that a two-part test should be applied to determine whether the cottage was a “matrimonial home”. Firstly, was the cottage ordinarily used by the spouses, and secondly, was it used as a family residence.

Here, the court found that the first part of the test was met: the cottage was used by the spouses. However, with respect to the second part of the test, the court found that the wife never treated the cottage as a family residence. The wife treated the cottage differently than the family home. She made no contribution to the operation or maintenance of the cottage. She did not show the same interest in the cottage that she showed to the home. “If she had been asked prior to separation about her intention regarding the cottage, I am satisfied that she would have said that it was his cottage and his alone.” Here, unlike other cases where the cottage was found to be a matrimonial home, there was no evidence of an intention to treat the cottage as a family home.

In the estates context, in advancing or defending a claim for equalization under s. 5(2) of the Family Law Act, consideration should be given to not only the use of a secondary residence, but also the intention of the parties and how the second residence was treated by them.

Thank you for reading.

Paul Trudelle

15 Jul

Family Law Equalization Claims and Bankruptcy

Hull & Hull LLP General Interest, Litigation Tags: , , , , , , , 0 Comments

 Yesterday, the Supreme Court of Canada released its decision in Schreyer v. Schreyer (2011 SCC 35). The decision dealt with the issue of whether an equalization payment due to a spouse survived the bankruptcy of the owing spouse.

In determining the issue, the Court noted the perceived clash between family law and bankruptcy law.

In Schreyer, the parties separated in 1999 and filed for divorce in 2000. The husband was the owner of the family farm. The parties consented to an equalization of their assets. Before the equalization could be judicially considered, the husband filed for bankruptcy. The wife was not listed as a creditor, and the husband was discharged from bankruptcy in 2002. An equalization order was then made in favour of the wife, but the Manitoba Court of Appeal held that the wife’s claim was extinguished by the discharge of the husband’s bankruptcy. The wife appealed to the Supreme Court of Canada.

The Supreme Court of Canada agreed with the Manitoba Court of Appeal, and dismissed the appeal. Manitoba was said to be an “equalization jurisdiction”, and not a “division of property jurisdiction”. (Ontario is also an “equalization jurisdiction”.) The wife did not have any proprietary right in the husband’s property, and was therefore only a creditor of the husband. 

As to the effect of bankruptcy, the wife’s claim was provable in the husband’s bankruptcy. It was neither proprietary, nor was it exempt from the effect of a discharge as a claim for support or maintenance. Upon the discharge of the husband, the husband was released from all claims provable in bankruptcy, including the equalization claim.

As to the fact that the wife was not notified of the husband’s bankruptcy or discharge, the Court noted that she could bring a claim in bankruptcy to remedy this. However, she would only be entitled to seek the dividend she would have otherwise received. In the case before the Court, there was not dividend paid to creditors, and thus, such a claim would prove fruitless.

Under Manitoba’s Judgments Act, the family farm was exempt from execution. The wife, however, could apply to the bankruptcy judge for leave to pursue her claim against the exempt property. Alternatively, the wife could pursue a remedy such as spousal support.

Although the appeal was dismissed, the Court did not award costs to the husband, “in light of the particular circumstances of this case”. The Court appeared to lament the fact that “In its current form, therefore, the [Bankruptcy and Insolvency Act] offers limited remedies to spouses in the appellant’s position”, and stated that “It seems to me that this matter is ripe for legislative attention so as to ensure that the principles of bankruptcy law and family law are compatible rather than being at cross-purposes.” 

Have a great weekend.

Paul E. Trudelle – Click here for more information on Paul Trudelle

14 Apr

Can a Net Family Property Equalization election set aside an estate freeze?

Hull & Hull LLP Estate & Trust, Estate Planning, Litigation Tags: , , , , , , , , , 0 Comments

Howard J. Feldman made a presentation on the circumstances where a net family property ("NFP") equalization can set aside an estate feeze.  He also discussed structuring the estate freeze transaction to qualify as an exclusion from the transferee child’s NFP. 

To refresh: the classic estate freeze is a transaction involving a business-owning parent and his or her child.  The parent transfers the equity shares in the business to the child but retains control of the company through preferential shares ("prefs").  The prefs have a fixed redemption and liquidation value, so all capital growth is with the equity shares transferred to the child.  The parent "freezes" his own level of equity in the business, leaving future capital growth to the child.  The goal is to avoid the child receiving the equity in the company on the parent’s death, because the capital gains tax liability would presumably have grown significantly.  Capital gains tax is payable when the parent transfers the shares under the estate freeze transaction, but presumably smaller than it would be on the parent’s death.  

The problem is that an estate freeze during the transferor parent’s marriage potentially removes assets from that parent’s property for the purposes of the NFP equalization.  This can conflict with the philosophy of the NFP equalization payment, which is that marriage is a partnership and spouses’ collective increase in net worth during the marriage should therefore be evenly divided between the spouses at the end of the marriage.  The parent’s subsequent death or divorce can trigger a challenge by the spouse of the estate freeze. 

Among Mr. Feldman’s points and recommendations:

  • the form of the transaction and relevant documents is critical (see the paper for reasons)
  • the solicitor must have a well-documented file and written instructions from the client, due to the risk of the transaction being challenged
  • Declarations to Revenue Canada and financial institutions are not considered binding in family law
  • a gift of shares under a corporate reorganization may not excluded where there is not family trust, but beware that sooner or later the leading cases may be overturned (with a plethora of qualifications and circumstances detailed in the paper)
  • gifting shares or the cash to buy the shares are subject to numerous, complex considerations (no pun intended)

This barely scratches the surface of the summary and recommendations.  It is well-worth the read.  The entire Six-Minute Estates Lawyer 2009 program can be purchased here.

Have a good day,

Chris Graham

 

 

  

 

    

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