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For high-net-worth couples, philanthropy is often a deeply personal and financially significant aspect of their marriage. Many affluent individuals contribute to charitable causes through donor-advised funds, private foundations, and substantial financial pledges. However, when a marriage ends, the division of philanthropic assets can present unique legal and financial challenges. Proper planning is essential to ensure that the separation does not negatively impact the intended charitable recipients or create unnecessary disputes between divorcing spouses.
High-net-worth couples often use charitable donations as part of their broader financial strategy, gaining tax advantages while supporting causes they care about. In Canada, once a charitable contribution is made, it is generally considered a gift and is no longer part of the marital estate. This means that funds or assets already donated to a registered charity are not typically subject to division in a divorce. However, issues may arise when significant ongoing commitments, such as pledged donations or charitable trusts, remain in place at the time of separation.
Private foundations are common among wealthy couples who wish to have a long-term philanthropic impact. These organizations are separate legal entities, meaning neither spouse technically owns the foundation’s assets. However, conflicts can arise if both parties hold leadership roles or wish to retain influence over the foundation’s operations post-divorce. If amicable collaboration is not possible, one spouse may need to relinquish control. Reviewing the foundation’s bylaws, governance policies, and potential tax implications is crucial before making changes to its structure.
Donor-advised funds (DAFs) offer flexibility when navigating philanthropy in divorce. In many cases, a DAF can be divided into two separate accounts, allowing each spouse to continue charitable giving independently. If splitting the fund is not feasible, an alternative solution may involve terminating the fund and directing the remaining assets to a designated charity. Couples should work with legal and financial advisors to ensure compliance with Canadian tax laws and the specific terms of their DAF agreements.
Substantial wealth often comes with planned giving arrangements, such as long-term charitable pledges, endowments, or trusts. During divorce proceedings, these commitments must be carefully reviewed to determine responsibility for future donations. If both spouses are financially obligated to fulfill a pledge, renegotiating terms with the charity may be necessary. The divorce settlement should explicitly outline who is responsible for ongoing commitments and how they will be funded to prevent legal or financial complications.
Navigating the complexities of charitable giving during a high-net-worth divorce requires careful planning and expert legal advice. Whether you are managing a private foundation, dividing a donor-advised fund, or addressing ongoing pledges, ensuring compliance with Canadian family and tax law is critical to protecting both your financial interests and your philanthropic legacy.
At The Riley Divorce & Family Law Firm, we understand the intricacies of philanthropy in divorce and can help you achieve a fair and strategic resolution. Contact our experienced legal team 24/7 for guidance on charitable giving and asset division during your divorce.
Paul Riley Law Office
