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Posts tagged ‘Net Family Property’

Protecting your Inheritance: Lesson’s learned

Protecting assets

Protecting your Inheritance: Lesson’s learned

We recently came across Jeff Lander’s article Divorcing Women: Here’s How to Protect Your Inheritances and Gifts published in Forbes. Jeff provides some valuable insight into the lessons that can be learned for Americans from the divorce of Karen from her estranged husband, Gary before it’s too late for others to protect their inheritances.

The lesson’s provided in Jeff’s article can be applied similarly to Women in Ontario although the law is applied here in a slightly different way. One difference in Ontario is that instead of labeling property as “marital property” or “separate property” the Family Law Act simply looks at all of a party’s property at the date of marriage, and then excludes certain types of property from the final calculation. Jeff’s article is applicable because one of the types of property that can be excluded from the final calculation at the date of marriage is inheritances. This creates a similar result when considering inheritances as when Jeff uses marital vs. separate property.

Just like in America, in Ontario inheritances will only be excluded if they have not been “mixed” into martial property and can be easily traced. This means that like in Jeff’s article there are important financial planning considerations for any women receiving an inheritance in Ontario. The best solution for a party receiving a gift or inheritance is to simply keep the money involved in a separate investment account.

Jeff’s article also makes an interesting distinction between property distribution schemes in different states. In Ontario we use the term “net family property” which is calculated by looking at each party’s property at the date of separation and subtracting any property owned by that party at the date of marriage. The party with a larger net family property must make an “equalization payment” usually in cash but sometimes in property to the other party in order to equalize marital property. This scheme is much more similar to the community property distribution schemes described by Jeff then the equitable distribution schemes and as such it becomes clear why a party would want to exclude their inheritance from the net family property calculation.

Perhaps unsurprisingly, during their relationships most married couples are loath to even consider that they should take steps to protect themselves against their spouses. As a result it still remains a common problem in divorces that inheritances which were meant to be individual gifts ultimately end up as shared marital property.

To learn more about divorce in Ontario, contact Russell Alexander, Collaborative Family Lawyers. We focus exclusively on family law, offering pre-separation legal advice and assisting clients with family related issues including: custody and access, separation agreements, child and spousal support, division of family property, paternity disputes, and enforcement of court orders. For more information, visit our main site.

Gambling, Drinking and Affairs – Should Spouses Have to Account for their Misdeeds?

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Gambling, Drinking and Affairs – Should Spouses Have to Account for their Misdeeds?

In a recent blog , I discussed a case called Malandra v. Malandra, where the court found that – for the purposes of deciding whether their Net Family Property (NFP) should be unequally divided – the husband should not be held solely accountable for certain bad business investments.

This question of whether the NFP should be divided unequally comes up often: among other things courts must consider whether one of the spouses behaved in a manner that makes an even split unfair. Here are some of the categories of spousal misdeed that can come under the court’s scrutiny:

1) Reckless Investing

In a case called Lamantia v. Solarino, 2010 ONSC 2927, the question was whether the husband should be held accountable for deceit and various financial misconduct designed to hide his reckless investments in the stock market. He had forged the wife’s signature, and had borrowed from credit cards for which she became liable without her knowledge. He also took active steps to keep the wife from learning the true state of their financial affairs; for example, he made sure their bank statements were sent to another address. Furthermore, he continued to play the stock market even though the wife had asked him to stop. Those bad investments led to significant capital losses for the couple.

In finding that the NPF should not be equally divided, the court found that the husband had engaged in a pattern of deceit and engaged in conduct that made it unconscionable for the NFP to be divided equally.

2) Spending to Feed an Addiction

In a second case, Dillon v. Dillon, 2010 ONSC 5858, the husband was a severe alcoholic, who incurred debts to feed his alcohol addictions. He lost many jobs over the years, and took pains to hide the dire family financial circumstances from the wife, who was completely unaware.

Given that their financial circumstances were spurred by the husband’s need to incur debt to feed his addiction, the court found this was a situation completely out of the wife’s control. Because of his reckless behaviour, she had effectively contributed significantly more than the husband toward amassing their family assets which formed the NFP – for example a cottage worth $260,000, and RRSPs funds amounting to $150,000. She had also paid over $50,000 towards the husband’s debts in order to keep things afloat for the benefit of their children.

By concealing the extent and timing of his “financial perdition” (as the court called it), the husband deprived the wife of an opportunity to prevent his destructive behaviour, or to prepare herself for retirement. The court found that the husband had “taken advantage of the [wife’s] selfless act of placing herself in a position of vulnerability in the best interests of her children.” An unequal division of NFP was ordered.

3) Spending Money on an Affair Partner

Finally, in a case called Hutchings v. Hutchings (2001), 2001 CanLII 28130 (ON SC), 20 R.F.L. (5th) 83 (Ont. S.C.J.), the husband was engaged in an extra-marital affair, and used family money in to order to travel with his mistress to Europe and Quebec. The wife was suspicious, and accused the husband of spending money on not just this but other affairs as well; however she was never able to prove the allegations. In this case, the court also ordered that the husband had engaged in reckless and intentional depletion of the NFP and that there should be an unequal division.

For the full text of the decisions, see:

Lamantia v. Solarino, 2010 ONSC 2927

Dillon v. Dillon, 2010 ONSC 5848

Hutchings v. Hutchings (2001), 2001 CanLII 28130 (ON SC), 20 R.F.L. (5th) 83 (Ont. S.C.J.)

At Russell Alexander, Family Lawyers our focus is exclusively family law, offering pre-separation legal advice and assisting clients with family related issues including: custody and access, separation agreements, child and spousal support, division of family property, paternity disputes, and enforcement of court orders. For more information, visit our main site.

Does Large Age Gap Between Spouses Dictate an Unequal NFP Division?

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Does Large Age Gap Between Spouses Dictate an Unequal NFP Division?

The old-fashioned term for it is a “May-December” marriage, where one spouse is considerably younger than the other. Think Ashton Kutcher and Demi Moore (and we all know how that worked out!).

In a recent case called Dnistrianskyj v. Savard, the much-younger wife raised the argument that she should be awarded an unequal division of Net Family Property (NFP) because she had married very young to an older man, and that unless there was an adjustment she would not get sufficient financial support from him now that he was on the brink of retirement.

The woman worked as a babysitter for the husband and his first wife from the time she was approximately 12 years old. The woman and the first wife became friends, and she would sometimes accompany then on vacations to help with the care of the three children.

When the husband was 36 and the woman was 17, the first wife died suddenly from a heart-related issue. Only a few months later, the husband initiated a sexual relationship with woman; because the husband was an RCMP office and he was concerned about being found cohabiting with a minor, they hid the relationship for a time, especially from the children and the first wife’s parents. Nonetheless, they eventually moved in together “officially”, and were married in 1989. They separated about 20 years later.

The court chronicled the wife’s complaints in the period leading up to separation this way:

During that time, the relationship between the parties was experiencing difficulty. [The wife] indicated that there was a sense that [the husband] saw her role within the marriage as a “maid with benefits”, meaning that her job was to do the childcare, cooking and housekeeping, as well as to satisfy [the husband] in the bedroom. He insisted that she not be involved in family finances or in decisions regarding “his” family, notwithstanding that they were married and she was the primary caregiver for [the three children]. [The wife] said that she was young compared to him and vulnerable, as she was not working and was estranged from her family. If she argued with his authority, he would threaten divorce and, at times, would pack her suitcase and take her to a hotel. After staying a night she would need to beg him to be allowed to come back. He would, at times, take her car keys away from her. Letters written by [the husband] supported her view of the relationship during this time.

Against this background, and in addition to numerous other legal issues, the court considered the valuation of the wife’s share in connection with their respective NFP amounts. It noted that the court had the discretion to award a spouse an amount that is greater or less than the NFP in cases where to do otherwise would be “unconscionable”, having regard to various specific factors.

Noting that the test of unconscionability is exceptionally high, and that it covers scenarios that “shock the conscience of the court”, the court evaluated the wife’s claim that her overall circumstances were unfair considering her contributions to the husband’s family, the age difference, the need to be re-educated after separation, and especially the period of cohabitation before marriage when she was only 17 years old. She claimed that these considerations were not adequately addressed by whatever spousal support she might receive in the divorce settlement.

In response to this, the court said:

However, in her evidence [the wife] did not present herself as someone who was weak or oppressed, or wronged by what turned out to be her life. Without a doubt she was young and vulnerable when she started her relationship with [the husband]. But she was also headstrong and determined. Her parents tried to alter the path she was on, with no success. In her evidence, [the wife] said that she recognized her own responsibility in choosing her circumstances, and that she made those decisions as she loved [the husband] and she loved his children. With the hindsight of a 44 year old adult, she said that she did not regret much. She certainly grew and matured with time, dealing with some very difficult issues within the family with dignity and composure.

As a result, the court found that the requisite level of “unconscionabilty” was not met in this case, to the extent that an unequal division of NFP should be ordered. The court concluded:

[The woman] had a general sense of the unfairness of having married very young to an older man who was now seeking to withdraw from the workforce when she would benefit from his financial support. I accept that. However, I am unable to find that this rises to the level of unconscionability under [the Family Law Act] such that it shocks my conscience. I also find that the relief under [the Act] must be tied to the acquisition, disposition, preservation, maintenance or improvement of property, and that has not been made out in this case.

For the full text of the decision, see:

Dnistrianskyj v. Savard, 2014 ONSC 2152, 2014 CarswellOnt 4242

At Russell Alexander, Family Lawyers our focus is exclusively family law, offering pre-separation legal advice and assisting clients with family related issues including: custody and access, separation agreements, child and spousal support, division of family property, paternity disputes, and enforcement of court orders. For more information, visit us at www.RussellAlexander.com

Is Post-Separation Severance Pay Already “Earned” at the Date of Marriage?

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Is Post-Separation Severance Pay Already “Earned” at the Date of Marriage?

As I have written in the past, the general rule under Ontario family law is that divorcing spouses are entitled to deduct from their Net Family Property any assets or property that they owned on the date of the marriage. It sounds simple enough. Yet when that “property” consists of rights or entitlements instead of more tangible assets, questions frequently arise and the answers can become a bit murky.

In an interesting case, the court was asked to address a narrow – but not unusual – scenario. It can be best described this way:

1) Spouse A works for a company for several years.

2) Spouse A marries Spouse B.

3) Several years later, Spouse A gets terminated from employment, and accepts a reasonable severance package.

4) Spouse A and Spouse B later separate, on their way to divorcing.

The issue is this: On the date of marriage, did Spouse A “own” or already “earn” any portion of the severance pay that was later because of the firing? And should that portion (as calculated on the date of marriage) be deducted from his or her Net Family Property calculation, as something that was “brought into” the marriage to Spouse B?

This was the scenario in a case called Dembeck v. Wright. The couple had been married for almost 10 years when the husband lost his job and accepted an 18-month severance package, which included 8 weeks statutory termination pay as required by the Ontario Employment Standards Act (the “ESA”), with the balance being common-law notice of termination. The couple separated three days after the husband was terminated.

The wife wanted the entire amount of the severance and termination pay included in the husband’s Net Family Property; in contrast the husband claimed that most of the $190,000 severance package was deductible, since it was “property” and that he had “earned” the entitlement to most of it before the marriage even took place.

The Court of Appeal – which was only asked to rule on the 8-week ESA termination pay portion – agreed with the wife. While conceding that the Family Law Act defined “property” very broadly (and included both present and future interests as well as both vested and contingent ones), the right to severance and termination pay can only be considered “property” once it has crystallized. Furthermore, the ESA does not grant an employee an absolute right to termination pay; it accrues only once the employee is terminated without notice, and can only be demanded from the employer if and when that triggering event takes place.

With all this in mind, in the present case the Court ruled that in order for the husband’s ESA termination pay to be considered “property” at the date of marriage, he must have had a right or entitlement to it at that date. His right arose only afterwards, and did not “accumulate” over time. Accordingly he was not entitled to the marriage-date deduction.

For the full text of the decision, see:

Dembeck v. Wright, 2012 ONCA 852 http://canlii.ca/t/fv15d

At Russell Alexander, Family Lawyers our focus is exclusively family law, offering pre-separation legal advice and assisting clients with family related issues including: custody and access, separation agreements, child and spousal support, division of family property, paternity disputes, and enforcement of court orders. For more information, visit us at www.RussellAlexander.com.

Wednesday’s Video Clip: How to fill out a financial statement

 

 

Wednesday’s Video Clip: How to fill out a financial statement

In this law video, Darla review the steps required to fill out a financial statement for the family court or negotiating the terms of your divorce settlement.

When entering into a Separation Agreement or bringing an Application before the Court, parties must provide full financial disclosure.

Complete financial disclosure is a prerequisite to the settlement of any family law case.  The Family Law Act and its interpretation by our Courts, leaves no uncertainty in this respect.  Any agreement can be set aside if a party has failed to truthfully and accurately disclose his or her financial position.

To this end, the rules of the Court require completion of the Financial Statement, either Form 13.1 (support and property claims) or Form 13 (support claims only).   This form must show information that is complete, correct, and up to date.    It is important to remember that the Financial Statement is a sworn document, just like an affidavit.   When you sign this completed document, you are giving evidence in the same manner as if you were in Court.  An incorrect, incomplete or misleading Financial Statement, in addition to affecting the validity of any agreement, can adversely affect your credibility in the eyes of the other side in reaching a settlement, and in the eyes of the Court in rendering a decision.

The Financial Statement forms the basis for the determination of each party’s present income position and income potential, present and proposed standards of living, and net family property.

All information contained in your Financial Statement must be substantiated by documentation providing proof of same, or at the very least you must be able to explain how the figures were determined.    You should retain, gather and organize all receipts, utility bills, cancelled cheques, bank account statements, credit card statements, RRSP statements, investment statements, line of credit statements, property or business valuations, estimates, and all other substantiating documentation and provide copies upon request.

We hope you have found this video helpful.  If you require further information about filling out a financial statement please give us a call or visit our website at www.russellalexander.com

Need for Ontario Marriage License Overlooked – Religious Marriage Still Valid

Need for Ontario Marriage License Overlooked – Religious Marriage Still Valid

In this case, the couple had been married in an Islamic religious ceremony in either 2002 or 2003, performed before a witness in the wife’s apartment. However, they neglected to obtain an Ontario marriage license and never registered the marriage, since they were unaware of the legal requirements in this regard. Still, they lived together as husband and wife until 2010, when they decided to separate.

At that point, the husband applied to the court for various relief that was available to him under provincial family law. This included equalization of net family property, as well as reimbursement of an alleged overpayment of support that he had paid to the wife.

However, when the matter came before the court, the husband was directed to take steps to first prove an important threshold legal question: whether the couple was validly married at all. This would determine whether they were “spouses” under Ontario law; which in turn was a precursor to determining the various financial and other ramifications of separation.

After hearing the parties’ respective evidence, the court started by pointing out that the term “spouse” for the purposes of the Ontario Family Law Act includes not only couples who are “married to each other,” but also those who have “together entered into a marriage that is voidable or void, in good faith…”. Here, even though the couple had not obtained a marriage license, the form of religious marriage that they had participated in was valid as long as they both undertook it in good faith with the intention of becoming validly married to each other under provincial law.

In this case, both parties had been eligible to be married at the time of the religious ceremony, the marriage had been solemnized in good faith, and they lived together a as a couple afterwards, believing that their marriage complied with the relevant law. During this time they also had joint bank accounts, travelled together, and for all intents and purposes presented themselves to family, friends and the public as a couple. The husband had also listed himself as “married” on his income tax return.

As such, on the narrow issue of whether the parties were married, the court granted summary judgment to the wife, which paved the way for the couple’s subsequent legal issues (respecting net family property and support) to be addressed.

For the full text of the decision, see:

Isse v. Said, 2012 ONSC 1829  http://canlii.ca/t/fqrrn

At Russell Alexander, Family Lawyers our focus is exclusively family law, offering pre-separation legal advice and assisting clients with family related issues including: custody and access, separation agreements, child and spousal support, division of family property, paternity disputes, and enforcement of court orders. For more information, visit us at www.RussellAlexander.com

Wife Entitled To Retroactive Support From Deceased Husband’s Estate

Wife Entitled To Retroactive Support From Deceased Husband’s Estate

In a post last week, I discussed the legal principle that – unless a separation agreement or Divorce Order provides otherwise – spousal support payments end the moment the paying spouse dies. However, it’s important to know that retroactive support obligations are not automatically wiped off the deceased spouse’s slate as well.

This is illustrated in an Ontario decision called C v. C Estate.[name abbreviated at family member’s request] The husband and wife had no children together, but the husband acted in a legal parental capacity towards the wife’s daughter from another relationship, and had committed to supporting that child. The husband also had four children from various other relationships.

When they separated in 1997, it came as a total surprise to the wife: the husband simply left one day without warning, taking three-quarters of the household furniture with him (including the drapes, a chandelier, and a watch that the wife’s mother had given her). The wife had no idea that the marriage was in trouble. After this sudden separation, she continued to live in the matrimonial home for another eight months but could not keep up the mortgage payments, so the home was sold under a power of sale.

Against this background, and as part of a family law application she started in 1998, the wife claimed spousal support for herself and child support for the daughter.

However, the husband died in 2000, so the wife’s legal claims continued against his Estate. On the date of his death, the wife’s support claims were still outstanding. The wife accordingly claimed from the husband’s Estate for both retroactive child support and retroactive spousal support, and brought the matter to court for a hearing.

The court began its judgment with the following paragraph:

1 Michael C[…] (“Michael”) was a master of deceit. He deceived not only his wife, Marva …, he also deceived … his lawyer (later his Estate Trustee), his former wife Daphne … his children Dale …., Christopher …, Tameca … Jennifer … (a child from another relationship), step-daughter, Triciann …, his girlfriend Angela … and his clients, for whom he did insurance work and to whom he gave financial planning and investment advice. Finally, he deceived Revenue Canada (now “CRA”).

After reviewing the facts in detail, the court concluded that from the date of separation to the date of his death, the husband never told the truth about his income whether to the wife, his own lawyer or otherwise, and that the wife’s version of the facts (as she had pieced them together) were all true. Specifically – and even though he had professed the contrary while alive – the husband had indeed continued to work after the 1997 separation date, and in fact had substantial assets. Based on all the facts, the court imputed an income of $80,000 to the husband for each of the years 1997-2000.

Next, the court concluded that with the help of his children from previous relationships and his new girlfriend (all of whom who had participated in various mortgage schemes and financing schemes designed to obscure the husband’s true interests in the money / property), the husband had attempted to defeat the wife’s valid legal claim by hiding his assets from her. Moreover, the court found that large sums of money had been illegally or improperly taken by various people after the husband’s death.

Finally (and perhaps not surprisingly), at the date of his death the husband had not made proper support for the wife either by Will, or under a separation agreement. The wife’s spousal and child support claims remained open; she became a creditor of the husband’s Estate.

This being the case, the court found that the wife was entitled to receive retroactive child support of $20,000 and retroactive spousal support of more than $100,000, payable from the husband’s Estate. It also imposed a constructive trust in favour of the wife in connection with various the husband’s fraudulent transfer of three properties that were designed to defeat the wife’s entitlement. Finally – after some difficulty in piecing together the true information about the husband’s Net Family property figures – the court made an order for Equalization of $140,000 payable by the husband’s Estate as well.

For the full text of the decision, see:

C.[…] Estate v. A[..], 2008 CanLII 31422 (ON SC)  http://canlii.ca/t/1z6kn

At Russell Alexander, Family Lawyers our focus is exclusively family law, offering pre-separation legal advice and assisting clients with family related issues including: custody and access, separation agreements, child and spousal support, division of family property, paternity disputes, and enforcement of court orders. For more information, visit us at www.RussellAlexander.com.

Daughters Named as Beneficiaries, But Widow’s Right to Million-Dollar Insurance Policy Proceeds Determined by Ontario Succession Law

Daughters Named as Beneficiaries, But Widow’s Right to Million-Dollar Insurance Policy Proceeds Determined by Ontario Succession Law

In Matthews v. Matthews Estate, the husband and wife – who had two daughters together – separated in 2006.   The separation and divorce was typical, and included the usual requests for relief including a divorce, child and spousal support, child custody, exclusive possession of the matrimonial home, and equalization of Net Family Property.  Over the next few years, the parties managed to settle and resolve most of these matters, with the exception of spousal support and equalization which still remained to be determined.

However, there were a few little twists in the story.  

The first is not unusual:   at the time of separation, the husband had a $1 million life insurance policy, and had named his two daughters and sister as beneficiaries.  The daughters were to share $900,000 of the policy proceeds upon the husband’s death, with his sister taking the remaining $100,000.

The second twist, however, was that the husband died in the summer of 2010, just after the trial on the remaining matrimonial had begun (in May), but before the judge had written up the reasons for judgment (in August).  It is important to note that just before the husband’s death, the court in the process of sorting out the parties’ matrimonial issues had made an order vesting the life insurance policy in the wife, designating her the sole beneficiary, and making her responsible for paying all the premiums, going forward.

The third twist is that the without the $1 million life insurance policy, the husband’s estate did not have enough money to satisfy the wife’s spousal support needs.    In fact, at the time of the husband’s death, the matrimonial home had not yet been sold, the husband’s estate was insolvent, and the question of spousal support entitlement and an equalization payment to the wife were still unresolved.

As a result – and despite the fact that the deceased husband had named the daughters and his sister as beneficiaries – the entitlement to the proceeds of the policy was still an issue; the wife was asking for these proceeds to be used in order to pay the support that she was entitled to, as a dependent widow under the Succession Law Reform Act.  (That legislation provides that where a deceased has not made adequate provision for the support of his or her dependants (whether by testamentary document or otherwise), the court may order that funds from the deceased’s estate be used for the dependant’s proper support).

As the court put it, after reviewing the history of the litigation and interaction between the various parties:

It soon became clear that the real contest between the parties was centred on the one million dollar insurance policy.  

The court reviewed the interplay between the beneficiaries’ rights under the policy and the law of dependant’s relief.  It concluded that the Succession Law Reform Act makes it clear that the proceeds of the husband’s life insurance policy can be treated as part of the deceased husband’s estate, and can be used to pay support to the dependant wife – notwithstanding the fact that the husband may have irrevocably designated the daughter and sisters as beneficiaries under the policy.   In other words, if the assets of the husband’s estate were insufficient to meet the husband’s obligations to support his wife as a dependant, then the court must look to his other assets – including the life insurance policy proceeds – which pass by right of survivorship or pass outside the will.     Moreover, in such cases the family litigation is converted into a claim under the Succession Law Reform Act.

However, the court added a caution for these kinds of cases:   Given that by virtue of the Act the proceeds of the husband’s life insurance policy (which is not normally part of a deceased’s estate) are nonetheless being brought into the estate, this will naturally affect the beneficiary daughters and sister detrimentally.  As such, care must be taken to ensure that the burden of any support order in favour of the wife is first borne by the traditional assets of the deceased’s husband’s estate, before any encroachment is made upon on the insurance proceeds.

(As a side note, the court also observed that Spousal Support Advisory Guidelines were not an appropriate tool for determining the spousal support obligations of the deceased husband.  Rather, there were to be determined pursuant to s. 62 of the Succession Law Reform Act, which sets out those circumstances that are to be considered in determining the amount and duration of spousal support.)

For the full text of the decision, see:

Matthews v. Matthews Estate (2012), 2012 ONSC 933  http://canlii.ca/t/fq4rd

At Russell Alexander, Family Lawyers our focus is exclusively family law, offering pre-separation legal advice and assisting clients with family related issues including: custody and access, separation agreements, child and spousal support, division of family property, paternity disputes, and enforcement of court orders.  For more information, visit us at  www.RussellAlexander.com.