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Family Law: Divorce, Separation, Property Division, Support, Resulting Trust

Family Law: Divorce, Separation, Property Division, Support, Resulting Trust

*Holtby v. Draper 2017 ONCA 932

The husband and wife began living together in 1994, at a time when the husband was engaged in matrimonial litigation with his first wife, B. They were married in 1995 and separated in 1999. In 1994, the husband owned a dairy farm, and B and he were joint owners of an adjoining lot (lot 8). He was facing potential charges of sexually assaulting his foster daughter W and a potential civil claim by W. In partial settlement of the matrimonial litigation with B, lot 8 was transferred from the husband and B to the husband and the wife as join tenants. The wife went on title for Planning Act, R.S.O. 1990, c. P.13 purposes. In 1996, the spectre of criminal and civil liability led the husband and wife to reorganize their financial affairs. Lot 8 was transferred from the parties jointly to the wife as the sole registered owner “for natural love and affection”. The parties incorporated K Ltd. and each paid nominal consideration for 50 per cent of the common shares. K Ltd. purchased the husband’s farm property and business. In subsequent matrimonial proceedings, the trial judge found that the wife’s 50 per cent of the common shares in K Ltd. and 100 per cent interest in lot 8 were beneficially owned by the husband by way of resulting trust. The wife appealed.

Held, the appeal should be allowed in part.

The trial judge did not err in concluding that the transfer of the K Ltd. shares to the wife, which was the vehicle for the husband’s transfer to her of 50 per cent of his interest in the farm, was gratuitous; that the husband’s intention in making the transfers, namely, to defeat or delay creditors, did not determine the issue of intention as between the parties; and that the wife had not rebutted the presumption of resulting trust. The trial judge correctly rejected the argument that there could be no resulting trust applied to K Ltd.’s assets simply because the shares were issued directly to each of the parties rather than transferred from the husband to the wife. Although the shares themselves were not transferred, the farm assets were transferred gratuitously through K Ltd. The trial judge’s conclusion that the husband did not intend to confer a beneficial interest in the farm property and assets on the wife through K Ltd. was open to him on the evidence. A motive to shield property from creditors does not itself rebut the presumption of resulting trust. The issue is always the intention of the transferor in relation to the transferee.

As for lot 8, the husband had made out his claim to a resulting trust but only for 50 per cent of that property. In relation to the initial transfer to the wife as joint owner, the trial judge erred in placing the onus on the wife to rebut the presumption of resulting trust when lot 8 was registered in the parties’ joint names. Section 14 of the Family Law Act, R.S.O. 1990, c. F.3 provides that the fact that property is held in the name of spouses as joint tenants is proof, in the absence of evidence to the contrary, that the spouses intended to own the property as joint tenants. The trial judge erred in concluding that the wife received a gratuitous transfer as he failed to consider that the interest was acquired by payment to B, with funds raised on a mortgage that was mostly serviced by the wife. Finally, the trial judge erred in failing to consider that the husband’s Planning Act purpose for holding lot 8 in joint names was consistent with an intention to make the wife a joint beneficial owner. The trial judge did not err in finding that the subsequent transfer of lot 8 from the parties jointly to the wife as sole registered owner was gratuitous and that the wife had not rebutted the presumption of resulting trust. The husband’s motive for the transfer — defeating or delaying creditors — did not preclude his claim of resulting trust.

In Pecore v. Pecore, [2007] 1 S.C.R. 795, [2007] S.C.J. No. 17, 2007 SCC 17, at para. 44, Rothstein J. explained that the trial judge must commence his or her inquiry with the applicable presumption and weigh all the evidence in an attempt to ascertain, on a balance of probabilities, the transferor’s actual intention. When a gratuitous transfer is made, the transferee has the onus to demonstrate a gift was intended, to rebut the presumption of resulting trust: Pecore, at para. 24. The presumption of resulting trust applies to married spouses, except that where property is held in joint ownership, the presumption is that they intended to each own one half, in the absence of evidence to the contrary: Family Law Act, s. 14. The transferor’s intention at the time of the transfer is the critical consideration: Nishi v. Rascal Trucking Ltd., [2013] 2 S.C.R. 438, [2013] S.C.J. No. 33, 2013 SCC 33, at paras. 2, 30 and 41.

Evidence of intention that arises subsequent to a transfer must be relevant to the intention of the transferor at the time of the transfer. Its reliability must be assessed to determine weight, guarding against evidence that is self-serving or reflects a change in intention: Pecore, at para. 59; Andrade v. Andrade (2016), 131 O.R. (3d) 532, [2016] O.J. No. 2553, 2016 ONCA 368, at para. 63.

The first issue in a resulting trust analysis is whether the transferee gave consideration for the transfer: here, whether Ms. Draper gave consideration for the half interest she received in the farm property, through the vehicle of the corporation she and Mr. Holtby jointly owned.

(ii) The intervening corporation does not interfere with the presumption of resulting trust

The trial judge correctly rejected the argument that there can be no resulting trust applied to Knapton’s assets simply because the shares themselves were not transferred directly from Mr. Holtby to Ms. Draper. Although the common shares themselves were not transferred, the farm assets were transferred gratuitously through Knapton. Knapton acted as a conduit through which ownership of the farm’s assets was conferred on Ms. Draper, through common shares. A similar device was used in Paddock.

In Paddock, the issue was whether a husband’s one-sixth share in a farm corporation was held in resulting trust for his wife. The wife and her three sisters inherited a farm property and related business from their parents. When two of the sisters wanted to sell their interests, they contracted with the wife and the remaining sister and an uncle, who incorporated a numbered company to purchase the farm and shares in the related business. The shareholders in the numbered company were the wife, her sister and uncle and their respective spouses.

The husband gave no consideration for his interest in the shares of the numbered company, although he and the other shareholders were shown as having subscribed for $100 worth of shares. Although the husband signed, with the wife, as a joint guarantor of a loan to the business, the trial judge concluded there was no possibility he would be called on the guarantee and that he had not given consideration for his interest.

At trial, the wife claimed her husband held his one-sixth interest in the numbered company in trust for her, and that she never intended to give her husband an interest in her inheritance. The trial judge held that the fact that the shares were placed in the husband’s name when all the consideration flowed from the wife, created a presumption that the husband held his common shares in trust for the wife. The presumption of resulting trust was not rebutted, as the trial judge was not satisfied that the wife intended, at the time of the transfer, to grant the husband a beneficial interest.

On appeal, this court held that the trial judge’s finding that all of the consideration for the acquisition flowed from the wife was available on the evidence. Therefore, the trial judge was correct in holding that the presumption of resulting trust applied and that the onus was on the husband to demonstrate that a gift of the shares was intended.

Therefore, in my opinion, the trial judge did not err in concluding that this case is similar to Paddock, and that there was a gratuitous transfer of the farm assets from Mr. Holtby to Ms. Draper through Knapton. The onus accordingly shifted to Ms. Draper to rebut the presumption of resulting trust and to establish on a balance of probabilities that Mr. Holtby intended a gift to her of one half of the farm and other property he owned at the time of its transfer.

That said, there is no error in the trial judge’s conclusion that as a matter of law, the intention to defeat creditors did not defeat Mr. Holtby’s resulting trust claim. Although the general rule is that a party cannot rely on his or her own “illegality” in claiming a resulting trust or other equitable remedy, the intention of the parties is always a question of fact to be determined from the evidence. While evidence of an intention to defeat creditors can be evidence of a gift, it is not conclusive.

This was explained in Nussbaum by Karakatsanis J. (as she then was), at para. 32, as follows:

Even following the amendment of the Family Law Act to provide for a presumption of resulting trust between spouses, there is a line of cases . . . where the court has found that the specific intention to evade creditors means an implied intention to deprive oneself of beneficial ownership. . . . The intent to gift defeats the presumption of resulting trust. In my view these cases do not undermine the principle that an illegal purpose is not a bar where the claimant may rely upon the resulting trust to establish his claim.  As well these cases do not override the principle that the parties’ intentions at the time of the conveyance are a question of fact to be determined upon the evidence. The cases do not purport to impose a “constructive” intention of gift where there is an illegal purpose to defraud creditors. While evidence that someone intended to fully evade creditors can be evidence that they intended to gift their entire interest in the property, the intention of the parties is a question of fact to be determined from all of the evidence.

(Citations omitted)

This passage has been followed and approved of in a number of cases: see Schwartz v. Schwartz, [2012] O.J. No. 1680, 2012 ONCA 239, 349 D.L.R. (4th) 326, at para. 43; Korman v. Korman (2015), 126 O.R. (3d) 561, [2015] O.J. No. 4399, 2015 ONCA 578, 387 D.L.R. (4th) 579, at paras. 26 and 38; and Andrade, at paras. 93 and 94. A motive to shield property from creditors does not itself rebut the resulting trust presumption. The issue is always the intention of the transferor in relation to the transferee.

*Source: Ontario Reports

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