Revocation of Election Under the Family Law Act – a case review of Iasenza v. Iasenza

While the Family Law Act (“FLA”) permits a spouse to elect to take a division of net family property,¹ the FLA is silent about a person who regrets making the election and changes their mind. So does a surviving spouse have the prerogative to change his/her mind? That’s the question raised in Iasenza v. Iasenza Estate.²  As the court stated in paragraph 2,

There are conflicting authorities on the issue of whether an election under section 6(1)³ of the FLA is irrevocable or whether the court has a residual discretion to set aside the election to avoid an injustice.

You might ask why someone would change their mind.  It’s not unusual for the surviving spouse to have a less than perfect understanding of the value of the deceased’s spouse’s assets.  Valuations can be complicated and the formula for calculating net family property, in complex estates, sometimes requires both an understanding of Family Law as well as finance.  It is not uncommon for an initial valuation of assets to be flawed.  For example, a restaurant owned by the deceased may be initially undervalued because while the deceased was living he did not report the cash income and exaggerated debts.  Or a limo service that appeared to be losing money was really a cash cow because they were selling other things besides rides.  So without the proper appreciation of the value of the deceased’s assets and legal advice it’s not unusual that a surviving spouse makes a strategic error when deciding whether to take under the deceased’s will or to make an election.

In the ordinary course, surviving spouses anticipate receiving an inheritance under their deceased spouse’s will.  In the absence of a will, the surviving spouse can still expect to receive an inheritance under the laws of intestacy. However, there are times when the surviving spouse receives less than expected.  When that happens the surviving spouse has the option of electing to receive their entitlement to an equalization of net family properties instead.

The above circumstances explain why someone might want to change their mind, but still leaves the question as to whether the surviving spouse has the right to change his or her mind and revoke their election. One might be tempted to think that since the surviving spouse has carefully considered the pros and cons– and done the math, there should be no need to allow her or him to revoke the election once made. However, there are circumstances in which not allowing a surviving spouse to revoke their election would lead to mischief and injustice.

For example, sometimes, despite best efforts, the surviving spouse makes an election based on erroneous facts. The happiest marriages are based on honesty and communication, but not all spouses are as open as they should be about their finances– hiding purchases or losses, or even misrepresenting that they will sufficiently provide for their spouse in their will. Sometimes, people do not know the extent of their assets and may convey information which they believe to be correct but is not.

Take for example the Iasenza case. Mr. and Mrs. Iasenza were together for approximately eight years before Mr. Iasenza died of brain cancer. Mrs. Iasenza had immigrated to Canada and worked minimum wage jobs until her husband was diagnosed, and then she devoted herself entirely to his care. Mr. Iasenza had never been fully transparent with his wife about his finances, but he had repeatedly assured her that she could remain in their home and that he would make sufficient provision for her in his will. Mrs. Iasenza diligently sought the advice of a solicitor and, pursuant to his advice, elected to make a claim for equalization. However, that decision turned out to be the wrong one.

This blog will explain elections under the FLA and discuss what happens if the surviving spouse wants to revoke their election– whether deemed or actual.⁴

Background

Election

Under the FLA, a spouse can elect to either take the gift left for them in their deceased spouse’s will (or if the deceased died intestate, under the laws of intestacy as set out in the Succession Law Reform Act (“SLRA”), or if the deceased died partially intestate, then under the will and laws of intestacy) or receive an equalization payment under the FLA as though the spouses had separated.⁵

An election to receive an equalization payment under the FLA is based on the somewhat romantic premise that the death of the deceased spouse was the triggering event that ‘separated’ the spouses, and mirroring the language in the statute, there is no reasonable prospect that the spouses will cohabit again.⁶

Equalization

The FLA allows a person who feels unfairly treated by their spouse’s Will to take a portion of their spouse’s estate despite the terms of that spouse’s will. The FLA does this by permitting the surviving spouse to elect to instead take a division of net family property.⁷ Equalizing the spouses’ respective property involves determining the value of each spouse’s property on the date of valuation– in the case of a separation, the valuation date would be the day on which the couple ceased to cohabit, and in the case of a spouse dying, the date of valuation would be the day prior to the date of death. The valuation is determined after deducting the spouses’ respective liabilities and the value of the property each spouse owned on the date of the marriage, other than the matrimonial home and the other excluded property noted above.⁸ The difference between the value of each spouse’s property is then calculated, and the spouse with the lower value of property is entitled to half of the difference between the two.⁹

It should be noted that while the right to elect is jealously protected by the FLA, the law does not allow double collection; jointly held assets are treated equally, extinguishing the right of survivorship and severing any joint tenancies.¹⁰

Mechanics– Who, How, and When?

Who

Under the FLA, only a surviving married spouse can make an election;¹¹ common-law spouses, though afforded many of the same rights as married spouses, are not eligible to make an election to receive an equalization payment upon the death of their beloved.

If the surviving spouse is under a disability and has a guardian for property, the guardian may also make an election under the FLA. A personal representative of a deceased surviving spouse cannot make an election on behalf of that spouse’s estate, however, if the spouse made an election, but died before completing– or even commencing an application, their personal representative may do so on behalf of their estate.¹²

Separated or divorced spouses may also bring applications for equalization payments under the FLA if their estranged or former spouse predeceases them, however, they must do so within two years after the marriage is terminated by divorce or six years after separation where there is no reasonable prospect of cohabitation.¹³

How and When

There is a six month time limit from the date a person dies for the surviving spouse to make an election and commence an application for a division of net family property.

Deemed Election

If no election is made, the surviving spouse is deemed to have elected to take under the will or the laws of intestacy.¹⁴

Elections – Rationale

Allowing a spouse to make an election for equalization under the FLA would appear to contradict the principles of estates law– namely respecting the testamentary intent of the testator. So why offer this option? The legislature has, from time immemorial, deemed the institution of marriage to be worthy of protection and has chosen to incentivize the legal union of souls in various ways. The preferential treatment granted to spouses under family law and the laws of succession reflects those values. For example, under the laws of intestacy, the spouse of an intestate deceased is given a preferential share of the estate.¹⁵ One can extrapolate that the rationale for allowing spouses to make an election under the FLA is another such manifestation of the legislature’s pro-marriage stance. But why, then, allow spouses who have made an election to later revoke it? This is particularly puzzling when one considers that there are already other measures, such as the granting of extensions for making an election¹⁶ and suspending the administration of an estate.¹⁷

The answer can likely be found, as it often is, in the practical reality of dealing with estates. Ascertaining the value of an estate is not always a straightforward exercise– sloppy accounting, misfeasance, lack of professional guidance, lack of transparency, or the unexpected death of a loved one can all be contributing factors which may lead to unfortunate decisions.

As will be discussed further below, a spouse may want to revoke their election if they later learn of additional assets or liabilities or new claims made against the estate.

Consequences of Making an Election

In making an election, a surviving spouse is essentially choosing between their gift in the will and an equalization payment– unless the will explicitly allows the surviving spouse to take under the will and make a claim for equalization (if the deceased was particularly generous).¹⁸ In the absence of such a provision, when a surviving spouse elects to make a claim for equalization, she or he forfeits her or his gift under the will and/or the laws of intestacy (as applicable); the gifts under the will are essentially revoked and the will is to be interpreted as though the surviving spouse had predeceased the deceased spouse.¹⁹ Moreover, if a spouse is named as an executor of the estate in the will, if a spouse makes an election under the FLA, they cannot remain as executor of the estate.²⁰

As mentioned, spouses are given preferential treatment under the law. In the realm of estates, a surviving spouse’s election under the FLA has priority over: testamentary gifts, a person’s right to a share of the estate under the laws of intestacy, and dependant support orders, except orders in favour of a child of the deceased.²¹ The legislature considers the right of the surviving spouse to make an election so important that the FLA even allows persons charged with the administration of an estate to be held personally liable if they make a distribution within the first six months following the death of the deceased or after receiving a notification of election and the remaining assets are not sufficient to satisfy an order for equalization; they can be held personally liable for the lower of the amount of the distribution made or the amount required to satisfy the equalization payment.²² However, no action may be taken against the recipients of distributions in such cases.²³ A.C. 251 (U.K. H.L.); see also CED Family Law—Property § 137.]

Interestingly, making an election to receive an equalization payment does not necessarily bar a surviving spouse from making a claim for dependant support under the SLRA.²⁴ An election does not even necessarily preclude a will challenge. In Re Van der Wyngaard Estate, a husband who was excluded under his late wife’s second will was entitled to challenge it, despite making an election to receive an equalization payment; the Court found that if the husband was successful in challenging the second will, his election would not prevent him from receiving under the first, should he so choose.²⁵

Can a Surviving Spouse Revoke Her or His Election?

Now that we understand the rationale underpinning the concept of elections under the FLA, we can consider the issue of revocation of elections. T.G. Youdan succinctly summarized the issue of whether this is indeed possible: “one unresolved question is whether an election made by a surviving spouse under s. 6 of the Act may be revoked. Three main answers are possible: (1) that the surviving spouse has a right to revoke the revocation; (2) that the surviving spouse has no such right, but that the court has authority to permit revocation; and (3) that an election, once made, cannot be revoked.”²⁶

Although there is nothing in the FLA that expressly prohibits the revocation of an election, revocation is not expressly permitted either, and the jurisprudence has not created a broad right to revoke. With respect to the court’s authority to set aside elections, in its early decisions, the Court shied away from asserting the authority to allow revocations based on the lack of explicit authority under the FLA to do so– at least with respect to actual elections. The Court was prepared to find that an election made without understanding what the election was for was in fact not an election.²⁷ The Court was also prepared to set aside deemed elections– i.e., the Court allowed surviving spouses to elect to receive an equalization payment even though they made no election, resulting in the default position of ‘electing’ to take under the will.²⁸ However, with time, the Court, basing its position on statutory interpretation and its inherent jurisdiction to provide equitable relief, changed its approach, allowing the revocation of actual elections as well.²⁹

In my view, allowing surviving spouses to make an election means that in most cases, much of the administration of an estate will have to wait until the surviving spouse has made their choice; if a surviving spouse applies for and is granted an extension, the administration of the estate may have to be put on hold for even longer. But if elections can be made and revoked, the administration of the estate– the core purpose of estates law, may be seriously delayed, potentially causing prejudice to the beneficiaries and additional work for executors and trustees. It is for this reason that the circumstances in which courts will grant a revocation are circumscribed.

In order to explain why and when the Court will allow the revocation of an actual election, it is helpful to return to the case of Mrs. Iasenza.

Mrs. Iasenza’s solicitor obtained the will and investigated the estate’s assets. The will divided the estate into three equal shares: one for Mrs. Iasenza and one for each of Mr. Iasenza’s sons from a previous marriage, one of whom was named as the executor of the estate. Mrs. Iasenza’s solicitor was told that two of the estate’s major assets– a bank account and an RRSP, together valued at approximately $270,000, had been transferred, inter vivos, to the executor mere weeks before Mr. Iasenza died. It was unclear whether these assets would be available for distribution among the beneficiaries. There were other assets, totalling approximately $310,000, and Mr. Iasenza was notified that the deceased former wife was likely to bring a claim for dependant support against the estate– a different topic for another blog. Mr. Iasenza’s sons indicated that they were open to negotiating a settlement with Mrs. Iasenza that would allow her to remain in the home, as she had been promised by her late husband. Mrs. Iasenza’s solicitor met with the solicitor for the estate and made it clear that unless there was a commitment that the bank account and RRSP were available for distribution, he would advise Mrs. Iasenza to make an election under the FLA. Since there was no such commitment, Mrs. Iasenza elected to make a claim for equalization under the FLA. Among the considerations in giving this advice were the looming deadline to make an election (although, as discussed, Mrs. Iasenza could have applied for an extension), Mrs. Iasenza’s lawyer’s understanding of the size of the estate and the assets which would be distributed, and the fact that the deceased’s former wife was probably going to bring a claim for dependant support. Mrs. Iasenza testified– and the Court accepted that she did not understand the issues and was wholly reliant on her lawyer’s advice. Despite the fact that the estate was worth approximately $650,000 at the time of the trial, because of the agreed upon calculations for net family property, Mrs. Iasenza’s election to bring an equalization claim resulted in her receiving nothing; in fact, she technically owed money to the estate. Luckily for Mrs. Iasenza and similarly situated spouses, the FLA does not require surviving spouses to make such payments.

Mrs. Iasenza understandably regretted her election and sought relief from the Court. The Court had to grapple with the issue of whether it had jurisdiction to set aside an actual election. To put the quandary into context, a deemed election is the default– in other words, the surviving spouse took no steps in order to make an election; an actual election requires the spouse to take active steps, therefore, presumably, the surviving spouse has put some thought into the election they made. Moreover, there is statutory support for setting aside a deemed election, but no such support for setting aside an actual election. Setting aside an election which was, in a sense imposed on the surviving spouse may not require heavy lifting on the part of the Court, especially since there is statutory support for that sort of judicial intervention, but for the Court to intervene where there has been forethought and active steps and where there is no clear statutory provision for such an intervention would require judicial muscles to be flexed. For example, the Court in Bolfan Estate was prepared to set aside a deemed election, as there is sufficient support to be found for that position in section 6(11) of the FLA, which states that “if the surviving spouse does not file the election within that time, he or she shall be deemed to have elected to take under the will or to receive the entitlement under the Succession Law Reform Act, or both, as the case may be, unless the court, on application, orders otherwise.”³⁰ But would setting aside an actual election be a bridge too far for the Court?

As it turns out, the answer was no. The Court found that in the case of Mrs. Iasenza, there was a

“material misunderstanding or lack of knowledge as to what assets would form part of the estate. I find that the respondents must bear some responsibility for that problem. Based on the applicant’s solicitor’s recital of the events, which I accept, he asked for and was consistently refused any commitment by the estate to include in the estate for distribution purposes significant assets that had been transferred to the testator’s son through an estate planning scheme. This scheme had the potential to prejudice the applicant’s entitlement under the will. Further, the applicant’s intention to challenge her section 6(1) FLA election was given in a sufficiently timely way to avoid prejudice to the other beneficiaries under the will. The estate has not been distributed nor will there be any prejudice to the respondents resulting from the declaration I propose to make.”³¹

The Court also noted that Mrs. Iasenza’s application to have her election set aside was brought in a timely fashion and there was no prejudice to the beneficiaries of the estate and the assets had yet to be distributed. The Court, having due consideration for the “remedial nature” of the FLA, adopted Justice McDermid’s approach in Van Der Wyngaard Estate, Re, that the FLA was designed in order to “enlarge rather than restrict the rights of spouses.” Finally, in what is perhaps the most interesting sentence of this case, the Court stated that “it is likely that an election under section 6(1) of the FLA is void ab initio in circumstances where, as in this case, the deceased’s share of the net family property does not exceed the surviving spouse’s share.”

The Court grounded its reasoning in statutory interpretation, finding that because section 5(2) of the FLA allows a spouse to elect to receive an equalization payment if the net family property of the deceased spouse exceeds that of the surviving spouse, if the latter condition is not met, the election is of no force or effect.

CONCLUSION

The Court in Iasenza was careful to note that the authority to set aside an actual election should be exercised sparingly in only those cases in which not exercising that authority would result in an injustice to the spouse and only after balancing the interests of and prejudice against the various interested parties.

Although no one would want to find themselves in the unenviable position of Mrs. Iasenza, a surviving spouse who has made an election and wishes to revoke it may be able to do so. However, due diligence in investigating the assets of the estate and promptness in bringing an application for relief are of paramount importance.

While the Court in Iasenza made note of the estate’s part in creating the factual misunderstanding, importantly, malicious intent was not a requirement– merely a factor to consider. This means that while allowing revocation of an actual election in cases where there was a misapprehension as to the assets of the estate may be as far as the Court will go, it is likely far enough to prevent mischief and injustice in most cases.