enactment of the Family Law Act in 1986 changed the rules regarding a surviving spouse's entitlements under a Will.

When drafting a Will, you should be mindful that Ontario law imposes special rules regarding the provisions made for your spouse after your death. The rules are meant to ensure that a surviving spouse is left enough money to meet his or her basic needs.

The rules state that within six months of your death, your spouse has the option of deciding whether he or she would like to accept the disposition made for him or her in your Will, or elect instead for a division of the wealth that was created while you were married to each other. If he or she opts for the latter, the surviving spouse will be paid an "equalization payment".

An equalization is equivalent to half of the amount by which the deceased spouse’s Net Family Property (NFP) exceeds the surviving spouse’s Net Family Property. Net Family Property is a measure of the increase in a spouse's net worth during the marital relationship. It is calculated by:
  1. 1. Adding together the value of all of your assets on the day before your spouse's death.
  2. 2. Subtracting the value of all debts on the day before your spouse's death.
  3. 3. Subtracting the value of “excluded property”, which is property that you acquired during the marriage that the law
  4. allows you to keep for yourself (examples include gifts you received during your marriage from someone other than
  5. your spouse, property that you inherited during your marriage, any insurance payouts that you received because
  6. someone died and money that you obtained as a result of a personal injury).
  7. 4. Subtract the value of all assets that you owned on the date of marriage, less the value of debts.

The figure that remains is your NFP. When calculating your NFP, you must consider all assets and liabilities you have in Canada, as well as other countries. If you and your spouse are joint owners of particular property or assets at the date of separation, each would include one-half of the value of the asset in their calculation. When subtracting the value of assets that you brought into the marriage (step 4 above), your
matrimonial home is not included. Even if one spouse paid for and owned the home outright prior to marriage, the value of the matrimonial home is not subtracted from their NFP. Nor is the value of a mortgage on the matrimonial home subtracted as debt from the value of assets that you brought into the marriage.

Your NFP cannot be a negative number. For example, if you have more liabilities than assets at the time of your spouse's death, the value of your NFP would be zero.

To determine the amount of any equalization payment, the NFP of each spouse would have to be calculated. Once determined, subtract the lesser NFP from the greater NFP. After dividing the remaining value by two, the figure that is left is the amount that the spouse with the larger NFP owes to the spouse with the smaller NFP. This would be the value of the equalization payment. For example, if Andy had an NFP of $50,000 and Betty had an NFP of $40,000, the equalization payment calculation would look like this:

($50,000 - $40,000) / 2 = $5,000 (Equalization payment)

In this scenario, Andy would owe Betty an equalization payment of $5,000.

The possibility of a spouse opting for an equalization payment is troubling for some people. There are a number of things you can do if faced with this possibility. They can be broadly categorized as follows:
1. Things you can do to avoid the possibility of an equalization claim
2. Things you can do to reduce the leakage of your estate if your spouse elects in favour of equalization

1. Things you can do to avoid the possibility of an equalization claim

Firstly, an equalization claim would only really make sense to a surviving spouse if it would give him or her a larger share of your estate than granted under your Will. Consequently, ensuring that your spouse receives more under the Will than he or she would receive under an equalization payment is a relatively simple way of avoiding an equalization claim.

Another option is signing a marriage contract or prenuptial agreement (sometimes called a domestic contract) that restricts a surviving spouse's ability to make an election for an equalization payment. Either of these documents could preclude an equalization claim.

2. Things you can do to reduce the leakage of your estate if your spouse elects in favour of equalization

Generally speaking, minimizing the potential leakage from an equalization claim involves either (a) minimizing the value of your assets at the time of death and (b) maximizing the value of excluded property. Minimizing your assets at the time of death can be impossible in the event of accidental death, but is possible in old age or if diagnosed with a terminal illness. In these circumstances, giving away your personal property before death can minimize your assets at the time of valuation and keep certain property away from an equalization claim.

Maximizing the value of excluded property requires accurate record-keeping to ensure that gifts and inheritances are traceable to the gift or inheritance. If not kept separate from joint funds or if used to finance or renovate a matrimonial home, the property will lose its identity as excluded property. The person claiming that property is excluded is responsible for proving so.

If you have a Will but your surviving spouse opts in favour of an equalization payment, his or her share will be parted out and the remaining assets will be distributed as if your spouse had predeceased you. If you haven't made a Will, the distribution of your estate will occur according to the
laws of intestacy. A surviving spouse may also make an election for equalization in this situation.

contact us for additional information and advice.