In 2022 the Supreme Court of British Columbia heard Cottrell v Cottrell, 2022 BCSC 1607, where an ex-spouse sought a declaration that he had an interest in a discretionary trust under the B.C. Family Law Act, which could then be used in divorce proceedings for calculating Net Family Profit. 

In this case, a married couple created two discretionary trusts, one a family trust, and the other a partner trust, in order to deal with lottery winnings, savings, and assorted investments. There were four beneficiaries: the couple, and their two children. One of the children, Ms. Cottrell, was the trustee of the trusts for a period, although she was not actively involved in the management of the trust. In 2021 she resigned as trustee in order to distance herself from the trusts when her marriage to Mr. Cottrell ended and the couple divorced.

In the divorce, Mr. Cottrell claimed an interest in the trusts; specifically, that he was entitled to a share of the increase in value of the trust assets as they were considered to be included family property under the B.C. Family Law Act. Ms. Cottrell argued that as the trusts were discretionary, and as she had no actual property interest in the trusts, her interest could be defeated, extinguished, or rendered valueless. The Court determined that Mr. Cottrell bore the burden of proof to establish that Ms. Cottrell’s beneficial interest in the discretionary trusts had increased in value since their creation.

The Court ultimately decided that the uncertainty caused by the fact that Ms. Cottrell’s interest was a contingent beneficial interest meant that, at the time of trial, there was no definitive proof that there had in fact been an increase in the value of Ms. Cottrell’s interest in the trusts. The Court noted that “Joanne has never had the actual or even an apparent ability to compel a distribution of the Muster Trusts, and has no reliable assurance regarding the specific extent to which she may receive such a distribution in the future.”

This case is consistent with a body of case law on the subject that exists in Ontario. In Ontario, the case law provides a list of factors for consideration when determining whether a beneficial interest in a discretionary trust ought to be included in a Net Family Property calculation. Degree of control over the trust is an important factor when answering that question.

Notably, in Tremblay v. Tremblay 2016 ONSC 588 the Court found that determining the degree of control is an exercise which includes a consideration of all factors, including, but not limited to, evidence of intention when the trust was founded, the composition of trustees, powers of the beneficiary to influence or be consulted in trustee decisions, any history of previous trustee actions or decisions which speak to beneficiary control, powers of the beneficiary to alter the trustees, and the relationship between the beneficiary and trustees. It will be interesting to watch how this case will influence future cases in B.C., and whether or not B.C. will continue to match Ontario’s case law in such instances.