Who Gets the Death Benefit? Why It Matters for Spousal Equalization in Ontario

Under Ontario legislation, on the death of a married spouse, the surviving spouse can choose to receive their entitlement under the deceased’s will, or opt for an equalization payment. If the spouse chooses to receive their share of property under the will, they will also be able to retain any insurance proceeds or survivorship benefits that may be payable. But this is not the case if the spouse pursues an equalization payment. Certain benefits must be credited against an equalization payment, which can affect the amount ultimately payable.

There Is an Entitlement to Equalization on a Spouse’s Death

In Ontario, married spouses are entitled to a division of property upon separation. Section 5(2) of the Family Law Act (FLA) also establishes an entitlement to equalization upon the death of a spouse. The provision provides that “if the net family property of the deceased spouse exceeds the net family property of the surviving spouse, the surviving spouse is entitled to one-half the difference between them”. Under section 6 of the Act, the surviving spouse must elect between receiving according to the provisions of the deceased’s will or receiving their entitlement in accordance with section 5(2).

Importantly, the FLA includes provisions to prevent a spouse who elects for equalization from obtaining a double recovery. In accordance with sections 6(6) and 6(7) of the Act, certain payments the surviving spouse receives must be credited against the equalization entitlement. These include:

• Proceeds of life insurance policies
• Death or survivorship benefits paid by a pension plan on the death of the spouse
• Property to which the surviving spouse becomes entitled by right of survivorship or otherwise on the death of the deceased spouse

The result is that the surviving spouse may receive a reduced equalization payment from the estate, since those assets must be considered when calculating the amount payable.

Some Payments Are Credited Against an Equalization Payment

These provisions were considered by the Ontario Superior Court of Justice in Weatherdon-Oliver v. Oliver (Estate). That case involved several issues, including determining the nature and extent of the equalization payment that was owed to the applicant on the death of her spouse.

Upon the husband’s death, several payments were made to his Estate: insurance proceeds, a superannuation lump-sum payment, and a Canada Pension Plan Death Benefit. In accordance with section 6 of the FLA, the applicant elected to receive an equalization of the net family property. The applicant proposed an equalization amount but, based on the legislation, argued that the provisions should apply to the Estate as the recipient, and claimed that the payments the Estate received as a result of the husband’s death should be included in his net family property.

The judge looked at the definition of “Valuation Date” in the FLA, which, among the possible dates, includes “the date before the date on which one of the spouses dies leaving the other spouse surviving”. As that was the applicable date in this case, it meant that on the valuation date, the date before the husband’s death, he was not entitled to the payments.

Should Similar Credits be Applied Against the Estate as the Recipient?

Justice Kershman cited section 6(6) of the FLA, noting that where a surviving spouse is the beneficiary of an insurance policy, the proceeds of the policy need to be included in that surviving spouse’s entitlement for equalization. But in this case, the applicant was not the beneficiary of the insurance proceeds; the Estate was. Likewise, the Estate was the beneficiary of a lump-sum Superannuation payment and the Canada Pension Plan death benefit. Consequently, since the applicant was not the beneficiary, the three payments could not be credited against the applicant’s entitlement under section 5 of the Act.

Yet the applicant argued that section 6(6) should be interpreted more broadly to include a situation in which the surviving spouse is not the beneficiary. The judge disagreed with the argument, finding that if the legislature intended that interpretation, it would not have specifically required the surviving spouse to be the beneficiary.

Therefore, the three payments, which totalled $83,573.42, could not be credited to the surviving spouse’s entitlement under section 5. As the judge noted, these three payments were not payable until after the valuation date and, as such, could not be included in the husband’s net family property.

Estate’s Assets Cannot Be Confused With the Assets of the Deceased

A similar issue arose in Laframboise v. Laframboise. In this case, the applicant sought the court’s direction on whether to include or exclude a pre-retirement death benefit from a pension in the net family property of her deceased husband’s Estate. Section 6(6) of the FLA requires the surviving spouse to identify the assets they receive as a designated beneficiary, including pensions, retirement savings plans, and life insurance proceeds. The judge noted that these amounts are to be credited against any equalization entitlement. Consequently, if the applicant were successful in obtaining the pension payment, it would be credited against the amount owing to her after calculating the respective net family properties.

The applicant argued that the FLA did not address the payment of pension benefits to the Estate, and that it should be interpreted to be included in the deceased’s net family property. However, the respondents pointed out that the pre-retirement death benefit was triggered only by the death of a member of the pension plan. And, following the reasoning in Weatherdon-Oliver, noted that the husband did not own the pre-retirement death benefit as an asset before his death. His pension asset was separate and distinct from the death benefit. Emphasizing that the valuation date was the day before the date of death, the respondents argued that payments such as the death benefit that are paid to the Estate cannot be included as part of the deceased’s assets.

The judge did not agree with the applicant’s position. The legislation did not support the proposed interpretation that the payment of the pre-retirement death benefit to the Estate could be used to offset against amounts owed by the surviving spouse. The judge explained that the FLA “seeks an equitable distribution of assets as between spouses but not between a surviving spouse and the estate of the surviving spouse”.

Contact Johnson Miller Family Lawyers for Advice on Spousal Property Equalization in Windsor-Essex

The family and divorce lawyers of Johnson Miller Family Lawyers assist surviving spouses with spousal elections under Ontario’s Family Law Act, including questions about how life insurance proceeds, pension death benefits and jointly held property affect an equalization claim. Contact our office online or call (519) 973-1500 to schedule a consultation about your rights and obligations in the estate.