Family law trumps succession law in case of man who tried to cut children's mother out of properties

Under Ontario’s Family Law Act (FLA), a married couple shares in the growth of their net worth between the dates of marriage and separation. Called “equalization of net family property,” this right extends to a surviving spouse in the event of the death of their wife or husband. In such circumstances, the FLA gives the surviving spouse the right to choose equalization or to receive their entitlement under the deceased’s will.

The legislated right to choose ensures that a spouse cannot use a will to undermine the surviving spouse’s right to the sharing of property. In other words, a will that leaves nothing to a surviving spouse does not extinguish their entitlement to equalization. In most cases, once a surviving spouse understands the value of their entitlement based on equalization as compared to under the will, he or she will choose the more valuable option.

Navigating the intersection of rights arising under the FLA and those from a will and estate can be challenging — particularly when there is a significant difference in the amount of entitlement under the two options.

That was the case in a recent dispute before Justice M. Claire Wilkinson of the Ontario Superior Court of Justice. At the time of the husband’s death in Dec. 2021, the couple lived in a home worth approximately $2.4 million. Although they had lived there for the entirety of their 46-year marriage, the house was solely in the husband’s name. The estate included five other properties, all of which were owned by the husband, except for a vacant lot the couple owned jointly.

Under the husband’s will, the widow did not receive an interest in any of the properties, including the matrimonial home in which she continued to reside. Rather, the will provided that each of the properties was to pass to his children. The matrimonial home was to pass to the couple’s son.

The widow estimated her entitlement to equalization under the FLA to be in the range of $2.1 to $2.4 million. Conversely, her entitlement under her husband’s will was substantially less — being one-half of the funds held in various bank accounts and investments and nothing else. Not surprisingly, the widow chose the equalization payment.

In order to fund an equalization payment of that magnitude, the husband’s properties would need to be sold, as there was insufficient liquidity in the estate. In the end, the husband’s intention of transferring properties to his children could not be achieved. The estate’s obligations under the FLA stood fully in the way of the husband’s wishes.

Given her desire to remain in the matrimonial home, the widow asked the judge to give her the property in exchange for the equalization payment. In other words, the widow sought a vesting order. The couple’s son opposed his mother’s request. According to him, all of the properties, including the matrimonial home, should be sold on the open market to maximize the value of the estate.

The judge began her analysis by considering if the order sought by the widow could be made. According to Justice Wilkinson, the legislation permits her to order that “property be transferred to, or in trust for, or vested in a spouse, whether absolutely, for life or for a term of years.” Satisfied that such an order can be made, the judge turned her analysis to whether the order would be appropriate in the circumstances.

According to the judge, “a vesting order should not be imposed routinely or indiscriminately and should be ordered only if there is a real need, after all relevant considerations have been taken into account.” The judge continued by stating that an order transferring the home to the widow should only be made if there was “a concern that payment of an ordered equalization payment will not be honoured before the court can order the transfer of property.”

The judge concluded there was no such risk, since the sale of all properties would generate sufficient funds to cover the equalization payment.

Interestingly, the judge goes on to consider the husband’s intentions which, according to her, “cannot be overlooked.” She notes that the husband “specifically chose not to bequeath the home, or any other property” to his wife. For the judge, that “is a significant factor” that she “must consider when determining the manner in which [the widow] will receive her equalization payment from the estate.”

In refusing to transfer the home to the widow, Justice Wilkinson honours the husband’s intentions while ensuring the widow receives the equalization payment she is owed.

The judge ordered all properties owned by the husband’s estate to be listed for sale. In doing so, the judge acknowledges the result falls short of the husband’s intention to transfer the properties to the children. For the judge, however, the sale of all properties strikes the right balance.

This case underscores the need for a couple to undertake proper estate and family law planning during their relationship. In many circumstances, a couple may want to consider entering into a marriage contract. Such an agreement creates certainty in respect of the surviving spouse’s entitlement and can contribute to a more orderly administration of the estate.

Unlike a will, which can be changed at any time without the other spouse’s knowledge or consent, a marriage contract requires both parties to agree to any changes. This should afford both spouses certainty and peace of mind.

This article was originally published in the  Financial Post.