When a couple separates or gets a divorce, there may be occasions when one has to pay the other spousal support. Spousal support is not, however, the only financial obligation one party might have to the other if a relationship breaks down. If one member of a relationship has a pension or an RRSP, they may have to pay a portion to the other party, or at other times offer them a cash settlement equal to their legal share. In a recent decision from the Court of Appeal for Ontario, the parties asked the court to determine whether the sharing of pension payments should continue when the spouse receiving the payout passes away.
Husband and wife separated shortly after wife’s retirement
The parties were married for just over 33 years before their relationship ended. The wife was a teacher and contributed to a pension plan until her retirement in the summer of 2015. At that time, she elected to enroll in a joint pension with a 60% survivor benefit. She began to receive pension payments that same year. Her payments amounted to just under $5,000 per month.
The husband fell ill in April 2016, less than a year after the wife retired. He was diagnosed with Amyotrophic Lateral Sclerosis (ALS) and had to quit his job when his illness no longer allowed him to work. His only source of income following his illness was just under $1,000 per month in disability payments.
The parties separated in the summer of 2017. The wife began to give the husband voluntary payments of $300 per month and told the court that he also received charitable donations from the community as well as an undisclosed amount of money through an online fundraiser.
In 2018, the husband applied for a divorce as well as an equalization of net family property, spousal support, and exclusive possession of the matrimonial home. He also brought a motion to decide what would happen to the division of the wife’s pension payments.
Pension administrator determined husband entitled to nearly 50% of pension
Following their separation, the pension’s administrator determined that the husband was entitled to receive 48.99% of the monthly pension payments. This is known as dividing the pension at source (as opposed to when the value of a pension is equalized before it begins to be paid out). As a result, the husband was entitled to receive $2,094.02 per month. This was the route the husband chose to pursue rather than a lump sum payout which was the other option available under the province’s Family Law Act.
What happens to pension payouts following the husband’s death?
The husband’s medical situation was such that he knew he had a very limited amount of time left before he passed away. He and the wife could not agree on what should happen to his share of the divided pension payments following his death. His position was that if the pension was divided at source, then after his death his share should continue to be paid into his estate for the remainder of the wife’s lifetime. The wife’s position was that if the husband predeceased her, the Pension Benefits Act precluded the pension from being shared with the husband’s estate. The court noted if this was the only option available, it would clearly mean the husband would receive far less of the pension than he otherwise would have been entitled to.
The Family Law Act requires spouses to equalize property, which means the spouse with the higher valuation of assets, including a pension, is required to pay the other spouse half of the difference between the parties’ assets. In this case, the husband would have been entitled to $590,000 from the pension. The Family Law Act also allows the paying spouse to make payments in installments over the course of up to 10 years.
Unfortunately, the husband died two days after the motion judge released a decision. That decision held that the Pension Benefits Act did not allow the relief sought by the husband, particularly because section 44 of the Pension Benefits Act states that “upon the death of either the pension holder or the spouse, the remaining pension reverts back to the survivor”. The motions judge noted there was no mention of a surviving spouse’s estate. Finally, the motions judge found there was no statutory means by which the husband could share his portion of payments of the pension with his estate or bequeath them in a will.
Husband’s estate sought equalization under the Family Law Act
The husband’s estate appealed on the grounds that there was no legislative path to provide pension payments to the estate. The court agreed, stating,
“…there is nothing in the [Pension Benefits Act] that precludes pension payments divided at source from continuing to the estate of a non-member spouse during the life of the member spouse, in the event that the non-member spouse predeceases the member spouse.”
The court arrived at this conclusion because sections of the Pension Benefits Act allow for the lump sum payment of pension funds into other accounts (such as another pension plan or an RRSP) even following the death of the recipient spouse. While the Act is silent on in-pay pensions being administered the same way, that does not mean it is not allowed.
The court also found the Pension Benefits Act is not the “singular guiding force in answering the central question on appeal”. Ultimately, the husband was entitled to an equalization of net family property. The court stated that in many cases, it would be beneficial for everyone involved in matters such as this to plan to continue to make pension payments to the estate because the pension will be worth more if it is allowed to continue growing after the date of separation. The appeal was therefore allowed, and the wife must continue to make pension payments to the estate of the deceased husband.
Contact Howie Johnson Barrister & Solicitors in Windsor for Advice on Division of Property Matters
The family law team at Howie Johnson Barrister & Solicitors is experienced in all areas of family law, including the division of public or private sector pensions. We understand the unique financial circumstances of each of our clients and work with them to arrive at a satisfactory resolution to their family law issues. To discuss your matter with us, call 519-973-1500 or reach us online.