Clarity needed in estates after divorce

The failure to clarify spousal status following divorce and update a will can create confusion and may lead to conflict when it comes to the distribution of assets following death.

“It’s important to have certainty,” says Jacob Kaufman, an estate lawyer with de Vries Litigation LLP in Toronto. “The big thing that we often see with respect to former spouses is a lot of people separate but they don’t divorce.”

The issue of where former and current spouses stand when it comes time to distribute wealth from an estate continues to draw the attention of the courts on many levels, says Toronto-area estate lawyer Charles Ticker.

Michele Allinotte, principle of the Cornwall-based firm Allinotte Law Office PC, points out that a marriage revokes a will, but a divorce or separation does not.

“If someone gets married today, the will is actually revocable. But if you get separated or divorce, the law doesn’t do the same thing,” she says.

What does happen after divorce if the will is unchanged is that the will would be read as if the former spouse died first, she says. That means the assets are distributed to the remaining survivors named in the will, she adds.

Allinotte says she has seen situations in which a former spouse is purposely left in a will and may even continue to act as executor of the estate. But she says that contrary intention for the former spouse to be a beneficiary, allowed by the Succession Law Reform Act, must be clearly spelled out in the new will.

“If you are giving something to your former spouse, you need to be pretty clear,” she says.

Ticker points to a 2012 Ontario Court of Appeal decision. In Carrigan v. Carrigan Estate, the testator was separated but not divorced and was living with another woman when he died.

The question posed to the court was whether his former wife or his common-law partner should receive his pension benefits. His named beneficiary — his former wife — was determined to be entitled to the benefit. But the Ontario Court of Appeal was split on the issue and the statute was changed to entitle common-law spouses benefits.

The lesson, says Ticker, is that the lawyer needs to review what the individual wants to do with their assets, including pension benefits, upon death and remind clients to file an-up-to-date beneficiary designation with the administrator of any plans they may have.

“There’s much greater risk with blended families. The key word is to get everything signed and delivered when your relationship breaks down,” he says.

Another case recently heard by the Supreme Court of Canada focuses on who should receive the death benefits from a life insurance policy when the testator appeared to have left conflicting instructions. Moore v. Sweet focuses on competing interests between a former wife and the current common-law partner. It was heard earlier this year, and a decision is expected this fall.

The Moores divorced after more than 20 years of marriage, but the former wife continued paying the premiums for his $250,000 life insurance policy. Upon separation, the couple verbally agreed that she would receive the proceeds of the policy in order to provide support for their children upon his death.

But Lawrence Moore later executed a change in beneficiary form, naming his common-law partner, Risa Sweet, who had been caring for him, as the irrevocable beneficiary without telling his former wife, Michelle Moore. When he died and the double promise was revealed, the former wife applied to the court claiming unjust enrichment and the Superior Court of Justice granted the application.

In a split decision, Moore v. Sweet, 2017 ONCA 182, the Ontario Court of Appeal allowed the appeal, adding that the premiums made by the former wife should be repaid with the balance of the insurance policy going to the common-law wife. It concluded that there was no unjust enrichment. Proving unjust enrichment, the appeal court determined, can only be satisfied through a three-part test: One party has to have been enriched; someone else has to be deprived; and there can’t be a juristic reason involved. The Insurance Act and the designation of an irrevocable beneficiary were determined to be juristic reasons.

The doctrine of constructive trusts — a court-imposed remedy meant to address inequities — was questioned in dissent.

Moore blends in trusts law, family law and Ontario’s Insurance Act, says litigator Nina Bombier, a partner at Lenczner Slaght Royce Smith Griffin LLP in Toronto.

“So many of the separation agreements provide for designation of the beneficiary under a life insurance policy, really a security for future obligations should that spouse pass on,” she says.

“The interesting question the Supreme Court is going to decide is whether the Insurance Act and irrevocable designation can constitute a juristic reason for imposition of the trust.”

In Moore, there’s no written separation agreement and the courts didn’t dispute that there was an oral agreement with the wife, says Bombier. And, she says, the double promise wasn’t discovered until his death.

Kaufman says essentially what the case comes down to is two innocent people fighting over the insurance as a result of the testator’s “rogue” behaviour. He believes the case and the conflicting decisions by the lower and appeal courts are indication that clarity is needed.

“There’s two aggrieved people here,” he says.