Often people on their second or third marriage have children from a previous relationship. Sorting out relationships between new spouses and step-children is complicated enough, but these complications are often intensified when a second marriage ends in death. Differences in opinion concerning the intention of the dead spouse concerning his or her property arise between the surviving spouse and his or her spouse's children. If you find yourself in such a scenario, it is important that you understand your legal rights and options in relation to your spouse's estate.
In Ontario, the death of a spouse immediately triggers Section 6 of the Ontario Family Law Act (FLA), which allows for an "election" by the surviving spouse concerning how he or she plans to take from the estate of the deceased spouse. Within a period of six months, the surviving spouse may elect to:
- Follow the terms and conditions of the deceased spouse's Will;
- if there is no Will, follow the rules of intestacy/partial intestacy; or
- receive an equalization payment under Section 5 of the FLA.
An important factor to consider first when deciding on your course of legal action is the presence of any "Will substitutes" connected to your spouse's estate. These are alternative ways of receiving property after the death of a spouse that avoid the need for disposal by Will or the laws of intestacy.
Will substitutes include the right of survivorship that attaches to property held in joint tenancy or bank accounts held in joint names, as well as designated beneficiary status for a spouse's pension, life insurance proceeds and other death-related benefits.
Although this property does not form part of the estate and therefore does not affect what you would inherit under the laws of intestacy or partial intestacy, it does count against what you would receive by way of equalization payment under theFLA. As we explore these different legal courses, it is important that you keep the Will substitutes that you will receive in mind.
Some of these substitutes may not be iron-clad in terms of being able to retain the legal and equitable ownership of pcoperty that automatically flows to you by right of survivorship. Depending on the relationship between you and your spouse, any property inherited by right of survivorship, such as the matrimonial home or joint bank accounts, could be disputed. The other beneficiaries of your spouse's estate might claim that the joint tenancy of property shared was severed prior to his or her death. A severance of joint tenancy can be done in several different ways, including by way of a "course of dealing" – behaviour by both of you that indicated an intention to sever joint tenancy and become tenants in common. If proven, a court can decide that you hold the portion of the property you inherited through survivorship in trust for the estate.
Election Options – Your spouse's Will
If your spouse has left a Will, you have the option of accepting its dictates. Depending on the length of your marriage and the relationship between you and your spouse near the time of death, the Will may or may not provide much of anything for you. As many people know, second marriages also cause parties to update their Wills as parents want to protect their children's inheritances. Whatever the Will states, the executor of your spouse's estate will be obligated to refrain from distributing the estate for six months or until it is clear what you have elected to do. The exception to this rule is if there are dependants who require immediate financial support from the estate. As well, if the Will was made prior to your marriage, it is considered revoked unless it specifies that it is being made in contemplation of remarriage or you elect in writing to take under the terms of the Will and file the election with the estate registrar within a year of your spouse's death. Otherwise, the laws of intestacy will apply.
The rules of intestacy/partial intestacy
If your spouse dies leaving no Will or an incomplete Will (one that does not account for the final distribution of all of his or her estate) you may elect to take what is referred to as "the preferential share" that is reserved exclusively for spouses. This is currently prescribed to be $200,000. If the entire estate is equal to or less than this amount, you are entitled to it all. If the Will is incomplete and fails to deal with certain property, and if you have not received property that is equivalent to the preferential share, you are entitled to the balance of that share if it exists in the intestate property.
If the estate is worth more than $200,000, the remainder of the estate – after you have taken the preferential share – (the residue) is divided as follows:
- If your spouse had only one child, you will split the remaining estate equally with that child.
- If your spouse had more than one child, you will receive one-third of the remainder with the rest being divided between the children.
More complicated scenarios are dealt with under Section 47 of the Succession Law Reform Act (SLRA). Note that if you signed a separation agreement or marriage contract with your spouse that addressed the issue of division of property, it must contain a specifically worded release of your right to the preferential share. If it does not, you may still be entitled to this share regardless of what your marriage contract or separation agreement says. Unfortunately for those in common law relationships, only married persons can take under the "preferential share" of the SLRA in Ontario. If you and your spouse are not married, and if your spouse is still married to someone else, you should be aware that that person is entitled to the preferential share and that you are not.
Section 5 of the Family Law Act
This section of the FLA stipulates your entitlement to an equalization payment through division of the net family property (NFP) of you and your spouse. Apart from separation and divorce, Section 5 can also be triggered by the death of a spouse. Again, like the preferential share, Section 5 only applies to those persons who were legally married.
Your NFP includes all of the property you and your spouse owned during the marriage, minus the property you owned before the marriage (except for the matrimonial home), and some other exceptions such as gifts or inheritances acquired by you or your spouse from a third party during the marriage or certain kinds of damages from law suits. For a full list of what constitutes a person's NFP, see Section 4 of the FLA. Of course if you and your spouse negotiated a marriage contract that covers all division of assets upon marriage breakdown, you will likely be barred from making an equalization claim unless you can successfully have the marriage contract set aside by a court.
If you do not have a marriage contract, or its terms fail to fully cover division of assets, and if your spouse's NFP is greater than your own; you are entitled to half of the difference between the two values.
The valuation date for the equalization of you and your spouse's NFP is the day before your spouse died. However, the FLA stipulates that all property received through the right of survivorship, as well as lump sum payments by virtue of being a beneficiary of a life insurance policy, pension, or similar death benefit, are credited against the surviving spouse's entitlement, less any contingent tax liabilities associated with the inherited property/payments received. Again, note that this is in contrast with a surviving spouse's rights in relation to taking under his or her spouse's Will or the laws of intestacy. There the FLA specifically provides that property inherited under Will substitutes is to be inherited in addition to provisions of the testator's Will or the preferential share.
You should also be aware that claims made under Section 5 are personal as between parties. What this means is that you may elect to make a Section 5 claim against the estate of your spouse, but the estate cannot make an equalization claim against you. The only exception to this rule appears to be the discretion of an executor to continue a Section 5 application against you that was commenced while the testator was still alive. In addition, the FLA provides for an unequal division of NFP if the marriage was less than five years, or in other exceptional circumstances.
Even if you do not have a legal interest in the matrimonial home (the property you and your spouse lived in prior to his or her death), if you are occupying the home at the time of death, you are entitled to remain in the home, rent free, for 60 days.
What course of action you take may depend entirely on the relationship between you and your former spouse. If your relationship was still in tact at the time of death, then likely your spouse will have left a Will to which you both agreed. It may simply be a matter of following its instructions.
If your spouse died intestate or with an incomplete Will, but your relationship was a happy one, you may inherit the majority of the estate through Will substitutes and in this scenario it would be advisable to take the preferential share under the SLRA.
As noted in the beginning of this article, a timeline begins to run in terms of when you must make a decision regarding your inheritance. According to Section 7(3) of the FLA, you have six months to elect the route of an application for equalization and file your application for a Section 5 claim. If you fail to act during this time, you will be deemed to have elected to take under the Will or rules of intestacy. The courts retain a discretionary power to extend this time period in circumstances where you simply cannot access the necessary information about your spouse's estate in order to make an informed decision.
The best course of action is to consult a family lawyer who is familiar with estate law as soon as possible.
Jane Thomson is an associate lawyer with the Ottawa law firm of Nelligan O'Brien Payne LLP (www.nelligan.ca) and a member of its Family Law and Wills and Estates Practice Groups.
[This article originally appeared in the November/December 2013 edition of Fifty-Five-Plus Magazine.]