Ontario Family Law Blog : Barrie Lawyer & Attorney Brian Galbraith : Simcoe County, Canada Divorce, Separation, and Collaborative Law

Matthew Krofchuk has written a excellent blog at Divorce Happens Blog regarding the changes to the pension division legislation in Ontario which came into affect January 1, 2012. Matthew is with Krofchick Valuation so knows his stuff. 

The biggest impact of the new legislation is that you can now divided Ontario pensions at source if you want. So, let's say you have a pension worth $60,000. In the past, you would have to give your spouse $30,000 to equalize the value of this asset if all other assets and debts were equal. Now, you can arrange to have your pension plan transfer to your spouse $30,000 into a locked in savings vehicle (LIRA). 

Here is Matthew's blog... it explains it well.... 

Beginning January 1, 2012 new legislation passed by the Ontario legislature will result in a dramatic change in the way pension assets are divided between divorcing couples in Ontario. According to the Ontario Family Law Act (FLA), the value of married spouses’ pension assets must be included in family property, so the new pension rules could potentially affect a large number of married people in Ontario.

Are you one of them?

Well, for starters, the new rules – formally known as Bill 133 – only apply to spouses where no court order, family arbitration award, or domestic contract that provided for the division of pension assets between the two spouses was made before January 1, 2012. If you’ve entered into any one of these arrangements before the end of 2011, you’ll have to stick it out under the old rules.

The new rules also affect only those pensions covered by the Ontario Pension and Benefits Act, or in other words, provincial pensions. So if you or your spouse is a member of a pension plan that operates at a nationwide level like those available to federal public service employees or banks, for example, the value of the marital pension will be calculated in exactly the same way it was before. Provincial plans, however – like HOOPP, OMERS, and Ontario Teachers’ Pension Plan – will be directly affected by the new rules and there will be a number of changes divorcing spouses with pensions like these should be aware of.

The first major change involves just who’s calculating the value of the pension. Pensions are currently valued by third party actuaries retained either by one (or both) of the divorcing spouses or their lawyers. The new rules, however, no longer give divorcing couples this option. Beginning in 2012 divorcing spouses will have to apply directly to the pension plan administrator to calculate the value of the pension to be divided as net family property. You will need to appeal to them directly by filling out a form from the Financial Services Commission of Ontario’s (FSCO) website and they will likely charge a fee for their services.

The new rules also allow divorcing spouses to transfer the value of the member spouse’s pension in the form of a lump sum payment if they desire; this option was not available under the old rules. Previously, the only way that a spouse could receive their portion of their partner’s pension was either as a percentage of monthly pension benefits, when they became payable, or indirectly through negotiating their settlement (kind of a, “you get the house and I’ll keep my pension” arrangement). It’s important to know that this new lump sum option is just that: an option. Spouses can still elect to go at it the old fashioned way if they desire.

The last big change involves how the value of the pension is calculated. As they relate to pension valuation the new rules don’t contain any provisions that require the spouses to do anything over and above what they already do; you still have to get that pension valued. However, the pension administrators – now the folks in charge of calculating the value of these pensions – will not be applying traditional actuarial practices in valuing them. The new rules mandate that all pension valuations be performed using a prescribed formula that should apply to all pensions.

This last change appears to result from an effort by the province to minimize conflict and lengthy court proceedings. By setting out a simple formula for the administrators there’s very little room for either party to argue or to revisit the calculation at some later date in light of a change in circumstances, both of which were not uncommon under the old rules. The downside to this approach, however, is that not all pensions are created equal (and certainly, not all divorcing couples are either). The new rules don’t make any provisions for the kinds of unique circumstances that could impact the value of pensions – like retirement ages or health issues – but unless the Courts decide that these issues should be taken into account as they arise, we’re probably stuck with them for the time being.

By Matthew Krofchick

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When you divorce, what would you rather have - a valuable pension or a home worth the same? Or does it matter? 

If a pension is worth the same as the equity in the home, the property settlement is easy. One person keeps their pension and the other keeps the house. Technically, this seems like a fair settlement but there may be complications. 

Retirement

Often the pension holder is the bread winner for the family so will be paying spousal support to the other spouse. The challenge is that when they retire, the pension holder will have an income from the pension but the one with the home may not have any income. The pension holder will say "Hey, I shouldn't have to pay you spousal support from my pension... you got the house because it was of equal value to my pension.... if I have to pay spousal support from my pension, that would be double dipping!" 

In the case Boston v. Boston, the Supreme Court of Canada agreed. It said that in most cases it would not be fair that the pension holder would have to pay spousal support to their spouse from that portion of their pension income that has been equalized. They did say that any pension that was acquired post-separation or any other income could be considered for the purposes of determining whether spousal support should be paid. So, if the pension income is $5,000 per month and $4,000 of it was based on the pension acquired at the date of separation (which was equalized), then only $1,000 per month would be considered as the payor's income from which spousal support could be ordered. With an income of merely $1,000 per month, spousal support won't likely be ordered.

There is an assumption in the Boston case that the home owner should be able to generate a stream of income from the home asset when a retirement income is needed. For example, the home could be sold and the money invested into an annuity. As a result, both parties are in a similar situation. 

Exceptions

There are exceptions to this general principle against double dipping. In Meiklejohn v. Meiklejohn, the Ontario Court of Appeal states it may be appropriate to order spousal support be paid from an equalized pension when the recipient is in dire need, has little ability to earn an income and most of his or her assets are tied in their home. 

If you are the pension holder, you will want to include a provision in your separation agreement that specifically prevents double dipping. If you are the home owner, you will want to argue against such a provision and leave open the potential of spousal support from the equalized pension. 

Pension Division 

There is pending legislation in Ontario that will allow a pension to be divided at source. That means that a portion of the pension can be transferred directly to the other spouse. You can do this with some federal pensions already. This new legislation will be welcomed. It will be mean that each can have a portion of the pension and each can have a portion of the equity in the home. It will certainly make for better settlements. I anticipate there will be fewer arguments about double dipping after this legislation is finally passed. 

My mom used to say "You can't have your cake and eat it too!" but she is wrong when it comes to double dipping. There can be exceptions. 

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Do you remember the day you separated? How did it happen? Was a note left or an email sent to say it's over? Maybe a text? Maybe it was a screaming match? Maybe it was just a sad mutual realization that your marriage was over?

Regardless of how it happens, the date of separation is a painful memory, whether you are the one leaving or the one being left. 

I remember my "date of separation". It was over seven years ago but the memory of that day remains vivid in my heart and mind today. Each year, when the anniversary of it comes around, I cannot help but think of how dramatically my life changed since the date of my separation. 

From a lawyer's perspective, we need to know the date of separation for three main reasons. This first reason is we use it to determine the equalization of property. Here is an article about the equalization process.  Secondly, you can obtain a divorce one year after your separation. The clock starts ticking from the date of separation. Lastly, if support is owed, it likely will begin from the date of separation. 

You can still be living under the same roof but considered separated so determining the date of separation can sometimes be difficult. 

Property Issues

Some times the date of separation can have a huge impact on the equalization of property. I remember one client who had some shares in a business. If he used one date, he would owe his wife about $10,000 related to the value of his shares. If he used a date three months later, he would have to give her $30,000, because the value of the shares had rapidly increased over that three month period. 

The reverse is sometimes true. You might prefer an earlier date because the value of your spouse's asset was much higher than it is at a future date. This certainly has been the case recently with some businesses and real estate investments that have been dropping in value. 

The value of jointly owned assets is less relevant because any increase in value or decrease in value from the date of separation is shared. 

Divorce

Although it is possible to get a divorce on the basis of adultery or physical/emotional abuse, the vast majority of people seek a divorce simply on the basis of a one year separation. It is easy and does not involve any blame. 

Support

The date of separation is relevant to support issues too. Support is owed from the date of separation unless there are other payments being made in lieu of direct support payments. 

Here is an article about child support and another one about spousal support. 

Determining the Date of Separation

If there is some ambiguity about the true "date of separation", the law says you should look at the circumstances of the parties. For example, when did one of the parties communicate their intention to end the marriage to the other; when did the parties start to hold themselves out to family and friends as being separated; when were finances separated; when did sexual relations stop; when were chores were no longer shared; when did the parties physically separate (two beds or two homes); when did the parties stop doing social activities together such as eating meals together or attending events together. This is not an exhaustive list but gives you an idea of the factors taken into consideration.  You don't have to have all of these factors to say there has been a separation. It just depends. 

If you are not sure which date to use, consider whether it will impact the bottom line. Maybe compromising on the date is better than fighting over it if the impact is fairly small. 

Regardless of what date is called the Date of Separation for the property and support issues, no doubt there will be a day you will always remember as the day you knew your marriage was truly over. Perhaps that is the "emotional date of separation". That date is important because it marks the beginning of the healing process. It is the first day of the rest of your new life. 

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The division of property after separation raises many questions: How is it divided? Do we have to sell the house? Do I have to share my pension? What about my inheritance? 

The uncertainty leads to many sleepless nights. Everyone fears they will end up with nothing. The classic country song by Jerry Reid comes to mind for many: "She Got the Gold Mine, I Got the Shaft".(Women may insert "He" instead of "She" in the title and lyrics. The fear is the same for both genders.)

In Ontario, some of the uncertainty is eliminated by the Family Law Act which describes a formula so both you and your spouse end up with about the same net property. It looks like this:

+ Add up your assets on the date of separation

- Subtract your debts on the date of separation

- Subtract any gifts from third parties, inheritances or proceeds from a personal injury claim received during the marriage which were kept separate and are still in existence on the date of separation

- Subtract your assets less any debt you had on the date of marriage.

= The resulting number is called your Net Family Property (NFP). Your spouse does the same calculation.

÷ 2  If your NFP number is higher than your spouse’s NFP number, you owe half the difference so as to make the NFP's equal.

Here is an example:

To Summarize:

DIFFERENCE $94,000 - $83,000 = $11,000

EQUALIZATION OWED BY HUSBAND TO WIFE IS $5,500.00!

Once the Husband pays the Wife $5,500.00, each will have $88,500.

The Home: In this example, the home is jointly owned. If the Husband wants to purchase the Wife’s interest in the home, he would have to pay his Wife the equalization of $5,500 plus pay her for her one half interest in the home. This is calculated as $120,000 minus the mortgage of $80,000 equals $40,000. So, the Husband would have to pay the Wife $40,000 plus $5,500 for a total of $45,500. The Husband would then own the house solely and paid out his Wife. Alternatively, the house could be sold and sale proceeds divided or the Wife could buy out the Husband's interest. 

Ownership: You and your spouse keep the assets and debts in your own names. So, all we deal with in Ontario is the value of the various assets and debts. You don't have an ownership interest in your spouse's pension or other assets. Just a potential right to an equalization payment if they have more stuff (a larger NFP number) than you. 

Household Contents: If you want help dividing up the furniture and other items in the home, here is a blog about it. 

Adjustments: You may wish to to adjust the assets or debts so as to equalize the NFP numbers and avoid an equalization payment. So, in this example, the Husband might give his Wife some of his assets or take on some of her debt so there is no equalization payment owed. 

Excluded Property: An inheritance, a gift from a third party or a payment for a personal injury which is received during the marriage is not shared. If it was used to pay joint debts or invested into a jointly owned asset or is spent, it cannot be deducted. 

Debts: I often hear complaints from clients about having to take into consideration debts incurred by their spouse without their consent or knowledge. It is very frustrating. The law says that the reason debts were incurred does not matter except if it was for an illegal purpose. Your debts (meaning the ones in your name) are yours and your spouse’s debts remain your spouse’s debts, and jointly owed debts are shared. But everything is balanced out by the equalization process. If you have more debts than your spouse, your spouse may have to make an equalization payment to balance everything out.

Whole Picture: Some clients get confused because they want to equalize each asset or each debt one at a time. You have to look at the whole picture, using the formula above, and not look at individual assets or debts.

Unequal Equalizations: In rare cases, it is possible to ask for an “unequal equalization” if ordering an equalization payment according to the normal formula would be “unconscionable”. Our lawyers can help you determine if your case would be an exception to the general rule.

We have seen many people get the equalization calculation wrong, including other lawyers. Our lawyers only do family law and work with equalization calculations every day. We can help you get it right.

Case Study: If you are interested in reading how a typical case is resolved, read this article. 

Personal Insights: When I went through my own divorce (yes, divorce lawyers can get divorced... just like doctors can get sick), I learned some personal lessons. Here they are.

Perhaps Jerry Reid wasn't living in Ontario when he wrote the lyrics to his famous and hilarious song: 

Well, she got the gold mine!
I got the shaft.
They split it all down the middle,
And then they give her the better half.
Well, I guess it all sounds funny,
Hoo, hoo, hoo, ha-ha-ha-ha-ha!
But it hurts too much to laugh.
She got the gold mine - I got the sha-a-aft.

... or maybe he just retained the wrong law firm! 

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