On January 31, 2014, the Court of Appeal released a very important decision clarifying the law regarding the limitation period for bringing equitable claims for real and personal property. This judgement is a crucial read for both family lawyers and…
In 1993, the respondent’s mother, Linda Spencer, purchased the property in question and executed a Trust Agreement establishing a family realty trust. The Agreement named Linda Spencer as the trustee and stated that she bought the property in trust for the benefit of herself and her four children. Notably, the Agreement also provided that any distribution under the Trust Agreement would not form part of the recipient’s net family property.
In 1994, the respondent and applicant married and began to reside in the home with their two children. They remained there until their separation in 2010, with the exception of a two year period during which a new house was built on the property.
The parties did not pay rent during their residency but did pay expenses associated with the home, including taxes, insurance, utilities and maintenance.
In 2005, the Trust Agreement was amended to change the trustee from Linda Spencer to her two daughters, of which the respondent was one.
Upon the parties’ separation in 2010, Linda Spencer gave notice to vacate and the respondent left the home with one child, while the applicant remained in the home with the other child.
The respondent commenced divorce proceedings, during the course of which questions arose as to the respondent’s interest in the property. The applicant subsequently added the mother-in-law, Linda Spencer, and the family trust, as additional respondents to the action.
In April 2011, Quinn J. directed a trial to determine whether the Trust Agreement excluded the property from the respondent’s net family property.
LOWER COURT DECISION
The trial judge identified two issues to be resolved:
- Does the Trust Agreement exclude the property from the provisions of the Family Law Act?
- Does the respondent have a property interest in the Family Realty Trust that should be included in her net family property?
In deciding the first issue, the trial judge determined that while there was no question that the property was a family residence, the respondent’s only interest in the property was a contingent beneficial interest in the family trust, whatever that might be at the time of her mother’s death. On this basis, the judge concluded that the respondent did not have an interest in the property within the meaning of s. 18(1) of the Family Law Act.
In deciding the second issue, the judge considered the definition of net family property under s. 4(1) of the Family Law Act, as well as relevant case law, and concluded that the beneficial interest, though contingent, must be included in the respondent’s net family property.
The applicant appealed on the first issue alone, namely that the property is not a matrimonial home within the meaning of the Family Law Act.
In determining whether the trial judge had erred in ruling that the respondent had no specific legal interest in the property pursuant to s. 18(1) of the Family Law Act, the Court of Appeal considered the terms of Trust Agreement and relevant case law.
In particular, the court considered the decision in Gennaro v. Gennaro, which pronounced that unless the terms of the trust expressly provide otherwise, a beneficiary has no property interest in any specific asset of the trust prior to the appropriation of such asset to the beneficiary by the trustee. Since the Trust Agreement did not expressly provide the respondent or her siblings with the right to call for the transfer or delivery of any particular asset held by the trust, prior to or following the death of Linda Spencer, the court found that the respondent’s interest as a beneficiary of the family trust was not an interest in property within the meaning of s. 18(1) of the Family Law Act.
In addition, the court held that it could not conflate the respondent’s powers as a trustee after 2005 with her position as a contingent beneficiary in order to create an interest in the property within the meaning of s. 18(1), as to do so would be contrary to the fundamental nature of the trust and would render it unworkable.
In the result, the court dismissed the appeal with costs to the respondent and trust respondents.