• by Lesley Singer
Originally published in the OFLM 2024-07 edition
Overview
Double-dipping remains a central concept in family law pertaining to support. While the landmark Boston case underscores the unfairness of double-dipping by paying spousal support from an equalized asset, the Supreme Court left the door open for circumstances where it is permissible. This article considers those circumstances, drawing upon post-Boston case law and reviews a recent decision by Justice Vella in Nithiaraj v. Sellapu (2024 ONSC 2058) where support was claimed from an already equalized pension.
Introduction: Revisiting Boston
In Boston v. Boston (2001) 2 S.C.R. 413, the Supreme Court of Canada addressed the concern about potential double recovery in circumstances where a portion of a spousal support payor’s pension income has been or will be equalized, and then the entire amount of the pension is later considered as income for spousal support (as succinctly summarized by Justice Chappel in A.E v. A.E., 2021 ONSC 8189, at para 158). Accordingly, the Supreme Court in Boston held that, “To avoid double recovery, the court should, where practicable, focus on that portion of the payor’s income and assets that have not been part of equalization or division of matrimonial assets when the payee spouse’s continuing need for support is shown…” (at para 64).
This is particularly the case where the recipient spouse receives capital assets in exchange for his or her half-interest in the value of the payor spouse’s pension, which is then retained to grow the support payee’s estate (at para 63):
It is well recognized that a borrower should not be compelled to continue monthly loan payments to the lender if the borrower has previously paid the full amount owing. “Double dipping” is analogous to such a situation and is logically and mathematically indefensible.
The directive of the Supreme Court of Canada has generated much litigation. That is because at para 65 of Boston it is made clear that the prohibition against double recovery is not etched in stone:
Despite these general rules, double recovery cannot always be avoided. In certain circumstances, a pension which has previously been equalized can also be viewed as a maintenance asset. Double recovery may be permitted where the payor spouse has the ability to pay, where the payee spouse has made a reasonable effort to use the equalized assets in an income-producing way and, despite this, an economic hardship from the marriage or its breakdown persists. Double recovery may also be permitted in spousal support orders/agreements based mainly on need as opposed to compensation… (emphasis added)
Pension is a special asset – double-dipping does not apply to equalized business income
Courts have distinguished Boston on the basis that the asset at issue was a pension. For example, in Halliwell v. Halliwell, 2017 ONCA 349, the Court of Appeal distinguished a potential double-dip from a business versus that of a pension (at para 57):
…The trial judge distinguished a pension from business assets that continue to produce income without devaluing the assets themselves. This is particularly true with after-acquired capital assets that continue to produce income. The pension analogy does not apply to cases in which the payor would not have to liquidate assets to pay ongoing support. The trial judge held (at para 128) that it was not proper to consider double recovery “when dealing with assets that are not liquidating assets or special assets of the nature of a pension.”(emphasis added)
In other words, if a business continues to generate income without encroaching on the capital value of that business, then there is no offense against double-dipping. Of course, not all businesses are self-sustaining, and if retained earnings in a business were being eroded by salary from which support was being paid, then the principle set out in Halliwell may not apply. Similarly, if a business is valued based on the value of its assets rather than future cash flows, the reasoning in Halliwell may not be engaged.
Double-dipping does not apply (at minimum) to the unequalized portion of the pension
In Meiklejohn v. Meiklejohn (2001 CanLII 21220 (ON CA)), the Ontario Court of Appeal was faced with the following facts in the husband’s request to reduce spousal support because of his early retirement:
a) The husband was a teacher and the marriage was 22 years. The wife was economically dependent on the husband, who had remarried. The wife had health considerations that prevented her from full time employment.
b) After equalization of NFP, the pension rules were changed to allow early retirement on an unreduced pension where years of service + age at retirement = 85 (“the 85 factor”), whereas when the pension was valued that arithmetic in play was 90, and not 85 (“the 90 factor”). The husband utilized the 85 factor (owing to stress) and retired with an unreduced pension on the earliest possible date. This post-facto change in retirement rules substantially increased the value of the husband’s pension that had been divided with his first wife, because the sooner the retiree has access to an unreduced pension, the greater the value.
Significantly, the husband’s decision to retire was found to be made in good faith.
c) The husband’s pension was fully indexed against the cost of living;
d) The husband also received a “retirement gratuity” of $40,000 which had also not been included in his NFP;
e) The wife had health problems;
f) The husband cancelled his health insurance without notice to the wife and he also designated his new wife as his beneficiary under his life insurance policy. This was a triple whammy because (i) the support recipient/wife had to spend $300 per month to obtain replacement health coverage and comparable insurance on the husband’s life; (ii) the husband breached the separation agreement by cancelling his health insurance; and (iii) the husband’s annual pension income was (modestly) reduced because the husband granted his new wife survivor benefits; and,
g) The wife was in financial straits herself; she needed to maintain her RRSPs for retirement because of the husband’s choice to make his new wife the beneficiary under his old life insurance. Consequently, the wife was excused from having to generate any present income from her RRSPs.
Meiklejohn is an excellent example of where the rule against double-dipping is not offended when the payor is asked to pay support (in part) from an unequalized slice of an equalized asset. The court set out a list of factors that lead to that conclusion.
First, the husband’s pension was most likely undervalued at the time of the agreements suggesting that a significant portion of it was not equalized. Next, a portion of the pension was earned post-separation, and the husband’s employer had subsequently ‘sweetened’ the pension (the court estimated that the unequalized portion of the pension could be over 50 percent). Crucially, the support was needs-based, given the wife’s poor health, her limited ability to generate income, her receipt of a relatively small amount from equalization, and that most of her wealth was in the matrimonial home, which “at this point in her life [was] … not unreasonable for her to retain” (at para 15). The wife only had one other significant asset, her RRSPs, which the court also found it would be “not unreasonable” for her to retain. Additionally, the husband had cancelled his life insurance (meaning she had no entitlement to any survivors’ benefits if he were to predecease her), and the court held that “spousal support must continue even if a portion of it will have to come from the equalized part of the husband’s pension” (at para 15).
In Dishman v. Dishman 2010 ONSC 5239, Justice Nolan drew directly on Meiklejohn in ruling on the husband’s Motion to Change attributable to early retirement. The case concerned a 20-year marriage. The husband had previously made an equalization payment of $25,591.50. However, this was predicated on him retiring much later than what in fact unfolded. Mr. Dishman accepted an early retirement after he was told by his employers that the plant he worked at would be shutting down. Evidently, the NFP was based on a retirement-age assumption (in valuing the pension) of 59.5, though the husband ended up retiring early at age 52.5. He also received a lump sum payment of $125,000 and a $35,000 ‘automobile voucher’.
Furthermore, the support recipient, Mrs. Dishman “had every reason to plan on receiving spousal support in the amount of $750.00 per month until Mr. Dishman retired at age 59.5” - but given that he retired early, the pension equalization had not taken this into account (Dishman, at para 35). Mrs. Dishman was entitled to plan on receiving support until the retirement date identified in the pension valuation.
Drawing on Meiklejohn, Justice Nolan cited a list of other circumstances that would allow for an exception to double-dipping, such as the unequalized portion of the pension exceeding 50 percent, spousal support was needs-based rather than compensatory, and that the support recipient continued to suffer from economic hardship post-marriage breakdown. Her most recent income tax return was for $17,500 and she was unable to achieve full time employment (at paras 25-26).
The needs and hardship exceptions to double-dipping trumping ability to pay
In the recent decision Nithiaraj v. Sellapu, 2024 ONSC 2058, Justice Vella considered a 36-year marriage where the payor husband retired at age 68 and after the date of separation. He was 70 years old at the date of trial. Upon retirement, he began receiving his OMERS pension which was valued at about $420,000. The pension was equalized, as it was included in the husband’s NFP. There was no indication in the facts that the husband had retired to shirk his support obligations, rather, the husband only retired after receiving medical advice from his doctor.
Justice Vella determined that the husband’s income from his defined benefits OMERS pension would have $1,807 per month as at the date of separation, subject to indexing. He also had a small pension from Somalia. In retirement, the husband had an annual deficit (not disputed) of about $20,000 per year. The husband noted that the SSAGs set out a minimum income of $20,000 per year for payment of spousal support and since his income was slightly over $30,000 per year “requiring him to pay any support will have the cliff effect” (at para 206).
The wife was 62 at the date of separation and 65 by the time the trial was heard. She had been out of the workforce entirely for 5 years, had no pension of her own, and although eligible to obtain half of the husband’s CPP, she had not yet applied. The husband did not suggest that the wife should be seeking employment at this stage of her life. Justice Vella determined the wife had grounds for compensatory and needs - based support.
Justice Vella acknowledged the “sad reality… that there is not enough income, when combining the Husband’s total pensions, CPP and OAS, together with the Wife’s OAS and future GIS to meet the combined yearly expenses of the two parties” and that both parties would need to “adapt to their new fiscal realities” (at para 211).
Justice Vella held that the needs and hardship exception from Boston applied and that it would be appropriate to base the husband's spousal support on his entire income, including his OMERS pension. Her Honour observed that neither party would be returning to employment, the husband would be receiving the benefit of an indexed pension wholly intact, and that he was receiving the entire CPP benefit and his Old Age Security benefit. As such, it was fair that the husband paid spousal support to the wife until she turned 65 years of age.
Justice Vella ordered retroactive spousal support for 4 years in the low range of the SSAGs until the wife turned 65, totalling $37,684.50. Thus, even where the pension was equalized, and where the payor had his own financial hardship, the length of the marriage, and the more profound needs of the elderly recipient spouse were enough to warrant an exception to the double-dip rule.
The Rule Against Double-Dipping Doesn’t Always Apply to Child Support
Another exception to the rule against double-dipping pertains to child support, as child support is different in nature to spousal support. This difference is captured by Justice De Sousa in Musgrave v. Musgrave (2014 ONSC 1367) , starting at para 5 that the “…arguments of unfairness or "double dipping" do not apply to the facts of this case where a consideration of such funds as income is the right of the child and not for enriching the asset holding or lifestyle of the mother”.
Similarly, while a Saskatchewan case, the court in Boutin v. Boutin, (2023 SKCA 41 at para. 50) reinforces this point succinctly, stating:
…the rule against double dipping or double recovery does not apply in determining income for the purposes of child support. Child support is the right of the child. Parents have an obligation to support their children according to their needs, based on their respective incomes and ability to pay… The Guidelines are not optional, despite their name. They are mandatory. They provide that pension income must be included when calculating spousal incomes, absent a basis in the Guidelines for its exclusion.
In Fraser v. Fraser, 2013 ONCA 715, the Court of Appeal considered whether RRSPs that had been equalized and later cashed should be exempt from inclusion of income for support purposes. The Court of Appeal noted that “equalization was a matter between the parents” and that child support should not be excluded because of “dealings between the parents”. (at para 102)
It is important to note, however, that the court in Fraser left open the possibility that double-dipping could be considered unfair in the context of child support. As stated by Justice Simmons:
Although I would acknowledge the possibility that the facts of a particular equalization could in theory reach the threshold of unfairness, I have no evidence about the specifics of the equalization calculation that occurred in this case and cannot so conclude. (at para 103).
Hybrid cases where double-dipping is treated differently for child support vs. spousal support
As noted, in cases involving RRSPs, the case law has established that the inclusion of an RRSP in determination of an equalization payment is not in and of itself a basis to exclude it from income for child support purposes. Equalization is a matter between spouses, and child support is not paid to increase a spouse’s lifestyle.
However, in these circumstances, the court must consider the particulars of the equalization payment to decide if the inclusion of income from an equalized asset would reach a level of unfairness that would justify determining the party’s income pursuant to s. 17 (1) of the Child Support Guidelines, SOR/97-175. Under s.17(1), if the Court determines a party’s annual income under s. 16 (Total Income in the T1 General Income Tax Return) would not be the fairest determination of that income, it may have regard to the spouse’s income over the last three years and determine an amount that is fair and reasonable in light of any pattern of income, fluctuation in income or receipt of a non-recurring amount during those years. That would allow for disregarding income generated from an equalized asset for purposes of child support.
In Brennan v Lander, 2020 ONSC 1696, Justice Nakonechny excluded the portion of the wife’s RSUs that had been previously part of equalization from her income for spousal support purposes, but included the income generated by the RSUs and reported in her line 150 income for the purposes of child support. Her Honour found that the wife had significantly higher income available to her because of the increase in the value of the RSUs and that her full line 150 income was a fair determination of her income to calculate her ability to contribute to the children’s support (at para 129). Therefore, there are different incomes for child vs. spousal support based on the double-dip principle.
Conclusion
There are many exceptions to the prohibition against double-dipping with respect to spousal support. Needs-based support seems to be pivotal. If an equalized asset has been undervalued during the equalization process, that is also a powerful argument in favour of allowing the double-dip. If a business is a non-depleting asset, it seems to be outside of the double-dip rule. Child support is not a matter between the spouses, and so generally speaking, if an asset (typically an RRSP) has been equalized but subsequently brought into income by the payor spouse, usually child support will be payable on that income.
Ultimately, the court will strive to accomplish what is fair, keeping in mind the circumstances of the spouses and ability of the recipient spouse to utilize capital received as quid pro quo for the equalized pension in trying to come to the fairest determination of whether to make use of an asset for equalization and support purposes.