Money by marriage

Money by marriage

Stepfamilies can produce some unanticipated situations when it comes to deciding who gets what slice of the financial pie.

While so-called “intact” families (with both of the biological or adoptive parents still present) remain the majority in Canada, stepfamilies, also known as blended families, continue to grow in number. In fact, the latest census shows that a child entering adolescence has a more than one-in-three chance of no longer living with his or her original family.

L'industrie des fonds communs de placements au Canada

Census figures also show that the number of common-law couples has been increasing steadily for the past 25 years: on average, over 21% of Canadian couples are living common law, and the percentage is significantly higher in some parts of the country.

L'industrie des fonds communs de placements au Canada

This situation can raise important questions when the time comes to determine what each family member is entitled to, financially speaking. The following example gives some idea of how complex this issue can become, and how important it can be to get professional advice in this area. (Note that this is a general example; provisions may vary from province to province.)

One couple, three different scenarios

Here’s the situation: Paul, age 50, has three children from a previous marriage and has been living with his current spouse, Natalie, age 52, for a number of years. Natalie has two children of her own from a previous marriage. Paul has a prosperous career as a partner in his business and most of the couple’s assets are in his name. Unfortunately, he passes away in the prime of life. What happens to his estate?

Scenario 1: Paul and Natalie are living common law 
After living through the breakdown of their previous marriages, Paul and Natalie weren’t interested in “getting back on that horse” by marrying again. In this case, unless Paul made a will in favour of Natalie, it is very likely that Paul’s assets would go to his children – maybe even to his ex-wife, if his estate planning was inadequate or out of date. In fact, Paul’s estate could ultimately end up in the hands of any children his ex-wife had after they split up, which is probably not what he would have wanted.

Scenario 2: Paul and Natalie are married and Paul has a will
In this scenario, Paul’s will states that his assets are to go to his children if Natalie dies first, but to Natalie if Paul dies first. Since Paul has died first, when will his children inherit their share? Answer: maybe never. It’s possible that when Natalie dies, her own children will inherit what remains of the estate.

Scenario 3: Paul and Natalie are married, but there is no will
In this third hypothetical situation, the distribution of assets will be determined by the laws in force in the province of residence. In Quebec, for example, when it comes to the division of family assets, the children will inherit two-thirds and Natalie will get one-third. In certain other provinces, notably Ontario, British Columbia, Saskatchewan, Manitoba and Nova Scotia, Natalie will be entitled to a “preferential share” of the estate, and anything left over will be divided between Natalie and the children. It should be noted that legislation often favours blood relationships, especially if there is more than one child.

Clearly, the reality of blended families can give rise to situations where the legal rights of family members may take precedence over their “moral” rights – for example, the children’s right to receive a share of a deceased parent’s estate. To make things even more complicated, just imagine if Paul had set up a family trust before he met Natalie, or if there was a partnership life insurance policy at the firm where he was a partner…

This is why estate planning generally leverages various tools, starting with an up-to-date will and life insurance, to make sure that a person’s assets are transferred, as intact as possible, to the intended heirs.

If you’d like to put some order into your own planning, a good first step might be to talk it over with your financial security advisor or mutual fund representative.


The following sources were used in preparing this article:
Educaloi, ‘‘L’union de fait: vivre ensemble sans être mariés’’, ‘‘ Sans testament, qui hérite ? ’’, ‘‘What happens if you die without a Will?’’
MarketWatch, ‘‘My stepmother inherited my late father’s estate – I want my fair share’’, June 30, 2017.
MoneySense, ‘‘What do I owe my step-children?’’, February 17, 2017 ; ‘‘Who gets what in a blended family with no will ?’’, May,15, 2017.
Statistique Canada, , ‘‘Portrait de la vie familiale des enfants au Canada en 2016’’ ; ‘‘Familles, ménages et état matrimonial : faits saillants du Recensement de 2016’’, August 2, 2017.

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