The Family Law Act and division of property problems- Hull on Estates #136
This week on Hull on Estates, Diane Vieira andRick Bickhram talk about the Family Law Act and division of property problems. They discuss determining net family property, quantifying the assets of the deceased and making an equalization claim.
Feel free to send us an email at hull.lawyers@gmail.com or leave us a comment on the Hull on Estates blog.
The Family Law Act and division of property problems – Hull on Estates Podcast #136
Posted on November 11th, 2008 by Hull & Hull LLP
Diane Vieira: Hello and welcome to Hull on Estates. You’re listening to episode 136 on Tuesday, November 11th, 2008.
Welcome to Hull on Estates, a series of podcasts for the Canadian legal community dealing with issues and insights surrounding estate planning in Canada. Hosted by the lawyers of Hull & Hull, the podcast will touch on some key considerations when planning estates and wills. Now, here are today’s hosts.
Rick Bickhram: Hi and welcome to another episode of Hull on Estates. I’m Rick Bickhram.
Diane Vieira: And I’m Diane Vieira.
Rick Bickhram: If you want to be heard on Hull on Estates you can participate by leaving us a comment by e-mailing us at hull.lawyers@gmail.com or you can visit our blog at estatelaw.hullandhull.com.
Diane Vieira: Rick, how are you on this Remembrance Day?
Rick Bickhram: Well today I’m considering our veterans, the family of the veterans and our soldiers currently on duty. My thoughts and prayers are with them.
Diane Vieira: Yes our thoughts are with those who have served and continue to serve our country. What are we going to talk about today?
Rick Bickhram: Well Diane, I think today it would be appropriate to discuss some issues that are likely to arise when a spouse has passed away and some options that are available to the surviving spouse. Particularly, I think today we would probably like to focus our discussion on the Family Law Act and some division of property problems.
Now the starting point in any division of property problems is quantifying or valuating the assets of the deceased. In addition to valuating the assets of the deceased, I would hope the surviving spouse would consider making an equalization claim. Maybe Diane could help explain some of those concepts for us.
Diane Vieira: Just to recap, before you can decide whether or not to make an equalization claim, the first step is to determine the net family property of each spouse. And the net family property is the net worth of each spouse from their date of marriage to the valuation date less the excluded property which is listed in Section 4(2) of the Family Law Act. And then the difference is taken between these two net family property amounts and divided. And the spouse with the larger net family property amount pays the one-half difference to the other. The formula sounds relatively simple but the list of excluded property complicates things and doesn’t make it as clear cut as it first might seem.
Rick Bickhram: So just so I understand, Diane, let’s just presume that you and I were married. I die. I have $3.00 to my name and you have $1.00 to your name. So an equalization pretty much would have my estate paying you $1.00. So you would end up with $2.00 and my estate would end up with $2.00. Does that sound correct?
Diane Vieira: That’s a good way to illustrate the point, Rick. Why don’t you tell us a bit more about the valuation date which is another factor that makes this formula a bit more complex?
Rick Bickhram: Thanks Diane. Well the valuation date is the date that’s used to evaluate the assets of the parties. And in the cases of where there is a death, the valuation date, as a general rule the valuation date is the date before the death of the deceased. And like I said, that’s a general rule. It’s important to remember that there are exceptions to the general rule and the exception in this case is the valuation date could be pushed back a lot earlier where the spouses had separate before the death. Then the valuation date would be the date of separation.
Diane Vieira: That’s right. So that’s important to note that when you do bring an equalization claim for the death of a spouse, you’re bringing it under Section 5(2) of the Family Law Act. And it is the date before death. And the reason that’s important is because when you’re calculating your net family property, you still have to list the deceased’s interest in joint accounts and its unsure whether probate fees or those kind of liabilities associated with the deceased spouse can be listed. The case law isn’t clear on that. So the day before death is something that you have to keep in mind when calculating your net family property under Section 5(2) of the Family Law Act.
Rick Bickhram: Well put, Diane. Well right now, let me just consider some of the issues that anyone who is considering this option needs to put forward or turn their mind to before making this sort of election under the Family Law Act.
First of all, there’s a time limitation where you can make an election under the Family Law Act. That time limit is within 6 months subsequent to the date of death. That’s very important to remember because if you miss that time frame, you could be out of luck in terms of making a Family Law Act election. Another important issue to have your mind turned to is if someone makes an election under the Family Law Act, they lose whatever interest they have under the Will, presuming that there is a Will. So if there’s a Will, and the Will leaves X to the surviving spouse, and the surviving spouse decides to make an election, the surviving spouse will lose X. There is an exception to that rule. If the Will provides that an election can be made and the surviving spouse can still benefit under the Will, in that situation the surviving spouse will not lose their interest as it may be prescribed under the deceased’s Will.
Diane Vieira: I just wanted to make a comment on the time limit which is, as you said, 6 months from the date of death. After that time limit, and if no election is made, then the surviving spouse is deemed to take under the Will or intestacy. But there is an opportunity to extend that time limit and you would do that by bringing a motion under Section 2(8) of the Family Law Act and an order to bring the motion should be brought within 6 months as well because if you bring it after that 6 month period, assets of the estate that have already passed out of the estate for the 6 months aren’t protected. So in order for the spouse to protect their interests, this motion to extend the deadline should still be brought within those 6 months. And the grounds for the motion are listed in the Act and all those grounds have to be met before an extension will be granted.
Rick Bickhram: What type of grounds are described in the Act, Diane?
Diane Vieira: The 3 criteria you have to meet is that there are apparent grounds for the relief that you are seeking, relief is unavailable because the delay has been occurred in good faith and that no person will suffer prejudice by reason of a delay. So you have to meet all 3 criteria before being granted the extension.
Rick Bickhram: Well Diane, can you explain to us who may be entitled to make an election under the Family Law Act?
Diane Vieira: This is relief for the surviving spouse to seek personally but if the surviving spouse is incapable, a personal representative may bring the election on their behalf. But you can’t elect, or the personal representative can’t elect on behalf of a surviving spouse who dies within the 6 month period.
Rick Bickhram: So Diane, is there any other issue that you should consider before making an election?
Diane Vieira: Well making an election is a very serious decision because what you’re doing, as you said previously, is the surviving spouse forfeits their entitlement under a Will unless the Will provides otherwise. And the Will is interpreted as the surviving spouse having predeceased the testator. One thing that you don’t forfeit is your right to bring a dependant’s relief claim and you should use the information pertaining to your net family property in your dependant relief claim. And you don’t lose the right to collect money that passes outside the estate such as investment accounts or the proceeds of an insurance policy. However, if you do elect under Section 5(2) of the Family Law Act, there may be a requirement, if the amount that you receive that passes from outside of the estate, i.e. proceeds of an insurance policy, exceeds the amount you receive in the equalization claim, that you may have to pay the difference back into the estate, which is something to always consider whether or not you want to make the decision to elect instead of taking under a Will.
Rick Bickhram: Well just before we wrap up, I want to discuss whether or not someone who has elected to make a Family Law Act election can revoke that election. Before 2007, there was conflicting case law on this issue. There is no legislation which points to a specific direction and with the confusion in the case law, we have some clarity as of last year. And the case that I’m going to cite which presents some clarity on the issue of revocation of an election is the V. Iasonsa Estate case. Now this case, the citation for this case is it is an Estate Trust Report, 34 ETR (3rd) page 123.
In the Iasonsa case, Mr. Iasonsa died in 2003, however during his marriage he had mentioned to his wife that his estate had been valued at approximately $500,000 - $600,000. So Mr. Iasonsa leaves his estate to be divided equally between Ms. Iasonsa and his two sons from a prior relationship. However, during the litigation process, it was learned that some of the major assets in the estate were held in joint tenancy at the time of his death. In fact, they were transferred to one of his sons and I understand that the value of that asset that was transferred to his son was approximately $270,000.
During the litigation process, it was learned, the wife learned that the estate assets totalled $310,000, approximately $310,000 and not the $500,000 to $600,000 that Mr. Iasonsa had originally represented, largely because of the transfer out of the $270,000. I understand that the parties were attempting to negotiate a settlement for several months and as I describe earlier that there is a 6 month time limit to make an election, unless an extension is granted. And the 6 month, I’m guessing, was closing in so the wife decided to make an equalization election. And the evidence at trial disclosed that as a result of the wife’s election for equalization, the figures resulted in her receiving nothing. And clearly that’s not the type of result I believe Ms. Iasonsa was looking for so she applies to the Court for the revocation of the election and the Honourable Justice Hackland who was sitting over this case states “there is no general right of a revocation and the surviving spouse has no right to revoke an election. However, the Court has the residual discretion to authorize a revocation”. Now, that’s an interesting concept. It has the residual discretion to revoke the election. Pretty much it’s the authority, the within inherent authority of the Court to revoke it however Justice Hackland does point to direction some factors for the Court to consider prior to permitting a revocation. He does say that this discretion should only be permitted in the most restrictive circumstances.
Now some of the factors that a Court should consider when considering making a revocation here is whether the election was filed as a result of a material mistake of fact or law made in good faith, whether there are any responsibility or culpability on the part of the affected parties in relation to the election. Third factor, whether the notice of intent to seek a revocation of the election was given in a timely way, which is pretty much how long after the 6 month filing period was notice given? The fourth factor is whether the estate had been distributed or whether interested parties would otherwise be affected by the revocation. And the last factor is whether the election resulted in an injustice to the surviving spouse in all the circumstances. Justice Hackland ultimately concluded that the test permitting revocation was met by Ms. Iasonsa and the revocation of Ms. Iasonsa’s election was permitted.
Diane Vieira: I just wanted to follow up that by saying that in the circumstances where you’re unsure of the value of the estate, or there’s a disagreement to that value, in the 6 month period it is a difficult time after someone has died and you may not be able to ascertain the value of the estate and you may require third party valuators. I would suggest applying for an extension just to give you some more time in order to determine if taking an election is the right thing for you as a surviving spouse or the personal representative of the surviving spouse.
Rick Bickhram: Very well put, Diane.
Diane Vieira: So I think that wraps up this issue. It’s always interesting to look at the Family Law Act and how it impacts on estates and I’m sure we’ll hear more about this issue following the Iasonsa case.
Rick Bickhram: Well I guess that brings us to an end of this week’s discussion. Thanks for listening and thanks for joining me today, Diane.
Diane Vieira: Thanks Rick. I look forward to podcasting with you again soon.
Rick Bickhram: And we look forward to hearing from you, our listens.
Diane Vieira: You can send us an e-mail at hull.lawyers@gmail.com and be sure to visit our blog at estates.hullandhull.com where you can find even more information and discussion of today’s issues in estate law. We even have video casts now.
Rick Bickhram: Don’t you think that’s kind of cool?
Diane Vieira: I do. I have my YouTube channel on.
Rick Bickhram: Oh, that’s awesome.
Diane Vieira: We hope you enjoyed the show and I’m Diane Vieira.
Rick Bickhram: And I’m Rick Bickhram.
Diane Vieira: Until next week,
Rick Bickhram: So long.
This has been Hull on Estates with the lawyers of Hull & Hull. The podcast you have been listening to has been provided as an information service. It is a summary of current legal issues in estates and estate planning. It is not legal advice and you are reminded to always talk with a legal professional regarding your specific circumstances.
To listen to other podcasts, or to leave a question or comment, please visit our website at www.hullandhull.com.
Our theme music is Upper Structure by DJ AKid and is courtesy of the Podsafe Music Network.
