In this blog, we consider the impact a surviving spouse’s election under section 6 of the Ontario Family Law Act on the deceased spouse’s estate. We continue to use the example of Wendy and Hank from a previous blog article, who were married to one another at the time of Hank’s death and were not separated. Let us assume, for illustrative purposes, that Hank died without a will and was survived by Wendy and their two adult children. In accordance with the current laws of intestacy of Ontario, Wendy is entitled to receive a preference share of $350,000. She is also entitled to receive one-third of the remainder of the estate after payment of the preferential share.
If Wendy makes the appropriate Family Law election and application, then the equalization payment between herself and Hank’s estate is calculated in the same manner as for separate spouses under the Family Law Act. As discussed in the first blog in this series, the equalization payment is one-half of the difference between the net family properties (NFPs) of the spouses. In accordance with subsection 4(1) of the Family Law Act, the valuation date, in the estates context, is the earliest of:
- The date before the death of the first spouse. This is the date applicable in Wendy’s case;
- The date the spouses separated; or
- The date the spouses divorced or the marriage was declared a nullity.
Wendy should note that assets arising only upon the death of Hank will not be included in his NFP. These include proceeds of insurance on his life and Canada Pension Plan death benefits. There is also case law for the proposition that certain liabilities that crystalize on death may be deducted from the deceased spouse’s NFP, such as income tax payable on capital gains resulting from a deemed disposition of the deceased spouse’s assets on death. Wendy should also be mindful of subsection 6(6) of the Family Law Act, which provides that the value of certain assets passing to her outside the estate will be credited against for in the calculation of the spouses’ NFP. These include lump sum death benefits to her under a pension or similar plan and properties she receives by right of survivorship as a result of the death of Hank.
By electing to receive equalization, Wendy will be deemed to have disclaimed her entitlement under the laws of intestacy. Had Hank died testate, the will would be interpreted as if Wendy had predeceased him.
For some, depending on the spouses’ NFPs, the decision to elect equalization or otherwise may require careful calculation. The calculation is complicated when the parties’ assets include interests in private corporations, gifts from family and other third parties, and assets passing outside the deceased spouse’s estate. If the spouses had executed a domestic contract which deals with property division upon death, the validity of the contract should also be taken into account.