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Pensions are a significant asset that individuals may accumulate and must be dealt with during a divorce. Generally, the value of a pension accumulated during the marriage must be included in the pension holder’s net family property for equalization purposes. The value of the pension can be divided with a former spouse. Yet, while a pension is an asset, there are limitations on accessing its value, and it cannot simply be sold. Sometimes, a court may order a spouse to transfer a lump sum to satisfy an equalization payment.
Wife Seeks Equalization of Husband’s Pension
In Martins v. Martins, the husband retired several years before the parties’ separation, and his pension was already being paid at the time of separation. As the pension was in pay, the wife did not initially seek its equalization. She indicated that at the time of their separation, she believed that if the husband died, she would continue to receive a portion of his pension. Several years later, the wife’s lawyer learned that the wife had signed a waiver of spousal benefits in the husband’s pension. At that time, the husband was notified that the wife would seek the division of the pension by a lump-sum payment. Less than two months later, the husband transferred the title of the former matrimonial home to his brother for zero dollars, as he had already bought out the wife’s interest in the home. The judge had to consider the true purpose of that transfer and decide how to equalize the husband’s pension.
The value of the pension on separation was $799,999.69. If it were included in the husband’s net family property and divided, the wife would receive approximately $356,000 through equalization. However, since the pension was being paid out, she was entitled to receive a share as spousal support. It was also notable that there were no survivor benefits so that when the husband died, the wife would not receive any further support or pension payments. And she was eleven years younger than him.
Judge Weighs Whether to Order a Lump-Sum Transfer of the Pension
The judge noted that the legal principles surrounding the treatment of pensions were clear. Before a pension is paid, it must be included in the recipient’s net family property, divided or equalized by a lump sum payment. The judge explained that “the interest of one spouse in another spouse’s pension benefits has long been recognized as a matter of matrimonial or family property.” However, different considerations arise once a pension is being paid. In these instances, it is not usually included in the recipient’s net family property but instead is divided at the source.
However, in Fawcett v. Fawcett, the Ontario Court of Appeal clarified that when a pension is in pay, a judge can order either a lump sum payment or order that it be divided at source. As the court noted, this made sense because before a pension is paid, “there is no monthly payment stream to divide”. In Fawcett, the court concluded that ordering a lump-sum transfer of the appellant’s pension carried little downside to the appellant. One reason was that she did not need to locate money or arrange financing to satisfy the equalization payment. And, since the pension was being divided at source, the lump-sum transfer put her in the same position as if pension payments were being split. This also facilitated a “clean break” between the parties.
In Best v. Best, the court acknowledged that alternative methods of pension distribution require “continued financial association between the ex-spouses.”
In Martins, the pension was already in pay, which meant that Justice Chozik had discretion in how to deal with its division. Section 10.1(4) of the Family Law Act (FLA) sets out five factors that must be considered when deciding whether to order the immediate transfer of a lump sum out of a pension plan. These are:
- The nature of the assets available to each spouse at the time of the hearing.
- The proportion of a spouse’s net family property that consists of the imputed value for family law purposes of his or her interest in the pension.
- The liquidity of the lump sum in the hands of the spouse to whom it would be transferred.
- Any contingent tax liabilities in respect of the lump sum that would be transferred.
- The resources available to each spouse to meet his or her needs in retirement and the desirability of maintaining those resources.
A Fair Distribution of Assets Requires a Lump-Sum Payment
In Fawcett, the court suggested that in exercising discretion to order a lump sum out of a pension plan, the FLA has an objective of achieving a fair division of assets to both parties. In Best, the judge also explained that the “choice of a method for settlement of the equalization obligation is highly contextual and fact-based. A payment method that is preferable in one case might be grossly unjust in another”.
In this case, Justice Chozik believed the determining factor in deciding whether to order a division of the pension by lump sum turned on the last factor, the resources available to the parties to meet their needs in retirement and the desirability of maintaining those resources. Notably, the judge found that because of the waiver of survivor benefits, the wife would not have the ability to meet her needs in retirement and was entitled to indefinite support. However, when her husband died, she would have no way to support herself. Both parties received $425,000 from the division of the matrimonial home, but “neither is required to deplete that amount to support themselves.” The result was that to achieve a fair distribution of the assets and both would have the financial means to meet their needs during retirement, the pension needed to be divided by a lump sum payment.
Property Transfer Was an Attempt to Defeat Wife’s Equalization Claim
During the trial, the wife alleged that the husband had acted in bad faith to deprive her of her share of the post-separation property. After reviewing the evidence, the judge determined that the husband’s family lied to the court about the circumstances surrounding the transfer of the property. The husband, his brother, and sister-in-law all testified that they were unaware of the wife’s claim for a lump-sum pension division prior to the property’s transfer. However, Justice Chozik found this was not true and that they had no intention of transferring the property until they became aware of the wife’s claim.
Instead, they lied “under oath to cover up that the property transfer was a conveyance intended to defeat any interest [the wife] might have had in the property for a lump sum payment of the pension.” It was a fraudulent transfer intended to prevent the wife’s claim to the pension division and hinder her ability to collect the payment. The husband’s pension needed to be divided, which resulted in him owing an equalization payment of $356,950.18. And since the transfer of the property was fraudulent, as defined in the Fraudulent Conveyances Act, the judge held that if the amount was not transferred to the wife within 60 days, the conveyance of the property would be voided, and the property would be sold.
The Goal is to Achieve a Fair Division of Pension Assets
It is important to understand how a divorce can impact your pension. The value accumulated during a marriage must be divided with a former spouse. If a pension is already being paid, this may require dividing the pension at source or involve a lump-sum transfer. Courts will consider several factors when deciding on an appropriate method.
Windsor Family Lawyers Advising Clients On Pension Division During Divorce & Separation
If you suspect your spouse is attempting to hide assets or manipulate the division of your pension, you need experienced legal guidance. Our Windsor family lawyers at Johnson Miller Family Lawyers understand the complexities of pension equalization and can help you navigate these challenging situations. We’ll fight to ensure a fair division of assets and protect your future. Take the first step towards securing your financial well-being: complete our online questionnaire or call us at 519.973.1500 for a confidential consultation.
