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During the equalization of net family property, a party may want their former spouse to have a high net family property value to receive a more advantageous equalization payment. In this scenario, the party would be interested in ensuring their former spouse pursues any legitimate trust claims they may have.
But if they don’t, can a spouse seeking an equalization payment make the trust claim on behalf of their spouse?
Wife Brings Trust Claim Against Mother-in-Law
Karatzoglou v. Commisso involved a spouse’s claim against her mother-in-law, claiming that the mother-in-law held property in trust for her spouse that should be included in his net family property for equalization in their divorce proceedings. The motion judge dismissed the claims against the mother-in-law. The case was appealed. The only issue on appeal was whether the motion judge had erred by granting partial summary judgment. The appellant argued the judge erred in deciding the case was suitable for summary judgment when inconsistent evidence required a trial to resolve. The Court of Appeal disagreed.
The appellant, Rosetta, was married to Philip. Rosetta claimed that her mother-in-law, Lisa, held several properties in trust for Philip. These included the “Rainbow Valley” property where the couple resided and a second property where Philip’s business was located. The evidence established that Lisa and her husband purchased the Rainbow Valley residence and later allowed Philip and Rosetta to live in the home, for which they paid monthly rent. They also purchased the business property, where Lisa’s husband and later Philip operated a business.
The Spouses Had No Interest in the Properties
The court emphasized that there was no evidence of Philip’s beneficial ownership of either of the properties. Looking first at the Rainbow Valley property, the motion judge determined that Rosetta and Philip did not contribute to the property’s purchase price. There was also no evidence they made any contributions to the property that increased its value and could have been the basis for a claim of unjust enrichment leading to a constructive trust. The motion judge found that the pair could not have purchased the home on their own, and the Court of Appeal agreed that the conclusion that they did not contribute to the purchase price was supported by the evidence and entitled to deference.
Based on that finding, no evidence could give rise to a constructive trust interest in the property. Cases have been clear that to establish an unjust enrichment and a constructive trust remedy; Rosetta would need to establish (1) an enrichment or benefit to LISA, (2) a corresponding deprivation to Rosetta or Philip, and (3) the absence of a juristic reason for the enrichments. But Rosetta’s claim for unjust enrichment was based on the fact that she contributed furniture, an unspecified amount of money for renovations, and performed domestic duties around the house. However, none of these enriched or benefited Lisa, who did not use the home during this period.
Similarly, there was no basis for Rosetta’s claim relating to the business property. The property was purchased when Philip was fifteen years old. He ran his business from the property and paid the expenses, but Lisa solely owned the property following the death of her husband. And there was no evidence of any contribution by Rosetta or Philip that would give rise to a trust interest in the property.
A Constructive Trust Claim is Privately Held
The second issue that had to be considered was whether Rosetta had standing to pursue a trust claim against Philip. The motion judge originally concluded that she lacked standing, referring to Morris v. Nicolaidis. In that case, the court considered whether an individual could advance a trust claim on behalf of a former spouse to increase that spouse’s net family property and benefit in calculating an equalization payment. Justice McGee noted that a constructive trust claim is privately held and is not a public interest claim. Moreover, common law principles relating to private interest standing stipulated that “one cannot sue upon an interest that one does not have.”
Looking to Carroll v. Toronto-Dominion Bank, the court set out that “to have private interest standing, a person must have a direct personal legal interest in the issue” and be “specifically affected by the issue.”
In Morris, the question was whether an equalization claim created a direct personal legal interest that conferred standing to make a trust claim on behalf of a spouse. The judge found that it did not, commenting that an equalization payment cannot change the title or ownership of property between spouses. Ultimately, a claim that property is held in trust for a non-tiled spouse or that they have a beneficial interest in property “can only arise from the personal, direct deprivation of the non-titled spouse.” The judge found that an equalization claim was “an indirect legal interest” and was insufficient to “confer standing to a person to make a trust claim on behalf of a non-titled spouse or former spouse.” Justice McGee did suggest that there could be cases where a non-titled spouse does not advance a meritorious trust claim.
However, even in those cases, the other spouse could not “step into the non-titled spouse’s shoes and advance the claim” because they would not have a direct personal interest in the claim. Instead, in such circumstances, the spouse could try to vary the equalization payment between themselves and the non-titled spouse if the payment was unconscionable.
In Karatzoglou, Rosetta argued that Morris’s application should be limited to claims arising from resulting or constructive trust principles. The motion judge disagreed and, in any case, noted that this was not a case dealing with an express trust. The Court of Appeal agreed with the motion judge and found no basis to restrict the principles in Morris, as Rosetta had suggested. Instead, Morris accurately set out the law, and the court reiterated that a non-titled spouse could not assert a trust claim against a third party on behalf of a spouse for equalization purposes. A summary judgment motion occurred, which addressed Rosetta’s claims against Lisa. While Rosetta argued it was inappropriate to order partial summary judgment, the Court of Appeal determined this was the appropriate procedure and dismissed her appeal.
Equalization Claim Not a Basis to Assert a Trust Claim Against a Third Party
Courts have established that a constructive trust claim is privately held. If a party has not made a financial contribution to property, they will not have legal standing to make a trust claim on behalf of their spouse simply because they have a claim for an equalization payment.
Windsor Family Lawyers Helping Clients Navigate Complex Property And Asset Division Matters
Are you going through a divorce and believe your spouse may have hidden assets in a trust? While you may want to pursue a claim against a third party to increase your equalization payment, it’s important to understand the legal limitations. If you’re facing a similar situation, it’s crucial to consult with an experienced family law lawyer at Johnson Miller Family Lawyers to assess your options and protect your rights. Contact us today at 519.973.1500 or online for a confidential consultation.
