Who keeps the family pie?

Jill is hosting a girls’ night out at her house.  She starts talking about her divorce with Jack and explains that she’s entitled to “half of everything”. Her friend Sandy who also went through a divorce 5 years ago tells her that that’s not how it works.  “You divide the value, not the assets”, she says.  A discussion on the subject enfolds and Debra, who has lived in a common law relationship with Dave for 5 years wonders if she would be entitled to claim half of everything as well as a common law spouse. Kathy thinks so, since her cousin got half of her ex’ house after a lengthy court battle, but Carolyn is convinced that this is not the case. And everyone is confused.

 

The rules applicable to the division of family property differ significantly depending on your legal status (married or living in a common law relationship), and also on the province in which you live. In fact, each of the Canadian provinces has its own way of dividing family assets when a separation occurs, whether married of in a common law relationship.

 

For married spouses, there are many general principles that apply in all provinces. The most important one is that all provincial laws share a common goal: to divide equally – or at least fairly – between the two ex-spouses the wealth accumulated by the couple during the marriage.  The basic principle underlying the various provincial family property division schemes is that marriage is a financial partnership and it does not matter who paid for the assets, whether a spouse has contributed more than the other, or who is the actual legal owner of any given asset.  In Ontario, the value of all assets acquired by the spouses (jointly or individually) during the marriage will have to be shared between them. In other provinces, the assets themselves get divided. In some provinces, like British Columbia, the court has the discretion to divide a married couple’s family property the way it feels fair and equitable. In most provinces, however, the judge has no discretion and must abide by very strict rules to which there are many exceptions.

 

For common law spouses, the right to share in the other’s property – and the way property is to be shared – when a separation occurs varies from province to province. For instance, in Manitoba and Nova Scotia, common law spouses are given substantial rights to share in the other’s property after separation.  But in other provinces, like in the province of Quebec, common law spouses have absolutely no right at all to claim a fair share of the property acquired by the other spouse during the relationship.  In Quebec, what is yours is yours and what is mine is mine, so to speak.  In other provinces, such as the province of Ontario, common law spouses are presumed to have no right to share in the other’s property, but if very specific circumstances exist, courts will allow common law spouses to share in some or all of their spouse’s assets upon separation.  It is a myth to believe that you are entitled to half of your ex’s assets if you have lived in a common law relationship for more than three years!  When the parties cannot agree (as is often the case) on how to divide their assets, they will have to bring the matter to court and let a judge decide. This process is, as you know, very costly and (so far as common law spouses are concerned) very unpredictable.

 

Because the laws of each province are so drastically different when it comes to splitting this cherished family pie, it is extremely important to understand the regime that applies to your particular situation, in your particular province. Take the time to inform yourself and obtain proper legal advice BEFORE you move in with someone, get married, make a significant financial contribution or investment in joint assets or in assets belonging to your spouse.  Entering into a well written cohabitation agreement (common law spouses) or a marriage contract (marriage spouses) could avoid many heartaches and headaches.  Why wait until a separation occurs to find out that after all these years of emotional and financial investments, you are not even allowed to eat a piece of the pie…

Life insurance to secure child support: There’s no way I’m leaving you this money!

Since the separation, Jack has never stopped paying the monthly premiums for the life insurance policy that he and Jill bought during their marriage.  As there is no chance of reconciliation, Jack wonders whether he should stop paying for Jill’s portion of the monthly premiums.  After all, why isn’t Jill paying for her own premiums? Jack’s friend Dave also told him that he should immediately remove Jill’s name as the beneficiary of his insurance policy and put the children instead.

 

If Jack was well advised, he would do neither.  When parents separate and there are dependent children to care for, it is very important for both parents to maintain life insurance coverage sufficient to provide for the children should the unthinkable happen.  As long as the children remain dependant financially, both parents have a continued obligation to provide financial support –child support – whether they are paying it or receiving it.

In most cases, when a parent dies, the children move in full-time with the surviving parent who is left with having to financially support the children, without any financial contribution from the other parent, unless proper life insurance coverage is in place.  Even if the deceased parent has made a Will and named the minor children as beneficiaries of part or all of his or her estate, the reality is that it often takes months, if not years, for an estate to be administered and the gifts to be distributed.  Furthermore, the Will may prevent the children to have access to the money until they are 18 years of age or even older.  In the meanwhile, the surviving parent struggles and the children suffer unnecessarily. 

 

Here are some additional reasons why separated parents should maintain life insurance coverage naming the other parent as irrevocable beneficiary in trust for the children AT ALL TIMES:

1. If you die and have made no provisions for the other parent to receive money for the support of your children, the surviving parent may very well sue your Estate to obtain that support.  This is bound to delay the administration of your estate considerably, in addition to forcing your executors to engage significant legal fees to defend the action and settle the issue, leaving less money for the children in the end.

 

2. If your child is a minor at the time of your death, he or she will not be entitled to receive any monies directly (from your Will or your insurance policy).  The monies will have to be administered by the person you named as trustee for your children.   If no one was named, the monies will be administered by the Office of the Public Guardian (OPG), a governmental institution who will step in to administer your financial affairs and decide what is best for your children.

 

3. Having your ex-spouse as beneficiary in trust of the life insurance proceeds for your children with specific directions as to how the funds may be used by him or her, and what is to be done with any leftover once the children cease to be dependent, will insure that the monies are used properly for the benefit of your children.

 

4. Your children will have immediate access to funds to maintain their standard of living after you are gone.  They will be able to pursue their activities or schooling, and there will be no gap between the time of your death and the time they have access to the fund they need to pursue their daily life.

 

5. Proper life insurance simplifies the lives of everyone involved if one of the parents dies, and the cost to maintain relatively large amounts of temporary life insurance coverage is quite minimal - depending of course on your age and health condition. 

Making sure your children are provided for in the event of your death is a part of being a responsible and loving parent.