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The Ontario Court of Appeal - Family Law Act

February 24, 2022

Ontario

,

Canada

Issue

Is a spouse's future inheritance included in the valuation of net family property?

Conclusion

The value of the following property that a spouse owns on the valuation date does not form part of the spouse’s net family property:

1. Property, other than a matrimonial home, that was acquired by gift or inheritance from a third person after the date of the marriage.

2. Income from property referred to in paragraph 1, if the donor or testator has expressly stated that it is to be excluded from the spouse’s net family property. (s.4(2)) (Family Law Act)

In Shinder v. Shinder, the Ontario Court of Appeal allowed an appeal from an order setting aside a separation agreement. In this case, one of the spouses learn after the separation agreement had been settled that the other spouse had a beneficiary interest in their family trust. The lower court set aside the separation agreement for non-disclosure. On appeal, Pepall J.A. determined that as the beneficiary interest was included in the list of exclusions from family property under s.4(2) of the Family Law Act, there was no significant non-disclosure and overturned the trial judge's refusal to grant summary judgment.

In Moore v. Moore, the Ontario Superior Court of Justice held that the amount received by the husband from his father's estate after the marriage was to be excluded from the net family property under s.4(2) of the Family Law Act. In this case, while the father had died shortly before the marriage, Ramsay J. cited Da Costa v. Da Costa in determining that the date of payment of the amount owing was of no moment in whether it should be deducted.

In Cortina v. Cortina, the Ontario Court of Appeal upheld the trial judge's ruling on the exclusion of the husband's inheritance from the net family property. In this case, the Court found that even though inter vivos payments had been transferred to the joint account of the spouses and then to the husband's investment account, s.14(a) of the Family Law Act provided that this could only be interpreted as a payment to both spouses in the absence of evidence to the contrary. S.4(2) of the Act therefore still applied and the inheritance funds were excluded from net family property.

Law

Section 4(2) of the Family Law Act, RSO 1990, c F.3 governs exclusions from net family property:

(2) The value of the following property that a spouse owns on the valuation date does not form part of the spouse’s net family property:

1. Property, other than a matrimonial home, that was acquired by gift or inheritance from a third person after the date of the marriage.

2. Income from property referred to in paragraph 1, if the donor or testator has expressly stated that it is to be excluded from the spouse’s net family property.

3. Damages or a right to damages for personal injuries, nervous shock, mental distress or loss of guidance, care and companionship, or the part of a settlement that represents those damages.

4. Proceeds or a right to proceeds of a policy of life insurance, as defined under the Insurance Act, that are payable on the death of the life insured.

5. Property, other than a matrimonial home, into which property referred to in paragraphs 1 to 4 can be traced.

6. Property that the spouses have agreed by a domestic contract is not to be included in the spouse’s net family property.

7. Unadjusted pensionable earnings under the Canada Pension Plan.

In Shinder v. Shinder, 2018 ONCA 717 (CanLII), the Ontario Court of Appeal allowed an appeal from an order setting aside a separation agreement. In this case, one of the spouses learn after the separation agreement had been settled that the other spouse had a beneficiary interest in their family trust. The lower court set aside the separation agreement for non-disclosure. On appeal, Pepall J.A. determined that as the beneficiary interest was included in the list of exclusions from family property under s.4(2) of the Family Law Act, RSO 1990, c F.3, there was no significant non-disclosure and overturned the trial judge's refusal to grant summary judgment:

[57] Even if the omission from the financial statements could be characterized as non-disclosure, s. 56(4) also requires the court to consider whether the implicated asset is "significant". The [page333] motion judge did not engage in this part of the analysis. Instead, she deferred the issue to be addressed in the future without considering whether there was a genuine interest requiring trial.

[58] Here, there was not a genuine issue requiring a trial. Section 4(2) of the Family Law Act excludes from net family property, and therefore from equalization, any property "acquired by gift or inheritance from a third person after the date of the marriage". The trust comprised Sol's property and Neil's common shares in Coofer that had originally been given to him by Sol and then exchanged for preference shares that were disclosed to Randi and included in both of Neil's financial statements. In the face of the disclosure of these Coofer shares, any additional benefits Neil might receive under the trust would constitute a gift or inheritance acquired after the date of the marriage and hence would have to constitute excluded property as defined under the Family Law Act. Although not determinative, this is consistent with s. 22 of the trust indenture, which declares any benefit received by any beneficiary under the trust to be excluded property for family law purposes. Ms. Brent responded to the questions posed by Randi's advisors and also noted that Neil's interest in the trust would have to constitute excluded property. One may reasonably conclude that this factor informed the decision made on Randi's behalf to forego further questioning on the trust despite Ms. Brent's invitation for particulars on the purpose and relevancy of the request.

In Cortina v. Cortina, 2015 ONCA 750 (CanLII), the Ontario Court of Appeal upheld the trial judge's ruling on the exclusion of the husband's inheritance from the net family property. In this case, the Court found that even though inter vivos payments had been transferred to the joint account of the spouses and then to the husband's investment account, s.14(a) of the Family Law Act provided that this could only be interpreted as a payment to both spouses in the absence of evidence to the contrary. Section 4(2) of the Act therefore still applied and the inheritance funds were excluded from net family property:

[10] The trial judge ordered that funds in the amount of $122,762.00 held in the respondent's investment account were to be excluded from the calculation of his net family property on the basis that those funds represented the compilation of certain inter vivos payments received by the respondent from his mother and a bequest received by him from his mother's estate, together with the income earned on those amounts.

[11] The trial judge found that these moneys were excluded from the respondent's net family property under s. 4(2)1 of the Family Law Act, R.S.O. 1990, c. F.3 because they constituted [page455] property acquired by the respondent by gift or inheritance from a third person after the date of the marriage.

[12] There is no dispute that the moneys were deposited first into a joint account in the names of the appellant and the respondent, and then transferred to the respondent's investment account, where they continued to grow for a period of about five years before the separation and valuation date. There is also no dispute that the moneys in the respondent's investment account (with the exception of an inconsequential amount) can be traced back to the inter vivos payments and the respondent's inheritance and the income earned thereon.

[13] The appellant submits, however,

(a) that the trial judge erred in finding that the respondent's mother intended the gifts and the inheritance to be to the respondent alone and not to the respondent and the appellant together; and

(b) that the moneys, once deposited into the joint account, lost their character as gifts and an inheritance, and therefore that the investment funds into which they were placed were not subject to exclusion from net family property. She did not argue that by depositing the moneys into the joint account the respondent had gifted her one-half of the moneys.

[14] There are at least three responses to these submissions.

[15] First, there was ample evidence to support the finding that the respondent's mother intended the moneys to go to him alone (as well as other amounts to his siblings) and not to his spouse (or the siblings' spouses). The will was clear that the bequest of $30,000, and the income derived from it, were not to fall into community property in the event of a breakdown of the marriage. The respondent and each of his siblings received inter vivos amounts from their mother by way of cheques that were in their names alone. There was clear evidence from the respondent and his brother -- accepted by the trial judge where it differed from the testimony of the appellant -- that the cheques received by the respondent were intended by the mother to be a gift to him only. While the appellant argues it makes no sense that certain smaller inter vivos gifts made to the respondent were made to him alone -- since they were apparently made in consideration of the mother living in their home with the appellant and the respondent -- it was open to the trial judge to conclude on the evidence that these payments fell into the same category as the others. [page456]

[16] It was for the trial judge to weigh and assess the evidence. We see no basis for interfering with her findings or the inferences she drew on this issue.

[17] Second, the trial judge did not err, in fact or in law, in finding that the moneys did not lose their character as gifts or an inheritance by virtue of their having been deposited first into the parties' joint account.

[18] Section 14(a) of the Family Law Act provides that "the fact that property is held in the name of spouses as joint tenants is proof, in the absence of evidence to the contrary, that the spouses are intended to own the property as joint tenants" (emphasis added). The trial judge reviewed all of the relevant evidence and concluded that the respondent had succeeded in establishing that there was evidence to the contrary. To put it another way, she accepted the evidence favouring the finding that the respondent had rebutted the presumption that the inter vivos gift moneys and the inheritance moneys were intended to be owned jointly by the parties simply because the respondent had "parked" them in the joint account prior to transferring them to his wholly owned investment account more than five years before the breakdown of the marriage.

[19] This finding was open to her on the evidence.

[20] Finally -- although this point was not pressed by the respondent -- it seems to us that s. 4(2)5 of the Family Law Act is an answer to the appellant's argument as well. It provides for the exclusion from net family property of property, other than a matrimonial home, into which property referred to in s. 4(2)1 (i.e., property acquired by gift or inheritance) can be traced. As pointed out earlier, the appellant concedes that the moneys in the respondent's investment account can be traced to the inter vivos gifts and the inheritance, albeit that she argued they were made to her and the respondent jointly. However, since the trial judge did not accept this argument and we would not disturb her finding on this point, the moneys in the respondent's investment account are traceable to the inter vivos gifts and the inheritance made to him alone.

In Moore v. Moore, 2009 CanLII 2917 (ON SC), the Ontario Superior Court of Justice held that the amount received by the husband from his father's estate after the marriage was to be excluded from the net family property under s.4(2) of the Family Law Act. In this case, while the father had died shortly before the marriage, Ramsay J. cited Da Costa v. Da Costa, 1992 CanLII 7749 (ON CA) in determining that the date of payment of the amount owing was of no moment in whether it should be deducted:

[3] The husband’s father died shortly before the marriage. In his will he set up a trust that would pay the income from his real properties to the husband and the husband’s aunt in perpetuity. There was no provision for the residue of the estate. The will obviously breached the rule against perpetuities, and arguably the respondent’s father died intestate or partially intestate: see Re Bethel, 1971 CanLII 71 (Ont. CA), per Gale CJO ¶30, per Jessup JA ¶¶ 57-58. Alberta’s Perpetuity Act (RSA 2000, c.P-5), which is not identical to Ontario’s, but which, like Ontario’s, is based on model uniform legislation, would not have saved the will. The statutory “wait and see” principle saves potential perpetuities, not inevitable perpetuities. In any event, the respondent husband and his aunt settled the estate by agreeing with the trustees and the contingent income beneficiaries (the respondent’s cousins) to consent to a court order that amended the will to divide the residue of the estate between them equally. A year or two into the marriage, the trustees wound up the trust and paid the husband $86,000. This money was spent on family needs, retiring debt and so on, and all that is left that can be traced to it is a coin collection worth $2,100.

[4] The husband says that his inheritance is property owned by him before the marriage, with the result that $86,000 should be deducted in calculating his net family property in accordance with subsection 4(1) of the Family Law Act. The applicant wife concedes that the amount is a gift or inheritance, but submits that it was received after the marriage, with the result that the $86,000 should not be deducted in calculating the husband’s net family property, although the value of the property that can be traced to it, the coin set, should be excluded from net family property under s.4(2) of the Act.

[5] The husband did not contest his father’s will and prove his claim to the entire estate from the intestacy or partial intestacy that would have resulted from either an invalid devise to the trustees, or the failure to devise the capital of the estate. Instead he settled his claim with his aunt. Whether he took as a result of his father’s intestacy or by court-ordered amendment to the will, the inheritance was his property from the date of his father’s death. A will speaks from the date of the testator’s death. An intestate succession runs from the date of the intestate’s death. The amount was owing to the husband before the marriage and it is of no moment that it was not paid until after the commencement of the marriage: DaCosta v. DaCosta (1992), 1992 CanLII 7749 (ON CA), 7 OR (3d) 321 (CA), at p.330e. Accordingly $86,000 must be deducted from the husband’s family property to calculate his net family property.

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