On March 18, 2013 the new Family Law Act (the
"Act") came into force in British Columbia replacing the
Family Relations Act. The Act introduces significant
changes to the rules surrounding property division upon a
relationship breakdown. These new rules have startling implications
on the division of property on a relationship breakdown where a
spouse is a beneficiary of a discretionary trust with certain
Implications for Discretionary Trusts
Under the former legislation, the Family Relations Act,
three classes of assets were subject to a presumption of equal
division at the end of a relationship breakdown. These assets were
a spouse's interest in a home, RRSP and pension plan;
property ordinarily used for a family purpose during the
a business or venture of a spouse to which the non-owing spouse
made a direct or indirect contribution.
Under the FamilyRelations Act, an
interest in a trust could be found to be family asset if the court
determined that the interest itself was "ordinarily
used for a family purpose." The court's interpretation of
"ordinarily used for a family purpose" was a very elastic
concept and could include assets that were never actually used by
the family during the marriage.
Under the new Act, it is now clear that an interest in a
discretionary trust that has certain characteristics will be
"family property" that is subject to division on a
relationship breakdown. "Ordinary use" is not relevant in
the new Act for determining which assets will be subject to a
Under the Act, where a spouse is a beneficiary of a trust, any
increase in value of the property owned by the trust during the
relationship will notionally belong to the beneficiary who
separates from his or her spouse for the purposes of the division
of property upon a relationship breakdown.
The implications are best illustrated by way of an example. Jane
is a beneficiary of a discretionary trust. In 2013 Jane married
John. At the time of the marriage, the value of the property owned
by the discretionary trust is $1,000,000. In 2015, John and Jane
divorce. The value of the property owned by the discretionary trust
has increased to $1,500,000. Under the new Act, John will be
entitled to one-half of the increase in value of the property,
being $250,000. Jane will be required to pay to John one-half of
the increase in the value, even though she has no power to force
the trustees of the trust to make distributions to her and despite
the fact that there may be other beneficiaries who have an interest
in the trust property.
What is a Spouse?
The new property division regime applies not only to married
persons, but also to a person who has lived with another person in
a marriage-like relationship and has done so for a continuous
period of at least two years. This means that common-law spouses,
including same-sex spouses, in addition to married spouses, are
presumptively entitled to one-half of the increase in value of
property owned by a discretionary trust during the
We would be pleased to discuss how the Act may affect your
estate planning and any trusts of which you are a beneficiary or
may have set up.
It is not uncommon for parents to provide monetary gifts to their adult children. Parents may wish to help their child with a down payment on a property, or help pay out their child's existing mortgage.
On March 31, 2014, BC's new Wills, Estates and Succession Act1 ("WESA") will come into force. WESA introduces new protections for beneficiaries of estates that are in danger of being disputed or deemed ineffective by a court.
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).