High net worth family law.

Resulting trusts and parental contributions

When parents help with a down payment, pay down a mortgage, or transfer a property into a child’s name, the question years later is whether that money was a gift or held on a resulting trust for the parent. The Supreme Court of Canada’s decision in Pecore v. Pecore, 2007 SCC 17 sets out the framework: gratuitous transfers between adults are presumed to be held on resulting trust unless the evidence shows the transferor intended a gift. The presumption of advancement between parents and adult children no longer applies in the way it once did.

In a separation, this matters in two directions. If parental money helped buy the family home in your name alone, your spouse may argue it was a gift to the family. If parental money helped buy the home in joint names, your parents may have a resulting trust claim that takes their contribution off the family-property ledger. Contemporaneous documents — emails, bank records, any loan agreement, gift letters provided to the lender — are decisive. We work with clients early to gather that evidence before the other side’s narrative hardens.

Discretionary family trusts

An interest in a discretionary inter-vivos family trust is one of the harder questions under section 84 of the Family Law Act. The statute defines family property broadly to include “the spouse’s interest in property” — but a discretionary beneficiary holds only a contingent right to be considered by the trustee, not a vested entitlement. Whether and how that interest is divisible has been litigated repeatedly. The answer turns on the trust’s terms, the history of distributions, the relationship between the trustee and the spouse-beneficiary, and whether the trust is, in substance, a holding vehicle that the spouse effectively controls.

We review the trust deed, the pattern of distributions during the relationship, and the structure of any related corporate entities before forming a view. If you’re a beneficiary, the question is how to characterize the interest in a way that reflects its actual economic value. If your spouse is a beneficiary of family money, the question is what disclosure they’re obliged to give about a structure they don’t technically “own.”

Closely-held corporations and owner-managers

Where one or both spouses own shares in a private company — whether it’s an opco, a holdco, or a holdco-opco structure — the live questions are valuation, retained earnings, and how shares get transferred (or compensated for) on settlement. A Chartered Business Valuator is almost always necessary; we don’t do business valuations in-house, and we’re skeptical of family-law lawyers who claim to.

Practical issues that come up regularly: minority-interest discounts and whether the spouse’s shareholding is in fact a minority interest in any meaningful sense; retained earnings and whether they should be treated as marital wealth or operating reserves; the difference between excluded property (shares owned before the relationship) and the increase in value of those shares during it, which is divisible under s. 84(2)(g); and the section 84.1 trap under the federal Income Tax Act, which can convert what should be a capital gain into a deemed dividend on a non-arm’s-length share transfer. Settlement structures that look clean on the family-law side can carry a six-figure tax cost if they’re papered without a tax accountant in the room.

Expenses run through a corporation may not be treated as income for tax purposes but may still be considered guideline income for child or spousal support purposes. The legal test looks at whether there was a personal or business benefit of the expense, and the onus is on the payor to show that it was a legitimate business expense. If business expenses are deemed personal, there may be a grossing up of guideline income to account for the personal taxes that would otherwise have been paid.

Tax-aware settlement structuring

On the federal tax side, the rules are favourable to spouses dividing property — but only if the settlement is drafted to use them. A few that come up most:

• Spousal rollover under s. 73(1) of the Income Tax Act — transfers of capital property between spouses (or former spouses, if made in settlement of rights arising out of the relationship) are deemed to occur at cost, deferring the gain. The drafting matters: the rollover is the default, but it can be elected out of where it makes sense to crystallize the gain at separation.
• RRSP rollover under s. 146(16) — RRSP balances can be transferred between separating spouses on a tax-deferred basis using a CRA Form T2220, but only when the transfer is made under a written separation agreement or court order. Cash equalization paid out of a payor’s RRSP without using this provision is fully taxable in the payor’s hands.
• Principal residence designation — spouses can only designate one principal residence between them while married. After separation, each can potentially designate their own going forward. The designation strategy on a sale or transfer of either home during separation can shift tens of thousands in capital gains exposure depending on which years are claimed where.
• Periodic vs. lump-sum support — periodic spousal support is deductible to the payor and taxable to the recipient under ss. 56.1 and 60(b); lump-sum spousal support is generally not. The structure affects both the after-tax cost and the leverage either party has on a deal.
• Equalization payments funded with property — transferring shares, real estate, or other capital property to satisfy an equalization obligation can trigger the section 73(1) rollover automatically, or a disposition at fair market value. Which one applies depends on how the agreement is drafted and when the transfer happens relative to the divorce.

We don’t give tax advice. We work with your accountant or tax lawyer — or recommend one — to make sure the settlement your family-law lawyer drafts doesn’t cost you on the tax side. The right time to involve them is before the offer goes out, not after the deal is signed.

Working with your other advisors

On a complex file we expect to coordinate with several professionals: a Chartered Business Valuator on private-company shares, a tax accountant or tax lawyer on settlement structure, an estate lawyer on the will and any spousal trusts, and sometimes a forensic accountant where disclosure is being actively obstructed. Our job is to drive the legal strategy and make sure each advisor’s analysis is reflected in the agreement. If you don’t already have these professionals in place, we have lawyers we’ve worked with for years on files like yours and can introduce you.

Disclosure and the harder cases

Section 5 of the Family Law Act imposes a duty of full and complete disclosure on both spouses. In high net worth files, the practical disclosure work is harder: corporate minute books, holdco financial statements, intercompany loans, foreign-held assets, cryptocurrency wallets, art, vehicles, collections. Where one spouse controls the books, requests for production are routinely incomplete on the first pass. We know what to ask for, what an inadequate response looks like, and when an application for an order compelling production — or, in the right case, an adverse inference at trial — is the right next step.

We also work on the other side of that problem: representing the spouse who owns the structure and is being asked to produce ten years of corporate records on a fishing expedition. The duty to disclose is real, but it isn’t unlimited.