Is a Beneficiary's Trust Interest Counted in a Divorce in Ontario?

When a marriage or common-law relationship ends, one spouse may have an interest in a family trust, or may have received an inheritance. The other spouse naturally wants to know whether it counts when property is divided.

This article explains the general treatment of inherited and gifted property in Ontario, the disclosure that can be required about trusts, and the areas where the answer turns on the details. Trust interests are one of the harder topics in family law, so treat this as an overview.

The starting point: inherited and gifted property

Ontario's family-property guidance says that property, other than the family home, that was inherited or gifted from someone other than your spouse during the marriage is excluded from net family property. In plain words, an inheritance you received from your parent is generally not shared in the same way as property you bought together.

There is an important exception. A gifted or inherited family home does not count as excluded. If an inherited property became the home you and your spouse lived in, it may be treated differently from other inherited assets.

Where trusts make it more complicated

A trust interest is not the same as owning an asset outright. A beneficiary may have a fixed right to income, a right to capital at a future date, or only a hope that the trustee will use discretion in their favour. Whether and how each type is valued or counted in equalization is not something this article can answer, and it depends on the trust terms and on how the courts have treated similar interests. A family lawyer should review the trust document.

Disclosure: expect to produce trust documents

The Family Law Rules require a party who was a trust beneficiary on the valuation date to produce the trust settlement and the trust's financial statements for the three preceding years. If you are the spouse of a beneficiary, you can expect to ask for these documents. If you are the beneficiary, you should expect to be asked for them, and it is wise to start collecting them early.

• The trust settlement, meaning the document that created the trust.
• Financial statements for the three years before the valuation date.
• Any amendments, trustee resolutions or letters about payments to you.
• Tax slips and returns showing trust income allocated to you.

Trust income and tax can still show up

Even where a trust interest is not itself divided, income from it can matter for other purposes. A trust can deduct income that becomes payable to a beneficiary in the year, and the beneficiary includes that amount in their own income. Income allocated to beneficiaries is reported on T3 slips. That reported income may be relevant when support is discussed, so keep your slips and returns.

If the trustee has absolute and sole discretion over payments, a beneficiary cannot demand them. Whether that affects how the interest is treated in a separation is a legal question and the answer depends on the facts.

Mixing, tracing and who really owns what

Disputes often arise because inherited money gets mixed with family funds, or because a parent put an account in joint names. In joint-account disputes the question is who owns the right of survivorship, and the court looks at the parent's actual intention when the account was made joint. A transfer from a parent to an adult child raises a presumption of resulting trust, and the recipient bears the onus to show a gift was intended. These disputes are fact-specific and the evidence matters.

What to do next

• Identify the date the relationship ended and ask a lawyer what valuation date applies to you.
• Gather the trust settlement and the last three years of trust financial statements.
• Collect records showing when and from whom any inheritance or gift was received.
• Note whether inherited money was ever used for the family home or placed in joint names.
• Keep T3 slips and tax returns for trust income.
• Speak with a family lawyer, and an estates lawyer if the trust terms are unclear, before agreeing to any settlement.

Frequently asked questions