British Columbia Law
Family Trusts and Divorce in BC: Who Gets What?
<p>Family trusts are common estate and tax planning tools — but when a marriage ends, they become one of the most contested areas of family property law. Whether trust assets are included in the property division depends on the structure of the trust, who controls it, and the true economic reality of the arrangement.</p>
<h2>When Trust Assets Become Family Property</h2>
<p>BC's <em>Family Law Act</em> defines family property broadly. A spouse's interest in a trust is included if that interest has a present value — meaning a court can value it today, even if the benefit is received in the future.</p>
<p>The critical analysis is control. Courts ask: does the spouse effectively control the trust, or effectively control when and how distributions are made to them? If the answer is yes, the trust assets may be treated as that spouse's property, regardless of the formal legal structure.</p>
<p>Factors that suggest a court will include trust assets:</p>
<ul>
<li>The spouse is both the trustee and a beneficiary</li>
<li>Distributions are made consistently whenever the spouse requests them</li>
<li>The trust was established primarily to shield assets from a potential family claim</li>
<li>The spouse treats trust assets as their own in practice</li>
</ul>
<h2>Purely Discretionary Interests</h2>
<p>Where a spouse is named as a discretionary beneficiary but has no control over the trustee's decisions and receives distributions only at the genuine discretion of an independent trustee, the trust interest is generally not family property. The spouse has an expectancy, not a present entitlement.</p>
<p>However, even discretionary distributions that have been made historically can be characterized as income for support calculation purposes — so the trust can affect support even when it doesn't affect property division.</p>
<h2>Pre-Separation Transfers to Trust</h2>
<p>BC courts can set aside transfers of property made with intent to defeat a spouse's family property claim. This is particularly relevant when assets were moved into a trust after a marriage began to break down.</p>
<p>Transactions occurring within two years of separation are at greatest risk of challenge. Transfers that occurred earlier and were made for legitimate reasons — tax planning, estate planning, asset protection unrelated to the marriage — are on much stronger ground, particularly if they were done with legal advice and proper documentation.</p>
<h2>Trust Distributions as Income</h2>
<p>For spousal support and child support purposes, distributions received from a trust are income. If a spouse has the ability to direct distributions to themselves, courts can impute income based on what they could reasonably receive — even if they choose not to take distributions during litigation.</p>
<p>This means that a trust can significantly affect support calculations even in cases where the trust assets themselves are excluded from property division.</p>
<h2>What This Means for Planning</h2>
<p>If your family's wealth is held in a trust structure, getting legal advice early in a separation is essential. The characterization of trust assets — as family property or excluded — can be the most consequential financial question in the entire proceeding, and it requires careful analysis of the trust deed, the history of trustee decisions, and the practical reality of how the trust has operated.</p>
<p>Sea to Sky Law has 35 years of experience navigating complex property and trust issues in BC family law. We help high-net-worth clients understand exactly where they stand — and what options are available to them.</p>
This article is general information, not legal or tax advice. Meetings are by appointment only, by phone or secure video.