How does divorce affect your will? How can you protect your assets from being split with an ex-spouse?
For this series on money and families, I consulted two lawyers experienced in settling divorce and remarraige financial disputes. Jordin Atin is a trust and estates’ specialist with Hull and Hull LLP in Toronto, and co-author of The Family War: Winning the Inheritance Battle, sold at major bookstores. Michael Cochrane practises family law at Ricketts Harris LLP in Toronto. He’s the author of Surviving Your Divorce and Surviving Your Parents’ Divorce.
Both have the same advice: Change your will as soon as you separate and make sure your spouse isn’t the designated beneficiary on your life insurance, pensions and RRSPs. “If you’re killed going home from my office, your legally married spouse will inherit everything,” says Cochrane. “Think about your powers of attorney, too. Do you want this person to be in charge of your property if you’re critically ill — or to make the medical decisions about whether you’re resuscitated?"
Separations can drag on for years and some separated spouses never get a divorce. So, you need to do the paperwork right away to stop your assets going to someone you don’t want to have them. “I always recommend redoing the will in the event of a separation or divorce", says Atin. You need a new will if you want to leave your estate to someone other than your ex-spouse.
Divorce does not revoke a previous will. But a couple of provisions in the will are affected: Your ex-spouse cannot be the beneficiary of any of your assets. Nor can your ex-spouse act as your executor or personal representative. Under Ontario law, the court considers your ex-spouse to have died before you and appoints an alternate; so you need to name alternate beneficiaries and executors in your new will. If you don’t name an alternate beneficiary your assets would pass to survivors under the laws of intestacy. And without an alternate executor, your estate would have to apply to the courts to have an executor appointed.
Suppose you own a home jointly with your spouse, as most couples do. If you’re separated but not divorced, your half automatically goes to your ex-spouse when you die. Atin says you should go to a lawyer to have the deed registered from joint ownership to 50-50 ownership — a change you can make without your ex-spouse’s consent. It allows your half of the house to go to someone other than the joint owner when you die. If you’re involved in a common-law relationship after separating from your spouse, this has no effect on your previous will. So, you need to write a new will if you want your common-law partner to inherit all or part of your estate. In Ontario, common-law spouses are defined as couples who live together for at least three years or who have a child together. They’re treated differently from married spouses: If you die without a will, your common-law partner is not entitled to any part of your estate under the laws of intestacy.
If you die with a will, your common-law partner is entitled to receive only what you provide for in the will. There’s no right to apply for a division of family property as married spouses can.
Whether you die with or without a will, your common-law partner can apply to the estate for financial support. “It gets complicated because people move around from one province to another", says Cochrane. Some provinces, such as Nova Scotia and Manitoba, allow common-law couples to register their relationship as a domestic partnership. This gives them many of the same rights as a married couple. In British Columbia, common-law couples are defined as those living together only two years. If one partner dies without a will, the surviving partner is entitled to inherit as much of the estate as a married spouse would.
Suppose you’re a parent, leaving property to adult children in your will. You think their marriages might break up and you want to ensure the money you leave them won’t go to an ex-spouse in a divorce settlement. Inheritances are generally excluded from family property, Atin says. This means your adult children don’t have to split anything they receive from you if they get a divorce — or if they die before their spouse dies. But children can “taint” an inheritance by using it to pay the mortgage on a family home or upgrade to a better home. That portion will be divided equally in a divorce.
So, if you want to dictate to your children beyond the grave, Atin says, you put the money into a trust. “You’re saying to your kids, 'I’ll give you the use of the property in your lifetime. But when you die, whatever is left goes to the grandchildren — or wherever else I say it goes' ”. A trust manages your assets for beneficiaries; they receive income, capital or both, depending on terms of the trust. If you’re in a second marriage or living with a common-law partner, you can set up a spousal trust to provide living expenses for your spouse after your death. This allows remaining assets to go to your children from the first marriage when your spouse dies.
“If I were to name one circumstance that creates estate disputes, it’s the second marriage", Atin says. His advice to those in second marriages? "Buy as much life insurance as you can, so you can give some cash to your kids right away when you die. If you set up a spousal trust, your kids will have to wait until your spouse dies”.