“Contingent rights are included in the definition of property for the purposes of determining net family property and shareholder loans are a common contingent asset. The Ontario family law legislation does not place a direct limit on this type of property, unlike in Manitoba, where section 9(1) of the Family Property Act, C.C.S.M. c. F25, provides that in regard to rights that are present, future, or contingent, “… the Act does not apply where there is in fact ascertained, as at the closing and valuation date, that there is no reasonable possibility of the rights ever being realized.” Justice Stefanson interpreting this more restrictive legislation in regards to shareholder loans stated that:
The mere fact that corporate liabilities exceed assets by an amount greater than a shareholder’s loan does not, by itself, result in the exclusion of shareholder’s loans from the Marital Property Act accountings. (Curtis v. Curtis (1999), 1999 CanLII 14189 (MB QB), 137 Man.R. (2d) 302 (Man. Q.B.) at para 14.)
Justice Karakatsanis made a similar interpretation of the Ontario property definition in Fantin v. Gillingham-Corkun Fantin (2003), 37 RFL (5th) 327, 2003 CanLII 2114 (ON SC), 2003 CanLII 2114 (ONSC), at para 41:
The definition of ‘property’ contained in section 4(1) of the Family Law Act is extremely broad and covers future and contingent interests. This is a right to future payments that is not too remote and does not require the future personal effort of the individual.
Justice Mesbur considered a shareholder loan in dispute in Bursey v. Base (2007), 156 A.C.W.S. (3d) 405 (ONSC). The husband took the position that it should not be included in his income because on the valuation date the business was not able to repay the amount and had no likelihood of being able to in the future. Justice Mesbur found stated at para 55:
The corporate assets around valuation day were just sufficient to repay the bank liability. There was no additional ability to repay the shareholder’s loan. For that reason, I would value the shareholder’s advance at “nil”, since there was no reasonable likelihood the debt would be repaid.
The case law suggests that, while a shareholder loan contingent on a company being able to pay in the future is technically property, if there is no likelihood of recovering the loan in the future, it should not be included. This would be in situations where there is no reasonable likelihood of recovery or where the chance of recovery is too remote or would require personal effort of the party. Conversely, if it does seem likely the loan could be repaid in the future then it should be included as it is a form of contingent equity pursuant to section 4(1) of the Family Law Act.”