Spencer v. Riesberry; Spencer et al., Added Respondents [Indexed as: Spencer v. Riesberry]
114 O.R. (3d) 375
2012 ONCA 418
Court of Appeal for Ontario,
MacPherson, Gillese and Ducharme JJ.A.
June 19, 2012*
- This judgment was recently brought to the attention of the editors.
Family law -- Property -- Matrimonial home -- Wife's mother buying house and settling it on trust for herself and her four children -- Mother later settling additional three properties on trust -- Wife and husband living in house during marriage -- Wife not having interest in house within meaning of s. 18(1) of Family Law Act -- Wife having contingent beneficial interest in trust property as whole but having no property interest in any specific trust asset -- Wife's powers and duties as co-trustee of trust not constituting interest in property within meaning of s. 18(1) -- Roles of trustee and beneficiary must be maintained as separate and distinct in order for trust to be workable -- Family Law Act, R.S.O. 1990, c. F.3, s. 18(1).
The wife's mother bought a house and settled it on trust for her four children and herself. The trust agreement provided that the mother had the right to use the trust property during her lifetime and that on her death, the trust property was to be divided into equal shares for the children alive at that time. The mother settled an additional three properties on the trust. The wife and the husband lived in the house during their marriage. The trial judge held that the house was not a matrimonial home as the wife did not have an interest in the house within the meaning of s. 18(1) of the Family Law Act ("FLA"). The husband appealed.
Held, the appeal should be dismissed. [page376]
The wife had a contingent beneficial interest in the trust property as a whole but had no interest in any specific property held by the trust. Therefore, she had no specific legal interest in the house within the meaning of s. 18(1) of the FLA. It was self-evident that the wife's powers and duties as co-trustee of the trust were not an interest in the property within the meaning of s. 18(1) of the FLA. Moreover, the court could not conflate or combine the wife's powers and duties as trustee with her position as a contingent beneficiary under the trust to create an interest in the property within the meaning of s. 18(1). The roles of trustee and beneficiary must be maintained as separate and distinct for the trust to be workable.
APPEAL from the order of S.K. Campbell J., [2011] O.J. No. 3700, 2011 ONSC 3222 (S.C.J.) that the house was not a matrimonial home.
Cases referred to Clarke v. Read Estate, 2000 CanLII 22457 (ON SC), [2000] O.J. No. 4155, 37 E.T.R. (2d) 13, 12 R.F.L. (5th) 305, 101 A.C.W.S. (3d) 109 (S.C.J.); Gennaro v. Gennaro, 1994 CanLII 7484 (ON SC), [1994] O.J. No. 183, 111 D.L.R. (4th) 379, 2 R.F.L. (4th) 179, 45 A.C.W.S. (3d) 482 (Unif. Fam. Ct.), consd Debora v. Debora (2006), 2006 CanLII 40663 (ON CA), 83 O.R. (3d) 81, [2006] O.J. No. 4826, 275 D.L.R. (4th) 698, 218 O.A.C. 237, 33 R.F.L. (6th) 252, 52 R.P.R. (4th) 191, 153 A.C.W.S. (3d) 648 (C.A.), distd Statutes referred to Family Law Act, R.S.O. 1990, c. F.3, ss. 4(1) [as am.], 18(1), (2)
Robert Ballance, for appellant. Jean Marentette, for respondent Sandra Spencer. Marcela Aroca and Thomas MacKay, for respondents Linda Spencer and the Spencer family realty trust.
The judgment of the court was delivered by
1GILLESE J.A.: -- A woman bought a house (the "property") and settled it on trust for herself and her four children. She later settled an additional three properties on the trust (the "other trust properties"). One of her daughters married and had two children. During the marriage, the daughter and her family lived in the property. Each of the other three children and their families were treated similarly by being permitted to live in one of the other trust properties.
2Section 18(1) of the Family Law Act, R.S.O. 1990, c. F.3 (the "FLA") reads as follows:
18(1) Every property in which a person has an interest and that is or, if the spouses have separated, was at the time of separation ordinarily occupied by the person and his or her spouse as their family residence is their matrimonial home. [page377]
3Does the daughter have an interest in the property within the meaning of s. 18(1) of the FLA? The trial judge held that the answer to that question is "no".
4The court agrees with the trial judge. After hearing the appellant, the court dismissed the appeal and promised that reasons would follow. These are the promised reasons.
Overview
5Linda Spencer has four children, one of whom is Sandra Lynn Spencer, the respondent in this appeal.
6On March 18, 1993, Linda Spencer bought the property, [address omitted] in St. Clair Beach, Ontario. That same day, she executed a trust agreement (the "trust agreement") in which she established the Spencer family realty trust ("SFRT") in favour of herself and her four children. She was the named trustee. The preamble to the trust agreement stated that Linda Spencer bought the property in trust for the benefit of herself and her four children. Article 1.1 defined the trust property as the property plus any additional property that might be contributed to the SFRT. It also provided that any distribution pursuant to the trust agreement was not to form part of the recipient's net family property (the "proviso to art. 1.1").
7The respondent married Derek Lawrence Riesberry (the "appellant") in 1994. They had two children. After the property was purchased in 1993, the parties resided in it, apart from a two-year period during which a new house was built on the property. They did not pay rent during the time they resided in the property but they did pay expenses associated with it, such as taxes, insurance, utilities and maintenance.
8On December 1, 2005, the trust agreement was amended to change the trustee from Linda Spencer to her daughters, Lori Fisher and the respondent. At various times, Linda Spencer purchased three other properties and made them part of the subject-matter of the SFRT. Just as the respondent and her family were permitted to live in the property, so too each of the respondent's three siblings and their families were permitted to live in one of the other trust properties.
9After the appellant and respondent separated in August of 2010, Linda Spencer gave notice to vacate, as she intended to take possession of the property. The respondent and one child vacated but the appellant and the other child remained in the property.
10The respondent began divorce proceedings. Questions about the trust agreement and the respondent's interest in the property arose in the course of those proceedings. The appellant [page378] added Linda Spencer and the SFRT as respondents in the matrimonial proceedings (the "SFRT respondents").
11In April of 2011, in the course of two endorsements, Quinn J. directed the trial of an issue to determine whether the trust agreement excluded the property from the respondent's net family property (the "Quinn J. endorsements").
12Justice Scott K. Campbell (the "trial judge") conducted the trial on May 24, 2011. By order dated August 10, 2011, he ordered that (1) the property is not a matrimonial home within the meaning of the FLA; (2) the proviso to art. 1.1 is a condition subsequent that is void for uncertainty; (3) the respondent's interest in the SFRT is an asset within the meaning of the FLA; and (4) evaluations of the respondent's interest in the SFRT shall be undertaken as part of the equalization calculation.
13In this appeal, the appellant challenged only the first determination, namely, that the property is not a matrimonial home within the meaning of the FLA.
14The court dismissed the appeal.
The Quinn J. Endorsements
15The appellant challenged the jurisdiction of the trial judge to make the first determination in the order under appeal. Thus, it is necessary to carefully consider the Quinn J. endorsements.
16On April 14, 2011, Quinn J. directed the trial of an issue to determine whether the trust agreement excluded the property from the net family property definition of the FLA. Paragraph 8 of his reasons contains his ruling on this matter. It reads as follows.
Counsel for the [respondent] and Linda Spencer and the Spencer Family Realty Trust have argued that the trust agreement and its amendment excludes the trust property from the net family property definition of the Family Law Act. The [appellant], Derek Riesberry, has argued that the trust agreement and its amendment does not exclude the trust property (family residence or interest in trust) from the net family property definition of the Family Law Act. This application will not move forward until this court rules on the trust agreement. The Family Law Rules (16(1)) provide for a motion for summary judgment on part of a claim. The Family Law Rules 16(8) and (9) provide for the court deciding a question of law and giving directions if necessary. In my judgment, the trust agreement interpretation is a pure question of law. The trust agreement and the amendment should be all that is necessary for the interpretation. The question to be answered by the court is set out in Article 1.1 of the trust agreement. Once this court makes a ruling on the trust, valuations, if necessary, can be conducted and any other motions flowing from the court's ruling can be launched.
17In reasons dated April 29, 2011, Quinn J. reiterated that the trial was to resolve whether the trust agreement excludes the property from the provisions of the FLA and whether the [page379] respondent had a property interest in the SFRT that should be included in her net family property.
The Trial Decision
18The trial judge first considered the Quinn J. endorsements. He stated that the trial had begun with a discussion of what issues were to be decided by it. He noted that the parties' factums all stated the issues differently.
19The trial judge concluded that there were two issues to be resolved, namely: (i) Does the trust agreement exclude the property from the provisions of the FLA? (ii) Does the respondent have a property interest in the SFRT that should be included in her net family property?
20In deciding the first issue, the trial judge focused on s. 18(1) of the FLA. He noted that there is no question that the property was a family residence: it was regularly occupied by the appellant and the respondent and their children, and it was their home at the time of their separation. There was no suggestion that they occupied any other residence as their family home. Thus, the issue was whether the respondent had an interest in the property within the meaning of s. 18(1).
21The trial judge held that the respondent has a contingent beneficial interest in the SFRT, "whatever that might be on the death of Linda Spencer". She has, however, no interest in any specific property held by the SFRT. Therefore, he concluded, she did not have an interest in the property within the meaning of s. 18(1) of the FLA. In reaching this conclusion, the trial judge relied on the decision of Panet J. in Clarke v. Read Estate, 2000 CanLII 22457 (ON SC), [2000] O.J. No. 4155, 12 R.F.L. (5th) 305 (S.C.J.).
22The trial judge then considered the second issue, namely, whether the respondent's interest in the SFRT is to be included in her net family property. In concluding that it is, he relied on s. 4(1) of the FLA, which defines net family property, and case law in which the courts have held that a beneficial interest in a trust, whether vested or contingent, is property and to be included when determining a person's net family property.
23Thereafter, the trial judge ruled on the nature of the proviso to art. 1.1 of the trust agreement. This part of the order below has not been appealed, so there is no need to recount the trial judge's reasoning on this point.
24The trial judge concluded by stating that the property is not a matrimonial home within the meaning of the FLA. [page380]
The Issues
25This appeal raises two issues: (1) Did the trial judge err in finding that, at the date of separation, the respondent did not have an interest in the property within the meaning of s. 18(1) of the FLA? (2) In determining that the property was not a matrimonial home within the meaning of the FLA, did the trial judge exceed the scope of the issue to be decided?
The Relevant Provisions of the Trust Agreement
26The preamble to the trust agreement reads as follows:
WHEREAS the Settlor has acquired certain real property in trust for the benefit of herself and her children, WILLIAM GREGORY SPENCER of the Town of St. Clair Beach, in the County of Essex and Province of Ontario and SANDRA SPENCER of the Town of St. Clair Beach, in the County of Essex and Province of Ontario and LORI SOROKOPAS of the Town of LaSalle, in the County of Essex and Province of Ontario and CONNIE JEFFERY of the Municipality of Metropolitan Toronto, in the Province of Ontario, (hereinafter called the "Beneficiaries"), and has taken title to the real property listed in Schedule "A" annexed hereto, and may hereafter transfer or cause to be transferred to the Trustee other real or personal property, all of which is to be held by the Trustee, upon the trusts, and subject to the powers and provisions hereinafter declared and contained.
27Article 1.1 of the trust agreement defines the subject matter of the trust as the property and any other property vested in the trustee. The proviso to art. 1.1 states that any distribution shall not form part of the recipient's net family property for the purposes of the FLA. Article 1.1 reads as follows:
1.1 "Trust Property" shall [be] the land [and] premises described in Schedule "A" annexed hereto and form a part of this Declaration of Trust, and any further or additional real or personal property which the Settlor, or any other person may donate to or vest or cause to be vested in the Trustees, to be held upon the trusts, and with and subject to the powers and provisions hereof and any property substituted therefor. PROVIDED however, that any benefit whether as to income or capital or both, or income from capital or proceeds to which any person shall become entitled in accordance with the provisions of this Trust Agreement shall not fall into any community of property which may exist between any such person and his or her spouse, and shall not form part of his or her net family property for the purpose or purposes of the Family Law Act (Ontario), and any amendments thereto or any successor legislation thereto, but shall only be paid by the Trustee to such person on the condition that the same shall remain separate property of such person, free from the control of his or her spouse and the separate receipt of such person shall be a discharge to the Trustee of such payment. [page381]
28Article 3.1 stipulates that the trust property is to be held in trust for the benefit of Linda Spencer and her four children; Linda Spencer has the right to use the trust property during her lifetime; and, on Linda Spencer's death, the trust property is to be divided into equal shares for the children alive at her death. It reads as follows:
3.1 The Settlor gives the Trust Property to the Trustee upon the following trust: (a) The Trustee shall hold the Trust Property in trust for the Beneficiaries subject to a life interest in favour of Linda Spencer to use the Trust Property during her lifetime; (b) Upon the death of Linda Spencer, the Trustee shall divide the Trust Property into a number of equal parts so that there is one part for each Beneficiary living at the death of Linda Spencer.
29Article 6.1 makes the trust irrevocable. It reads as follows:
6.1 The Settlement hereby made shall be irrevocable by the Settlor and notwithstanding anything herein expressed or implied, no part of the capital or income of the Trust Property shall be paid or lent or applied for the benefit of the Settlor in any manner or in any circumstances whatsoever.
A Preliminary Comment
30As has been noted, the trial judge interpreted the proviso to art. 1.1 of the trust agreement as having created a condition subsequent whose intent was to defeat the effect of the FLA. He struck down the condition subsequent as being void for uncertainty.
31This aspect of the order below has not been appealed. Nothing in these reasons is to be taken as approving this aspect of the decision below.
At the Date of Separation, Did the Respondent Have an Interest in the Property Within the Meaning of s. 18(1) of the FLA?
32The appellant submits that the trial judge erred in finding that the respondent did not have an interest in the property within the meaning of s. 18(1) of the FLA. He makes the following three arguments in support of this submission: (1) the respondent's interest as a beneficiary of the SFRT was sufficient to establish an interest in the property within the meaning of s. 18(1); (2) the respondent's role as a trustee of the SFRT, combined with her beneficial interest in the SFRT, was sufficient to establish an interest in the property within the meaning of s. 18(1); and [page382] (3) enforcing the notion of the separate entities of trustee and beneficiary will defeat the desired effect of the FLA and the special treatment afforded a matrimonial home in that legislation.
33As I will explain, I do not accept this submission or any of the arguments advanced in support of it.
1. The respondent's interest as a beneficiary of the SFRT
34The trial judge held that the respondent has a contingent beneficial interest in the SFRT trust property as a whole, whatever that might be on the death of Linda Spencer. While the four residences are currently the subject matter of the SFRT, the respondent as a beneficiary has no property interest in any specific trust asset. Therefore, she has no specific legal interest in the property within the meaning of s. 18(1) of the FLA.
35I agree with the trial judge.
36The preamble to the trust agreement defines the beneficiaries as Linda Spencer and her four children. Article 3.1 of the trust agreement provides that on the death of Linda Spencer, those of her children who are alive will be entitled to equal shares in the trust property. As the respondent's entitlement under the SFRT is conditional on her being alive at the time of her mother's death, the trial judge correctly found that the respondent has a contingent beneficial interest in the assets of the SFRT.
37Unless the terms of the trust expressly provide otherwise, a beneficiary has no property interest in any specific asset of the trust, prior to or absent an appropriation of such asset to the beneficiary by the trustee: see Gennaro v. Gennaro, 1994 CanLII 7484 (ON SC), [1994] O.J. No. 183, 111 D.L.R. (4th) 379 (Unif. Fam. Ct.).
38In Gennaro, Vita Gennaro owned a house on Case Street. Under her will, she named her son Angelo the trustee of her estate. As trustee, Angelo was given wide powers of sale and administration. Angelo and his two siblings were the residuary beneficiaries of their mother's testamentary trust. After Ms. Gennaro died, Angelo and his wife lived in the Case Street property until they separated.
39Justice Steinberg held that the will did not vest any specific property in any of the heirs. No beneficiary under the trust, including Angelo, could rely on receiving a conveyance of any interest in the Case Street property. Accordingly, Angelo did not have an interest in the Case Street property within the meaning of s. 18(1) of the FLA. [page383]
40Justice Panet reached the same result in Clarke. In Clarke, prior to her marriage, a woman conveyed title to her personal residence to a trust of which she and her daughter were beneficiaries. Her intent was to ensure that ownership of the home and her ability to transfer it to her daughter would be unaffected by her marriage. The terms of the trust provided that on her death, all the trust property would go to her daughter.
41The woman and her husband occupied the residence. After she died, her husband claimed an equalization payment, alleging that the family residence was a matrimonial home within the meaning of s. 18(1) of the FLA or, alternatively, a property owned by the wife at the time of her death.
42At para. 37 of his reasons, Panet J. held that the family residence was an asset of the trust throughout the marriage and that the wife did not have an interest in the home within the meaning of s. 18(1) of the FLA.
43In the present case, the trust agreement gives the trustees broad powers to manage and administer the trust property. There is no provision in the trust agreement giving the respondent or any of her siblings the right to call for the transfer or delivery of any particular item of property held by the SFRT, either prior to or following the death of Linda Spencer. The trust agreement places no obligation on the trustees to transfer any asset in specie. Indeed, we cannot even know what the trust property will consist of at Linda Spencer's death. There will be no automatic conveyance of one property to each of the four children on the death of Linda Spencer, as the appellant contends.
44The respondent's interest as a beneficiary of the SFRT is not an interest in the property within the meaning of s. 18(1) of the FLA.
2. The respondent's role as a trustee of the SFRT
45The respondent and her sister, Lori Fisher, are co-trustees of the SFRT. As such, they have joint legal control of, and authority over, the subject matter of the SFRT. As trustee, the respondent has the powers and duties given to her by the trust agreement and legislation. It is self-evident that the respondent's duties and powers as trustee are not an interest in the property within the meaning of s. 18(1) of the FLA. How could they be? She possesses those powers and duties not in her personal capacity but in her fiduciary role as trustee, a role that requires her to act solely in the best interests of the beneficiaries.
46Moreover, the court cannot combine or conflate the respondent's powers and duties as trustee with her position as a [page384] contingent beneficiary under the SFRT, as the appellant contends, to create an interest in the property within the meaning of s. 18(1). As I explain more fully below, the roles of trustee and beneficiary are distinct and must be maintained as separate and distinct in order for the trust to be workable.
3. The separate entities argument
47The appellant argues that the court should not enforce the separate entities of trustee and beneficiary. He points to Debora v. Debora (2006), 2006 CanLII 40663 (ON CA), 83 O.R. (3d) 81, [2006] O.J. No. 4826 (C.A.), a decision of this court, in which the corporate veil was pierced to find that a cottage owned by the appellant's company was the parties' matrimonial home for the purposes of equalization. The separate entities of corporation and shareholder were not maintained in Debora because, in the words of the court, at para. 24 of the reasons, "it would yield a result too flagrantly opposed to justice, convenience or would defeat the desired effect of [the] legislation". The appellant contends that maintaining the separate entities of trustee and beneficiary in the present case would similarly undermine the intent of the FLA and the special treatment it affords a matrimonial home.
48Two significant distinctions between Debora and the present case are a complete answer to this argument.
49The first relates to s. 18(2) of the FLA, which reads as follows:
18(2) The ownership of a share or shares, or of an interest in a share or shares, of a corporation entitling the owner to occupy a housing unit owned by the corporation shall be deemed to be an interest in the unit for the purposes of subsection (1).
50In Debora, title to the property in question was held by a corporation. The appellant was described as the corporation's alter ego. He was its sole shareholder; he controlled it. He had provided all of the funds for the purchase, maintenance and repair of the property. Based on s. 18(2), the court pierced the corporate veil, saying that the appellant could not hide behind the corporate veil to defeat his wife's legitimate claim.
51It was s. 18(2) of the FLA that gave the court the power to pierce the corporate veil in Debora. There is no comparable provision in the FLA in respect of trusts.
52Second, to ignore or conflate the separate roles of trustee and beneficiary would be contrary to the fundamental nature of a trust and would render the trust unworkable.
53A trust is a form of property holding. It is not a legal entity or person. A trust does not hold title to property nor can it. It is the trustee who holds legal title to the trust property. [page385]
54A trust is also a type of relationship, namely, the fiduciary relationship that exists between trustee and beneficiary. The foundation of the trust relationship is the separation of roles between the trustee and beneficiary with the trustee being the legal owner of the trust property and the beneficiary being the equitable owner of the trust property. The trustee holds legal title to the trust property so that it can manage, invest and dispose of the trust property solely for the benefit of the beneficiaries. A trust can only exist when there is a separation between legal ownership in the trustee and equitable ownership in the beneficiaries.
55If the court were to ignore or conflate the separate entities, it would destroy the foundation of the trust relationship. Put another way, absent the separate entities, there is no trust relationship and, therefore, no trust. That is not the case when the corporate veil is pierced. In that situation, the corporation as a separate legal entity remains -- it is simply that the court can look through the veil, in very limited circumstances, to attribute ownership to the corporation's alter ego.
Did the Trial Judge Exceed the Scope of the Issue to be Decided at Trial?
56In a word, the answer to this question is no.
57In para. 61 of his reasons, the trial judge states that the property "is not a matrimonial home within the meaning of the FLA". This sentence is repeated as para. 1 of the order under appeal. It follows the trial judge's analysis of why the respondent's interest in the SFRT is not an interest within the meaning of s. 18(1).
58There are two conditions in s. 18(1) that must be satisfied for a property to be a matrimonial home: (1) a person must have an interest in the property; and (2) at the time of separation, the property must be ordinarily occupied by the person and his or her spouse as their family residence. The trial judge recognized that the second condition had been met because the parties had used the property as their family residence. However, as has already been explained, he held that the first condition had not been met because the respondent's interest is in the SFRT, not the property.
59Therefore, when the trial judge stated that the property was not a matrimonial home within the meaning of the FLA, he was simply saying that it was not a matrimonial home within the meaning of s. 18(1) of the FLA. Understood in this way, the trial judge did not exceed the scope of the issue to be decided. [page386]
Disposition
60It is for these reasons that I would dismiss the appeal with costs to the respondent fixed at $10,000 and to the SFRT respondents fixed at $20,000, disbursements and all applicable taxes included.
Appeal dismissed.
