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Family law tips for estate and trust practitioners: part 2

A little family law familiarity can go a long way for estate and trust practitioners, says Toronto family lawyer Jennifer Samara Shuber.

Shuber, a lawyer with Beard Winter LLP, recently addressed the monthly meeting of the Toronto Junior Trusts and Estates Practitioners’ Group, telling her audience that their clients’ estate and financial issues will also have a host of family law implications and repercussions.

“If you have an understanding of how family law impacts your clients, you can help them to protect themselves and their loved ones from the unexpected and often unintended repercussions of their decisions,” Shuber said.

This is the second part of an abbreviated version of Shuber’s top family law tips for estate and trust practitioners. You can find part 1 here.

6: Married and common-law spouses have the same spousal support rights

While common-law spouses are out of luck when it comes to equalization payments, it’s a different story when it comes to spousal support, as long as they have lived together for three years — or shorter if the relationship is one of some permanence and the couple share a child.

While spousal support is determined under the federal Divorce Act for married couples seeking a divorce, splitting common-law couples must rely on the Family Law Act (FLA), Shuber said.

“The substantive principles are the same in either case,” she said. “The goal of spousal support law is to fairly redress the economic consequences of spousal relationships. The length of the relationship, the parties’ financial circumstances and the roles that they fulfilled while together, particularly the raising of children, are all relevant factors.”

Couples can contract out of rights to support in a cohabitation agreement, but Shuber said it could be set aside by a court if it’s judged to lead to unconscionable circumstances at the end of the relationship.

“If the parties assume traditional roles in their relationship, with one spouse primarily assuming domestic or child-rearing responsibilities and the other acting as breadwinner, then there will likely be spousal support payable,” she added.

The duration of support will depend on the length of the relationship and how easily the recipient can become self-sufficient. However, Shuber said the amount will usually be adjusted over time to take into account the changing financial situations of both parties.

7: Death of a common-law spouse

Common-law spouses do not have the same rights as those who are married when their partner dies without a will, Shuber told her audience. 

The Succession Law Reform Act dictates that a married wife or husband automatically receives the first $200,000 of the deceased’s assets, plus a cut of the residue in proportion to the number of children.

“This is not the case for the unmarried spouse. If a person passes away intestate and they have no husband or wife by marriage, the assets automatically go to their children,” Shuber said. “If there are no children, then the assets go to the next of kin, parents followed by siblings and then more remote relatives.”

Common-law spouses can only gain access to estate funds by proving they were financially dependent on the deceased, making a constructive trust claim or demonstrating the existence of a “joint family venture” with the deceased.

“In those cases, however, a share in the estate is only awarded at the discretion of the judge,” Shuber said.

“Though common-law partners will sometimes agree to name one another as a beneficiary in their wills, either party can change their will at any time without the other person’s consent or knowledge. As such, a cohabitation agreement is a good way to ensure rights and claims to an estate are secure, whether it is in a will or not.”

8: Trust property used as the family residence

Despite the matrimonial home’s special place in Ontario’s FLA, the province’s Court of Appeal has found that a contingent interest in trust property being used as the family residence is not a “matrimonial home” according to the Act’s definition.

The mother of the wife in the case settled a family trust, consisting of a number of properties, for the benefit of herself and her four children. When the wife split from her husband, he tried to have the family residence included in her net family property as the matrimonial home, but the appeal court dined the claim. Instead, it decided that since there was no way to know what the trust property would be until her mother’s death, the wife’s interest was contingent and she had no specific legal interest in the family home.

“The finding has created a way for parties to skirt the provisions of the FLA which make the matrimonial home so special, including the right to occupy the property as well as the right to be informed of a proposed sale,” Shuber explained.

“Similarly, by placing the property in a trust, the property can be excluded from the equalization. This decision has caused a boon for estate planners, as well as those who draft marriage contracts. Parties will now want to carefully consider how title to a property is held before they agree to its becoming the family residence.”

9: Understand the relationship between the domestic contract and estate plan

Shuber said it’s important for trust and estate practitioners to know if their clients are subject to any domestic contracts — there are five different types set out in the FLA: marriage contracts, and separation, cohabitation, paternity and family arbitration agreements.

“You do not want the estate planning you do to counteract their obligations under these pre-existing agreements,” she said. “Get copies of the contracts. Review and understand them before taking any estate-planning steps. Speak to the lawyer involved in the drafting of your client’s domestic contract.

10: Relationship between estate planning and equalization rights

Estate planners should be aware that their work could be undone by a court seeking to protect a spouse who doesn't hold any property.

For example, in a 2001 case, Ontario’s Court of Appeal applied the FLA and the Fraudulent Conveyances Act together to unwind a husband’s transfer of most of his assets to his children from a prior marriage without his current wife’ knowledge. The husband made the move after finding out he was dying in an effort to keep his estate out of the hands of his wife’s children from her first marriage.

However, when he died, the wife elected for an equalization payment rather than taking the reduced amount he left her in his will, and the appeal court ruled that the transferred property should be counted in the net family property of his estate.

Still, proper estate planning “can result in the property being excluded from equalization,” Shuber added, pointing to a 2011 appeal court case to back up her point.

This time, the husband, who worked with his father in the family business, was gifted shares by his father on the condition that they would remain his separate property, and neither the shares nor any increase in value would form part of his net family property. 

When the husband separated from his wife four years later, the value of the shares had gone way up, but the Court of Appeal ruled they had been gifted and their value should be excluded from his net family property.

“It is evident from this case that, if the plan is to ensure that the shares forming part of an estate freeze are to be excluded property to the recipient, careful attention must be given to how the freeze is structured and, in particular, how the common shares are gifted,” Shuber said.

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