There are a few occasions when you want someone who is not you to have as much money as possible. The first situation is when you are a beneficiary of their estate. The second situation is when you seeking an equalization payment under the Family Law Act. In both situations, you would want the estate/your former spouse to pursue any trust claims they may have without delay. However, as the Court of Appeal for Ontario recently reminded litigants in Karatzoglou v Commisso, 2023 ONCA 738, you cannot go around the estate/former spouse and pursue the claim yourself.

Ms. Commisso and Mr. Karatzoglou were married for 17 years before they separated in 2014. Divorce proceedings were started in 2017, at which time Ms. Commisso sought support and an equalization payment from her ex-husband.

Neither Ms. Commisso nor Mr. Karatzoglou owned any property. However, Ms. Commisso took the position that Mr. Karatzoglou’s mother held two properties in trust for him. The first property was the home that the spouses had lived in during their marriage. The house was owned solely by Mr. Karatzoglou’s mother and he had paid rent to her throughout his occupation of the property pursuant to a signed lease agreement. Mr. Karatzoglou and his son moved out of the house in 2021, when his mother sold the property.

The second property was also owned by Mr. Karatzoglou’s mother and was home to Mr. Karatzoglou’s car repair business. Mr. Karatzoglou had taken over the car repair business when his father died, but the property itself passed to his mother. While there was no formal lease agreement in place, Mr. Karatzoglou paid all expenses related to the property (property taxes, maintenance fees, and condo shop fees) in exchange for the right to use it.

Since Mr. Karatzoglou took the position that he had no interest in these properties, Ms. Commisso decided the pursue the matter herself. Ms. Commisso added Mr. Karatzoglou’s mother as a respondent to their divorce proceedings and sought an order declaring that she held the properties in trust for her son, meaning they would be included in his net family property. In response, Mr. Karatzoglou brought a motion for partial summary judgment to dismiss the claims against his mother.

Mr. Karatzoglou and his mother were successful on the summary judgment motion – the motion judge found that, not only was there no evidence that Mr. Karatzoglou had any claim for an express, constructive, or resulting trust to the two properties owned by his mother, Ms. Commisso lacked standing to pursue the trust claims. Ms. Commisso appealed the motion judge’s findings.

The Court of Appeal upheld the motion judge’s finding. The Court of Appeal found that the motion judge was “clearly correct” in his finding that there was no evidence of an express trust and no need for a trial on the issues of resulting trust or constructive trust. Second, the Court of Appeal held that a person does not have standing to advance a trust claim on behalf of a former spouse for equalization purposes.

Both the motion judge and the Court of Appeal quoted with approval the reasoning of McGee J. in Morris v Nicolaidis, 2021 ONSC 2957 at paras. 32-33 and 36-37:

At the heart of this motion is an interesting question. Can a person advance a trust claim on behalf of a former spouse in order to increase that spouse’s net family property and consequently, benefit the person’s claim for, or defense to an equalization payment?

A claim for a constructive trust is a claim in equity that is privately held. It is not a public interest claim. The common law principle relating to private interest standing states that “one cannot sue upon an interest that one does not have.” (Watson, McKay & McGowan, Ontario Civil Procedure, at §11 Standing to Sue).

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Can an equalization claim create a direct personal legal interest that confers standing to make a trust claim on behalf of a spouse or a former spouse?

I find that it cannot. An equalization payment cannot change the titled or beneficial ownership of property between spouses. The equalization scheme in Ontario is not based upon a division of property, but rather, it recognizes a spouse’s non-financial contributions to a marriage by equalizing the increase in value in each party’s net family property between the date of marriage and the date of separation, subject to variation per section 5(6) of the Family Law Act.

In the result, Ms. Commisso’s appeal was dismissed and she was ordered to pay $15,000 in costs.

What options would have been available to Ms. Commisso (or another litigant) if her ex-spouse had a legitimate trust claim that he was improperly refusing to pursue? The Court in Morris v Nicolaidis noted that in such cases a spouse could seek an unequal division of net family property. Different options exist in the context of estates. For example, a beneficiary could seek to remove the current estate trustee and appoint someone more willing to pursue the litigation. Alternately, the beneficiary could seek damages against the estate trustee on a passing of accounts. However, every situation will be judged on its own merits.