This blog post was written by: Holly LeValliant, Estate and Trust Consultant, Scotiatrust Toronto
Family Trusts and the Family Law Act
Family trusts are popular tools for estate planning, asset protection, and intergenerational wealth transfer in Ontario. However, during a divorce, they can become contentious: is the trust an asset that is subject to an equalization between the spouses? Can the assets in the trust be used to determine if a beneficiary owes spousal or child support? Having assets held in a trust does not make it “bulletproof” when a beneficiary goes through a divorce. A recent Ontario court decision is an example of when the court will look beyond the form to the substance of a trust and determine whether the trust is a sham and therefore a marital asset.
The Family Law Act defines “property” broadly to include any present or future interest, whether vested or contingent. This can include a spouse’s interest in a trust, even if the trust is entirely discretionary and the spouse, as a beneficiary, has no control over the distributions they may receive.
When the court considers whether a discretionary trust is family property, key considerations include:
- The settlor’s intent;
- The trust’s design;
- The independence (or lack thereof) of the trustees;
- The beneficiary spouse’s level of control over the trust; and
- Historical distributions and how the trust has been managed in practice.
Is the trust a sham?
A trust can affect spousal and child support if it is found to be a sham. A court may impute a spouse’s income based on benefits they received from a trust, such as regular distributions or loans that they used to fund their family’s lifestyle.[i]
To be legitimate, a trust must have the “three certainties”:
- Certainty of intention to create a trust;
- Subject matter (specific assets);
- Objects (identifiable beneficiaries).
Ontario courts have clarified that when determining if a trust is a sham, deceit or fraud are not required.[ii] The key issue is the settlor’s true intentions when they established the trust. Was the purpose to help the beneficiaries avoid their family law obligations in the event of a separation or divorce?
Recent court decision
The case of Riedel v. Sangha, 2025 ONSC 778 illustrates how a court determines whether a discretionary trust is a family asset in the context of a divorce.[iii] In this case, the Applicant applied to the court to challenge the validity of a family trust established by her husband. She alleged that the trust was a sham, created to defeat her family law entitlements to an equalization in the event of a marriage breakdown.
The court held that the Applicant was not required to prove deceit as a necessary element to prove that the trust was a sham. The court’s analysis was centred on the intentions of the settlor at the time he settled the trust.[iv]
This case is notable because it demonstrates how the court is willing to look behind formal structures to determine whether a trust is a sham. In cases where there is evidence that demonstrates that the trust was used to protect marital assets from a divorce and where the controlling spouse continues to benefit from or direct the assets, the court may treat the assets as part of the marital assets for the purpose of determining equalization or support calculations in the event of a divorce.
The takeaway from this case for high net worth individuals in Ontario is that if a trust is established where it appears that the goal is to minimize their spouse’s claims in the event of a divorce, the trust can be pierced and the assets of the trust may be considered marital assets. Family trusts remain a valuable estate planning tool, but they do not offer absolute protection from a marital breakdown. Ontario courts prioritize fairness and substance over form, as reinforced in decisions such as Riedel v. Sangha. Consulting with experienced estate and family lawyers early is important to understand your rights and obligations.
[i] https://boulbyweinberg.com/services/family-trusts/
[ii] https://welpartners.com/blog/2026/01/what-is-a-sham-trust/
[iii] Riedel v. Sangha, 2025 ONSC 778 (CanLII), https://www.canlii.org/en/on/onsc/doc/2025/2025onsc778/2025onsc778.html?resultId=360ccca9a8fd419584ac4a40291426a0&searchId=2026-07-17T12:39:10:750/108db8d9589a4aedbb172c12e3e29fa4&searchUrlHash=AAAAAQAQUmllZGVsIHYuIFNhbmdoYQAAAAAB
[iv] “Beyond Common Intention: Aligning the Sham Trust Analysis with Equity’s Maxims”, Grant F. Swedak, WEL Partners,
