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Ontario’s Family Law Act provides that on the death of a married spouse, the surviving spouse has the right to choose to receive either an inheritance under the deceased spouse’s will or an equalization of net family property. This entitlement to equalization has priority over gifts made to other beneficiaries under the will. This means the deceased spouse cannot make gifts through their will to other beneficiaries, leaving the estate without sufficient means to satisfy an equalization payment. However, the testator’s intentions cannot be ignored when considering how to satisfy the equalization payment.
A recent case shows that courts may not vest specific property in the surviving spouse when the deceased has decided not to bequeath property to the surviving spouse.
Right to Equalization Has Priority Over Other Beneficiaries
On the death of a spouse, if the deceased’s net family property exceeds the net family property of the surviving spouse, the surviving spouse is entitled to an equalization payment of one-half of the difference under section 5(2) of the Family Law Act. Section 6 requires the surviving spouse to choose to receive the entitlement under section 5 or to take under the will of the deceased.
In Leith v. Eccles, the applicant wife brought a motion concerning the equalization payment from her deceased husband’s estate. She specifically sought to apply the equalization payment against purchasing the matrimonial home, which was owned by the husband’s estate. The husband’s will directed that the wife receive half of the amounts in his bank accounts, pension, and RRSP accounts; otherwise, he did not make any other provisions for her in his estate.
At the time of the husband’s death, the pair lived together on a farm property, and only the husband was registered on title. The husband also owned five additional properties, but the wife only held a half interest in one, which was a 60-acre lot. The remaining properties were specifically bequeathed to the deceased’s children (the respondents).
Mother and Son Disputed How Best to Calculate Equalization Payment
The wife elected to make a claim for equalization under section 5(2) instead of receiving the gifts left to her under the husband’s will. Under section 6(12), this entitlement has priority over any gifts to other beneficiaries included under the will. The wife wished to purchase the farm by determining its fair market value and then applying the equalization payment owed from the estate to the purchase price. One of the respondents, the deceased’s son, opposed this. He believed it was premature to calculate the equalization payment before the properties were sold. He claimed that selling the properties was the only way to calculate the wife’s equalization payment accurately.
Court Dismisses Constructive Trust Remedy
The wife argued she was entitled to a constructive trust over the farm and that the claim needed to be considered when weighing whether the farm should be sold before calculating the equalization payment. However, she did not plead this relief in her application. She provided affidavit evidence outlining her contributions over the years, including helping with the running and upkeep of the farm.
The deceased’s son pointed out that no claims for ownership of the property were included in the pleadings and that it was inappropriate to consider the argument at such a late stage in the proceedings. He also provided affidavit evidence that his parents lived separate lives and were not involved in a joint venture.
The judge decided not to consider the claim for a constructive trust, explaining that the application should have been amended to claim that relief before the motion was argued. There were similar failings with the wife’s dependant support claim under section 62 of the Succession Law Reform Act. She argued that at the time of her husband’s death, she was his only dependant. However, this issue was also not raised in her application, nor were there any submissions during oral arguments. The judge determined there was insufficient information to consider the claim on this motion.
Estate Had Insufficient Assets to Pay Equalization Payment Without Farm Properties
The core of the wife’s argument concerned how her equalization entitlement could be fulfilled. The court had to decide whether the equalization payment could be determined and paid without selling the properties held by the estate. The parties agreed that once the real property was excluded from the estate, the estate was left with insufficient assets to meet the quantum of the equalization payment owed to the wife. She pointed to section 7(1) of the Family Law Act, which states that the court may “determine any matter respecting the spouses’ entitlement under section 5”.
The judge also acknowledged that in considering an application under section 9(1), the court had various powers and could order a payment be made from one spouse to the other. If it was appropriate to satisfy an obligation being imposed, the judge could also order the property be transferred to or in trust for or vested in a spouse, whether absolutely, for life, or for a term of years.
Court Emphasizes Vesting Orders Are Not Routine
Because of the wife’s claim that the farm should be vested in her, she also pointed to section 100 of the Courts of Justice Act, which gives courts broad and general powers to make a vesting order. Justice Wilkinson acknowledged there was little precedent concerning vesting orders made against an estate. However, in Thibodeau v. Thibodeau, the Ontario Court of Appeal addressed the criteria for granting a vesting order. The court stated:
… “the onus is on the party seeking such an order, and as a general rule, the court’s discretion will only be exercised in favour of a s. 9(1) order where it is established – based on the targeted spouse’s previous actions and reasonably anticipated future behaviour – that the equalization payment order granted will not likely be complied with in the absence of additional, more intrusive provisions”.
Overall, cases have found that vesting orders should not be imposed routinely. In Thibodeau, the court suggested that such orders should only be made if “there is a real need for them” once all relevant considerations have been taken into account and “not as a matter of course”. Likewise, in Colquhoun v. Colquhoun, the judge stated that there needed to be proven concern that the payment of an ordered equalization payment would not be honoured before the court could order the transfer of property under section 9(1). In addition, the Court of Appeal also previously confirmed that a vesting order is an equitable remedy that is intended to function as an enforcement mechanism.
Testator’s Wishes Cannot Be Ignored
In Leith, the estate had sufficient funds to pay the equalization payment owed to the wife if the properties were sold. There were no concerns that the equalization order would not be complied with that would justify the transfer of property. Justice Wilkinson also found that the testator’s wishes could not be ignored, which meant acknowledging that the wife’s husband specifically decided not to bequeath the farm or any property to her. This was a “significant factor” when determining how the wife should receive her equalization payment from the estate.
The primary issue for the judge was how to honour the testator’s intentions while still providing the wife with the equalization payment that the estate owed her. Nevertheless, vesting the farm was unnecessary to provide the wife with the equalization payment to which she was entitled. Further, her ability to receive the equalization payment was not prejudiced if the estate sold the properties to generate enough funds to make the equalization payment. Ultimately, once the properties were sold, the estate would have sufficient assets to make the payment without any need to vest the property.
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