Mar 13, 2017

AREAS OF LAW: Family law; Family assets; Trusts; Child support; Spousal support

Purtzki v. Saunders, 2016 BCCA 344 (CanLII)

An interest in a trust may be considered a family asset, if the trust is not wholly discretionary and the property held by the trust would be a family asset were it owned by one of the spouses.~

BACKGROUND: The Appellant, John Saunders, and the Respondent, Jacqueline Purtzki, separated in early 2011 after 11 years of marriage. He is a lawyer while she is a specialist physician. The parties share custody of two children, aged 11 and 16. In October 2012, the Respondent filed a notice of family claim under the Family Relations Act (FRA). She sought joint custody and joint guardianship, child and spousal support, and the equal division of family assets including the matrimonial home. She also sought a declaration that the Appellant’s interest in a trust in respect of the matrimonial home was a family asset, and a determination and division of family assets pursuant to Part 5 of the FRA. The Appellant filed a response and counterclaim, seeking joint custody and joint guardianship, child support, and two alternative forms of relief in respect of property. If his interests in several trusts including the home trust and the assets owned by those trusts were not family assets, he sought the equal division of the remaining family assets. However, if those interests were characterized as family assets he sought reapportionment of them entirely in his favour. He also claimed spousal support if his interest in the home trust was held to be a family asset. He had purchased the matrimonial home in 1988 for $408,000. He funded the purchase from his own assets and a $260,000 interest-free loan from his mother. In 1996, for tax purposes, the Appellant transferred the matrimonial home to his mother and she created the home trust. She appointed the Appellant and his friend, LR, as trustees. At the time the trust was created, the Appellant had no spouse or children. However, its beneficiaries are the Appellant and his spouse, children, and grandchildren. In defining “spouse”, the trust excluded any person from whom the Appellant was living separate and apart by reason of marital discord. The parties married in 1999. In May 2010 the Appellant learned that the Respondent had seen a lawyer to discuss the possibility of separation. Around the same time, the Respondent bought her own house, five blocks from the matrimonial home, for $1.65 million. The Appellant then resigned as a trustee of the home trust and appointed another individual, JK, in his place. At trial, the judge imposed a child custody schedule under which the children would spend equal amounts of time with each parent. The judge found that the Appellant’s interest in the home trust was a family asset, and valued that interest at $3.7 million. She reapportioned the interest 70% to the Appellant and 30% to the Respondent. She also found that the Respondent’s income was $350,000, while the Appellant’s income was $275,000 until 2020 and $48,000 thereafter. She ordered that the Respondent pay lump child and spousal support to the Appellant, but also ordered that the Appellant pay the Respondent for her interest in the home trust. This resulted in an order that the Appellant pay the Respondent $620,000.

APPELLATE DECISION: The appeal and cross-appeal were allowed in part. The Appellant argued that the trial judge erred in holding that his interest in the home trust was a family asset, in valuing it at $3.7 million and, if the Appellant’s interest was a family asset, in failing to reapportion it entirely in the Appellant’s favour. He also appealed the trial judge’s determination of the Respondent’s income. The Respondent cross-appealed the trial judge’s award of lump sum child and spousal support. The Appellant did not challenge the trial judge’s finding that the matrimonial home would be a family asset if owned by one of the spouses. However, he argued that his interest in the home trust was not an interest “owned” by him. He maintained that an unvested trust interest cannot be a family asset, and submitted that receiving a benefit under a trust is different from owning an interest in that trust. He further argued that the trial judge erred in “looking through” the home trust and valuing his interest based on the appraised value of the matrimonial home itself. The Court of Appeal agreed with the Respondent that although the terms of the trust suggested it was discretionary, in reality it functioned more as a fixed trust. The trial judge did not err in finding the Appellant’s interest in it to be a family asset. Nor did the Court accept the Appellant’s argument that his interest in the trust should be valued to take into account the nature of the interest and any potential claims by the other beneficiaries, his children. The trial judge’s valuation of the interest was reasonable. On the question of child and spousal support, the Court noted that both parties agreed at trial that the Respondent’s income was $470,000. The trial judge held that it was reasonable for the Respondent to reduce her workload in future, and came to an annual income of $350,000 based on this reasoning. The Court of Appeal disagreed and found that the Respondent’s income was $470,000 per year. The Court also set aside the lump sum child support order, and remitted the calculation of lump sum spousal support and periodic child support back to the court below.