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On August 15, 2011, I blogged on the decision of Hennessy J. in Makarchuk v. Makarchuk, 2011 ONSC 4633 (CanLII).  There, the court found that a separation agreement did not preclude the surviving spouse from benefitting under the deceased’s will.

On Monday this week, the Ontario Court of Appeal dismissed the appeal, and upheld the decision of the lower court.  In a brief endorsement, the Court of Appeal stated “We have not been persuaded that the application judge erred in her interpretation of the Separation Agreement. Since the deceased never revoked his will, the gift in the will to the respondent stands.”

The Court of Appeal also dismissed a motion to admit fresh evidence. No particulars of this motion were given.

As I stated in my prior blog, separated spouses must consider their estate plan, including terms of their wills and beneficiary designations to ensure that their intentions are properly reflected.  In the case of Makarchuk, it is not clear whether the husband intended to benefit his separated spouse.  However, as the lower court noted, had he wished to not do so, there were a number of means available to him to effectively revoke the gift he had made to his spouse prior to their separation.

Have a great weekend.

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

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The effect that separation agreements may have on the entitlements of spouses upon the death of one of the parties has fuelled a great deal of litigation. 

One of the issues that can arise is the effect that the separation agreement has on the last will and testament of the deceased spouse. While the Succession Law Reform Act provides that a bequest in a will to a former spouse is revoked upon the termination of a marriage by judgment absolute of divorce, that is not the case where there is only a separation.

In Makarchuk v. Makarchuk, 2011 ONSC 4633 (CanLII), the parties separated, and entered into a separation agreement. The separation agreement provided that, subject to any additional gifts made in any will validly made after the date of the agreement, the parties released all rights that they may acquire under the laws of any jurisdiction in the estate of the other.

The husband died, without making a new will, and without revoking a prior will which provided that his entire estate was to pass to his now separated spouse.

The court was asked to interpret and apply the separation agreement so as to exclude any benefit to the surviving spouse. The court refused to do so. The court held, applying Eccleston Estate v. Eccleston, 3 R.F.L. (5^th) 54, that the language of the separation agreement was not broad enough to apply to rights acquired under the will.  The release in the separation agreement applied only to statutory rights. The release did not “trump” the will.

It is important for separating spouses to consider bequests made in prior wills, and consider revising their estate plan.

Thank you for reading.

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

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Yesterday, I set out the fact situation in Turner v. DiDonato (2009), 95 O.R. (3d) 147 (Ont. C.A.).

The trial judge decided that Dilia was entitled to the difference between the insurance proceeds that she received and the $100,000 insurance policy that was supposed to be in place. The trial decision was upheld on appeal.

The trial judge held that there was a clear breach of the Separation Agreement, and that the remedy was appropriate in order to put Dilia in the position that she would have been in had the contract been performed.

The Court of Appeal did not agree that the trial judge did not give properly interpret the Separation Agreement. In particular, it did not agree that the clause allowing Dilia to have a first charge against the estate for in the event that Albert died without insurance provided Dilia with the appropriate remedy. This clause, the Court of Appeal held, did not apply because Albert did, in fact, have insurance – it was simply insufficient. 

The Court of Appeal also dismissed the suggestion that the insurance policy was simply security for the support payments. Firstly, the Separation Agreement did not express that it was security. Secondly, the Separation Agreement did not allow Albert to reduce the amount of insurance as the support obligations diminished. Thirdly, it was held that allowing Dilia less under the Separation Agreement as a result of its breach by Albert than Dilia would have received but for the breach was “counterintuitive”. Fourthly, the estate’s suggestion that it would have a claim against Dilia for any insurance proceeds in excess of the support obligations was “at odds” with the stated intention of the parties in the Separation Agreement to fully settle their rights and obligations.

The Court of Appeal agreed that Dilia’s admission that her understanding was that the insurance policy was security for the support payments was not relevant. The Separation Agreement was unambiguous, and contained an “entire agreement” clause, and extrinsic evidence was irrelevant. Further, as such, corroboration under s. 13 of the Evidence Act was not required, as the decision was based on the interpretation of the agreement, and not the evidence of Dilia. Finally, the Court of Appeal dismissed the suggestion that Dilia received a windfall: it held that Dilia received simply what she was to receive under the Separation Agreement.

Did you concur or are you in dissent?

Paul Trudelle

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Today I will set out a fact situation and let you determine the outcome. Tomorrow I will let you know how the trial judge and Court of Appeal decided the matter.

(As observed by a judge in Newmarket recently, being appointed a judge is like going to heaven – all lawyers want to go there, but just not yet.)

The Facts:

Albert and Dilia separated. They entered into a Separation Agreement whereby Albert was to pay spousal support to Dilia until she turned 65. He was also required to maintain a policy of life insurance benefitting Dilia in the amount of $100,000 until Dilia turned 65. The policy also provided that in the event that Albert died without insurance in effect, then his support obligations would be a first charge on the estate.

Albert died before Dilia turned 65. At the time of his death, he didn’t have the required life insurance. Dilia only received insurance proceeds of $43,507.15. She then sued Albert’s estate and his second wife, claiming the difference between the $100,000 that she was to receive under the Separation Agreement, and the amount that she in fact received.

Albert’s estate and second spouse argued that the policy of insurance was only security for the spousal support that Dilia was to receive, and that the insurance proceeds that Dilia received were in excess of her support entitlement. (It was an agreed fact that the support obligations until the age of 65 were less than the insurance proceeds received.) They argued that an award of $100,000 would be a windfall to Dilia.

What did the Court (and Court of Appeal) do? Tune in tomorrow.

(For those who can’t wait, see Turner v. DiDonato (2009), 95 O.R. (3d) 147 (Ont. C.A.).)

Paul Trudelle

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If an offer is negotiated and later accepted, how is a court to resolve a later dispute over the form of the release?  The Court in Glaspell v. Glaspell Estate, (2008) 36 E.T.R. (3d) 315 held that a release that does not commit a signatory to taking any steps other than those contemplated by the settlement agreement will suffice, even if overly wordy.  The parties had reached a settlement agreement: the evidence disclosed mutual intention to create a legally binding contract between the parties and an eventual agreement containing all of the essential terms agreed upon.    

Unfortunately, the settlement agreement did not specify the form of release.  When it came time to dismiss the action, the plaintiff refused the defendant's form of release.  So the defendant brought a motion to enforce the apparent settlement.  The judge allowed the motion and denied the plaintiff's cross-motion to amend the settlement terms, dismissing the action.  

An implied aspect of this decision is that mere form of release is not necessarily an essential or fundamental term of an agreement so long as the essential terms themselves are not altered.  The decision does not preclude the possibility in other situations though.

Enjoy your weekend.

Chris Graham

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This week on Hull on Estate and Succession Planning, Ian and Suzana discuss things to remember when drafting a co-ownership agreement of a recreational property with family or friends.

Click "Continue Reading" to read the transcribed version of this podcast.

Transcription

Drafting a Co-ownership Agreement - Hull on Estate and Succession Planning Podcast #78

Posted on September 18^th, 2007 by Hull & Hull LLP

Suzana Popovic-Montag: Hi, and welcome to Hull on Estate and Succession Planning. You are listening to Episode #78 of our podcast on Tuesday, September 18^th, 2007.

Welcome to Hull on Estate and Succession Planning, a series of podcasts hosted by

Ian Hull and Suzana Popovic-Montag, that will provide information and insights into estate planning in Canada, from the offices of Hull Estate Mediation in Toronto, Ontario, Canada. Here are Ian and Suzana.

Ian Hull: Hi Suzana.

Suzana Popovic-Montag: Hi there Ian, how are you?

Ian Hull: Just great, I’m suffering through my allergies a little bit in the fall season, but no complaints.

Suzana Popovic-Montag: That’s good.

Ian Hull: Just before we start our podcast today, I thought I’d put a little plug in. I had a great opportunity to be interviewed last week by Donna Papacosta who is from Trafalgar Communications and many of us know her from her fantastic podcast, and she blogs as well. But her podcast called “trafcomnews.com”. Donna is someone I met at Podcasters Across Borders in June of this year. We had a great time, shared a couple of beers and some laughs and we sort of talked about each other’s podcasts. She is in the communications world and so since meeting her, I’ve been following her podcasts carefully and reading some of her blogs. She’s a PR communications specialist and the last few of her series of her podcasts have been helping teaching podcasts. And she tied it into the theme, going back to school and has given some great tips on how to podcast. So Donna’s a great friend from the social media world and I was honoured to be interviewed by her. And she was sort of curious about our world and what we were doing in our niche marketing and what we were doing from the podcasting standpoint. So it was a lot of fun.

Suzana Popovic-Montag: Well, that’s great Ian. I guess we’ll be looking for where that interview shows up. That’s wonderful.

Ian Hull: Yeah, I’m not sure when it’s coming in but she has to go back and, of course, edit everything I said and fix it up. 

So why don’t we, we’ve sort of got our own little mini-series going on here and that has been dealing with the cottage property or vacation properties. We just, in our last podcast, started to sort of talk about how we crafted the agreement. We talked a little bit about some of the things that we would want to include in the agreement, and not necessarily we don’t want to get into the drafting issues per se in the podcast, but some of the core concepts we may want to cover in the agreement itself.

Suzana Popovic-Montag: And just to sort of recap that, Ian, we were talking about, you know, creating a specific fund for maintenance and repairs or improvements that are going to be done to the property. We also talked about how we could go about implementing some terms perhaps for decision-making. And also the assignment of responsibilities within the context of that agreement.

Ian Hull: So let’s talk a little bit about one of the spicy issues whenever you’re sharing a recreational property, and that is, scheduling the use of the property itself.

Suzana Popovic-Montag: Ian, I think that the terms of this kind of arrangement, and particularly because it is the recreational property, should be set out as clearly as you possibly can, depending on whether or not you’ve got a trust or a co-ownership agreement.

Ian Hull: So, for example, before the beginning of each year, the various owners could draw straws for the use of the property at certain times. Or they could create a rotation so that each co-owner would be permitted exclusive use of the property for certain weeks.

Suzana Popovic-Montag: And I think the terms could even go so far as to provide that the rotation itself varies from year to year, over a cycle of years.

Ian Hull: So this drawing straws and rotation reminds me of the fact that us lowly Leaf fans here in Toronto get the chance every year, if we’re lucky enough.  I own a little part of season’s tickets and we have the same rotation and draw system that is involved. And we’ve tried to turn that into, we try to play a little game of golf, have a couple of beers after and laugh and make it a fun event. I say that sort of half tongue-in-cheek but also half seriously, because what you want to do is, because this issue can be a sensitive issue, you want to try to keep it as friendly and personable as you can and so you might want to turn it into, you know, getting together for a dinner, going through some of these issues, not just the scheduling issue, but some of these other issues and make sure there’s lots of wine and beer flowing.

Suzana Popovic-Montag: I’m sensing a theme Ian.

Ian Hull: Absolutely.

Suzana Popovic-Montag: Now, the terms of the agreement could also set out rules, I think, for others who might be using the properties. So, in addition to either the owners or the beneficiaries, if they want to consider an arrangement where other friends or other family members are either renting it or perhaps even using it for free.

Ian Hull: That’s a really good idea. You sometimes overlook that possibility and then you’re into the term of the agreement and you haven’t raised that as a possibility, that maybe a friend would come up or you may want to use your property week or weeks to generate your own income. Those can be sort of side issues that can be particularly problematic for some because some owners may not want to rent or they may not want strangers on the property. And so you may want to do your best to canvass that at the scheduling of the use of property meeting.

Suzana Popovic-Montag: That’s a good idea. I think a further thing that you’d want to consider when you’re entering these kinds of arrangements is to actually speak to what would happen in the event that someone defaults on whatever that they’re supposed to do pursuant to the agreement.

Ian Hull: That’s such a good point because when you have these arrangements, they are typically at a family friendly situation. And many of us don’t want to face the fact that what are the consequences of default and what sort of impact should there be felt by those who don’t follow the agreement, notwithstanding that some of them or more of them are family members.

Suzana Popovic-Montag: And just to give an example, I mean it would be something like if a co-owner is required to pay certain expenses to maintain the property and then suddenly they don’t do that, you want to speak to what happens in those circumstances when someone is not holding up their end of the bargain.

Ian Hull: So under a co-ownership agreement which we’ve talked about in the pats podcasts, there are more options for dealing with these kinds of contract defaults and more flexibility available.

Suzana Popovic-Montag: The terms could give the other co-owners, for example, the right to purchase the interest of the person who’s actually defaulting on his or her obligations.

Ian Hull: And that’s a good idea, because we recently were involved with a case where just that happened. And it wasn’t an unfriendly buy-out so to speak; it just turned out to be a situation that made the most sense for actually both parties. One, who was feeling the burden of ownership, needed the money for other reasons, and the other family member who really wanted to sort of consolidate the ownership group.

Suzana Popovic-Montag: And if you’re going to have that kind of provision in it, you want to make sure that the terms of your agreement perhaps even include some kind of formula that will somehow appraise the value of the person who’s actually defaulting his or her interest in the property, and whether or not, you know, you want to consider if there should be some kind of minority interest discount or something as well. So just yet another thing to sort of keep in mind when you’re drafting these kinds of agreements.

Ian Hull: Well, that minority discount is a good point and one that is often overlooked because, and again, because these are typically friendly and family situations. But in a business environment, if four people owned a recreational property and if one of them wanted to be bought out in a business environment, say you were a one-quarter shareholder of a corporation, typically the Courts would have found that you have a minority interest and therefore it is to be discounted to a certain extent, because by selling it, you’re only giving up…you’re not giving up control and so forth. In a situation where it’s a family friendly situation, if you don’t consider the minority discount issue at the outset, it can come as a big surprise if there’s three or four owners and Betty decides that she wants to buy out Bill. And Bill gets a big surprise that, because Betty, who is of course a merchant banker and knows all these things and says well, you know, of course, we haven’t talked about this Bill, but your third interest is well, it’s not quite worth a third. We’ve got a valuation, fine; I can live with that valuation. But it’s a minority interest and therefore it’s reduced to that extent. And you can really, you know, you can highlight this issue before and avoid the problems. Either agree that there will be no minority discount because it’s a special property, or agree what kind of formula you want to get into should a minority discount issue arise.

Suzana Popovic-Montag: And clearly, I think incorporating these kinds of consequences of a default in an agreement are so much more easier when you’re dealing with the co-ownership agreement, as opposed to a trust situation.

Ian Hull: Well, that’s right because, you know, the trustees in a trust situation, it adds a complication. And although we’ve talked about the different approaches to the co-ownership agreement or the trust agreement, trustees are considered fiduciaries. And the Courts are more willing to intervene in the operation of a trust than a co-ownership agreement. So that sort of fundamental premise needs to be kept in mind so that you either have flexibility or you don’t have flexibility, depending on the circumstances that you’re involved with.

Suzana Popovic-Montag: And if someone defaulted in the payment of expenses, this might actually be deemed to be a loan that’s owing by that person to the other co-owners or even the trustees.

Ian Hull: And the terms, again, you might want to provide that if the loan has not been repaid and other obligations of the defaulting person have not been brought into good standing within a certain period of time, make it time specific, again you want to consider certain remedies. What will be available to the trustees or if it’s a situation where it’s a co-ownership agreement, what’s going to be available to the co-owners? And again, you know, we’re always hesitant to do that because default in that means taking steps against typically a friendly situation, like a brother or a sister.

Suzana Popovic-Montag: Well, there certainly is a lot of flexibility and a lot of issues, I think, to keep in mind in these kinds of situations. And the fact that you at least can identify some of these issues can only help when it comes time to putting something, pen to paper essentially.

Ian Hull: Absolutely. Well I think that wraps up some more of our thoughts today anyway on the co-ownership agreements. And we’ve got a few more comments on that, that we may want to wrap up our podcast series with in the next podcast or two.

Suzana Popovic-Montag: That’s great. Thank you very much Ian, I’m going to go look for that interview of yours.

Ian Hull: Thanks Suzana.

You’ve been listening to Hull on Estate and Succession Planning with Ian Hull and Suzana Popovic-Montag. 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 Hull On podcasts, or to leave a question or comment, please visit our website at www.hullestatemediation.com.

Our theme music is UpTempo14 by Gary and is courtesy of the Podsafe Music Network.