This blog post was written by: Holly LeValliant, Estate and Trust Consultant, Scotiatrust Toronto
In part one of my post on family trusts and the Family Law Act, I looked at how Ontario courts look beyond formal trust structures to the substance of the trust, particularly when they are deciding whether a discretionary trust interest forms part of net family property or if it should be treated as a sham.
The recent decision by the Ontario Court of Appeal in Lang-Newlands v. Newlands, 2026 ONCA 530 reinforces that principle in the context of estate freezes. Estate freezes are commonly used tools for estate planning and intergenerational wealth transfer. In a divorce, they can be questioned by the court.
Background facts
In this case, the couple separated after more than 30 years of marriage. Prior to marrying, the wife’s father settled a trust and made her its sole beneficiary. The trust held shares in the family business, and the wife’s interest was worth about $16 million at the date of the marriage. The trust deed stated that when the wife turned 39 years old, she would receive the shares.
During the wife’s marriage and prior to her 39th birthday, her father experienced some health issues, which prompted the trust to distribute the shares to her outright. Eight years later, at her father’s request, the family implemented an estate freeze.
The father settled a new discretionary family trust with a nominal contribution of $100. The beneficiaries of the new family trust were the wife and her four children with her husband. A new holding company was created, and the wife transferred the shares to the holding company in exchange for fixed-value preferred shares with an approximate value of $24.5 million. The new family trust acquired the common shares and with them, the future growth.
At the date of separation, the wife’s 20% interest in the new family trust was valued at approximately $134 million before discounts.
The Main Issue
Section 4 of the Family Law Act provides that the time of of a gift is critical to whether it is part of a spouse’s net family property:
- A gift received before marriage is not excluded property. Its value on the date of the marriage is deducted from the net family property, and post-marriage growth is included and is subject to equalization in the event of a divorce.
- A gift or inheritance received after marriage (and income earned upon them) is generally excluded from net family property.
The wife argued that the estate freeze created a new post-marriage gift, so her interest in the new family trust should be excluded. Her husband argued that the interest in the new family trust was traceable to the pre-marriage gift of the shares she received from her father, so the growth should be part of her net family property.
Lower Court Decision
At trial, the judge treated the interest in the new family trust as being excluded from net family property, on the basis that he was bound by Shinder. In the alternative, the judge held that if the interest was not excluded property, it formed part of the wife’s net family property, and that an equal division would be unconscionable, reducing the equalization payment from $25 million to $18 million.
Court of Appeal Decision
The Court of Appeal held that the trial judge erred in excluding the interest solely on the basis of a prior decision in Shinder v. Shinder, 2018 ONCA 717. That case was different, according to the Court of Appeal, because the trust in that case contained both pre-marriage property and meaningful additional contributions by the father after the couple’s marriage. Here, virtually the entire value of the trust was traceable to the shares that the wife beneficially owned before she married.
The Court found that the estate freeze did not transform the pre-marital gift into a new post-marriage gift. Treating the entire interest as excluded property simply because the father settled the trust with the nominal sum of $100 would allow the form of the trust to overwhelm its substance. The wife’s beneficial interest in the new trust was therefore included in her net family property, subject to a deduction for the value of the pre-marriage gift. She therefore had to share the growth with her husband.
What Does this Mean?
Lang-Newlands continues with the Ontario courts’ theme in cases such as Riedel v. Sangha, 2025 ONSC 778, as discussed in my prior blog. Ontario courts prioritize substance over form when dealing with trusts in family law equalization. An estate freeze that merely rearranges pre-marital property through a discretionary trust settled with a nominal sum will not automatically convert that property and its growth into excluded property.
Take-aways
- The source and traceability of the trust assets are important factors. Where the the value of a trust is almost entirely derived from pre-marriage property, the interest is generally treated as tracable to a pre-marriage gift.
- Nominal contributions by a third party do not create a new excluded gift.
- Courts have the discretion to adjust equalization if an equal division would be unconscionable.
Conclusion
While family trusts and estate freezes remain valuable tools for intergenerational wealth transfer, they are not “bulletproof” against family law claims.
