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ESTATES & EQUALIZATION: How the Courts can enforce your Family Law rights

Court Orders

The court has extensive powers to enforce the equalization order, Family Law Act (FLA) section 9. It can order:

  1. Money to be paid;
  2. Security to be given;
  3. Payment to be deferred for, or made in instalments over a period of up to 10 years;
  4. Transfer of property in specie; or
  5. Partition and sale of property.

If deferred or instalment payments are ordered, subsequent variation orders are permitted provided the court is satisfied that there has been a material change in the circumstances of the paying spouse. However, the amount of the equalization payment previously determined cannot be varied, FLA, s. 9(3).

The direction to the court is to avoid ordering the sale of an operating business or farm, which would seriously impair its operation, unless there is no reasonable alternative method for satisfying the award, FLA, s. 11(1). The court, in order to follow the directive can:

1) Order one spouse to pay to the other a share of the profits from the business or farm; or for an incorporated business or farm, order that one spouse transfer, or ask the corporation to issue from the treasury, to the other spouse, shares in the corporation, FLA, s. 11(2).

However, ordering a spouse to issue treasury shares from the corporation to pay for the other spouse’s equalization claim has difficulties:

1) Generally, corporate law statutes require that treasury shares be issued only for money or past services. In this case, the corporation is not receiving anything for the treasury shares ordered to be issued;

2) The paying spouse does not have the authority to issue shares from the treasury without the consent of the other shareholders;

3) Assuming that the shareholder has sufficient votes to authorize the issuance of treasury shares and further assuming that he or she is not otherwise restricted by a shareholders’ agreement, any other shareholder will see the value of his or her shareholdings diluted;

4) Likewise, if the shares have been pledged to a third party, the value of that security would be diminished; and

5) Due to such an order, there could be adverse income tax consequences.

The court could also restrain a spouse from depleting his or her property and issue orders for the possession, delivering up or safekeeping and preservation of the property, FLA, s. 12.

The Matrimonial Home

When an owner spouse dies, special provisions are made for the matrimonial home. If the matrimonial home is owned by a spouse in joint tenancy with a third party, the joint tenancy is deemed to have been severed immediately before death, FLA, s. 26(1), as opposed to that accorded to all other property owned in joint tenancy where it passes to the surviving joint tenant(s) by operation of law. This deemed severance provision ensures that one-half interest in the matrimonial home would remain in the deceased spouse’s estate to satisfy the equalization claim of the surviving spouse. Considering that this provision is contained in Part II of the FLA (“The Matrimonial Home”) and not in Part I (“Family Property”), it seems the primary intent of the deemed severance is to preserve the surviving spouse’s right to retain possession of the matrimonial home against the deceased spouse’s estate, rent-free, for a 60-day period following the death of the deceased spouse, as given in FLA s. 26(2). Should there be no deemed severance, the estate of the deceased spouse would hold no remaining interest against which the right to retain possession could be asserted.

The deemed severance comes on its own, even if the surviving spouse elects to take under the will or on intestacy, as the case may be. It appears to be a rather extreme provision if the primary intent is to maintain the surviving spouse’s right to possession for a temporary period. It would have been better to deem the right of survivorship to be inoperative for the requisite 60-day period.

Valuation Problems

Joint Tenancies

Valuation problems arise due to the choice of the day before death as the valuation date for a marital relationship ending with the death of one spouse. A blatantly unfair aspect of this choice of valuation date is that property held by the spouses in joint tenancy goes to the surviving spouse, even though their respective Net Family Property (NFPs) calculations show each of them having a one-half interest in the jointly held property.

Say, for instance, Mr. & Mrs. Jones’ matrimonial home, owned by them in joint tenancy, is valued at $500,000 on the day before Mr. Jones dies. Suppose again that each of them entered the marriage with no assets and that at the date of Mr. Jones’ death, he owns publicly traded shares worth $200,000. Mr. Jones’ NFP is $450,000, while Mrs. Jones’ NFP is $250,000. If Mrs. Jones elects to make an equalization claim, she would be entitled to a payment out of her husband’s estate of $100,000. As because the matrimonial home was owned in joint tenancy, Mrs. Jones also acquires her husband’s one-half interest in it by right of survivorship, giving her $600,000 of their joint net worth of $700,000 on the valuation date. This unfair result can be avoided by unilaterally severing the joint tenancy in the matrimonial home. The Ontario Court of Appeal has confirmed that this can be done in the case of a matrimonial home without the consent of the other spouse. Admittedly, this severance will mean that the one-half interest held by the deceased spouse as a tenant-in-common with the surviving spouse is part of the estate. It will therefore be available to meet the claims of the creditors of the deceased spouse and will also form part of the value of the estate for the calculation of estate administration tax payable on an application for a certificate of appointment of estate trustee.

As a spouse you should know exactly how the way you take title to property will affect your will and estate, contact the lawyers at Levy Zavet PC (Levy Zavet) to obtain the proper advice and instructions on managing your assets and estate.

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