Monday 24 October 2011

Matrimonial Home a Trap for the Unwary: Issue #1

The “matrimonial home” is given special treatment in the Family Law Act and that special treatment can involve huge unfairness to one of the parties to a marriage following marriage breakdown. One way in which this unfairness can arise involves a provision in the Family Law Act (paragraph 4(1)(b)) which defines “net family property” –a fundamental legal concept which is used to equalize property upon the breakdown of a marriage.

When equalizing property accumulated by the parties during the marriage, the parties are each allowed to deduct from the value of their property at date of separation the value of the property which each of them brought into the marriage. However, (and this is where the unfairness comes in) a party is not allowed to deduct the value of the “matrimonial home” if a party owned it at the time of the marriage.

The easiest way to illustrate this issue is by a series of examples.

Example Number 1

Harold has $400,000.00 in cash when he gets married. Wendy has $0.00 at the date of marriage. The parties are married for 10 years and then separate. At the end of the marriage Harold has a net worth of $1,100,000.00 and Wendy has a net worth of $600,000.00. In this case Harold would be entitled to deduct the $400,000.00 he had at the date of marriage. That would reduce his net family property to $700,000.00. Harold would then pay Wendy ($700,000.00 - $600,000.00 = $100,000.00 / 2 = $50,000.00. Harold would then have ($1,100,000.00 - $50,000.00 =) $1,050,000.00 and Wendy would have ($600,000.00 + $50,000.00 =) $650,000.00. In other words, Harold would end the marriage with $400,000.00 more than Wendy and Harold and Wendy would both have shared equally in the wealth accumulated during the marriage. The parties would be in exactly the same relative property position property at the end of the marriage as when they started the marriage (i.e. Harold would have $400,000.00 more than Wendy). That is considered fair by most people.

Example Number 2

Now consider the same facts as in Example number 1, except, the day before getting married Harold purchased 123 Elm Street so that the happy couple would have a nice home to which to return after their honeymoon. The parties live in the home for 10 years and Harold still owns the same home at the date of separation. In this case Harold is not entitled to deduct the value of the home from his Net Family Property. The math in this example would be as follows:

     Harold $1,100,000.00 - $0.00 = $1,100,000.00


     Wendy $600,000.00 - $0.00 = $ 600,000.00


     Harold pays Wendy ($1,100,000.00 - $600,000.00 =)
     $500,000.00 / 2 = $250,000.00


     Wendy and Harold both end up with $850,000.00.

In example number 2 Harold lost half of the $400,000.00 which he brought into the marriage because he purchased a home prior to the wedding day and owned that home at the date of separation. Had Harold waited until after the wedding to purchase the home and brought cash into the marriage he would have been entitled to keep all of the $400,000.00 following marriage breakdown. Most people consider this result to be unfair.

As couples marry later in life or marry for a second time it is increasingly likely that one party to the marriage will bring a home into the marriage in which the parties will reside until the breakdown of the marriage. The treatment of the matrimonial home on separation has many traps for the unwary. More to follow.


Monday 17 October 2011

Wills & Estates 101 Mini-Series: Part III: Attorney Compensation

In our last post we covered some of the primary responsibilities and basic legal requirements of powers of attorney for property and personal care. We now turn to some questions people often have about a person getting paid for being an attorney, questions such as:

     Will the person designated as attorney be paid for his or her work?

     How much and when would the attorney get paid?

In Ontario, the answers to those questions are very different for attorneys under a power of attorney for personal care and under a power of attorney for property.

Power of Attorney for Property: The starting point for compensation for this kind of power of attorney is the Substitute Decisions Act [SDA], which provides that a continuing power of attorney for property may take annual compensation from the property in accordance with the prescribed fee scale. Currently, the prescribed fee scale is:

     • 3% of capital and income receipts;

     • 3% on capital and income disbursements; and

     • 3/5’s of 1% on the annual average value of the assets as a care
     and management fee.

This is not a fixed entitlement applicable to all cases. The amount of compensation for acting under a power of attorney for property, and even the right to any compensation, is subject to challenge and to review by the courts. The prescribed fee can eventually be reduced or increased depending on the case and a number of factors such as the size of the estate, the complexity of the required work, and the skill and success of the attorney in the management of the estate.

Unlike executors under a will, attorneys for property have the right under the SDA to “pre-take” compensation, that is to get paid while the work is ongoing, before their accounts have been reviewed and approved by the court. The statute specifically refers to compensation being taken monthly, quarterly or annually. As we mentioned though, any amount taken improperly may be subject to a court challenge and adjustment.

The statute also makes compensation for attorneys for property subject to any provisions regarding compensation contained in the actual continuing power of attorney document. This flexibility allows the grantor to expressly set out the amount of compensation the attorney for property is to be paid.

If the grantor expressly provides that he or she does not want the attorney to take compensation, the attorney will not be entitled to compensation despite the entitlements contained in the SDA and its regulations. Anyone named under such a power of attorney such therefore review the document itself very carefully before deciding whether to accept this responsibility.

Power of Attorney for Personal Care: Curiously, the SDA does not say anything at all about compensation for attorneys for personal care. There is therefore some doubt about whether such attorneys are entitled to be paid for their services at all. There is some authority for such claims, but the amount, the timing and other rules about getting paid are unspecified and very uncertain.

Therefore if one wishes to provide for the compensation of their attorney for personal care, this should be discussed with the lawyer as early in the drafting process as possible and set out clearly in the power of attorney document, expressly stating this intention and a method for calculating the amount of the entitlement and when the attorney can pay himself or herself.

As discussed in our last post, attorneys for property and personal care take on an onerous responsibility and are generally held to high standards by the courts. Consequently, it is important when drafting a power of attorney to be mindful of the fact that if you only provide a nominal amount of compensation or deny any right to compensation entirely this could result in the attorney refusing his or her appointment.

Although this posting has summarized some of the fundamentals of attorney compensation, it is always best to discuss your power of attorney needs with a lawyer within the context of your overall estate plan and unique personal circumstances.


[If you live in the Ottawa area and would like Augustine Bater Binks to prepare your will or power of attorney, please email us or call 613-569-9500 to speak to one of our lawyers or a member of our staff.]