An estate freeze is a popular strategy among Canadian business owners. But what many don’t realize is that the manner in which the estate freeze is set up can have significant implications in family law.

Review: What’s an estate freeze?

An estate freeze is a sophisticated tax planning strategy under which the owner often gives his or her children shares in a family business.

Business owners set up estate freezes for two reasons: to transfer future growth of the company from one owner to another, and to limit the capital gains tax for the business owner transferring his or her shares to someone else. Both events happen simultaneously.

Full estate freezes are most popular, though there are also partial and wasting freezes.

In a typical estate freeze, shares that are likely to appreciate in value are exchanged for shares that are fixed in value.

Business owners usually trigger an estate freeze when there is sufficient equity in the business to support their lifestyle. They freeze the value of their shares at current levels while deferring taxation on future business growth to the next generation. Since they can accurately price the value of the frozen shares, the owner will know exactly how much tax will be payable in future.


Richard owns 100% of his jet ski business, Ski Rich. He has just turned 63 and is considering an estate freeze to defer the tax he will otherwise be required to pay now.

Richard wants to stay involved in the business and needs the income to pay for his winter getaways and boating trips. He decides to do a full freeze to transfer 100% of the growth in Ski Rich to his son, Blair (who is married at the time of the estate freeze), and daughter, Terry (who will be married after the estate freeze is completed).

Here’s how. Richard incorporates a holding company, Richco, and issues 50% (each) of the common shares (all with nominal value, as Richco has no assets or income) to Blair and Terry. Richard then transfers his common shares in Ski Rich to the holding company, in return for preferred shares. The children did not provide any consideration (payment) for the shares, so the cost base is zero.

Thanks to the rollover provisions of Section 85 of the Income Tax Act, this transfer will occur tax-free as long as the value of Ski Rich’s preferred shares is equal to the value of the common shares of Richco.

Richard arranges for the preferred shares he receives from Richco to have a fair market value of $7 million. Any future increase in the value of Ski Rich, which is owned by Richco, will be reflected in the common shares of Richco. This structure will allow these common shares to be divided equally among family members.

Richard was previously divorced, and he doesn’t want his children to have to divide the value of the shares in Richco with their spouses. He thinks the estate freeze will achieve that.

Family law perspective

Under the Ontario Family Law Act, assets and property accumulated during the marriage must be shared equally among married couples if there is a marital breakdown.

However, the Act excludes a number of assets from this division scheme, including gifts from third parties received during the marriage. The value of gifts received before the marriage is treated in the same manner as pre-marriage assets: the value on the date of the marriage is not shared with the spouse. Any increase in value of the gift during the marriage, however, will be shared.

These elements are required for a gift received during the marriage to be valid for family law purposes:

  1. the donor must intend to make a gift without consideration or expectation of remuneration;
  2. the donee must accept the gift, and
  3. there must be a sufficient act of delivery or transfer of the property to complete the transaction.

One caveat: if gifts are co-mingled with other family assets (e.g., if dividends from excluded shares are used to pay the mortgage of a joint home rather than being invested in a segregated account in the sole name of the shareholder), it is likely that the co-mingled assets will no longer be excluded.

What about shares gifted via an estate freeze?

Shares of a corporation given to the next generation through an estate freeze are considered gifts if the transfer was done without any consideration and the other conditions of a gift exist.

In the example above, Blair and Terry did not give any consideration for their shares in Richco. If they had to pay even a nominal amount to acquire the shares, the shares would not be treated as gifts.

If Blair later separates from his spouse, since he received the gift of the shares in Richco during the marriage, he could exclude the value of the shares — and any growth in value that was kept separate from joint assets — from his net family property.

If Terry later separates from her spouse, since she received the gift of the shares in Richco before her marriage, she would be able to exclude the value of her shares on the date of marriage. She would, however, have to include the growth of the value from the date of marriage to the date of separation in her net family property.

The upshot: neither child would have to divide the base value of the shares with their spouses, which is as Richard intended. Terry, however, would have to share the value of any growth – so it would be as if she had paid for the shares and not received them as a gift. If this is not what Richard intends, he should wait to do the freeze until Terry is also married.

Also note that if Blair had paid consideration for the shares, the value of the shares could not be excluded from his net family property in the event of separation.

From an estate planning perspective, so long as a gift meets all the aforementioned conditions, it’s possible to shield property from another spouse in the event of divorce, including via an estate freeze. It is no different from any other gift given with the declaration that it not be shared with or used for family reasons.

Nathalie Boutet is a family law lawyer, mediator & Family Enterprise Advisor™, specializing in high-net-worth families and business owners. She can be reached at

Michael Henry is a business lawyer who helps business owners grow their businesses and plan for the future. He can be reached at