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If divorcing parties have a pension, they may need to consider the treatment of survivor benefits to complete the equalization of net family property. These benefits are financial entitlements that have value for the recipient. However, courts have had to decide whether such entitlements constitute property and whether evidence is required to establish that the recipient will receive the benefits.
Pensions Must be Valued and Included in Net Family Property
In Withers v. Withers, the parties were divorcing, and to determine the equalization payment, the court had to decide how to treat the wife’s spousal survivorship benefit in the husband’s pension and whether it had to be included as an asset. The applicant argued that she may never actually receive the benefit and that if it was considered in equalization, she would suffer financial hardship.
The judge addressed the second argument first, noting that if the benefit should be included according to law, then the fact that she may suffer financially was not a reason to enable her to exclude it. The applicant looked to the decision in Birce v. Birce, which suggested that there needs to be evidence that the survivor benefits will be received instead of finding “a mere theoretical potential receipt of the benefits.” However, there were problems with this argument as “theorizing which party will die first is the conceptual foundation for the spousal survivor benefit program.”
Further, in Birce, the decision depended on the specific facts of that case in which the wife had health problems while the husband had good health. From a medical perspective, the court accepted that it was likely the wife would pass away first and, therefore, never receive the survivor benefits. Additionally, in Boston v. Boston, the Supreme Court of Canada held that “a pension must be included in the equalization calculations and valued along with the spouses’ other net family property.” Given these findings, the judge found that survivor benefits needed to be included in a party’s net family property when calculating the equalization payment.
A Survivor Benefit is a Future Income Stream
The case of Murch v. Lewis dealt with the respondent’s survivorship interest under the New Brunswick Public Service Pension Plan. The parties were married and previously lived in New Brunswick before moving to Ontario. The respondent was 72 years old, and the applicant was 44 years old. While still residing in New Brunswick, the respondent decided to retire. Given their age difference, the parties discussed the different forms of pension and decided on the 100% joint and survivor pension. This reduced the respondent’s pension but provided financial security for the applicant and their child. If the respondent died first, the applicant would receive 100% of the pension, whether married or divorced. The relationship deteriorated shortly after moving to Ontario, and the parties divorced.
The respondent argued that although she would be entitled to 100% of the applicant’s pension as a survivor benefit after the divorce, she may never receive the benefit. She was nearly thirty years younger than the applicant and further argued that she would suffer financial hardship and may have to wait over 25 years before receiving the pension.
The Court first looked at whether the survivor pension is considered property under the Family Law Act. Section 4(1) defines “property” as “any interest, present or future, vested or contingent, in real or personal property.” In Bennett v. Bennett, the Court explained that a “survivor benefit is a pension in its own right; its payment, however, awaits the death of the plan member who first receives the pension.” The judge also noted that it “represents an expected future stream of income that can be actuarially valued.” In this case, the respondent’s entitlement to the pension was an existing but contingent right to a future stream of income. It held value to her and could be actuarially valued, so it was included as property under the Family Law Act.
Legislation Provides a Process for Valuing a Survivor Pension
The second issue concerned the valuation of the survivor pension. Significantly, the respondent’s pension entitlements fell under the New Brunswick Public Service Pension plan. In Van Delst v. Hronowsky, the Ontario Court of Appeal set out the process for valuing non-Ontario pensions. First, the Ontario Pension Benefits Act sets out a process for valuing pensions. However, section 10.1(2) of the Family Law Act also provides guidance and states that:
“the imputed value, for family law purposes, of a spouse’s interest in any other pension plan is determined, where reasonably possible, in accordance with section 67.2 or, in the case of a spouse’s interest in a variable benefit account, section 67.7 of the Pension Benefits Act with necessary modifications.”
In Van Delst, the Court looked at the term “with necessary modifications” and found that it expressed the legislative intent to apply the substance of the Pension Benefits Act while also acknowledging that “some details may require modification.” The Court found that if a party can show that the Pension Benefits Act does not regulate a pension and a modification to the Pension Benefits Act methodology is necessary, then the departure can be justified. Otherwise, “the default position is that the PBA approach is to be used.”
Non-Ontario Pensions to be Valued Like Ontario Pensions When Possible
As that Court noted, this method met the legislative intent to create a uniform approach that avoided litigation over pension valuations. It was clear in the Family Law Act that a non-Ontario pension should “be evaluated wherever possible in the same manner as an Ontario regulated pension.” Consequently, variations to the Pension Benefits Act should be applied to non-Ontario pensions when necessary. Practically, this meant that pension administrators should value “non-Ontario pensions as if it were an Ontario pension” to the extent possible.
In this case, the valuator confirmed that the pension and survivor pension entitlements were valued in accordance with Ontario legislation and that no modifications were necessary. This resulted in $603,516.76, which would be added to the respondent’s net family property. As this was a significant contingent interest that might not be realized for years, she asked the court to follow the New Brunswick Pension Benefits Act and remove the pension from her net family property to be divided at source. However, the respondent did not request an unequal division of net family property. The Court found that proceeding as the applicant requested would be much more than modifying details as outlined in Van Delst. Instead, it would significantly change the substance of the Ontario Pension Benefits Act and was not justified.
Instead, her survivor pension was similar to the “pension entitlement of a young employee who is not retired.” There was no reason to depart from the Pension Benefits Act, and the full amount was included in the respondent’s property on the valuation date.
Key Takeaways Regarding Survivor Benefits
Courts have found that an entitlement to survivor benefits is a right to future income and can be considered a pension in their own right. Like any other pension, they constitute property and must be included in the equalization calculations with other assets. Therefore, financial hardship is not a reason to allow a party to exclude the benefit from equalization.
Contact Johnson Miller Family Lawyers in Windsor for Comprehensive Advice on Pension Division and Equalization
The experienced Windsor family lawyers at Johnson Miller Family Lawyers help clients navigate complex property division issues stemming from separation and divorce. Our knowledgeable team is ready to assist with questions about inheritance, hidden assets, or survivor benefits. To speak with one of our lawyers regarding your property division entitlements, contact us by phone at 519.973.1500 or contact us online.
