The B.C. Family Law Act provides that a spouse’s interest in a Family Trust is family property and is to be taken into account when spouses divide their assets. The question becomes how do we value the interest?
The simple approach would be to determine the value of the spouse’s share of the capital assets in the trust at the date the spouses began living together, subtract that from the value at the date of separation, divide by two and take into account any tax implications.
It gets complicated however if the trust is what we call a discretionary trust. In a discretionary trust, the trustee has the complete and unfettered discretion to allocate the capital and/or income in the trust unequally to the beneficiaries. In the case of a discretionary trust, it is impossible to determine the value of the spouse’s interest in the trust.
Details of past distributions from the trust to the beneficiaries may help a judge determine the value of a spouse’s interest in a trust and judges have looked to the historical distributions of income and/or capital of the trust prior to the spouses’ separation in order to determine if there has been a pattern. For example, one spouse may have received $50,000 a year from the trust for the past 10 years. The judge will then try to determine if there is any reason (other than trying to protect trust funds from the other spouse) that this pattern will not continue. Also whether or not all of the trust beneficiaries were always treated equally in the past.
Getting full disclosure of the details of the trust capital and past distributions can be difficult and expensive as the trustee will usually be very reluctant to provide any information without a court order requiring production.
Deborah A. Todd