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The Intersection of Trust Law and Family Law
A complex and challenging area of law is the intersection of trust law and family law. Ontario law, in contrast to many other common law jurisdictions, has given liberal treatment of a discretionary interest in a trust as property which can be subject to equalization under our family law legislation. See our prior blogs on this subject: Discretionary Trusts and Family Law Division: 50% of Zero is Still Zero (September 5, 2024) and Heads Up: Grappling with Family Law’s Treatment of Discretionary Trust Interests (January 6, 2015).
Valuation of a Discretionary Interest in a Trust
Over the years, Canadian case law has expanded to deal with many different scenarios in determining the value that a court will ascribe to an interest in a family trust in marital property division. Much of the case law attributing significant value is based on how much “control” a spouse has over the trust in which the spouse has a discretionary interest.
Where a spouse effectively controls the trust, often by being a trustee and having powers to appoint and remove trustees, and is also or may be an income and capital beneficiary, in some cases the courts have included all of the value of the trust fund in the spouse’s shareable marital property for purposes of equalization.
The Court of Appeals Weighs In
The Ontario Court of Appeal on July 21, 2026, released a decision on Lang-Newlands v. Newlands that is helpful in clarifying issues relating to discretionary family trust interests and marital property division.
The Facts of the Case
In Lang-Newlands, at the date of her marriage, the wife was the sole beneficiary of an irrevocable trust that owned shares of a holding company established by her father. The shares were to be transferred to her at age 39, but instead were distributed to her at age 36.
There are no specific details provided in the case, and we can only assume that though the shares were held in a trust prior to distribution, the shares were fully vested in interest and that she was the full beneficial owner of them given the facts set out in the decision.
After the shares were distributed to her, the wife engaged in an estate freeze. She exchanged her shares for fixed value preferred shares in a new holding company equal to the fair market value of her shares.
A trust was established by her father as settlor to which he contributed $100.00. The trust included the wife as well as the wife’s and her husband’s four children as discretionary beneficiaries. The trust subscribed for common shares of the new holding company. As a result, the future growth in value would be reflected in the common shares held by the discretionary trust.
The Discretionary Trust Interest: Excluded Property?
On marital breakdown, the wife took the position that her interest in the discretionary trust was “excluded property” on the basis that it was a gift from her father made after the date of her marriage.
Meanwhile, the value of the common shares held by the trust had ballooned to $666.7 million. The wife’s interest was valued after discounts at approximately $25.7 million.
The husband took the position that the wife’s interest in the trust should be treated as pre-marriage property, and not excluded property, and that he had the right to an equal share of the post-marriage growth.
The Court of Appeal Rules
The Court of Appeal reversed the lower court's decision and held that the wife’s trust interest was a gift before marriage. It stated that the father’s contribution of $100 to the discretionary trust was de minimus and that the value of the trust derived entirely from, and was traceable to, the shares that the wife owned at the date of the marriage.
If the spouse’s entire interest in the discretionary trust had been characterized as a “gift after marriage” solely because the trust was initially seeded with $100 from the father, the Court stated, “it would allow form to overwhelm function.”
Takeaways
This case is helpful in clarifying that on its particular facts, a post-marriage estate freeze by a spouse of property whereby a trust subscribes for growth shares under which the spouse is a discretionary beneficiary, and where the property is traceable to pre-marriage property is still pre-marriage property, and future growth reflected in the spouse’s interest in the trust is traceable to it and cannot be excluded from equalization of property.
However, if the couple had entered into a prenuptial agreement or marriage contract that had excluded the spouse’s trust interest, her shares and any income and gains from them, her interest in the trust could have been treated as excluded property and not be subject to equalization.
See our Advisory on Estate Planning and Marital Property Considerations (updated April 2026).
Margaret has been an expert columnist for Advisor.ca and Advisor’s Edge magazine since 2011. You may read her columns here.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
