During a marriage, couples may invest in properties outside of Canada. For example, rental properties may be held by a holding company in which one or more parties are shareholders. Upon a divorce, these assets may be considered family property, which must be valued and divided. These assets may also be a significant portion of the family property to be divided, so it is important to know what the court can, or cannot, order in respect of overseas properties, if they are held through a holding company in which the parties have an interest.
This post will discuss whether a court has jurisdiction over properties outside of Canada for the purpose of family property division and will examine the case Linke v. McCullough, 2023 ABKB 277, in which the court had to decide how to deal with US rental properties held by a holding company in which the parties both had an interest. It will also analyze how the property was ultimately divided in order to provide important insights for parties of a divorce who will be dividing overseas properties.
Matrimonial property can include all property acquired by one or more of the spouses during the course of the marriage, unless it is considered exempt (for example, an inheritance). Matrimonial property can also include corporate interests.
It is not uncommon for parties, particularly couples, to set up a structure in which a holding company owns rental property that produces income for the shareholders of the holding company. If the shareholders are one or more of the spouses, then they may have a corporate interest in the holding company. Therefore, the value of the properties held by the holding company may be relevant to the value of the company and to each party’s interest in the company.
In some cases, spouses, through their holding company, may own property outside of Canada. Alberta’s Family Property Act, formerly known as the Matrimonial Property Act, does not provide much guidance on whether the court has jurisdiction over these overseas properties; therefore, it is important to consider the case law on this issue.
In the case of Potter v Boston, 2014 ONSC 2361, the Ontario Superior Court of Justice found that Canadian courts generally do not have the jurisdiction to make orders regarding title, rights or interests in property outside of Canada. The decision also noted that it would be difficult for a Canadian court to enforce an order concerning overseas property, other than through the Canadian court’s contempt powers, which may not be very effective.
There is, however, an exception to this rule, referred to as in personam jurisdiction. In Catania v. Giannattasio, 1999 CanLII 1930 (ON CA), the Ontario Court of Appeal found that the following 4 requirements are necessary to find that in personam jurisdiction applies:
While a court generally does not have jurisdiction over overseas properties, the court can consider the value of the properties and compensate through unequal division of property.
In Linke v. McCullogh, the parties were both shareholders of a holding company that held several properties in the United States. The parties were married for 13 years and had two children together.
When the parties began their marriage, they incorporated a company, “ADL”, in Alberta. Each party owned 50% of the ADL shares at the time of trial. After separation, the wife was no longer involved with the company and she requested that her shares be bought out. The husband was ordered to make an equalization payment to the wife, after which, she would transfer her ADL shares to him.
There was a valuation of the shares completed at different dates. In 2018, the expert valued the shares at $893,000, which did not include the significant shareholder loan valued at $622,040. In 2022, the expert valued the shares at $1,644,500. The increased value was largely attributed to the increased value of ADL’s United States rental properties. These properties were located in Arizona, and during the marriage, the parties rented out these properties as long-term rental properties and vacation rental properties. The properties were still being rented out at the time of trial.
The valuations were based on the appraisals that were available at different dates.
The Court of King’s Bench of Alberta concluded that ADL owned each of the Arizona properties.
Based on the cases referenced above, the Court determined that it was unable to order that title be transferred for any of the Arizona properties, as they were outside of its jurisdiction.
However, the Court considered the current market value of the properties in order to determine the equalization payment that the husband was required to pay to the wife in exchange for receiving her shares.
Generally, an Alberta court cannot exercise jurisdiction over property located outside of Canada, such as ordering that title be transferred to one of the parties. However, if the property is held by an Alberta corporation and must be divided as matrimonial property, the court can consider the value of the properties in order to determine the value of the holding company. To do this, the court would require evidence of the values of the properties, which may or may not be available, depending on where the property is located.
One or both spouses may own property overseas, which can create challenges in property division upon a divorce. There may not be sufficient evidence or valuations of these properties that are readily available. The valuation and division of overseas matrimonial property is a complex matter that is highly specific to the circumstances of the case. The skilled family law lawyers at Mincher Koeman regularly assists clients with issues involving property division, including overseas property and high-net value matrimonial property. Our Calgary family law lawyers are dedicated to finding the best resolution for you after your divorce.
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