Wife Entitled to Value of Business Sold After Separation

In some cases, parties may use the family funds towards investing in a business. This may include a combination of funds from each party. While going through divorce proceedings, one party may claim that some funds are exempt. For example, they may claim that part of the funds came from an inheritance which should not be included in the pool of family property to be divided. It may be necessary to have clear records of how the funds have flowed, although this may only be evidence that is available in some cases. 

This post will discuss the trial and Court of Appeal decisions of Barkwell v. McDonald, 2021 ABQB 939 and 2023 ABCA 87. This case involves a scenario in which family funds, some of which came from potentially exempt sources, were used to invest in a business. This business was not sold until after separation, which raised the question of how the proceeds would be divided. 

This case provides key insights into how the courts dealt with this matter and is helpful for parties who made a large business investment during the marriage. This case also provides important takeaways where the flow of funds is not precisely recorded to allow for the tracing of exempt property or funds. 

Family Property Act dictates that property in joint names is evidence of joint ownership 

Under s. 36 of the Matrimonial Property Act (now the Family Property Act):

36(1) In making a decision under this Act, the Court shall not apply the doctrine of presumption of advancement to a transaction between the spouses in respect of property acquired by one or both spouses before or after the marriage.

(2) Notwithstanding subsection (1),

(a)the fact that property is placed or taken in the name of both spouses as joint owners is proof, in the absence of evidence to the contrary, that a joint ownership of the beneficial interest in the property is intended, and

(b)money that is deposited with a financial institution in the name of both spouses is deemed to be in the name of the spouses as joint owners for the purposes of clause (a).

The presumption of advancement is a principle that comes from common law. It assumes that if a property is transferred to one’s spouse, then that property is considered a gift to that spouse, and the receiving spouse becomes the sole owner of that property. Under the legislation, this presumption does not apply, meaning that if a party transfers property to their spouse, it is not assumed that the receiving spouse solely owns the property. 

The legislation does assume, however, that if the property is placed or registered in the name of both spouses as joint owners, this is automatic proof that joint ownership was intended. This assumption can be rebutted with evidence to suggest otherwise. 

Also, if money is deposited in an account in both of the parties’ names, then both parties are considered joint owners of the funds. 

Case Example: Barkwell v. McDonald

Trial Decision – court denies wife’s share of business investment

The parties were married for 10 years. 

One of the pieces of family property at issue was an investment in a business, Aurora Cannabis. The funds used to purchase the investment arose from the husband’s inheritance of his mother’s estate, which was claimed to be exempt. An investment of $100,000 was made to purchase shares of Aurora Cannabis, which were sold for approximately $1.46 million after separation. 

At the trial level, the court considered the following in deciding that the husband did not intend to gift his inheritance to his wife:

1. When the inheritance funds were provided by the husband’s mother’s estate, the wife deposited the funds into the parties’ joint account. However, the husband had not agreed to deposit the funds into the joint account and he was also not aware that this had been done.
   
2. The company, Aurora Cannabis, was owned by the husband’s friend, who suggested that the husband invest in the company. The court found that the wife did not want to be associated with the husband’s friend as she did not like him.
   
3. While the investment became profitable, there was no guaranteed return. It was possible that the investment could be completely lost. There was evidence that the husband acknowledged the risk of investing his inheritance in the company. On the contrary, the wife was opposed to the investment and she was not prepared to take on the risk.
   
4. The husband was transparent in disclosing the investment to his wife. While the parties had discussions on how to use the inheritance, the court found that it was the husband’s sole decision to make the investment.
   
5. The wife had not contributed any funds to purchase shares of the business.
   
6. There was no evidence that the wife was opposed to the shares being held solely in her husband’s name. She never asked for half of the shares, nor for the shares to be held in their joint names.
   
7. The shares were placed into the husband’s RRSP and TFSA accounts, and the parties did not have any joint investment accounts.
   
8. Later on, when the husband sold the shares, it was considered his sole decision to do so. The wife did not claim half of the shares and did not assert control over the sale.
   
9. After the shares were sold, the wife did not claim that she was liable for half of the capital gains taxes, which would suggest she believed she had an interest in the shares. Notably, the wife in this case was a tax and estate lawyer who was presumably knowledgeable about these issues. 

The trial judge decided that the investment in Aurora Cannabis was not part of the matrimonial property to be divided. The increase in the value of the Aurora Cannabis shares was fully awarded to the husband, as the judge found that the wife had nothing to do with the shares. The increased value was found to be due to market forces, the shares were purchased one month before the parties separated, and the husband finally received the funds after the separation. 

The wife appealed the decision. 

Appeal Decision – court overturns trial decision; wife entitled to shares of business investment sold post-separation 

The appeal judge found that the trial judge had erred. The Court of Appeal found that the Aurora Cannabis shares were acquired before separation. Even though the gains were not received until after separation, they were still realized during the marriage. Therefore, the investment would be considered matrimonial property to be divided because it was held by either or both of the parties during the marriage, according to s. 7(1) of the Matrimonial Property Act. The sale proceeds of the shares would therefore be part of the matrimonial property to be divided. 

Expert evidence at the trial also traced the funds used to make the investment. The expert stated, and the trial judge accepted, that 24% of the funds to acquire the shares were not exempt as an inheritance. This meant that not all the funds to purchase the Aurora shares were from the husband’s exempted inheritance. Also, the trial judge erred in considering that the wife opposed the investment as the parties’ motivations are not a factor under s. 8 of the Matrimonial Property Act with respect to how property is to be distributed. Also, while the wife did not contribute to the significant increase in the value of the shares, there was no evidence that the husband contributed to the increase beyond market forces. 

Also, the date the funds were received was irrelevant to the division, as the court must consider property acquired during the marriage. Here, the shares were purchased during the marriage. 

The Court of Appeal ordered a new determination of matrimonial property. 

Mincher Koeman Family Lawyers In Calgary and Canmore Can Assist with Matrimonial Property Division Involving Investments and Exempted Funds

During the marriage, parties may decide to make a highly profitable investment at or after separation. The funds used for the investment may come from exempted funds from one party, such as an inheritance. The tracing of exempted funds and division of investment property are complex matters that are highly specific to the circumstances of the case, so you should speak with one of our family law lawyers at Mincher Koeman, who are experienced in assisting parties with issues involving high-value property division. Our Calgary family law lawyers are dedicated to finding the best resolution for you after your divorce.

To book a consultation, please contact us online or by phone at 403-910-3000.