How spousal rights can affect your client’s estate

When someone dies, the surviving spouse and family usually go through a long administrative process, including tax, financial and legal steps. When the surviving spouse’s inheritance is smaller than expected, it may lead to questions about the survivor’s legal rights. Spousal rights are complex and governed by provincial law. This article examines some of Ontario’s rules, and future articles will review the laws of other provinces.

Read: Let clients know about these will restrictions

Who is a spouse?

In Ontario, spouses are typically either married or common-law. Under the Family Law Act (FLA), if two people live common-law, they’ll be considered spouses if they’ve lived together for at least three years, or have lived in a permanent relationship and have a child together.

The Supreme Court of Canada case Molodowich v Penttinen considers what qualifies as living together. The following, among other factors, should be considered:

• Did the parties live under the same roof?
• What were the sleeping arrangements?
• Did they maintain an attitude of fidelity to each other?
• Did they participate together or separately in neighborhood and community activities?
• What was the attitude and conduct of the community toward each of them and as a couple?

In Stajduhar v Wolfe, the Ontario Court seemed to minimize these factors, and instead held that two individuals who didn’t live in the same residence couldn’t be considered common-law spouses.

The definition of living together is important because a common-law spouse has a right to advance a dependency claim.

Potential financial support for spouses

In the absence of a marriage contract, if the deceased’s will doesn’t provide adequately for the surviving spouse, the surviving spouse is entitled to receive the greater of:

• what would have been received upon divorce or separation (an equalization payment),
• entitlement on intestacy or
• gifts set out in the will.

Equalization payment

Equalization awards the surviving spouse one-half of the deceased’s net family property, less one-half of the survivor’s net family property. The surviving spouse also has a 60-day period following the spouse’s death to live in the matrimonial home rent-free. However, the following should also be considered:

• The definition of property, over which a spouse may claim, is broad and includes an interest in a corporation and a vested pension plan.
• There are some notable exclusions from property that include, but aren’t limited to, inheritances, life insurance proceeds, court settlements and property pre-excluded in a domestic contract.
• The valuation date is the day before the spouse’s death, not the date of death. Therefore, some property owned by the deceased that vanishes on date of death is included, such as an RRSP with a named beneficiary on the date of death.
• The surviving spouse must make an election for equalization within six months of the spouse’s death. However, there’s no guarantee a revocation can be made, so a spouse often must consider an election before some financial details are known.

Intestacy

If a married spouse dies intestate (without a will), the Succession Law Reform Act (SLRA) creates a minimum inheritance for the surviving spouse, who is entitled to the entire estate if the couple had no children between them. If there are children, then the spouse is entitled to a preferential share of the first $200,000, with one-third of the remaining balance going to the spouse and two-thirds to the children. For example, if the deceased spouse’s estate is worth only $200,000, then the surviving spouse inherits it all. Note that the SLRA doesn’t recognize common-law couples.

Read: How much power do powers of attorney really have?

Other ways to claim support

Dependency claim

A dependency claim is available if the surviving spouse was dependent on the deceased and was not adequately provided for in the will. It applies to both a marriage and common-law relationship, and must be filed within six months of an executor’s appointment.

The spouse must prove dependency, such as giving up a career to care for a child while the other spouse paid for expenses.

Disputes can arise over whether the claimant received or was entitled to support, and dependency claims tend to be long and costly both financially and emotionally.

Unjust enrichment

Although an equalization payment is available to only a married spouse, unjust enrichment may be a means for a common-law spouse to advance a claim. Unjust enrichment is an equitable principal that states someone shouldn’t receive a financial gain at another’s expense. For example, when a spouse takes care of the home or provides services without compensation from the other spouse, a common-law spouse may advance a claim against the estate.

What your clients should know

Domestic contracts are a viable way to determine how property and spousal support is to be handled. There are three types: cohabitation agreements, marriage contracts and separation agreements.

Cohabitation agreements should be considered by common-law spouses to determine how their property and financial matters should be handled if their relationship terminates. The agreement is flexible and can be made before or after a couple moves in together. It can cover payment of expenses, sharing of debt and obligations if the relationship ends, but not custody or access to children. Also, if the couple marries after living together, the cohabitation agreement becomes the marriage contract.

A marriage contract, commonly known as a prenuptial agreement, is an agreement made by a couple before they marry concerning property division and support, should the marriage fail. The contract allows a couple to make their own arrangements about sharing property, including the matrimonial home.

A couple can enter into a separation agreement to deal with issues after a separation. It applies to both married and common-law couples, and can settle custody and access to children, property division and financial support.

While having an up-to-date will is imperative, it is by no means bullet proof, as we’ve shown. To avoid any possible and unpleasant estate litigation, couples should be encouraged to discuss estate plans.

Read: Estate planning for a client’s digital assets

Keith Masterman, LLB, TEP, is vice-president, Tax, Retirement and Estate Planning at CI Investments. He can be reached at kmasterm@ci.com. Patrick Bieler is a summer student for the Tax, Retirement and Estate Planning team at CI Investments.