Family Law in Québec: Trusts; Family Patrimony

Yared v. Karam, 2019 SCC 62 (38089)

” In 2011, K set up a trust to protect his family’s assets for the benefit of his and his wife T’s four children. In 2012, the trust acquired a residence with funds transferred by the spouses to the trust patrimony and the family moved in. The house was a residence of the family within the meaning of art. 415 C.C.Q., which sets out that the family patrimony includes the residences of the family or the rights which confer use of them. T filed for divorce in 2014 and passed away in 2015. The liquidators of her succession filed for a declaration that the value of the residence held by the trust should be included in the division of the family patrimony, half of which would therefore go to the estate of T. The trial judge decided that the value of the residence ought to be included in the family patrimony despite the fact that it was held under a trust and not owned directly by one of the spouses. The Court of Appeal allowed K’s appeal and declared that no value from the residence ought to be included in the family patrimony.”

The S.C.C. (5:2) allowed the appeal.

Justice Rowe wrote as follows (at paras. 2-3, 68-71):

“The question raised by this case concerns the proper interaction between these two institutions of Quebec civil law: the family patrimony created by art. 414 of the Civil Code of Québec (C.C.Q. or Civil Code) and the trust under art. 1260 C.C.Q. In substance, this Court must decide if the value of a family residence held under a trust controlled by one of the spouses is included in the family patrimony, even in the absence of fraud or bad faith. The trial judge declared that the value of the residence was to be included in the family patrimony, relying on an analogy with the lifting of the corporate veil at art. 317 C.C.Q. and on the “rights which confer use” of art. 415 C.C.Q. The Court of Appeal reversed that decision and declared that no value from the family residence ought to be included in the family patrimony.

The trial judge did not err in his conclusion. Although I would not rely on art. 317 C.C.Q. by analogy, in my view the “rights which confer use” of the family residence at art. 415 C.C.Q. provided a sound basis for him to declare that the value of the residence ought to be included in the family patrimony. Absent an overriding and palpable error in his determination that Mr. Karam held “rights which confer use” within the meaning of art. 415 C.C.Q., it was not open to the Court of Appeal to overturn this decision on appeal. I would therefore set aside the decision of the Court of Appeal and reinstate the declaratory relief granted by the trial judge.

…In my colleague’s view, art. 1294 C.C.Q. cannot be relied on by Mr. Karam to avoid the possibility of being obliged to transfer half the value of the property to Ms. Yared’s estate, while also being liable to the beneficiaries for the property. In the end, this is a matter for the Superior Court to deal with should Mr. Karam bring an application before it. I leave it to that court to dispose of it properly under the Civil Code.

What is relevant to a proper disposition of the matter before this Court is that the point made by my colleague focuses on what is an ancillary question. The issue in this appeal is whether Ms. Yared (or her estate) is entitled to a half interest in the property by virtue of the division of the family patrimony. That does not depend on the operation of art. 1294 C.C.Q. Rather it turns on art. 415 C.C.Q., which is a rule of public order under the Civil Code. A rule of public order cannot be undermined or denied based on a point of the nature made by my colleague.

Taken to its logical conclusion, my colleague’s reasoning at para. 137 would seem to suggest that because it is awkward for Mr. Karam to unwind the arrangement by which Ms. Yared would be cut out of the family patrimony, one should therefore give effect to the arrangement that would cut out Ms. Yared (in this instance her estate) from her share of the family patrimony. That is not how my colleague puts it, but that is the implication of her position.

I would recall the wording of art. 9 C.C.Q.: “In the exercise of civil rights, derogations may be made from those rules of this Code which supplement intention, but not from those of public order.” What is at issue here is whether such derogation is to be given effect. I would say no. In my view Ms. Yared’s right to a share of the family patrimony cannot be denied by the use of a trust, essentially for the same reasons that it could not be denied by the interposition of a corporation. Neither of these devices should be allowed to circumvent a rule of public order, in this case the division of the family patrimony between husband and wife.”

Full Decision