Family trusts are often used for estate planning, business succession, tax planning, and transferring wealth between generations. They may hold investments, shares in a family business, real estate, cash, or other valuable property.

When a marriage or relationship ends, however, a family trust can raise important family law questions. Is a beneficiary’s interest considered property? Can trust assets affect equalization? Does trust income matter for support? The answers depend on how the trust was created, the rights of the beneficiaries, and how the trust operates in practice.

What Is a Family Trust?

A trust is a legal relationship in which property is held and managed by one or more trustees for one or more beneficiaries.

A family trust generally names family members as beneficiaries. The trust document typically identifies the trustees and beneficiaries and sets out the rules governing the administration and distribution of trust property.

Who Owns Property Held in a Family Trust?

A trust separates legal ownership from beneficial interests. The trustee generally holds legal title to trust property, while beneficiaries may have rights to receive income, capital, or other benefits. As a result, being a beneficiary does not necessarily mean personally owning the assets inside the trust.

However, a beneficiary’s interest may still be relevant in an Ontario family law proceeding.

Are All Family Trusts the Same?

No. The terms of the trust are critical. Some trusts give beneficiaries fixed rights to certain assets or payments. Others are discretionary trusts, meaning the trustees decide whether, when, and how much to distribute.

A spouse’s degree of control may also vary. A spouse may simply be a beneficiary, or may also act as trustee or have significant influence over trust decisions.

Is a Trust Interest Considered Property in an Ontario Divorce?

Potentially. Ontario’s Family Law Act provides for the equalization of spouses’ net family properties when a marriage ends. A spouse’s interest in a trust may therefore need to be considered when calculating net family property.

Whether the interest has a value, and how that value should be determined, may depend on the trust terms, the beneficiary’s legal rights, the level of trustee discretion, and the surrounding circumstances.

Does My Spouse Automatically Get Half of My Family Trust?

No. Ontario’s family property system does not generally divide every asset in half. Instead, married spouses calculate their respective net family properties and determine whether an equalization payment is owed.

Trust assets may also be legally owned by the trustees rather than by the spouse personally. Therefore, the analysis usually focuses on the spouse’s particular interest in or relationship with the trust.

Can Property Received Through a Family Trust Be Excluded From Net Family Property?

Sometimes. Certain property acquired by gift or inheritance from a third person after marriage may qualify as excluded property under Ontario law, provided the statutory requirements are satisfied.

Whether property received through a family trust qualifies for an exclusion may depend on the source of the property, the terms of the trust, the nature of the distribution, and what happened to the property afterward.

Tracing can become particularly important if trust-derived property has been mixed with other family assets or converted into another form.

What If Trust Money Is Used for a Matrimonial Home?

The matrimonial home receives special treatment under Ontario family law. Property that might otherwise qualify for an exclusion may be treated differently if it is used in connection with a matrimonial home. This can become significant where trust funds are used to purchase, improve, or finance the family residence.

The way trust-derived funds were used may therefore affect the family property analysis.

Does Income From a Family Trust Affect Child or Spousal Support?

It can. Property division and child or spousal support are separate legal issues. Even if trust property is not included in a spouse’s net family property, trust distributions or other financial benefits may still be relevant when determining income for child or spousal support.

For example, a spouse may receive regular distributions, have personal expenses paid by the trust, or otherwise benefit financially from trust assets. The significance of those benefits will depend on the nature and consistency of the payments and the level of discretion involved.

What If a Spouse Controls the Family Trust?

Control can be an important consideration.

There may be a significant difference between a spouse who is one of several discretionary beneficiaries and a spouse who also serves as trustee or has substantial influence over trust distributions.

Relevant questions may include who makes distribution decisions, whether payments have historically followed a predictable pattern, and whether the spouse has practical access to trust assets.

Do Family Trusts Have to Be Disclosed During a Divorce?

Financial disclosure is a central part of Ontario family law proceedings. Where a spouse has an interest in a trust, receives distributions, controls trust property, or relies on the trust financially, information about the trust may become relevant to property or support issues.

Potentially relevant documents may include the trust agreement, financial statements, tax records, distribution records, information about trust assets, and documents describing the spouse’s role as trustee or beneficiary.

Can Someone Put Assets Into a Trust to Keep Them Away From a Spouse?

Transferring property into a trust does not necessarily remove the property or its value from consideration under family law.

The timing and circumstances of the transfer may matter, as may the spouse’s continuing rights, influence, or control over the assets.

Where significant transfers occur before or after separation, those transactions may require closer examination.

What Documents Are Important When a Family Trust Is Involved?

Relevant documents may include:

• The trust deed and amendments;
• Trust tax returns and financial statements;
• Records of trust assets;
• Records of distributions;
• Trustee resolutions;
• Documents showing the source of property contributed to the trust;
• Corporate records where the trust owns business shares; and
• Banking records showing how distributions were used.

Clear documentation may also be important where a spouse claims that certain property should be excluded from net family property.

Why Can Family Trusts Complicate Separation?

Family trusts can intersect with family law, trust law, corporate law, estate planning, and tax law.

They can also create valuation challenges. A beneficiary’s interest may not be equal to the value of the assets inside the trust, particularly where distributions are discretionary or there are several beneficiaries. For separating spouses, the key issues may include ownership, control, valuation, exclusions, tracing, disclosure, and income.

Bortolussi Family Law: Vaughan Family Lawyers Advising on Family Trusts and Divorce

Family trusts can add complexity to property division, equalization, financial disclosure, and support following separation. Bortolussi Family Law assists clients in Vaughan and across the Greater Toronto Area with family law matters involving family trusts, inherited wealth, business interests, complex assets, and high-net-worth separation and divorce.

If you are a beneficiary, trustee, business owner, or spouse dealing with a family trust during separation, contact us online or call 416-987-3300 to discuss how the trust may affect your rights and financial obligations under Ontario family law.