Can Your Estate Initiate an Equalization Claim?

typewriter representing property division and equalization when a spouse dies

Written on behalf of Shariff & Associates

The unexpected death of a spouse in the midst of a separation can impact how a party makes a claim for the equalization of net family property. An estate trustee is responsible for dealing with and administering a deceased’s estate, but in certain circumstances, a spouse may still be able to claim for equalization. However, if an application for equalization has commenced before the spouse’s death, can the estate trustee advance a claim?

Statute Sets Out Entitlement to Equalization When a Spouse Dies

Section 5 of the Family Law Act sets out a spouse’s entitlement to property equalization. Section 5(2) specifies that when a spouse dies, and the deceased spouse’s net family property exceeds that of the surviving spouse, the surviving spouse is entitled to one-half of the difference. Further, section 6 of the Family Law Act allows the surviving spouse to choose between recovering property under the will of the deceased or to receive the equalization entitlement under section 5. Section 7 also provides that equalization entitlements are “personal as between the spouses.”

In the case of Butt v. O’Reardon Estate, the applicant sought a declaration that he could continue his claim under section 5(1) of the Family Law Act against the estate of his former wife concerning equalizing net family property without affecting his status as a beneficiary. He argued that he was not required to make an election under section 6 of the Family Law Act and that he was entitled to an equalization payment through a claim he made prior to the respondent’s death. Additionally, he claimed that he was entitled to any entitlement he may have under his former spouse’s will. He argued that the election under section 6 of the Family Law Act did not apply because an application for equalization was made before his spouse’s death.

The Court explained that if an application for equalization had not been brought prior to the death of the applicant’s spouse, section 6 of the Family Law Act would apply, and the applicant would have been put to an election. In that case, the “surviving spouse’s only option for an equalization payment lies under subsection 5(2), and he or she must choose between an equalization and taking under the will or intestacy.”

The Court referred to the decision in Panangaden v. Panangaden Estate, where a wife wanted to pursue an application under section 5(1) of the Family Law Act for equalization against her late husband’s estate instead of under 5(2). However, no application for equalization under that section had been brought prior to his death. Therefore, only an action under section 5(2) could be brought against the husband’s estate. However, it was unclear how section 6 impacted a claim under 5(1) that was being continued after the death of a spouse. Justice Czutrin noted that if the applicant’s interpretation was accepted, spouses who applied for equalization under 5(1) could receive an equalization payment, entitlements under their spouse’s will, and life insurance proceeds if their spouse should subsequently die, which could lead to an inequitable result. Ultimately, the judge found that the legislation had differing interpretations which required a trial to fully investigate the issue.

Equalization is a Personal Entitlement Between Spouses

Rusinek & Associates Inc. v. Arachchilage was an appeal case that dealt with the issue of whether a trustee in bankruptcy could commence an equalization claim under the Family Law Act. The appellant suggested that the right to an equalization payment vest in both spouses as soon as a right under section 5(1) crystallizes, such as upon separation. An unexercised equalization claim constitutes the property of a spouse and, therefore, could also be property available to a trustee in bankruptcy. In the appellant’s view, a bankruptcy trustee has the right to commence any proceeding that belongs to the bankrupt except for some claims, including those that are “personal in nature.” The judge acknowledged that there was nothing to prevent a trustee in bankruptcy from pursuing an equalization claim after a spouse had initiated an application. However, it was unclear what the impact of the limiting words in section 7(2) would be when an equalization claim crystallized when neither spouse had made an application to the court. Was there a limitation on the bankruptcy trustee’s ability to initiate an equalization claim?

The Ontario Court of Appeal found that the words “personal as between the spouses” in section 7(2) meant that the decision to commence a claim for equalization could not be made by a trustee in bankruptcy or any other assignee. As the Court noted, “the decision to advance an equalization claim is deeply personal.” Therefore, when a spouse has already initiated an application for equalization, “the trustee in bankruptcy steps into the shoes of the bankrupt spouse and continues the claim that has already commenced.” The legislation established that after a spouse’s death, an estate trustee cannot “make the personal decision” to pursue an entitlement to equalization from a surviving spouse. The Court saw no reason why the rule should be applied differently to trustees in bankruptcy. Consequently, while an unexercised claim may vest in a bankruptcy trustee, they are unable to commence that claim.

Trustee Cannot Initiate Equalization Claim

In Bradford Estate v. Kingdon, the respondent brought a motion for summary judgment dismissing an application by the estate of her former husband. The parties had separated in August 2018 and exchanged offers to settle their family law dispute. The respondent’s former husband’s last offer was made in April 2020. The applicant’s evidence was that his counsel was instructed to initiate an application for equalization but that he was subsequently hospitalized and unable to complete the application. On May 7, 2020, he passed away. The respondent argued that his estate was prohibited from commencing an application for equalization. However, the applicant argued that the law and legislation were unsettled.

The Court noted that no application for equalization was filed before Mr. Bradford’s death, and there was no authority permitting the Court to allow an application under section 5(1) after his death. The Court referred to the decision in Rusinek, which held that it was clear that “a claim for equalization by a spouse having the lesser of the two net family properties cannot be initiated by the estate trustee after the spouse’s death.”

Ultimately, equalization was a personal right between the spouses. When Mr. Bradford died, section 5(2) only permitted equalization of net family property in favour of the respondent if her net family property was lower than Mr. Bradford’s. Still, there was no corresponding entitlement for his estate to claim equalization under section 5(2). Justice Labrosse explained that under section 6, the right to equalization is limited to the surviving spouse who can elect to take under the deceased’s will or claim equalization under 5(2). Section 7 of the Family Law Act permits an estate trustee to continue an equalization claim that is commenced prior to the death, but there is “no scenario whereby a new claim for equalization can be forced upon a surviving spouse.”

A Spouse’s Estate Can be Restricted From Pursuing Equalization

The courts recognize equalization as a personal right between spouses. After a spouse’s death, the estate trustee cannot decide to initiate an application for equalization. This means that an individual’s estate could be prohibited from making a claim and obtaining an equalization payment.

The Family Lawyers at Shariff & Associates Provide Trusted Advice on Property Division Following a Separation

The compassionate family lawyers at Shariff & Associates regularly advise clients about their rights and obligations when entering or leaving marriages and common-law relationships. We work closely with our clients to provide comprehensive legal services with respect to all aspects of separations and divorces, including property division issues and support obligations. Our firm proudly helps clients located in the Markham-Stouffville area and the surrounding York and Durham regions. To schedule a confidential consultation with a member of our team, please call 905-591-4545 or contact us online.