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Pensions are becoming an increasingly important issue in family law. In the next few years, large numbers of baby boomers are about to retire and receive their pensions. The issue is what effect this will have on spousal support.
Alimony & Pensions: No Double Dipping
When a couple separates, Canadian law treats the pension as property to be divided between the spouses, just like any other property. The value of the pension is today’s value of the future benefits that will be received when the pension holder retires.
Pensions can be worth a surprisingly large amount, even though the pension holder may have several years of work before retirement. In fact, for many couples, a pension may even be worth more than the matrimonial home. This makes it even more important that the pension is divided fairly.
However, pensions differ from most other assets in that they are also a stream of income. When the pension holder retires, the pension becomes a stream of income. And unlike other assets that normally increase in value over time, as the pension is paid out, its value decreases.
Often, when a couple separates, the main assets are the matrimonial home and a pension. This may mean that the husband keeps his pension and the wife keeps the home. This is pretty much what happened in the Boston case. When Mr and Mrs Boston separated, Mr Boston’s pension was worth well over $300,000. So, he kept his pension and a few personal belongings. On the other hand, Mrs Boston kept the family home, farm, cottage and most of the savings.
As part of the separation agreement, Mr Boston agreed to pay $3,200 per month in spousal support, indexed for inflation. Three years after the agreement, Mr Boston retired. His income declined, as he was no longer working. Instead, most of his income was from his pension. He applied to the court to have his spousal support payments reduced as a result of his reduced income. His argument was simple. As his pension had already been taken into account when dividing the marital property, he should not have to pay spousal support based on his pension income. Mrs Boston had given up her half of the value of the pension, and in return had received virtually all of the marital assets. She should not now be able to “double dip” and receive spousal support based on his pension income. This would be unfair to Mr Boston.
Mrs Boston argued that she had been a traditional homemaker for her entire life, and would not be able to find employment. She was used to receiving spousal support at a certain level, and had grown accustomed to a certain standard of living. She should not lose this all simply because Mr Boston decided to retire.
At trial, the judge agreed with Mr Boston, and lowered his spousal support payments to $950 per month, not indexed for inflation. Mrs Boston appealed to the Ontario Court of Appeal. She won her appeal, and Mr Boston was ordered to pay $2,000 per month in spousal support, indexed for inflation. Mr Boston then appealed this decision to the Supreme Court of Canada.
The Supreme Court found that there should be no “double dipping.” Once Mr Boston’s pension was divided, Mrs Boston was not entitled to receive support from his pension income. The Supreme Court stated that “it is generally unfair to allow the payee spouse to reap the benefit of the pension both as an asset and then again as a source of income.”
In my view, the Supreme Court’s decision was right. It would be unfair to give Mrs Boston half of Mr Boston’s pension at separation, and then give her more of the pension at a later date. Mr Boston’s pension income came from assets accumulated prior to separation, and these assets were already fairly divided.
The Supreme Court also found that Mrs Boston had an obligation to use her assets to generate a stream of income for her own support. Mrs Boston had nearly half-a-million dollars. She was required to invest this money to generate a “pension” for her own support. The Supreme Court stated that if someone fails to use his or her assets to generate an income, courts may impute an income based on the returns that the assets could be expected to generate if invested.