Panel discussion of lawyers and advisors highlight the multifaceted issues divorce can present for clients
The advice to sign a marriage contract— widely known as a prenuptial agreement—before one gets married isn’t new. According to lawyers at Lerners, there are many reasons to consider signing one, whether a marriage is imminent or decades old.
At a recent Wealth Professional roundtable, Ryan McNeil and Sarah Conlin, family lawyers at Lerners, and Kimberly Cura, a wills and estates lawyer also at Lerners, led a discussion with wealth managers that covered some of the new legal issues that may come up during a divorce. They spoke of the complexities of the matrimonial home, important amendments to the Succession Law Reform Act (SLRA), and ways both lawyers and financial advisors can help protect their client’s interests during a difficult time. The overriding message: marriage contracts are invaluable.
But that wasn’t the only lesson the lawyers from Lerners brought up. Here are five other takeaways from the roundtable.
Know the rules of a matrimonial home.
The matrimonial home is essential to consider because it represents an anomaly in the Family Law Act, says McNeil. The matrimonial home is given special treatment under Ontario’s family legislation.
- Even in cases where one spouse brings the asset into the marriage, if the same home is a matrimonial home at the date of marriage and the date of separation, the owning spouse is not entitled to a date of marriage deduction for its value, meaning both parties are equally entitled to share the total value as of the date of separation.
To explain what this means and why it matters, McNeil compares what happens to an investment account upon separation and what happens with a matrimonial home.
-In a simple example, if the investment account was worth $100,000 on the date of marriage, and increased by a further $100,000 over the course ofthroughout the marriage for a $200,00 value on separation date, and if neither party had other assets or debts, you the owner of the account would pay your their spouse half of the increase in value, or $50,000. In essence the owner of the account gets to deduct the value of the investment account on their date of marriage, sharing only in the growth.
“But, now assume you owned a home on the date of marriage worth $900,000, and you still resided in that same home with your spouse on the date of separation. During the marriage, the value of the home increased to $1,900,000. If neither party had other assets or debts, now you owe your spouse half of $1,900,000 or $800,000,” he explains. “In this example, you owe your spouse half of the total value of the matrimonial home because of the anomaly in the Family Law Act that doesn’t give you a deduction for the value of the home on your date of marriage.”
Know what qualifies as a matrimonial home.
According to the Family Law Act, the matrimonial home is defined as, “Every property in which a person has an interest, and that is or, if the spouses have separated, was at the time of separation ordinarily occupied by the person and his or her spouse as their family residence.” [R.S.O. 1990, c. F.3, s. 18 (1).
-This doesn’t mean only a primary residence qualifies as matrimonial home. Rather, any property that is owned by one or both parties that was used by them as a family residence at the time of separation would count. That could includes houses, cottages, vacation properties and even houseboats.
Keep an eye on the market.
During a marriage breakdown, both parties will have a lot on their minds. One thing they may fail to consider is the relative heat of the housing market. If a property is jointly owned and one spouse is buying out the other spouse’s interest in the home, it’s better to strike when the iron isn’t hot.
Conlin and McNeil saw this happen during the COVID-19 pandemic when divorce rates and cottage prices skyrocketed.
Move before separating.
One way to protect oneself from paying too much in the division of the matrimonial home is to solidify a date of marriage deduction by switching homes. The exception regarding the matrimonial home only applies if the matrimonial home is the same property at both relevant times (date of marriage and date of separation). This may be easier to do theory than in practice.
Wills no longer care if you get married.
Cura highlighted changes in the SLRA meant to protect people from predatory marriages. Before the amendment, marriage would make a pre-existing will void. That’s no longer the case. With the change, the onus is on clients to review their estate planning after marriage to ensure the will names the proper beneficiaries, Cura says.
And if there isn't a will at all?
The SLRA also lays out what a person's surviving spouse is entitled to in case they die without a will. Where the estate is worth $350,000 or less, the spouse inherits the entire estate. Where the estate is worth more than $350,000, and there are no children or grandchildren, the spouse inherits the entire estate, and Where the estate is worth more than $350,000, and there is a spouse and one child, the spouse and child are each entitled to half of the residue after payment of the $350,000 preferential share to the spouse. Where the estate is worth more than $350,000, and there is a spouse and two or more children, the spouse inherits the first $350,000, plus 1/3 of the residual, and the remaining 2/3 will be split between the children.
Under the SLRA, other dependents besides a spouse can also apply for an award from the estate, so long as they legally qualify as dependents for example, a common-law spouse or an adult child with a disability) and bring the court application within six months of the date probate is granted. In that situation, there aren’t any magic numbers; the court decides the entitlement of the quantum.
“Both robust estate planning and clear communication to loved ones are key in mitigating against any post-mortem disputes,” adds Cura.
