By Rebecca Winninger, Senior Associate Research Lawyer, Lam Family Law*
The ONCA recently confirmed that when a spouse characterizes corporate shares as excluded property for net family property (“NFP”) purposes, it may not be enough that the shares themselves were gifted from a third party if the spouse was actually the original source of funding for the corporation.
In Najm v. Najm, 2026 ONCA 13 (CanLII), the husband wanted to exclude shares in a company called Safina Canada, a real estate holding company incorporated by the husband’s father. The husband and his brother inherited the business on the father’s death. The documentary evidence confirmed the father was the incorporator, and he transferred shares to the husband and brother during his lifetime and at death. However, there were no records showing that the father used his own funds to finance the company when it was incorporated, which the expert witnesses of both parties acknowledged. At the time of incorporation, the husband was aware of the concept of “excluded property”. The parties had already separated once, and consulted senior family lawyers. He had reason to take steps at that time to insulate himself financially from the wife’s claims, and had carefully documented the source of other excluded property (see the trial decision, 2024 ONSC 2053, at paras 122-125).
On appeal, the husband made three arguments. First, that the trial judge erred in requiring him to establish that his father was the source of the funds used to establish the corporation. Absent a fraudulent conveyance, the court should not “look behind a properly documented gift”. The ONCA was not convinced, holding that “the trial judge had to determine, as a foundational issue in the present case, whether certain property owned by the husband had been received by him as a gift or inheritance during the marriage.” In many cases, the source of funds used to acquire the gifted asset will not be in issue. In this case, however, the trial judge was concerned that the husband had structured his affairs to avoid potential claims, and those findings of fact were well supported by the evidence. The husband’s expert could not trace the funding for Safina Canada, and the trial judge did not find the husband’s evidence credible. The husband had failed to establish that the shares “had belonged to the father such that they could have been gifted and bequeathed to the husband as part of his father’s estate.”: paras 21-25.
Second, the husband argued the trial judge’s findings were based on speculation, as opposed to evidence, as there was “no evidence of a transfer between the husband and his father to fund the father’s share subscription.” The ONCA acknowledged that it may not always be possible for the party claiming the gift to obtain and provide perfect documentation. However, in this case, the husband had carefully documented other exclusions, and the trial judge thought he ought to have been able to provide similar evidence on the source of funding for Safina Canada. The husband had the burden of proof, and the trial judge was entitled to rely on “circumstantial evidence that the husband was arranging his affairs to defeat property claims by his wife at the time that Safina Canada was incorporated.”: paras 26-28.
Third, the husband argued the trial judge ignored evidence that the father funded the company. However, the documents he pointed to did not support his submission, and although they were in the record, they were not addressed in his testimony about Safina Canada. Both of the experts who testified said they were “unable to find any documentary evidence in what they had been provided to corroborate the husband’s claim about the source of the funds.”: paras 31-33.
The husband’s appeal was dismissed. A close reading of the decision suggests that the ONCA wanted to craft its reasons somewhat narrowly, so as not to create a general obligation for spouses to prove the source of funds used for the initial purchase of a gifted asset. That would be an onerous burden, particularly where the donor of the gift is deceased. However, the specific circumstances in this case caused the court to conclude the husband had not met his onus under s. 4(3) of Ontario’s Family Law Act. Those circumstances are not present in all cases.
One final observation: the ONCA found that the “gifted” shares had not “belonged to the [husband’s] father”, and therefore could not have been gifted by the father: para 25. If the father was not the owner of the shares, then what was his status vis-à-vis the shares? In my view, the answer is likely found in Lokhandwala v. Khan, 2021 ONSC 7974 (CanLII), where Justice Bloom found that the husband’s mother held shares for the spouses as a “bare trustee” from the date of incorporation: para 20. In Najm, the husband’s father may also have been a bare trustee, although that finding wasn’t made. For more on bare trusts, see our March 2024 blog post, Bare Trusts: What Are They, and How Are They Relevant in Family Law?
*with thanks to Maria Golarz for her suggestions and edits.
This blog is informational only and should not be relied on as legal advice.
