All About Estates

Which Comes First: Preferential Share or Mortgages?

The Succession Law Reform Act (“SLRA”) provides that if a married person dies intestate, the first $200,000 (called the “preferential share”) of the deceased’s net estate goes to the married spouse[i]. Any funds remaining after the payment of the preferential share is shared among the spouse and children.

In Re Estate of Richard Lewis Crane (“Crane”), the deceased died intestate. He left a second wife and two sons from a previous marriage.  The deceased’s widow and children disagreed over how to calculate the wife’s “preferential share” of the deceased’s estate for the purposes of intestate distribution.

Section 45 of the SLRA states:

where a person dies intestate in respect of property having a net value of more than the preferential share and is survived by a spouse and issue, the spouse is entitled to the preferential share absolutely

“Net value” is defined in the SLRA. It means “the value of the property after payment of the charges thereon and the debts, funeral expenses and expenses of administration.”

In Crane, the only asset governed by intestacy was his house (the deceased’s investment assets and bank accounts passed by way of survivorship to his wife). The house was valued at $294,000 as of the date of his death, and was subject to a mortgage of $100,339.26.

The interesting wrinkle in this case was that the deceased had mortgage insurance on the house. In accordance with the mortgage insurance contract, the insurance company paid off the balance of the mortgage on the deceased’s death.

The issue for determination by the Court was this:  what does “net value of the estate” mean in this context? The step-mother/wife argued that strictly applying the definition of “net value” as set out in the SLRA, the net value should be calculated as $294,000 (the value of the house) after payment of the mortgage ($100,330) = $193,660, which was less than her preferential share. Consequently, she argued, the entire estate was hers alone.

Her step-sons argued for a more purposive interpretation of the SLRA. It mattered, argued the sons, that the mortgage was paid off by insurance proceeds and not out of the assets of the estate.

The judge agreed with the sons. Although if you strictly applied the “net value” definition in the SLRA (the “the value of the property after payment of the charges thereon”), it takes no account of who actually paid the “charges thereon,” it is important to consider the objectives of the section of the SRLA. Justice Broad found that “the scheme of the section is to strike a balance between affording protection to surviving spouses on the one hand and recognizing the legitimate interests of the surviving issue on the other. This is done by placing a maximum limit on the preferential share to be given to surviving spouses.” The Court found that the purpose of the “net value” concept was to arrive at the true value of the estate. Here, because the estate was entitled to call upon the insurer to pay off the mortgage, the true value of the estate was its value, after taking into account the fact that the mortgage was paid off by the insurance proceeds.

The judge therefore granted the declaratory relief sought, namely, that the value of the estate was to be determined without deducting the value of the mortgage, and that the sons had a financial interest in the estate.


[i] While a common law spouse has the right to make a dependant support claim, a common law spouse has no statutory right to a preferential share of the estate on intestacy. The SLRA contains different definitions of “spouse” for different purposes.

About Angela Casey
Angela is a partner at de VRIES LITIGATION LLP. Angela has extensive experience with capacity litigation, power of attorney disputes, dependant support claims, will challenges, and will interpretation proceedings. She routinely acts as agent lawyer for the Children’s Lawyer in contentious litigation. She also has extensive experience litigating commercial and shareholder disputes, as well as fraud actions. She has appeared before the Ontario Court of Appeal, the Ontario Superior Court of Justice, the Ontario Divisional Court, and several administrative tribunals.