PART 1: MATRIMONIAL PROPERTY ON DEATH: WHAT S NEW, WHAT S CHANGED. Jodie Hierlmeier Alberta Justice, Legislative Reform

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1 PART 1: MATRIMONIAL PROPERTY ON DEATH: WHAT S NEW, WHAT S CHANGED Jodie Hierlmeier Alberta Justice, Legislative Reform 1. INTRODUCTION GENERAL PRINCIPLES THAT GUIDED REFORM ADDING THE DECEASED AND THE ESTATE TO THE ACT (SECTION 1.1) COMMENCING AN ACTION THE FORM FOR COMMENCING AN ACTION (SECTION 4) WHO MAY COMMENCE AND DEFEND THE ACTION (SECTIONS 5, 5.1, and 6.1) RESIDENDENCY REQUIREMENTS (SECTION 3) LIMITATION PERIODS (SECTION 6) DISCLOSURE (SECTION 31) VALUATION DATE CLASSIFICATION OF PROPERTY (SECTIONS 7 and 7.1) EXEMPT PROPERTY (SECTIONS 7(2) and 7.1(2)) JUST AND EQUITABLE PROPERTY (SECTION 7(3)) ALL OTHER MATRIMONIAL PROPERTY (SECTIONS 7(1), 7(4), 7.1(1) and 7.1(3)) DEBTS SUMMARY OF PROPERTY PROVISIONS THE COURT S DISCRETION TO MAKE AN UNEQUAL DISTRIBUTION (SECTION 8) ASSETS TO SATISFY THE CLAIM (SECTION 9) FRAUDULENT TRANSFERS & DISSIPATION OF ASSETS(SECTIONS 8 and 10) AN EXAMPLE OF MATRIMONIAL PROPERTY DIVISION ON DEATH CONTRACTING OUT (SECTIONS 37 and 38) COMING INTO FORCE (SECTION 5.1(3)) CONCLUSION... 18

2 2 1. INTRODUCTION PART 1: MATRIMONIAL PROPERTY ON DEATH: WHAT S NEW, WHAT S CHANGED Jodie Hierlmeier Alberta Justice, Legislative Reform Currently in Alberta, the right to apply for the division of matrimonial property is restricted to couples in marital breakdown, such as those who are separated or divorced. 1 There is no similar right to apply for the division of matrimonial property if a couple is happily married and one spouse dies. The Wills and Succession Act includes consequential amendments to the Matrimonial Property Act 2 (MPA) that change the law in Alberta. Once in force, the amendments allow a surviving spouse to commence an action for matrimonial property division following the death of his or her spouse. All common law provinces allow this type of matrimonial property claim except Alberta, British Columbia and Prince Edward Island. For most married couples, this is not an issue. Most married couples leave their property to each other when they die. A right to claim matrimonial property would only come into play when the surviving spouse ends up with less than his or her fair share of the matrimonial property upon the death of the deceased spouse, potentially leaving the widowed spouse worse off than if he or she had been divorced. This part of the paper (Part 1) discusses the general rules governing the determination of matrimonial property division on death with the aim of highlighting what s new and what s changed with respect to the Act. Part 2 of the paper (written by Janice Henderson-Lypkie) deals with the interconnection between the matrimonial property claim and the administration of the deceased s estate, and the practical considerations in drafting wills and creating estate plans once the amendments to the MPA are in force. 1 Matrimonial Property Act, RSA 2000 c M-8, s. 11(2). Section 11 will be repealed when the amendments to the Act come into force. 2 The amendments to the MPA are found in section 117 of the Wills and Succession Act.

3 3 2. GENERAL PRINCIPLES THAT GUIDED REFORM All matrimonial property laws generally reflect the principle that each spouse contributes equally to the marriage and to the accumulation of property and is, therefore entitled to an equal share in the property acquired during the course of the marriage. The amendments to the MPA reflect the principle that regardless if the marriage ends due to marital breakdown or death, a spouse should be in the same position to claim an equal share in the property acquired during the course of the marriage ADDING THE DECEASED AND THE ESTATE TO THE ACT (SECTION 1.1) In order to make these amendments work within the existing structure of the Act, a drafting device was added in section 1.1. Section 1.1 says that when one of the spouses is deceased and the surviving spouse brings an action under the Act, any reference to spouse includes the deceased spouse or the deceased s estate, as the context requires. Likewise, when the Act refers to distributing matrimonial property between spouses this includes a distribution between the surviving spouse and the deceased spouse s estate. It is important to keep this drafting device in mind when reading Part 1 (division of matrimonial property) and Part 3 (the general provisions) of the Act. 4. COMMENCING AN ACTION 4.1 THE FORM FOR COMMENCING AN ACTION (SECTION 4) Pursuant to section 4 of the MPA, a spouse commences an action by Statement of Claim. Section 4 has been amended to allow the action to be commenced by a document that joins a matrimonial property claim with a claim for family maintenance and support under Part 5, Division 2 of the Wills and Succession Act ( family maintenance and support is the new name for dependants relief ). This joint commencing document will be prescribed by regulation. 4 3 For a detailed discussion of the policy reasons underlying matrimonial property on death, see Alberta Law Reform Institute (ALRI), Division of Matrimonial Property on Death, 2000, Final report no Section 18 of the Act makes it clear that claims for family maintenance and support can be joined with a matrimonial property action, and this is common practice. What will change is that more surviving spouses will have a claim to matrimonial property division on death.

4 4 When the surviving spouse brings a claim for family maintenance and support and matrimonial property, the court must deal with the matrimonial property claim first. This result flows from the fact that section 15 of the MPA provides that money paid or transferred to the surviving spouse under the Act does not form part of the deceased spouse s estate in respect of a claim against the estate by a family member under Part 5, Division 2 of the Wills and Succession Act. This also makes logistic sense because the court must know the size of the deceased s estate and the assets of the surviving spouse before addressing a claim for family maintenance and support. 4.2 WHO MAY COMMENCE AND DEFEND THE ACTION (SECTIONS 5, 5.1, and 6.1) Only those spouses that have met a condition precedent under section 5(1) may commence an action. Currently, this list only refers to conditions that signal marital breakdown such as a divorce judgment being granted. The amendments add subsection 5(1)(f) to include death of a spouse as a condition precedent or triggering event for commencing an action. Section 5.1 is a new section which allows the surviving spouse to commence or continue an action after the death of his or her spouse. 5 The amendments retain the general rule that a matrimonial property action does not survive for the benefit of the deceased spouse s estate, which means that an action cannot be commenced on behalf of a deceased spouse s estate. However, where the deceased spouse commenced an action during the joint lives of the spouses and subsequently dies, the deceased spouse s estate can continue the claim. 6 Pursuant to section 6.1, where a matrimonial property action is commenced during the joint lives of the spouses and the defending spouse dies before filing a statement of defence, the personal representative of the deceased spouse may file a defence. The spouse who commenced the action is not permitted to discontinue it without the consent of the deceased spouse s estate or leave of the court. 7 5 MPA, s. 11(1). Section 11 will be repealed when the amendments to the Act come into force. This rule is retained in s. 5.1(1). 6 MPA, s. 16(a). Section 16 will be repealed when the amendments to the Act come into force. This rule is retained in s This rule was added to the MPA in 1992 to prevent the defending spouse from delaying the proceedings until the other spouse died in order to extinguish the action (sometimes called morbid delay ). 7 Boychuk v. Boychuk, 1993 CarswellSask 37 (CA): husband commenced an action, wife dies, husband wants to discontinue the claim because upon her death he received her pension benefits and the matrimonial home; court held the husband could not discontinue the claim and bar the wife s entitlement to the half interest in the property; Coyle v. Coyle Estate 2005 ABQB 436: in considering Boychuk the Alberta court held it would be preferable if the Matrimonial Property Act in Alberta expressly provided that the

5 5 4.3 RESIDENDENCY REQUIREMENTS (SECTION 3) In addition to meeting a condition precedent under section 5, a spouse must meet the residency requirements under section 3 in order to commence an action. The residency requirements remain unchanged. If one spouse is deceased, the court looks at whether the last joint habitual residence of the spouses was in Alberta. 5. LIMITATION PERIODS (SECTION 6) Let s first consider the limitation periods for living couples in marital breakdown. Generally speaking, when both the spouses are alive and have ended their marriage by a divorce judgment, a declaration of nullity or declaration of irreconcilability, a spouse must commence the action within two years of the date of the judgment or declaration (section 6(1)). If the spouses separate, they have two years from the date of separation to bring an action; however, this two year limitation period is somewhat artificial because the cause of action is revived if one of the spouses applies for a divorce, a declaration of nullity, or a declaration of irreconcilability (sections 6(1)(a) and 6(2)). 8 In other words, commencing divorce proceedings revives the cause of action for long-time separated spouses. The Act also contemplates the situation where spouses are separated and one of them makes a significant gift or transfer of assets to another person who is not a bona fide purchaser for value with the intention of defeating his or her spouse s claim to property under the Act. In this case, the spouse must commence the action within two years after the couple separated or within one year after the property was transferred, whichever occurs first (sections 5(1)(d) and 6(3)). Now let s consider the limitation periods when one of the spouses has died. If the spouses are married when one of them dies (i.e. they were not divorced, subject to a declaration of nullity or a declaration of irreconcilability) then the surviving spouse must commence the action within six months after the date of the grant of probate or administration (section 6(5)(a)). This means that long-time separated spouses, who never divorce or otherwise estate of a deceased spouse can file a statement of defence in a matrimonial property action brought by the surviving spouse before death and that the surviving spouse cannot discontinue the action without the consent of the estate of the deceased spouse or leave of the court. It my view, amendment to the legislation along these lines would be required in order to achieve that result. 8 Weicker v. Weicker, 1985 CarswellAlta 120 (CA): divorce revives a cause of action for spouses separated for more than two years.

6 6 terminate their marriage, are entitled to bring a matrimonial property action upon the death of his or her spouse. In this way, death of one spouse revives the cause of action for long-time separated spouses. 9 If the spouses have ended their marriage (i.e. they were divorced, subject to a declaration of nullity or a declaration of irreconcilability) when one of them dies, the spouse s death must occur within two years from the date of the divorce judgment or the declaration or else the action is time barred. If the death occurs within two years from the date of the divorce judgment or the declaration, the surviving spouse must commence the action within six months after the date of the grant of probate or administration (section 6(5)(b)). The following examples illustrate how the above limitation period operates on death. Example A Spouses A and B obtain a divorce judgment on January 1, A dies on December 30, 2013 (within two years from the divorce judgment). A s estate is granted probate on March 1, B must commence her action within six months after the date of the grant of probate (or by September 30, 2014). Example B Spouses C and D obtain a divorce judgment on January 1, C dies on January 2, D s action for matrimonial property division is time barred because it is more than two years from the date of the divorce judgment. Aligning the limitation period with the date of the grant ensures that the limitation period is the same as the limitation period for bringing an application for family maintenance and support under Part 5, Division 2 of the Wills and Succession Act. This is important because claims for family maintenance and support can be joined with a matrimonial property action (section 18). 9 This is not the way the current section 11 of the MPA reads or has been interpreted, see Burns v Bank of Nova Scotia Trust Co., 2007 ABQB 730: couple separated for 23 years, husband dies and wife commenced an action for matrimonial property division. Court held that limitation period expired and was not revived because wife did not have a divorce judgment or declaration of nullity; death did not revive the action. Section 11 of the MPA will be repealed when the amendments to the MPA come into force.

7 7 6. DISCLOSURE (SECTION 31) The Act requires full disclosure of all property a spouse has an interest in whether it is located in Alberta or elsewhere, including property disposed of within one year of the start of the action. 10 Section 31 of the Act requires each party to the action to file and serve a Matrimonial Property Statement prior to trial; the form is provided in the regulations. 11 There is no change to section 31 or to the form. Many practitioners used the Notice to Disclose (Family Law Practice Note No. 2) under the former Rules of Court to obtain a list of the assets required for the Matrimonial Property Statement. Under the current Rules of Court, the Notice to Disclose document is Form FL Pursuant to section of the Rules, the respondent has one month from service to produce documents and information in response to the items in the Notice to Disclose. If the respondent fails to provide the documents within the required time, the court has the power to order the respondent to comply with the Notice to Disclose, draw an adverse inference or order costs. Of course, full disclosure can also be obtained from using the other methods under the Rules of Court such as affidavit of records, cross-examination on an affidavit, questioning (formerly examinations for discovery) or written interrogatories. 7. VALUATION DATE The valuation date is the date of trial, and this has not changed. The court has limited discretion under section 8(f) to use the date of separation as the valuation date where it would not be just and equitable to divide property acquired after separation equally CLASSIFICATION OF PROPERTY (SECTIONS 7 and 7.1) The MPA does not define property, but Alberta courts have given the term a broad interpretation. 14 There are essentially three categories of property under the Act: exempt property; just and equitable property ; and all other matrimonial property. Debts are also briefly discussed in this section. The general practice is that courts value the matrimonial property of 10 MPA, s. 31; Matrimonial Property Regulation, Alta Reg 13/1999, s Ibid., schedule. 12 Alberta Rules of Court, Alta Reg 124/2010, s Schedule A of Form LF-17 is identical to the Matrimonial Property Statement found under the Matrimonial Property Regulation, ibid. 13 See e.g. Baker v Baker Estate, 1992 CarswellAlta 371 (QB). 14 For a detailed discussion of the case law on this subject, see ALRI report, supra note 3 at

8 8 both spouses as of the valuation date (usually the date of trial), subtract the matrimonial debts, determine if either spouse is entitled to any exemptions, and then determine the net amount that is available for distribution. Before discussing the categories of property under the Act, it is important to keep in mind the following FOUR KEY CHANGES to the Act that apply to matrimonial property actions on death: Assets that pass to the surviving spouse outside of the deceased s estate are treated as matrimonial property of the surviving spouse for the purpose of calculating the matrimonial property entitlement. This includes life insurance paid to the surviving spouse on death of deceased spouse, survivor pension benefits, RRSPs and RRIFs where the surviving spouse is the named beneficiary of the deceased s plan, and jointly owned property. Other property that the spouse receives as a result of the death of the deceased, such as dower rights, is also treated as matrimonial property of the surviving spouse. Assets that pass outside of the deceased s estate to third parties on the death of the deceased spouse are treated as matrimonial property of the deceased spouse for the purpose of calculating the matrimonial property entitlement. Although these assets are included for the purpose of calculating the entitlement, they are generally not available to satisfy the matrimonial property order. 15 Gifts in the deceased s will to the surviving spouse or any property a surviving spouse is entitled to receive upon intestacy of the deceased spouse are treated as matrimonial property of the deceased spouse. At the valuation date, these assets have not yet passed to the surviving spouse; they remain in the deceased s estate. If the court determines that the surviving spouse already has his or her share of the matrimonial property, no further order will be made under the Act. The action will be dismissed. The following sections discuss how these changes fit into the existing categories of property under the MPA. 15 unless they fall within section 10 of the Act or there is some other argument to bring the assets back into the estate. See discussion under headings 10 and 11.

9 9 8.1 EXEMPT PROPERTY (SECTIONS 7(2) and 7.1(2)) The traditional exemptions are under section 7(2) and the new exemptions applying to matrimonial property on death are under section 7.1(2). The traditional exemptions under section 7(2) exempt certain property (up to a certain value) from distribution, namely property: acquired before the marriage; received by way of gift from a third party; acquired by the spouse by inheritance, other than from the estate of the deceased spouse; damages in tort or non-property insurance funds paid to one spouse while both spouses are alive, or the proceeds are compensation for a loss to both spouses. The underlined portions refer to amendments to the MPA. The amendments clarify that property a spouse inherits from a third party is exempt from distribution, but property a spouse inherits from the deceased spouse is not exempt. As discussed below, property a spouse inherits from his or her deceased spouse (by will or intestacy) is treated as matrimonial property of the deceased spouse. The amendments also change the traditional exemption for insurance proceeds. Non-property insurance proceeds paid to one spouse while both spouses are alive are exempt, as well as proceeds to compensate for a loss to both spouses are exempt; however, life insurance proceeds payable on death are no longer exempt. As discussed below, life insurance proceeds payable on death of the deceased spouse to the surviving spouse are treated as matrimonial property of the surviving spouse. Life insurance proceeds payable on death of the deceased spouse to third parties are treated as matrimonial property of the deceased spouse. The way the Act currently works is that the exemptions under section 7(2) must be read in conjunction with section 7(3). While the asset itself is exempt, any increase in value of the asset listed in section 7(2) is subject to the just and equitable distribution under section 7(3). For example, if the wife inherits a cottage from her aunt, the cottage is exempt from distribution but the increase in value of the cottage over the course of the marriage is subject to distribution under section 7(3).

10 10 The law remains the same in that the spouse claiming the exemption has the onus of proving that exemption. That spouse must prove that the property either still exists in specie or, if it has been disposed of or exchanged, that the proceeds can be traced into existing property. 16 The exemption is lost if the spouse has consumed or dissipated the exempt property. If exempt property has been put into joint names (such as a joint bank account or jointly held property) then pursuant to section 36 of the Act there is a rebuttable presumption that joint ownership was intended. In such a case, one-half of the exemption is lost and it is considered a gift to the other spouse that is subject to distribution under section 7(3). 17 If the presumption is rebutted joint ownership was NOT intended then the spouse retains the full exemption. Section 7.1(2) includes new exemptions that apply to matrimonial property actions on death. Under this section, the following property is exempt from distribution: property used to pay funeral and testamentary expenses for the deceased spouse; proceeds of a life insurance policy that is owned by the deceased spouse payable on death and the purpose of the policy is: o to satisfy an agreement to pay maintenance or support or other debts the deceased had during life; or o in respect of a business undertaking (i.e. key person insurance ). The life insurance exemptions recognize that people use life insurance to plan for certain obligations on death such as to satisfy child support payments or for a company to weather the unanticipated loss of an individual who is considered essential to the ongoing operation of the business. 18 In summary, when courts value the matrimonial property of both spouses as of the valuation date, they must determine if either spouse is entitled to any exemptions. These exemptions are found under sections 7(2) (the traditional exemptions) and 7.1(2) (new exemptions that apply to matrimonial property actions on death). 16 The key cases on tracing are Roenisch v. Roenisch, 1991 CarswellAlta 325 (CA); Harrower v. Harrower, 1989 CarswellAlta 105 (CA). 17 The key case on section 36 of the Act is Jackson v. Jackson, 1989 CarswellAlta 106 (CA). 18 For a further discussion see ALRI report, supra note 3 at

11 JUST AND EQUITABLE PROPERTY (SECTION 7(3)) Pursuant to section 7(3), the following property may be distributed in a manner the court considers just and equitable having regard to the factors set out in section 8: the increase in value of exempt property (under section 7(2)) at the time of trial; property acquired with income received from exempt property; property acquired by gift from one spouse to another while both spouses are alive; and property acquired after the marriage is terminated by divorce, a declaration of nullity or a declaration of irreconcilability. Just and equitable property is not exempt from sharing; it just means that this property is not subject to a presumption of a 50/50 split. The court must take into account the factors in section 8 in making the distribution. 8.3 ALL OTHER MATRIMONIAL PROPERTY (SECTIONS 7(1), 7(4), 7.1(1) and 7.1(3)) Under section 7(4), all property acquired during the marriage that is not exempt property or just and equitable property is presumed to be split 50/50 unless it appears to the court that it would not be just or equitable to do so, taking into account the factors in section 8. At the valuation date (usually the date of trial), the court has the power under section 7(1) to make a distribution between the spouses of all the property owned by both spouses and by each of them. Remember that pursuant to the drafting device in section 1.1, a distribution between the spouses includes a distribution between the surviving spouse and the deceased spouse s estate. Therefore, in an action involving a surviving spouse and a deceased spouse s estate: the surviving spouse is credited with all property owned by the surviving spouse at the valuation date. This includes assets that pass to the surviving spouse outside of the deceased spouse s estate such as life insurance paid to the surviving spouse on death of deceased spouse, survivor pension benefits, RRSPs and RRIFs where the surviving spouse is the named beneficiary of the deceased s plan, and jointly owned property (sections 7(1) and 7.1(3)) Coyle v Coyle, 2005 ABQB 436: property that passed to the surviving spouse by survivorship and beneficiary designation was matrimonial property. At para 40 the court stated: the fact that title to this property vested in Ms. Coyle does not affect its status as matrimonial property. It simply means that, if an

12 12 the deceased spouse s estate is credited with all property owned by the deceased spouse s estate at the valuation date. Section 7.1(1) deems the following property to be property of the deceased spouse for the purpose of calculating the matrimonial property entitlement: 20 o o o o o gifts mortis causa given by the deceased spouse to a third party; joint property held with the deceased spouse that passes by right of survivorship to a third party; property received under a plan (such as RRSP or RRIF) payable to a named third party beneficiary on death of the deceased spouse; life insurance proceeds on the life of the deceased spouse payable to a named third party beneficiary on death of the deceased spouse; and an inter vivos trust where the deceased spouse retained during life the power to revoke the disposition or to consume or dispose of the property. The above assets are deemed property of the deceased spouse for the purpose of calculating the matrimonial property entitlement; they cannot be used to satisfy the matrimonial property claim. Only assets within the deceased s estate can be used to satisfy the matrimonial property claim (sections 9(4) and 16). Assets that pass outside of the estate and are in the hands of third parties are not available to satisfy the matrimonial property order unless they fall within section 10 of the Act or there is some other argument to bring the asset back into the estate. Pursuant to section 7.1(3), if a court looks at all the property owned by the surviving spouse at the valuation date, including property that passes outside the estate to the surviving spouse, and determines that the spouse has more than his or her share of matrimonial property, then no further order will be made. The estate of the deceased spouse cannot benefit from an action commenced by the surviving spouse after death because the rights of the deceased spouse do not survive for the benefit of the estate in this circumstance. 21 There is an exception where the personal accounting had been required in order for the Court to effect a distribution of matrimonial property, the homes, the pension benefits, the RRSP would have been regarded as matrimonial property held by Ms. Coyle. A different result was reached in Dunn v Dunn Estate, 1994 CarswellAlta 370 (QB): the home passing to the wife by right of survivorship was not matrimonial property and was not subject to division. Arguably, Dunn v Dunn Estate was decided pursuant to section 11(3) of the MPA which will be repealed when the amendments come into force. 20 For a discussion on the policy reasons see ALRI report, supra note 3 at Edward v. Edward Estate, 1987 CarswellSask 359 (CA): considering Saskatchewan s Act found that the estate of the deceased spouse may not be created or enlarged by way of a matrimonial property order after the death of that spouse, unless an application initiated prior to death is continued by the personal

13 13 representative continues an action which was initiated when the spouse was alive; in this case the rights of the deceased spouse survive the death for the benefits of the person s estate (section 6.1(3)). Note that, in making this determination under section 7.1(3), the court does not consider property the surviving spouse received under the will or on an intestacy of the deceased spouse. Property in the estate is credited to the deceased spouse. In this way, any gift in the deceased s will to the surviving spouse or property that the surviving spouse receives upon intestacy is considered additional to the matrimonial property entitlement unless the will specifies otherwise. These concepts are discussed in further detail in Part 2 of this paper. 8.4 DEBTS The Act does not deal with how debts should be handled, but the courts have developed a practice of subtracting matrimonial debts from matrimonial assets to determine the net amount available for distribution. A debt is considered to be matrimonial debt if it was related to the acquisition of matrimonial assets, or to the maintenance of the lifestyle of the parties SUMMARY OF PROPERTY PROVISIONS A summary of the property provisions are: Section 7(1) empowers the court to make a distribution of all the property owned by both spouses and by each of them in accordance with the section. Property owned by the surviving spouse includes property that passes outside the estate to the surviving spouse. Property owned by the deceased spouse includes property in the estate. Section 7(2) lists the traditional exemptions (e.g. property acquired before marriage); the property itself is exempt but any increase in the value of the property must be distributed under section 7(3). Section 7(3) includes the increase in value of exempt property under section 7(2) and other property that should be distributed in a just and equitable manner after representative. If the surviving spouse had received or was entitled to receive more than his or her share of the matrimonial assets, the application would be dismissed. 22 Carmichael v Carmichael 2007 ABCA 3 at para. 23.

14 14 considering the factors in section 8. The presumption of a 50/50 split does not apply to property caught under this section. Section 7(4) provides that all other property that is not exempt property or just and equitable property is to be split 50/50 unless it would not be just and equitable to do so having regard to the factors in section 8. Section 7.1(1) is a new section which deems property that passes outside the estate to third parties upon the deceased s death to be property of the deceased spouse for the purpose of calculating the matrimonial property entitlement. Section 7.1(2) is a new section which exempts property used to pay funeral expenses and life insurance proceeds payable on the death of the deceased spouse for certain purposes. Section 7.1(3) is a new section which clarifies that if the surviving spouse already has his or her share of matrimonial property, no further order can be made (the court will dismiss the application). The court does not consider what the surviving spouse is entitled to receive under the will or upon intestacy of the deceased in making this determination. 9. THE COURT S DISCRETION TO MAKE AN UNEQUAL DISTRIBUTION (SECTION 8) Matrimonial property is usually split 50/50; however, the court must consider the relevant factors under section 8 and determine whether it would be unjust or inequitable to divide the property equally. This is particularly the case with respect to just and equitable property under section 7(3), which is not subject to the presumption of equal sharing. It is the exception rather than the rule that the court orders an unequal distribution. In practice, the courts generally adhere to the principle of equal division and deviate from it only when there is some real imbalance in the contribution of the parties having regard to the factors in section 8 (which include factors such as the duration of the marriage, the contribution that each spouse made to the marriage, etc.). 23 The amendments add a new factor under section 8(h.1) to allow the court to consider income streams (periodic payments) received by third parties from plans such as RRSPs. 23 Mazurenko v Mazurenko, 1981 CarswellAlta 36 (CA).

15 15 The amendments also add section 8(2) to ensure that the death of a spouse or the contents of a will are not factors that the court considers to set aside the presumption of equal sharing ASSETS TO SATISFY THE CLAIM (SECTION 9) Under section 9, the court has broad powers to make such an order or orders necessary to effect a distribution of property whether situated in Alberta or elsewhere. Subsection 9(4) is added to clarify what property can be used to satisfy the matrimonial property claim. The matrimonial property claim is paid from estate assets only. No order can be made to remove property that has been transferred to third parties by way of survivorship, beneficiary designation or other means listed in section 7.1(1) to satisfy the matrimonial property claim unless the transaction falls within section 10 of the Act or there is some other way to bring the property back into the estate. 11. FRAUDULENT TRANSFERS & DISSIPATION OF ASSETS(SECTIONS 8 and 10) Section 10 is unchanged. Section 10 empowers the court to set aside certain transactions that were entered into with the purpose of defeating a claim under the Act. For section 10 to apply, there must have been either a transfer of property to a person who is not a bona fide purchaser for value or a substantial gift, made with the intention of defeating a claim, to a person who knew or ought to have known why the gift or transfer was being made, and the gift or transfer must have taken place no more than one year before the applicant spouse advanced his or her claim. If all these elements are satisfied, the court can order the recipient to transfer the property to the surviving spouse. 25 Under section 8, the court may consider substantial gifts made to a third party, transfers for less than adequate consideration, and the dissipation of property to the detriment of the other spouse as grounds for deviating from equal division of matrimonial property. 26 Unlike under section 10, a court cannot use these provisions to set aside the gift or transfer. 24 Donkin v. Bugoy, [1985] 2 SCR 85: considering Saskatchewan s Act held that the death of the spouse or the content of that spouse s will is not factor to be considered in setting aside the presumption of equal distribution under the Act. 25 This has been successfully argued in some cases, see e.g. Zacharuk v Zacharuk, 2004 ABQB 384; Nay v Nay Estate, 1986 CarswellAlta 458 (QB). 26 MPA, ss. 8(h) and (l).

16 16 The dissipation of assets can also be dealt with under the law of fraudulent conveyances and bankruptcy. These concepts are discussed in Part 2 of the paper. 12. AN EXAMPLE OF MATRIMONIAL PROPERTY DIVISION ON DEATH The deceased was in a second marriage with the surviving spouse ; he had two children, X and Y, from his first marriage. The following property exists immediately before the deceased s death: - the matrimonial home worth $500,000 (net) owned jointly by the spouses; - RRSP owned by the deceased worth $200,000; the surviving spouse is the designated beneficiary; - life insurance policy owned by the deceased worth $500,000; the surviving spouse is the designated beneficiary; - RRSP owned by the deceased worth $100,000; child X is the designated beneficiary; - life insurance policy owned by the deceased worth $100,000; child Y is the designated beneficiary; - bank account in deceased s name with $100,000 balance; left to the surviving spouse by will; - the residual of the estate is left in the will to the children, X and Y. Assume neither the deceased spouse nor the surviving spouse own any other assets other than those listed above. Assume that there is no exempt property or fair and equitable property. Assume that the will is silent on the issue of whether the surviving spouse receives her share of matrimonial property and the gift in the will. The spouses property will be credited as set out in Table 1.

17 17 TABLE 1 Assets at valuation date (date of trial) Surviving spouse $500,000 house, owned by surviving spouse by survivorship $500,000 $200,000 RRSP, surviving spouse is designated beneficiary $200,000 $500,000 life insurance policy; surviving spouse is designated beneficiary $500,000 $100,000 RRSP; X is designated beneficiary. Deceased spouse $100,000 $100,000 life insurance policy; Y is designated beneficiary. $100,000 $100,000 bank account to surviving spouse by will $100,000 $1,000,000 in residue to X and Y by will $1,000,000 TOTAL $1,200,000 $1,300,000 Based on a presumption of a 50/50 split under section 7(4) of the Act, the surviving spouse is entitled to a matrimonial property order of $50,000, which is paid out of the deceased s estate. Assets in the hands of X and Y cannot be used to satisfy the matrimonial property order (section 9(4)) unless section 10 applies or there is some other way to bring those assets back into the deceased s estate. The estate is worth $1,100,000 (bank account + residue). The $50,000 comes out of the residue unless the court orders otherwise; the surviving spouse receives the bank account ($100,000). The remaining residue is paid to the children, X and Y, less any payment of funeral costs, testamentary expenses, legal costs and income tax triggered by death. 27 The surviving spouse receives her matrimonial property entitlement ($50,000) plus the gift in the will ($100,000). 27 See Baker v Baker Estate, 1993 CarswellAlta 600 (QB) and Part 2 of this paper for further discussion on the priority of payment.

18 CONTRACTING OUT (SECTIONS 37 and 38) Section 37 allows spouses to contract out of Part I of the MPA. The agreement must comply with the formalities of execution provided in section 38 and is valid according to the general laws of contract and equity. Section 37 agreements are only available to living couples who have predetermined their division of matrimonial property prior to marital breakdown or death of one spouse. The importance of executing these agreements as part of estate plans is discussed in Part 2 of this paper. 14. COMING INTO FORCE (SECTION 5.1(3)) The amendments to the MPA come into force when the Wills and Succession Act is proclaimed in force; this is expected to happen in early The new rules only apply to spouses who die after the amendments are in force. 15. CONCLUSION The major change that the amendments to the MPA will bring is that more spouses will be entitled to commence an action for matrimonial property division. Part 2 of this paper (written by Janice Henderson-Lypkie) discusses the interconnection between the matrimonial property claim and the administration of the deceased s estate, and the practical considerations in drafting wills and creating estate plans once the amendments to the MPA are in force.