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Disinheritance and the Family Law Option

 

A case review of Merklinger v. Merklinger1

Imagine this fictional scenario. Jane comes to her lawyer because her louse of a spouse has disinherited her. The husband, Pete, had grown to hate his wife. He resented Jane for being far more successful than him. They both made money, but it was Jane who had the big job and the prestige that went with it. Pete stewed about his situation and he went to his lawyer and instructed him to draft a will that leaves nothing to her. When Pete dies, Jane discovers what transpired and hires a lawyer to review her options.

WILL CHALLENGE2

The lawyer explains that a will can be challenged if the testator did not have testamentary capacity, or was unduly influenced, or did not know and approve of the will or the formalities of execution were not complied with. After an extensive interview probing the facts of the case, Jane’s lawyer tells her that none of those apply to this situation.

DEPENDANT’S RELIEF3

Part V of The Succession Law Reform Act of Ontario provides that if Pete has not made adequate provision for the proper support of his dependant the court may order the provision of what it considers adequate support out of the estate. But the lawyer warns that some of the factors the court takes into account are the dependant’s current assets and means, and her capacity to contribute to her own support. In this instance, Jane will likely not have the sympathy of the court because it was she who subsidized her husband. She is the one who was far wealthier.4

THE FLA5

Section 5(2) of the Family Law Act provides “When a spouse dies, 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.”  Jane’s problem is that during the course of her marriage she made more money than Pete.  So, at first glance she is out of options. But, maybe not…….

CAN THE COURT GIVE JANE A BIGGER SHARE NOTWITHSTANDING THAT HER DEAD HUSBAND HAD LESS MONEY?

Section 5(6) of the FLA provides that the court may award Jane an amount that is more or less than half the difference between the net family properties if the court is of the opinion that equalizing the net family properties would be unconscionable having regard to:

  1. a spouse’s failure to disclose to the other spouse debts or other liabilities existing at the date of the marriage;
  2. the fact that debts or other liabilities claimed in reduction of a spouse’s net family property were incurred recklessly or in bad faith;
  3. the part of a spouse’s net family property that consists of gifts made by the other spouse;
  4. a spouse’s intentional or reckless depletion of his or her net family property;
  5. the fact that the amount a spouse would otherwise receive under subsection (1), (2) or (3) is disproportionately large in relation to a period of cohabitation that is less than five years;
  6. the fact that one spouse has incurred a disproportionately larger amount of debts or other liabilities than the other spouse for the support of the family;
  7. a written agreement between the spouses that is not a domestic contract; or
  8. any other circumstance relating to the acquisition, disposition, preservation, maintenance or improvement of property.

Before analyzing Jane’s options let’s review how the courts in Merklinger v. Merklinger interpreted the key word in section 5(6) of the FLA. What does “unconscionable” mean in this context?6

In Merklinger v. Merklinger, Paul and Janet were married for approximately 18 years and had three kids. Janet was a housewife and Paul owned a very successful business. At one point the Ontario Securities Commission shut down Pauls’ company. Paul put the cottage in Janet’s name (perhaps to protect it from creditors). It was worth $1.1 Million.  To get the cottage for himself Paul stopped paying the mortgage payments and waited til the bank foreclosed. The bank realized on its security and Paul bought it back from the bank for $650,000. This was far less than fair market value. He tried to hide his involvement by using a shell company. Paul also ignored a preservation order, sold assets and refused to pay any support for Janet and the child living with her.

Let’s see what the Ontario Court of Justice (General Division) said:

54       Section 5(6) of the Family Law Act, 1986 permits me to order an unequal allocation of value if to do otherwise would be unconscionable. The legislature deliberately chose to strictly define the severity of the result of the application of s. 5(1) which must pertain before there can be any judicial intervention. The result must be more than hardship, more than unfair, more than inequitable. There are not too many words left in common parlance that can be used to describe a result more severe than unconscionable. However, outrageous must be one of them and, in my opinion, requiring the wife to pay the husband anything by way of an equalization payment in the circumstances as I have found them to be, would be just that — outrageous.

55       Am I permitted to make a s. 5(6) order in these circumstances? There is authority for the proposition that one may not have regard to post-separation events to determine unconscionability. ….

57       In the case before me, it could be argued that the circumstances surrounding the encumbrancing of the wife’s interest in the Oakville property when the marriage was under stress, and again shortly before separation, was conduct leading to an unconscionable result if s. 5(1) was to be applied. But to my mind the husband’s conduct post-separation and during the litigation is what makes it simply ludicrous to suggest that he now receive an equalization payment from his wife.

58       The Family Law Act, 1986 is a remedial statute. …

59      What the husband has done here, post-separation, is to decline to make financial provision for his wife and one of his three children, and to scheme at defeating the wife’s right to what must have been some reasonably significant equity existing at valuation day in the summer property. Surely that conduct must break the bargain implicit in s. 5(7) and defeat his entitlement to equalization.

61       Accordingly, I award the wife an amount that is more than half the difference between the net family properties by declining to order any equalization payment……

The decision was upheld on appeal. The Court of Appeal for Ontario commented that “the lump sum spousal support award, the trial judge did not make it for the purpose of redistributing property.”

Conclusion

Parties involved in estate litigation ignore the Family Law Act at their own peril.  Furthermore, lawyers who review their client’s cases ought to dig deep into the facts and case law to determine the client’s prospects for success.

As estate litigators we have run into unconscionable behaviour and familiarized ourselves with how it can be a basis to set aside prenuptial agreements7 and a reason to disentitle a dependant to support.8  To say the least it is a very high standard.  In Merklinger v. Merklinger the court explained what constitutes unconscionable conduct and how it would impact on the division of net family property under the FLA.

Applying the case to our fictional scenario the court would review the husband’s conduct and assess if it met the threshold of being unconscionable. In paragraph 54 of Merklinger, the court explained,

“Section 5(6) of the Family Law Act, 1986 permits me to order an unequal allocation of value if to do otherwise would be unconscionable. The legislature deliberately chose to strictly define the severity of the result of the application of s. 5(1) which must pertain before there can be any judicial intervention. The result must be more than hardship, more than unfair, more than inequitable. There are not too many words left in common parlance that can be used to describe a result more severe than unconscionable. However, outrageous must be one of them and, in my opinion, requiring the wife to pay the husband anything by way of an equalization payment in the circumstances as I have found them to be, would be just that — outrageous.”

In our fictional scenario Pete may have been petty and jealous and a jerk for disinheriting Jane – but in our view it does not meet the threshold of being unconscionable. As James McLeod stated in his annotation of the Merklinger case , “…the equalization framework under Part I of the Family Law Act, 1986, S.O. 1986, c. 4, is directed at fairness generally, and not at fairness in a particular case. Jennings J. was tolerant, perhaps to a fault, of the husband’s deliberate and destructive course of conduct. The husband had manipulated the facts to obtain the property he wanted at the price he wanted, and it seemed that the legislation could not effectively deal with his actions…..

This blog is not intended to serve as a comprehensive treatment of the topic. For those involved in such a case the best advice is to retain a lawyer with experience who has read and knows the legislation in detail, the articles written on the topic and analyzed the case law.

 

Footnotes
  1.   1992 CarswellOnt 304, (1992) W.D.F.L. 1429, (1992) O.J. No. 2201, 11 O.R. (3d) 233, 43 R.F.L. (3d) 109
     
  2.   For those readers interested in Will Challenges we refer you to the following:


     

  3.   For those interested in this topic please see Charles Wagner and Brendan Donovan’s blog, “Dependant’s Support Cheat Sheet – A Primer
     
  4.   There is case law where a party had more money than the estate and still qualified for support.  See Archie Rabinowitz’s article ‘Dependant’s Support Applications – The Statute that Continues to “Speak“’ at page 8 where the author says,

    In Smallman v. Smallman Estate,(1991), 41 E.T R. 86 (Ont. Gen. Div.) the applicant was the deceased’s first wife. They had divorced after 2 years of marriage and had two children, both of whom were adults at the date of the application and did not oppose the application. At the time of the deceased’s death, he was liable to pay the claimant $750 per month in maintenance. The application was brought to increase the payment to $1000 per month. The claimant’s assets totalled about $180,000 while the assets of the estate totalled approximately $115,000. Even though the claimant’s assets were greater than that of the estate, the court found that the claimant was in need of support and awarded an increase in support payments.
     

  5.   The FLA is an acronym for Family Law Act, R.S.O. 1990, c. F.3.  As Professor Oosterhoff explains in his article, Spouse Support and Related Claims Against Estate, Whaley Estate Litigation Partners on Dependants’ Support at page 40

    One of the primary ways in which a surviving spouse can ensure they are adequately financially protected after the death of their spouse is by making a ‘Family Law Act Election.’ Essentially, a FLA election provides a surviving spouse with the right to file an election and to bring an application against the estate of their deceased spouse so as to elect in favour of equalization of the couples’ net family property (“NFP”) and forego their entitlement, if any, under the deceased’s will and/or on intestacy.
     

  6.   For those seeking to do further research on this topic we recommend a Memorandum of Law entitled “In what “other circumstances” might a court order unequal division of net family property?” which can be found on Westlaw Canada.  As well, we suggest James G. McLeod’s annotation of the case and state of the law.  His opening paragraph stated, “ The reasons for judgment in Merklinger v. Merklinger confirm the impression given by the reasons in Berdette v. Berdette (1991), 33 R.F.L. (3d) 113, 41 E.T.R. 126, 3 O.R. (3d) 513, 81 D.L.R. (4th) 194, 47 O.A.C. 345 (C.A.), leave to appeal to S.C.C. refused (1991), 85 D.L.R. (4th) viii (note), 137 N.R. 388 (note), 55 O.A.C. 397 (note) (S.C.C.), that the equalization framework under Part I of the Family Law Act, 1986, S.O. 1986, c. 4, is directed at fairness generally, and not at fairness in a particular case. Jennings J. was tolerant, perhaps to a fault, of the husband’s deliberate and destructive course of conduct. The husband had manipulated the facts to obtain the property he wanted at the price he wanted, and it seemed that the legislation could not effectively deal with his actions.
     
  7.   See Charles Wagner and Joanna Lindenberg, “Setting Aside Unconscionable Prenuptial Agreements
     
  8.   Charles Wagner and Aaron Pearl, “Can Unconscionable Behaviour Disentitle a Dependant to Support?
     

Charles Wagner and David Wagner

The authors of this blog is Charles Wagner and David Wagner. Charles is a Certified Specialist in Estates and Trusts and partner at Wagner Sidlofsky LLP. David is a partner at Wagner Sidlofsky LLP.

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This blog is not intended to serve as a comprehensive treatment of the topic. It is not meant to be legal advice. Every case turns on its specific facts and it would be a mistake for the reader of this blog to conclude how it might impact on the reader’s case. Nothing replaces retaining a qualified, competent lawyer, well versed in this niche area of practice and getting some good legal advice.
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