Law360: The Estate Freeze That Didn’t Shield a Family Fortune From Divorce
By Lorne J. Fine
For decades, the estate freeze has been a staple of succession planning for Canadian business families. The mechanics are familiar to any tax or estate practitioner: the owner exchanges growth shares for fixed-value preferred shares, and a newly settled family trust subscribes for fresh common shares that will capture all future growth. The tax benefits are well understood. Less well understood, it turns out, is how that structure will be treated when a beneficiary’s marriage breaks down.
The Ontario Court of Appeal’s July 2026 decision in Lang-Newlands v. Newlands, 2026 ONCA 530, is a pointed reminder that a structure built for tax and succession purposes does not automatically protect wealth from an equalization claim. In that case, an estate freeze that many advisers would have assumed placed a family fortune beyond the reach of the Family Law Act did nothing of the sort. The result was an $18-million equalization payment to the husband, and a lesson that family lawyers, estate planners and their clients would do well to absorb.
A freeze built on a pre-marriage gift
The parties married in 1987 and separated in 2019. Before the marriage, the wife’s father had settled a trust holding shares in the family business, with his daughter as sole beneficiary. She was to receive the shares outright at age 39. On the date of marriage, they were worth approximately $16 million.
The wife received the shares from the trust early, about six years into the marriage, after a health scare prompted her father to accelerate the transfer. Roughly eight years after that, the family implemented an estate freeze. Her father settled a new family trust with $100, and a new holding company was created. At his direction, the wife sold her shares to the holding company in exchange for preferred shares with a fixed value of $24.5 million. The new trust then subscribed for 100 common shares of the holding company, entitling it to all future growth. Its beneficiaries were the wife and the couple’s four children.
The growth that followed was considerable. By the date of separation, the wife’s 20 per cent interest in the new trust was valued at approximately $134 million.
Before marriage or after? A $25-million question
Under s. 4 of the Family Law Act, the timing of a gift makes an enormous difference. A gift received before marriage is a deduction: its value on the date of marriage comes off the spouse’s net family property, but any growth during the marriage is included and shared. A gift received from a third party after marriage, by contrast, is excluded property, and both the gift and its growth are kept out of the equalization calculation entirely.
The wife’s position was that the estate freeze created something new: an interest in a trust her father had settled during the marriage, and therefore a gift after marriage. That reflects what many practitioners regard as the conventional view, namely that when a parent settles a family trust that subscribes for growth shares, a married beneficiary has received a post-marriage gift.
At trial, the wife succeeded. The trial judge held that he was bound by the Court of Appeal’s earlier decision in Shinder v. Shinder, 2018 ONCA 717, in which a spouse’s interest in a trust settled in similar circumstances had been treated as excluded property. But the trial judge also set out a detailed alternative analysis, in case an appellate court disagreed. In that analysis, he found that the wife had not received a gift from her father at all. Rather, it was she who had made the gratuitous transfer, by passing the future growth of shares she already owned into the new trust. The Family Law Act, he reasoned, does not allow a spouse to shelter the growth of a pre-marriage gift from equalization simply by placing that growth in a trust.
The difference between the two analyses was roughly $25 million to the husband.
Substance over a $100 settlement
The Court of Appeal allowed the husband’s appeal on this issue. It first held that the trial judge was not bound by Shinder, which it found distinguishable on its facts. Although Shinder also involved a freeze of shares the spouse had owned before marriage, the trust in that case included property contributed by the spouse’s father after the marriage. The appeal in Shinder had also turned largely on allegations of non-disclosure, rather than on how the trust interest should be characterized for equalization.
On the facts of Lang-Newlands, the court agreed with the trial judge’s alternative analysis. The father had made a valid gift to his daughter before the marriage when he transferred the shares into a trust for her sole benefit. The shares that went into the freeze were those same pre-marriage assets. Apart from the $100 used to settle the new trust, the father gave his daughter nothing during the marriage that she did not already own, and divested himself of nothing more.
The court held that treating her entire $134-million interest as a post-marriage gift, solely because her father had seeded the trust with $100, would elevate form over substance. Her interest in the new trust was therefore included in her net family property, subject to a deduction for the value of the underlying shares on the date of marriage.
The outcome was not a full equal division, however. The trial judge had found, in his alternative analysis, that an equalization payment of the full amount would be unconscionable under s. 5(6) of the Family Law Act, and reduced it to $18 million, payable over eight years. The Court of Appeal did not interfere with that finding. It also upheld the trial judge’s alternative support order, under which the husband would receive retroactive spousal support but no ongoing support once his equalization payment was made.
(In a notable footnote to the litigation, the husband still bears a $2.8-million costs award, upheld on appeal, largely because he had rejected the wife’s reasonable pre-trial offers.)
What advisers should take from it
The decision does not mean that every estate freeze is exposed to equalization. It turned on its facts, and particularly on the fact that the new trust’s value derived entirely from property the wife already owned before marriage. But it does mean that the date a trust is settled will not, on its own, determine how a beneficiary’s interest is treated. Courts will trace where the value actually came from.
For advisers, that suggests several practical steps. Existing freeze structures should be reviewed with this question in mind: whose property is the growth truly attributable to? Where the answer is a married beneficiary’s own pre-marriage assets, the assumption that the trust interest is excluded, property may no longer hold. Commentators have already noted that other configurations, such as a freeze carried out inside an existing trust or at the level of a subsidiary, remain untested.
Most importantly, a domestic contract remains the most reliable way to protect family wealth from an equalization claim. The Family Law Act expressly permits spouses to agree that certain property, and its growth, will be excluded. A marriage contract negotiated alongside the freeze could have spared this family years of litigation.
Conclusion
Lang-Newlands confirms that estate planning and family law cannot be handled in separate silos. A freeze can achieve its tax and succession objectives flawlessly and still fail, entirely, as a shield against a spouse’s claim. When significant family wealth is involved, the family lawyer belongs at the table from the outset, not after the marriage has ended.
Lorne J. Fine is the principal of Fine & Associates Professional Corporation in Toronto, where his practice is dedicated exclusively to family and divorce law. He has over 30 years of experience representing clients in complex family law matters. Lorne is a qualified arbitrator (Q.Arb) with additional training in negotiation, collaborative law and mediation. He has been regularly featured in media on family law issues, including appearances on Global Television, CHCH and as a recurring legal contributor on AM740’s Goldhawk Fights Back.
The opinions expressed are those of the author and do not reflect the views of the author’s firm, its clients, Law360 Canada, LexisNexis Canada or any of its or their respective affiliates. This article is for general information purposes and is not intended to be and should not be taken as legal advice.