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Intersection of Family Law Act – Estate Litigation 5/9

When Family Law Meets Estate Dispute

Imagine this: David and Mary have been married for 25 years. David, a successful business owner, passes away, leaving behind a will that divides his estate equally between Mary and their two children. Mary, however, discovers that under Ontario’s Family Law Act (FLA), she may be entitled to more than what the will provides. This is because the FLA allows a surviving spouse to make an equalization claim, a legal right to share in the growth of the couple’s net worth during their marriage.

This scenario is not uncommon. In Ontario, the FLA has significantly changed how estates are administered, especially when a married spouse passes away. Whether you’re a surviving spouse, an estate trustee, or a beneficiary, understanding how the FLA impacts estate litigation is crucial.

In this blog, we’ll break down the key concepts of the FLA, including Net Family Property (NFP), equalization claims, and how the matrimonial home is treated differently. 

Under s.5 of FLA, when a married couple separates or when one spouse dies, the law requires an equal division of their financial growth during the marriage. This is called equalization of Net Family Property (NFP).

At the heart of the FLA is the concept NFP. Simply put, NFP measures how much each spouse’s net worth increased during the marriage. Here’s how it works:

  1. Calculate Net Worth at Marriage:
  2. Each spouse’s net worth is determined as of the date of marriage. This includes assets like savings, investments, and property, minus any debts.
  3. Calculate Net Worth at Valuation Date:
  4. The valuation date is typically the day before one spouse dies (or the date of separation, if applicable). Again, net worth is calculated by subtracting debts from assets.
  5. Determine NFP:
  6. The difference between the two net worth figures is the NFP. If the result is negative, it’s treated as zero.

Example:

  • David:
    • David’s net worth at marriage: $50,000
    • David’s net worth at death: $1,000,000
    • David’s NFP: $950,000
  • Mary:
    • Mary’s net worth at marriage: $20,000
    • Mary’s net worth at death: $200,000
    • Mary’s NFP: $180,000

The difference between David’s and Mary’s NFP is $770,000:

  • Under the FLA, Mary may be entitled to half of this amount $770,000, that is $385,000 as an equalization payment. 

The valuation date is a critical factor in calculating NFP. It’s defined as the earliest of the following:

  • The date of separation (if there’s no chance of reconciliation)
  • The date of divorce
  • The date one spouse dies

In most estate cases, the valuation date is the day before the deceased spouse’s death. However, if the spouses were already separated, the separation date becomes the valuation date.

Why is this important?

  • Assets acquired after the valuation date (e.g., life insurance proceeds) are not included in the NFP calculation
  • Debts incurred after the valuation date (e.g., funeral expenses) are also excluded

Not all assets are included in the NFP calculation. The FLA identifies certain types of excluded property, such as:

  • Gifts or inheritances received during the marriage (unless they’ve been mixed with marital assets)
  • Property owned before the marriage (e.g., a home purchased by David before he met Mary)
  • Court awards or settlements for personal injuries

Important Note:

  • The burden of proving that property is excluded falls on the person claiming the exclusion. This means keeping detailed records of the source and use of such property is essential.

The matrimonial home (the family’s primary residence) is treated differently under the FLA. Unlike other assets, its value is always included in the NFP calculation, even if it was owned before the marriage.

Example:

  • David bought the family home for $300,000 before marrying Mary
  • At his death, the house is worth $1,000,000
  • Even though David owned the home before marriage, the full $1,000,000 value is included in his NFP.

Additionally, if the home is held in joint tenancy with someone other than the surviving spouse (e.g., a child), the FLA automatically severs the joint tenancy upon death. This ensures that the deceased spouse’s share remains in the estate and is available for equalization.

Under s.5(2) of the FLA, a surviving spouse can claim an equalization payment if the deceased spouse’s NFP is higher than their own. The payment is typically half the difference between the two NFPs. However, the court has discretion to award more or less than this amount if it would be unconscionable to do otherwise. For example, in the case of Von Czieslik v. Ayuso ONCA [2007], the court awarded the surviving spouse 100% of the difference due to the deceased spouse’s improper depletion of assets.

The intersection of family law and estate litigation can be complex, but understanding the basics of NFP, valuation dates, and equalization claims is a good starting point. Whether you’re a surviving spouse considering an equalization claim or an estate trustee managing an estate, it’s crucial to seek legal advice to navigate these rules effectively.


Disclaimer: This blog is for informational purposes only and does not constitute legal advice. Always consult a qualified lawyer for your specific situation.