Focus On

FAMILY PATRIMONY - Establishment - Residences

Thursday, December 12, 2019 @ 1:39 PM  

Lexis Advance® Quicklaw®
Appeal from a judgment of the Quebec Court of Appeal setting aside a decision declaring that the value of the family residence should be included in the division of the family patrimony. The appellants were the liquidators of the succession their sister, Yared, who passed away in April 2015. In July 2016, they sought a declaration that the value of the family residence should be included in the division of the family patrimony. At the time of Yared’s death, this residence was held under a trust controlled by her husband, Karam. 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” at art. 415 C.C.Q. In 2011, Karam set up the trust to protect the family assets for the benefit of the four children. It was not contested that at the time, Karam acted in good faith and was not attempting to avoid the rules of family patrimony. His intention was to acquire a house that would serve both as the family residence and as an investment protected under the trust for the benefit of his children. The family moved in and at the relevant times, the house was a “residence of the family” within the meaning of art. 415 C.C.Q. In 2012, the trust acquired a residence in Montreal for $2,350,000 with funds transferred by the spouses to the trust patrimony. In 2014, Yared left the residence and filed for divorce. In April 2015, Yared died without having obtained a divorce. The trial judge held that the value of the residence ought to be included in the family patrimony despite being held under a trust and not owned directly by one of the spouses, on the basis that spouses cannot contract out of the public order rules regarding the family patrimony, regardless of their intentions. The Court of Appeal allowed the appeal and declared that no value from the residence ought to be included in the family patrimony, concluding that in the absence an intention to avoid the rules of the family patrimony, the contractual freedom of spouses who decided to reside in a property held in a trust for investment purposes ought to be respected.

HELD: Appeal allowed. Although the trustee was not the owner of the property, his control over the trust patrimony was similar to ownership. Article 415 C.C.Q. provides that residences of the family owned by one of the spouses or the rights which confer use of them are included in the value of the family patrimony. In Quebec law, trusts are not legal persons endowed with juridical personality. In the case of a family residence, issues arising from indirect ownership or de facto control of the property can be resolved through the notion of “rights which confer use” set out in art. 415 C.C.Q. By using this terminology, the legislator intended to include in the family patrimony the type of living arrangement where spouses, without being owners in title, nonetheless are in control of the family residence. There was therefore no need to rely on art. 317 C.C.Q. by analogy. When property listed in art. 415 C.C.Q. is held in trust, arts. 421 and 422 C.C.Q. may allow the court to correct a potential inequity created by the operation of the trust. Prior ownership and occupation of a family residence could be relevant to show that the spouses held a “right which confers use”. Once the intention to use a property as a residence of the family was established, art. 415 C.C.Q. did not require any further demonstration of intention. The trial decision did not contain a reviewable error warranting intervention by the Court of Appeal. Although the reference to art. 317 C.C.Q. was an error of law, this was of no consequence to the result. It was open to the trial judge to conclude that the circumstances of the case, and in particular the content of the trust deed, supported a finding of rights which conferred use of the family residence. It was also open to the trial judge to conclude that the rights which confer use were equal to the full value of the residence. The factual determinations of the trial judge were amply supported by the evidence.

Yared v. Karam, [2019] S.C.J. No. 62, Supreme Court of Canada, R. Wagner C.J. and R.S. Abella, A. Karakatsanis, S. Côté, R. Brown, M. Rowe and S.L. Martin JJ., December 12, 2019. Digest No. TLD-December92019015-SCC