Anonymised, illustrative composite. The father gifted 40% of the company to his son during the son’s marriage. Nine years later the marriage ended, and how much of that stake was on the table depended entirely on which province the couple lived in.
At a glance
A second-generation HVAC and refrigeration distributor in the Fraser Valley. The father held all the shares until the son had been in the business six years, then gifted him a 40% block outright — no trust, no freeze. The son had married three years earlier. Nobody raised a marriage agreement, on the reasoning that a gift from a parent is protected.
That reasoning is half right, and the wrong half is the half that mattered. Over the following nine years the business tripled. When the son and his wife separated, the family’s succession plan met the family property regime for the first time.
The father had built the next stage of the plan on the assumption that the shares were untouchable: a second gift of 20% sat drafted and unsigned, and the company had just opened sale discussions with a national distributor. Both stopped.
The exposure was not the gift. It was the growth. The son could demonstrate, from the transfer documents and a contemporaneous valuation, exactly what he had been given and when. What he could not do was argue that the tripling of the company’s value across nine years of the marriage was outside the claim, because in British Columbia it is not.
An independent valuation put the 40% block at $1.1 million at the date of the gift — a minority-discounted figure on a company then doing $860,000 of EBITDA — and at $5.9 million at the separation date. The excluded property was therefore $1.1 million; the family property component was the $4.8 million of increase, of which the spouse’s presumptive entitlement was an undivided half interest, or $2.4 million.
Against that: the son’s personal liquid assets were roughly $310,000 and the matrimonial home carried $640,000 of equity. There was no route to $2.4 million that did not involve the company. The distributor’s indicative offer valued 100% at $14.8 million, which is why the file resolved the way it did — the sale became the funding mechanism for the settlement rather than the thing the settlement was blocking.
The same arithmetic in Ontario produces a different starting point. A gift received from a third person after the date of the marriage is excluded from net family property in full, and so is property into which it can be traced. The $5.9 million comes out of the calculation entirely, and the equalization payment is computed on what is left.
British Columbia’s Family Law Act runs on a division of property with a carve-out. Section 85(1) provides that “The following is excluded from family property” and lists, among other things, “gifts to a spouse from a third party” at paragraph (b.1) and inheritances at paragraph (b). So far, so protective.
Section 84(2)(g) is where the protection stops. Family property includes “the amount by which the value of excluded property has increased since the later of the date” the relationship began or the excluded property was acquired. The gift is excluded; the growth on the gift is not. Section 81(b) then gives each spouse, on separation, “a right to an undivided half interest in all family property as a tenant in common”.
Two further provisions carry more weight in a business file than they are usually given. Section 85(2) puts the burden on the person claiming the carve-out: “A spouse claiming that property is excluded property is responsible for demonstrating that the property is excluded property.” Without a dated valuation at the moment of the gift, the son would have been arguing about the size of his own exclusion, not just about the growth. And s.95(1) permits an unequal division “if it would be significantly unfair to” divide equally — a discretion, not a lever, and not something to plan around.
Ontario’s Family Law Act is built on a different architecture and produces the opposite answer on these facts. It equalises net family property rather than dividing assets. Section 4(2) excludes from net family property “Property, other than a matrimonial home, that was acquired by gift or inheritance from a third person after the date of the marriage.” That exclusion is measured at the valuation date, so it takes the growth with it. Section 5(1) then gives the spouse with the lesser net family property “one-half the difference between them”.
Then read the mirror image, because this is where the two regimes swap sides. Had the son owned the shares before the marriage rather than receiving them during it, Ontario would give him only a deduction under the definition of net family property for “the value of property, other than a matrimonial home, that the spouse owned on the date of the marriage” — the date-of-marriage figure comes off, and every dollar of growth stays in and is equalised. British Columbia, on the same facts, excludes the pre-relationship property under s.85(1)(a) and shares only the growth under s.84(2)(g). Neither province is simply the more protective one. Which is better depends on whether the shares arrived before the wedding or after it.
The separation settled seven months in. The son’s 40% realised $5.92 million on closing; $2.28 million went to the spouse, after a modest discount to the presumptive half of the growth for the son’s post-separation work on the sale. The father’s second 20% gift was replaced by a freeze, a family trust holding the growth shares, and marriage agreements signed by the two younger siblings before their own gifts.
The sale closed fourteen months late at $14.35 million against a $14.8 million indicative. See trusts in an acquisition structure for the mechanics the family adopted for the remaining two children.
A marriage agreement signed before the gift, recording the gift as excluded property and dealing expressly with growth, is a $6,000 to $12,000 document. It is not a guarantee — it can be attacked, and s.93 of the BC Act sets out when an agreement respecting property division can be set aside — but on this file it was the difference between a $2.28 million payment and a negotiation about a much smaller number.
The second uncosted item was the valuation that was never done. The son was fortunate that the transfer had been papered with a contemporaneous valuation for tax purposes. Where a gift is made without one, s.85(2) puts the owner in the position of proving, years later and against a motivated opponent, what a private company was worth on a date nobody documented. That is a far more expensive argument than the one this file had.
The tell was the sentence the family said out loud and nobody tested: “it was a gift, so it is protected.” In British Columbia that sentence is true of the gift and false of everything the gift becomes. A share in a growing company is not a static asset; it is an asset whose whole point is to increase, and s.84(2)(g) is aimed at exactly that increase.
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