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Family law tips for estate and trust practitioners: part 1

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 on your clients, you can help them to protect themselves and their loved ones from the unexpected and often unintended repercussions of their decisions,” she said.

Below is the first part of Shuber’s top family law tips for estate and trust practitioners.

1: Marriage is not the same as common law

While many people conflate cohabitation and marriage, Shuber told the group that there are big differences between living with a married spouse and a common-law one.

“Common-law spouses do not share on intestacy at all, as opposed to married spouses who have statutory rights to share in the estate,” she said.

To add to the complexity, the definition of a common-law partner differs depending on the legal context:

“The family law definition of common law requires a continuous cohabitation of not less than three years or a child in common. This is different from the definition of common-law partner as defined by the Income Tax Act (ITA),” Shuber explained.

“Under the ITA, common-law partners either are the parents of the same child or persons who cohabit in a conjugal relationship continuously for at least 12 months.”

2: Married Spouses divide property by way of equalization

When marriages end, either by death or divorce, Ontario’s Family Law Act (FLA) gives spouses a chance to share in the wealth generated during the marriage by a process known as equalization, Shuber said.

“Equalization is a sharing of wealth, or the growth in value of assets, but not the assets themselves. Nothing changes ownership, nor do spouses acquire an ownership interest in each other’s assets simply by virtue of the marriage,” she said.

The first step sees each spouse identify all their assets and liabilities at the beginning and end of the marriage, while the second step requires them to be valued.

“That may be relatively straightforward for some items, such as bank accounts or credit card debts. For other assets, such as closely held corporate interests, trust interests, share options or warrants, the determination of value may be quite complex and likely will require the assistance of a certified business valuator or accountant,” Shuber said.

The value of certain assets can be excluded from sharing in the equalization process, including gifts, inheritances or items named in a marriage contract. However, Shuber said they must survive the date of separation.

“That means, for example, if a spouse receives an inheritance during the marriage and uses it to pay down the mortgage on the matrimonial home or mingles the inheritance in a joint account with his or her spouse, the exclusion is lost,” she said.

3: The matrimonial home is a special asset

The FLA designates any property used by married spouses as a family at the time of separation as a “matrimonial home.” There is no limit on the number, which can include a primary residence, cottage, or ski chalet.

Unlike other assets, “if a property is a matrimonial home, then not only is it impossible to claim an exclusion for any inherited or gifted asset invested in it but, if the same property was owned at the date of marriage, then the owner may not claim a deduction for having brought the value of the property into the marriage,” Shuber said.

4: Title Matters

Contrary to public perception, equalization does not mean splitting every asset owned by the two spouses down the middle.

“As such, title matters,” Shuber said. “How an asset is held will determine not only upon whose side of the ledger it appears, but also who walks away with that asset at the end of the day.”

Instead, the equalization payment is half the difference between the two spouses’ respective net family property.

Net family property, in turn, is calculated as “the difference between the value of assets less liabilities and exclusions held at the date of separation and the value of assets less liabilities at the date of marriage (not counting any matrimonial home held at the date of marriage),” Shuber said.  

Although a spouse’s net worth can fall during a marriage, the decline can only be shared to a limited extent, Shuber said, noting that the lowest possible net family property a spouse can claim is zero — negative values are not permitted.

The payment is treated as a simple debt owing at separation, but only in rare situations will a spouse have the cash available to satisfy it.

“They will have to cash-in investments, borrow money, and maybe even consider accessing retirement savings to pay it. Financial advisors and estate planners can be of great help to clients by working with their lawyers to structure the financial settlement in the most advantageous way,” Shuber said.

5: Common-law spouses do not equalize property

In the eyes of the law, common-law spouses in Ontario are assumed to have chosen not to marry, which means there is no requirement for a division of property.

“Unmarried spouses have no more property rights against one another than they would have with respect to a business partner. In many cases, they may even have fewer rights, since it is unusual to have a business partnership without some kind of legal agreement,” Shuber said.

This makes title even more important for common-law partners than married ones, she added.

“The most secure situation for an unmarried spouse is to have legal title to assets. Similarly, there is no legislated sharing of debt, so unmarried spouses need to ensure that one spouse is not excessively burdened with the family debt,” she said.

While claims for beneficial ownership in a common-law spouse’s assets are possible, Shuber said they face a high bar to success since they must be able to show that the other person has “unjustly retained a disproportionate share of assets accumulated during the course of a ‘joint family venture’ to which both partners have contributed.”

Stay tuned for part 2 of this mini-series on family law tips for estate and trust practitioners, when Toronto family lawyer Jennifer Samara Shuber explores spousal support, the death of a common-law partner and domestic contracts.

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