Not only have blended families become increasingly prevalent in today’s world, but they often come together at a time when both spouses are more mature and have already created some of their own wealth. They may have developed their own philosophies towards wealth and established their own value system.
Since money is frequently cited as the top reason for the breakdown of a relationship, it’s important for couples to communicate their views about money and debt. This is particularly true if one spouse has accumulated significantly more wealth than the other, as it can cause animosity if there isn’t a clear view on how expenses will be shared, and how the wealth may be enjoyed and/or distributed among family members.
Planning for the distribution of an estate is particularly difficult for blended families as there may be competing interests. If not structured correctly, the result could be that one branch of the family receives everything, whereas the other receives nothing. For example, if the spouses have mutual simple wills leaving everything to each other, on the death of the second spouse, all the assets of both spouses could end up going to the second spouse’s children, leaving the children from a previous relationship of the first spouse with nothing. This can also be especially problematic if the second spouse ends up remarrying after your death.
Conversely, leaving all the assets to the children may not be practicable, as your spouse has matrimonial property rights against the estate. If successful, this claim must be paid first from the estate assets. It’s commonly believed that a spouse will receive “enough” by virtue of being a joint tenant of the family residence, and/or the beneficiary of the RRSPs or the life insurance policies. However, these assets don’t technically form part of the estate and may not be considered in the matrimonial property claim. In this instance, the children may end up receiving significantly less than initially intended, and the claim could cause family conflict and stress.
It’s extremely important for both spouses to become familiar with the family law rules in the jurisdiction in which they reside, along with the jurisdictions in which they hold property. The rules on division of assets vary among the provinces and territories, and a prenuptial agreement, marriage contract, or cohabitation agreement may need to be considered for protecting certain assets such as a business or assets acquired prior to the formation of the relationship. If nothing else, these agreements will get the conversation started on expectations and values.
Invitation for Discussion:
If you would like to discuss this article in greater detail, or any other business law matter, please do not hesitate to contact one of the lawyers in the Tax group at Shea Nerland LLP.
Note that the foregoing is for general discussion purposes only and should not be construed as legal advice to any one person or company. If the issues discussed herein affect you or your company, you are encouraged to seek proper legal advice.