A Critical Examination of Bill 133
By: Ryan Venables
2011 December 01
Introduction
Divorce, also known as marriage breakdown, rings out with broken dreams, shattered lives, and unfulfilled promises. However, it also symbolises a new beginning, and an opportunity for two people to equitably divide the assets of a relationship with an opportunity to look toward the future.
A common misconception within Canadian society is the percentage the average Canadian thinks a marriage ends in divorce. Many people would answer, quite confidently, 50 per cent. In reality the answer is much more complicated. Figures suggest, by a couple’s 30th wedding anniversary, divorce will occur from a low of approximately 17 per cent in Newfoundland and Labrador to a high of approximately 50 per cent in Quebec.[1] However, nationally the average lies roughly in the middle at 38 per cent.[2]
Divorce is nothing new in Canadian society, and as such, legislation has been enacted to ease a couple through the transition of marriage to divorce and beyond. The Family Law Act[3] and Pension and Benefits Act[4] are two such pieces of legislation. These two statutes share a common area in the legal world: pension splitting through spousal separation.
When a marriage breaks down, lines are drawn in the proverbial sand. Former lovers are now enemy combatants and there are only really two items that are consistently fought over, children and property. This paper will deal with the latter, and critically analyse portions of the draft legislation known as Bill 133.[5] Bill 133 deals with a range of topics encompassed in the PBA and FLA, however, for the purposes of this paper, the following issues involving pensions will be addressed:
- Immediate settlement methods (ISM) in comparison to deferred settlement methods (DSM).
- The exclusion of pension division requirements for common-law spouses.
- The new defined calculations for valuating the member’s pension.
Although this paper will only critically analyse the above topics, the breadth of Bill 133 goes well beyond the limited area of pension and benefits. Additionally, the Ontario Government has indicated that 2012 January 01 will be the date as to when the new legislation and accompanying regulations will come into force and effect.[6]
Summary of Conclusions
Through an analysis of the above areas, this paper will show that Bill 133 both succeeds and fails in its attempt to alleviate some of the problems critics and practitioners have called for. First, through an examination of the various settlement methods available to members and non-members, the Government has taken a step forward in bringing equality toward former spouses, however, I suggest that by moving away from an immediate settlement method (“ISM”) and delayed settlement method (“DSM”) and embracing a hybrid or credit splitting approach, the new legislation is embracing the spirit of what pensions were intended for. Second, by not including a presumption for common-law spouses to have access to pensionable credits, I would suggest the legislators missed a valuable opportunity to bring the level of equality up to par with that of traditionally married spouses. Third, the new method of removing the valuation from actuaries and placing it within a rigid formula to be completed by the plan’s administrator may be problematic due to the rigidity of the new formulas. In the end, with the introduction of Bill 133, the Government of Ontario has aimed at shoring up holes that have long existed in both the PBA and FLA. While they have succeeded in their goals in some respects, in others they missed the mark and can look toward other provincial legislation to plug the gaps.
Bill 133: ISM v DSM
During court proceedings, which are attempting to sort out the net family property of each spouse of a matrimonial breakdown, a key sticking point can be a member-spouse’s pension. Additionally, a couple’s largest asset aside from the matrimonial home is generally a spouse’s pension. As will be discussed, a spouse’s pension is included in the net family property of the individual. Upon the conclusion of the proceedings, should there be an award of equalization, the non-member spouse will be entitled to a portion of the net family property of the member spouse. Should the member spouse be unable to pay either with cash or assets, such as property, the court can rightfully award a portion of the pension.
Moving forward, there are two traditional methods of the dividing an employee’s pension when examining the assets in the relationship during divorce proceedings. These include, an ISM or DSM. However, with Bill 133 coming into force on the horizon, the new legislation will limit pension splitting to ISM.[7] Eliminating the availability of DSM entirely.
In order to properly assess whether Bill 133, and the elimination of DSM is the correct method of progression in pension and family law, a historical examination must occur.
ISM
An ISM is the first of two methods in which an equalization payment could be made to the non-member spouse. Prior to the introduction of Bill 133, in proceedings of marriage breakdown, definition of property is as follows:
“property” means any interest, present or future, vested or contingent, in real or personal property and includes,
(a) property over which a spouse has, alone or in conjunction with another person, a power of appointment exercisable in favour of himself or herself,
(b) property disposed of by a spouse but over which the spouse has, alone or in conjunction with another person, a power to revoke the disposition or a power to consume or dispose of the property, and
(c) in the case of a spouse’s rights under a pension plan that have vested, the spouse’s interest in the plan including contributions made by other persons; (“bien”) (the italics are my own).[8]
As such, the division of family assets, which a pension is considered to be as per subsection (c), was governed by Part I of the FLA. Looking specifically at s. 9, the courts have indicated,
[o]nce the pension and all other assets have been tallied to produce the appellant’s “net family property”, the appellant is required to pay the respondent an amount equal to one-half of the difference between his and her net family properties. Section 9 of the Family Law Act allows a court to choose among several methods for payment of the equalization amount, including an order of immediate payment, the granting of a security interest, an instalment scheme, postponement of payment, creation of a trust, and the transferral, partition or sale of property.[9]
As such, an ISM is a “method of settlement of equalization obligations, there is an immediate transfer of a share of the value of the member’s pension to a locked-in RRSP or other prescribed vehicle.”[10] There are obvious advantages and disadvantages of using an ISM method.
The first and arguably most significant advantage, as noted by the court is that “the pension-holding spouse (here the husband) must transfer real assets to the wife to equalize matrimonial property. The wife can use these real assets immediately.”[11] The thought behind this albeit old-world train of thought, is that the husband was generally the spouse who provided the majority of the equity brought into the home. Therefore, it was thought an immediate equalization payment to the wife could satisfy any immediate economic need following the dissolution of the marriage. However, the obvious flipside to this advantage is the potential economic peril the pension-holding spouse is exposed to. Ari Kaplan outlines such a situation,
If the value of the employee’s pension, as determined by the parties, is equal to $250,000 and all other family property has been otherwise settled, then a direct equalization payment would see the employee pay the spouse $125,000 (either by way of cash payment or by some other tax-effective method).
However, because an employee’s pension money is locked-in until retirement, this approach might involve a substantial degree of financial hardship on the employee. The direct equalization payment approach presumes, therefore, that an employee will be able to access other assets or sources of revenue in order to satisfy the equalization payment.[12]
A second advantage of the ISM approach revolves around the spousal interest in death benefits payable to a former spouse. The minimum standards of the PBA indicate quite clearly that unless the spouses were cohabitating and the non-member spouse had not waived their right to a pre-retirement death benefit, then the spouse would not be entitled to their accumulated portion of the pension.[13] However, the statute has indicated there is an exception. Section 48(13) states, “[a]n entitlement to a benefit under this section is subject to any right to or interest in the benefit set out in a domestic contract or an order referred to in section 51 (payment on marriage breakdown).”[14] Therefore, despite the statutory requirement of cohabitating at the time of the member’s death, if a court order is in place, the surviving ex-spouse would still have a vested interest in the pre-retirement death benefit.
Despite subsection (13), there is still a grey area the statute does not address. It appears as if a spouse would be shutout of any pre-retirement death benefit if a court order were not in place. Take for example the situation of the spouse who shortly after the family law valuation date[15] learns of the death of the member. On its face, the PBA would statutorily exclude the spouse from collecting. However, the issue becomes more complicated depending on whether the member has named a beneficiary to the pre-retirement death benefit. Section 48(6) “sets out the rules that apply when the member does not have a spouse on the day the member dies or is living separate and apart from his or her spouse on the date of death. It provides that only in that case is the death benefit paid to a named beneficiary.”[16] Therefore, if the member does not have a spouse as per the PBA and has not named a beneficiary the pre-retirement death benefit would be payable to the estate of the member.
However, the court in Carrigan indicated that as in the example above,
[t]hat there was no domestic contract or court order in favour of Mrs. Carrigan appears to be the nub of the conflict. The Pension Benefits Act does confer rights with respect to an employee’s pension on spouses, and former spouses. Sadly for Mrs. Carrigan, she no longer qualifies as the spouse entitled to the death benefits under the Pension Benefits Act. Rights as a former spouse depend upon the date of the marriage breakdown. If Mr. Carrigan and Mrs. Carrigan had entered into a domestic contract or there was a court order which identified a portion of the pension to which Mrs. Carrigan would have been entitled, that portion would have been deducted from the total pension and would have affected the value of the death benefit. Also, upon Mr. Carrigan’s death, Mrs. Carrigan had the opportunity to elect to take an equalization payment instead under the will, however, after letting the court extension lapse, she was deemed, pursuant to s. 6(11) of the Family Law Act, to have taken under the will.[17]
As such, if not fully advised of their legal rights, a former spouse may be shut out of a significant portion of a member’s pension, should the appropriate steps, elections, or time frames not be followed.
The third advantage of an ISM scheme is closely related to the second advantage. By having an ISM, the couple that saw fit to end their marriage are able to walk away with a clean break and will not have to be continually connected through retirement. The courts have recognized this advantage as well by indicating, “first and foremost, an ‘if and when’ scheme also requires a continued financial association between the ex-spouses that obviates a ‘clean break’ after the divorce.”[18] In the event that the marriage produced no children, a DSM scheme would bind the couple together indefinitely, ultimately availing the opportunity for further complication that could result in additional legal proceedings.
DSM
A DSM or if and when scheme, is exactly this. It is designed to provide the ex-spouse of the member with a pensionable income following the retirement of the member. “By this method of settlement of equalization obligations, pension division occurs at a future point, at which time the non-member spouse receives a separate pension from the member’s plan.”[19] It should be noted when Bill 133 comes into force, it will eliminate this option of pension splitting. Despite this, there have been two methods of DSM adopted by the courts.
First is settlement by employee trust. “This method imposes a trust upon the employee that requires the employee to pay over a portion of the pension payment directly to the spouse, once the employee retires under the pension plan and begins receiving the pension.”[20] I would suggest that there is an immediate and apparent fatal flaw with the employee trust method. As Kaplan indicates,
the imposition of a trust on the employee spouse involves minimal involvement of the plan administrator since 100 per cent of the pension is paid to the employee, who is entirely responsible for the division and redirection of payment to the spouse in compliance with the court order or separation agreement.[21]
This raises two significant problems. First, suppose a court has ordered the member to pay a portion of their pension to their ex-spouse. Further suppose that the proceedings were particularly charged with emotion, and the member felt as if they were not treated fairly by their ex-spouse. There is every opportunity for the member to completely disregard the order or agreement simply to financially punish their ex-spouse. In a perfect world, this would be remedied through court proceedings. However, the reality is that it is very likely the ex-spouse, in this situation, will not receive their due entitlement when they need it most. The second problem revolves around the uncertainty of payments. If the plan holder suddenly dies before payments commence, or if there have been relatively few payments, the spouse will then be shut out from receiving further payments.[22] Thus, potentially drastically reducing the amount of equity owed to them through the separation agreement or court order.
Second, is settlement by splitting pension payments at source. Although this method is very similar to the employee trust method, it is differentiated insofar as the pension administrator is responsible for splitting the payment at the source to avoid many of the complications when the onus is on the employee.[23] Although it alleviates one of the problems of employee trust methods, we are still left with the problem the non-member spouse may face upon of the death of the employee and the potential end of payments before the full amount was paid out.
Bill 133 & Credit Splitting
The final method, settlement by assignment and credit splitting, I would suggest appears to be a hybrid between the ISM and DSM models. This method,
is one that permits the parties to divide and assign an employee’s pension ‘credits’ to the former spouse, who will then receive a separate pension annuity form the plan attributable to those credits, or, alternatively, be able to transfer an equivalent lump sum amount into a locked-in retirement savings vehicle.[24]
I would further suggest credit splitting is the best overall option moving forward. “With a pension credit split, the former spouse becomes, conceptually, a limited form of de facto member of the plan who would continue receiving an annuity for the balance of the spouse’s life, even if the employee dies first, and even if the employee dies prior to retirement.”[25] The courts have also briefly weighed in on this method of pension division,
[b]oth pension splitting and credit splitting are orders directed at the plan administrator and require their involvement. However, credit splitting creates a separately valued annuity from the plan. These are the types of settlements…which enables an eligible spouse to apply for a transfer of a lump sum from the plan to another pension plan, to a prescribed retirement savings arrangement, or to leave the lump sum in the plan to the credit of the eligible spouse; these options are only available if the administrator agrees.[26]
In addition to the comments in Carrigan, it appears as if the Ontario courts have remained relatively neutral as to which method of equalization is preferred, instead offering that each case needs to be analysed on its facts.[27]
With Bill 133 coming into force and effect in a short period of time, it appears legislators have determined the best way for a couple to move forward in their respective lives is to make the break between them clean and clear. When Bill 133 comes into force, the DSM model of pension splitting will no longer be available.[28] It appears as if the legislators have heeded the calls for reform by recognizing the clear disadvantages of the DSM model. However, despite the shortcoming of the DSM model, the credit splitting model has one clear advantage over a straight DSM or ISM model of pension splitting. This advantage is that credit splitting appears to be the most equitable method of resolving property disputes involving pensions.
For the employee, credit splitting minimizes the potential financial hardship of a direct equalization payment. For the former spouse, it reduces the risks associated with an if-and-when settlement approach. For both parties, credit splitting facilitates a clean break from one another.[29]
In this realm, credit splitting is attempting to act in the interest of all parties involved. The credit splitting model is taking the advantages of both an ISM and DSM model and rolling them into a more efficient way of processing a pension split. Arguably the most advantageous factor of an ISM model is its ability to bring immediate separation of assets from the spouses. On the other hand, perhaps the best feature of the DSM model is the ability for the pension to remain in a locked in the pension vehicle. By not granting immediate access to the pension, and allowing the credits accumulated during the course of the marriage to the valuation date, it is wholly within the spirit of what a pension plan is attempting to achieve by having the credits remain within the plan. Therefore, by having a credit splitting model which will be encompassed in Bill 133, the non-member spouse will have options as to best proceed with the credits attributed to them.
Section 67.3(1) indicates the criterion that needs to be met prior to any transfer of accumulated pension credits.
A spouse of a member or former member of a pension plan is eligible to apply under this section for an immediate transfer of a lump sum from the plan if all of the following circumstances exist:
1. The spouses are separated and there is no reasonable prospect that they will resume cohabitation.
2. No payment of an installment of the member’s or former member’s pension was due on or before the family law valuation date.
3. A statement of the imputed value, for family law purposes, of the member’s pension benefits or the former member’s deferred pension has been obtained from the administrator under section 67.2.
4. The transfer is provided for by an order made under Part I (Family Property) of the Family Law Act or is authorized under a family arbitration award or domestic contract.
5. In the order, family arbitration award or domestic contract, the amount to be transferred as a lump sum is expressed,
i. as a specified amount, or
ii. as a proportion of the imputed value, for family law purposes, of the member’s pension benefits or the former member’s deferred pension.[30]
Furthermore, s. 67.3(2) places restrictions on where the money can be transferred once it is severed out of the member’s pension.
The eligible spouse may apply, in accordance with the regulations, to the administrator of the plan for any of the following:
1. Transfer of a lump sum from the plan to another pension plan registered under the pension benefits legislation in any jurisdiction in Canada or provided by a government in Canada. This option is available only if the administrator of the other plan agrees to accept the transfer.
2. Transfer of a lump sum from the plan to a prescribed retirement savings arrangement.
3. Transfer of a lump sum to another prescribed arrangement.
4. Implementation of the transfer of a lump sum by leaving it in the plan to the credit of the eligible spouse. This option is available in such circumstances as may be prescribed and only if the administrator agrees to it.[31]
Although the new sections of the PBA have enacted the steps needed to transfer a pension from the member to the non-member spouse. It appears that all options of transferring out pension credits are to result in them staying in a locked-in retirement savings vehicle. However, the FLA in conjunction with the PBA has also been updated to reflect a change in pension division. In instances when an order will be made under s. 67.3 or 67.4, and the non-member spouse is within the criteria listed in s. 10.1(4) of the FLA, the non-member spouse will then be able to have an order granted to unlock the pension credits. The newly created s. 10.1(4) outlines,
In determining whether to order the immediate transfer of a lump sum out of a pension plan and in determining the amount to be transferred, the court may consider the following matters and such other matters as the court considers appropriate:
1. The nature of the assets available to each spouse at the time of the hearing.
2. 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 plan.
3. The liquidity of the lump sum in the hands of the spouse to whom it would be transferred.
4. Any contingent tax liabilities in respect of the lump sum that would be transferred.
5. The resources available to each spouse to meet his or her needs in retirement and the desirability of maintaining those resources.[32]
However, it should be noted when examining the amount that is to be transferred, the PBA clearly limits the amount at a maximum of 50 per cent.[33] This amount will not change when the new sections come into force.[34] In addition to the maximum transfer amount of 50 per cent, the Ontario Superior Court held that when a spouse is in arrears for support payments, the non-member spouse may proceed with an action that brings the deficient payments up to date through a transfer of the members remaining pension credits up to a maximum of the remaining 50 per cent.[35] Despite the availability of 100 per cent of the pensionable credits available to the non-member spouse, it appears as though the member spouse would need to default on their obligation of spousal and or child support payments for an undetermined period of time before the non-member spouse would be able to obtain a order from the court to claim the remaining 50 percent.
Although the option is available for non-member spouses to obtain the member spouse’s full pension, it is quite apparent why a court would hesitate in making such an order. Pensions are seen as a valuable benefit to employers and employees alike. The availability of a pension for an employee equates to a safety blanket that will, in many cases, be a person’s primary means of income when they retire. By ordering the member spouse’s entire pension to be transferred to their former spouse, this could lead to the member spouse becoming destitute upon retirement, or perhaps delay retirement altogether. In his decision in Bielanski v Bielanski, Justice Gauthier stated,
In Nicholas, the Husband was incarcerated for having attempted to murder the Wife. The Husband had never paid any spousal or child support. As well, the parties had executed Minutes of Settlement which provided that the Husband was to transfer his entire pension for the benefit of his wife, as support and equalization of property.
…
I am not prepared to deprive him of 100% of what will likely be his only source of income, other than Canada Pension Plan.[36]
It should also be noted that after an order under s. 67.3 or s. 67.4 of the PBA, if the non-member spouse did not meet the criteria as established by s. 10.1(4) of the FLA, the non-member spouse is not without options. If the non-member spouse was facing financial difficulties, they could apply to the Financial Services Commission of Ontario (“FSCO”) to have their pensionable credits unlocked through a financial hardship application.[37] It should be noted that this application does not give an administrator of a pension the ability to release the pensionable credits to the FSCO. If the non-member spouse had chosen to create a de novo pension within the member’s pension, they would first need to transfer out their existing credits to a locked-in retirement savings vehicle, then proceed with the application to FSCO.
Through the enactment of Bill 133, it is apparent the Ontario government is sending a clear message that credit splitting as enacted by s. 67.3 and 67.4 of the PBA is the preferred model for pension division in family law matters. Although this apparent hybrid method of pension equalization has yet to be fully tested by the courts, I would suggest with the availability of the best of both the ISM and DSM models, that the credit splitting approach will deliver the most equitable remedy for both members and non-members alike.
Common-Law Exclusion
The last 25 years have seen many changes that may have once thought to be inconceivable only a few generations ago. Arguably, some of the changes, such as same-sex marriage rights and shopping on Sunday, have come about as a direct result of the Charter of Rights and Freedoms.[38] Despite these steps forward, the changes of Bill 133 is leaving one large gap in the division of assets. I would suggest the legislators should have made provisions for non-member common-law spouses to have a presumption to transfer pensionable credits accumulated during the course of the relationship following a relationship breakdown.
However, before this could have been added into the possibilities of being added into Bill 133, an examination of the current legislation needs to be undertaken. Part I of the FLA examines the division of family property. Looking at s. 1(1) of the FLA, it will be noted that spouse is,
either of two persons who,
(a) are married to each other, or
(b) have together entered into a marriage that is voidable or void, in good faith on the part of a person relying on this clause to assert any right.[39]
It should be further noted, that Part III of the FLA examines support obligations between spouses. In s. 29, the definition of spouse as noted in s. 1(1) of the FLA is expanded upon to include, first, continuously for a period of not less than three years, or second, in a relationship of some permanence, if they are the natural or adoptive parents of a child.[40] It is this added portion of the definition “spouse” which give rise to what is known as a common-law marriage. However, because this definition resides wholly within Part III of the FLA which deals with support obligations, it is inconsistent with Part I, which deals family property issues. Additionally, an examination of the PBA adds another variable into the foray. Section 1(1) of the PBA indicates the definition of spouse as,
means either of two persons who,
(a) are married to each other, or
(b) are not married to each other and are living together in a conjugal relationship,
(i) continuously for a period of not less than three years, or
(ii) in a relationship of some permanence, if they are the natural or adoptive parents of a child, both as defined in the Family Law Act; (“conjoint”).[41]
It will be noticed that this definition is consistent with s. 29 of the FLA. Additionally, in the newly created s. 67.1(1), spouse will also be consistent with s. 29 of the FLA.[42] Therefore, the conflict between common-law spouses and the equalization of net family property remains. In the defining piece of jurisprudence of Wylie v Leclair,[43] at trial Justice Lafrance-Cardinal stated,
In the Province of Ontario, the Family Law Act does not give equal standing to common law spouses when it comes to property accumulated during the years of cohabitation. The Act does not talk of an equalization of net family properties, common law relationships are not viewed as partnerships as stated in the preamble of the Act.
It is worth noting that our society has evolved drastically in the last decade. We now talk of same sex benefits, of same sex spouses being able to bring a claim for spousal support, of same sex spouses being able to adopt children. The Income Tax Act, a federal statute, treats common law spouses in the same manner as married spouses. They are deemed common law if they have been living together for at least twelve continuous months. Common law spouses are subject to the same income tax rules as married spouses ie: — designation of principal residence, attribution rules, equivalent-to-spouse tax credit.
With respect to spousal support, the law does not treat a common law relationship any differently than a marital relationship except that you must have cohabitated continuously for a period of not less than 3 years before you can bring such a claim. (S. 29 of the Family Law Act)
However, with regards to property issues and long term common law relationships Parliament has not kept up with the times. Common law spouses have been accepted in our society as spouses. Politicians may have a political future even though they may be divorced and now live in a common law relationship. In most cases common law relationships, to the outsider looking in, have the same attributes as those relationships commenced with marital vows. There are two income families, two car garages, PTA meetings, car pooling, mortgages, pooling of incomes. However, at separation, common law spouses do not have the protection of the Family Law Act. The preamble of the Family Law Act does not protect them as it speaks of recognizing marriage as a form of partnership. If the assets are in one spouse’s name, the other spouse must prove their claim, their contribution, their entitlement. Parliament will have to address this lacuna, in the interim however, the trial judges will have to continue interpreting the common law spouses intentions and will have to inspect their investments, their accumulated wealth, their enrichment, their corresponding deprivation with a fine tooth comb.[44]
Despite Justice Lafrance-Cardinal’s strong wording toward equality for common-law spouses, much of what she indicated has been taken as nothing more than obiter. In hearing the appeal of Wylie, Justice MacPherson for the Ontario Court of Appeal stated, “[a]ccordingly, there is no presumption that the net family property of common law spouses should be equalized upon breakdown of the relationship.”[45]
While there is no presumption of equalization in common-law relationships, there are instances where common-law relationships do qualify for a division of assets. When common-law spouses separate, the division of their assets is only rendered where it is found that the couple engaged in a joint family venture.[46] “In undertaking this analysis, it may be helpful to consider the evidence under four main headings: mutual effort, economic integration, actual intent and priority of the family.”[47] In addition to a joint family venture, it also must be established that one of the spouses was unjustly enriched. In examining the scope of unjust enrichment, Justice Hourigan in Holloway v Devenish,[48] quoted the seminal case of Peter v Bedlow,[49] “[a]n action for unjust enrichment arises when three elements are satisfied: (1) an enrichment; (2) a correspondent deprivation; and (3) the absence of a juristic reason for the enrichment.”[50] If it established that one of the spouses has been unjustly enriched, they may then seek an order to have their interest in the property placed in a constructive trust. This is opposed to a resulting trust, which is a presumption that the non-titled owner has a share in the property based on that person’s contribution to acquiring or maintaining the property.
Despite the availability of asset equalization by way of a resulting or constructive trust for common-law spouses, the courts have been very hesitant to order interest in the member’s pension. I would suggest this is where Bill 133 misses an opportunity for equality. In 2003, the historic case of Halpern v Canada[51] was decided in Ontario’s highest court, granting the right to marry for same-sex couples. Yet in 2011, the only distinguishing feature between same-sex couples and opposite-sex couples, versus that of FLA or PBA defined common-law couples appears to be a marriage certificate. The Ontario Human Rights Code outlines a number of prohibited grounds for discrimination in s. 1 as, “[e]very person has a right to equal treatment with respect to services, goods and facilities, without discrimination because of race, ancestry, place of origin, colour, ethnic origin, citizenship, creed, sex, sexual orientation, age, marital status, family status or disability [emphasis is my own].[52] Going further, the HRC defines services as “not including, a levy, fee, tax or periodic payment imposed by law.”[53] As such, I would suggest the act of obtaining a marriage license from authorized body is considered a service performed by the government. In addition to the violation under the HRC, I would further suggest by making the distinction between married spouses and common-law spouses there are further implications with respect to s. 15 of the Charter which would not be upheld by s. 1 of the Charter.
Moving away from the general topic of common-law property rights, and toward the specific topic of pension division, the highlights of Bill 133 in relation to common-law spouses and pension division is summed up by a FSCO publication,
[u]nder the Ontario Family Law Act (FLA), the value of married spouses’ pension assets must be included in family property for purposes of the calculation and division of net family property. However, there is no requirement under the FLA for common-law spouses to divide net family property (including the value of any pension assets) on breakdown of their spousal relationship. This will not change when the new rules come into effect.[54]
This succinctly outlines the inequality in which common-law spouses will continue to face. Although Bill 133 does bring about a number of advantages to the PBA and FLA, it falls short in addressing property rights for common-law spouses. In British Columbia, the government is also preparing for a legislative update. However, I would suggest the update to the Family Relations Act[55] will step much further toward equality for common-law spouses. The update to the FRA expected to commence on the road to parliamentary approval in 2011,[56] will provide common-law spouses with the same rights to property law and pension division that married couples currently enjoy.[57] When Bill 133 comes into force it will not change current system, if a common-law spouse wants access to the non-member spouse’s pension during the division of assets, they must have obtained written consent from that member spouse.[58] In the instance where written consent was not provided, it is likely that the non-member spouse will not be granted access to the pension, however, eligible assets can otherwise be divided up by the courts. Whereas in British Columbia, “[t]he draft blueprint for reform recommends a raft of measures aimed at improving family law in line with the province’s new overarching philosophy that familial disputes are usually best handled outside court.”[59] As a result, the draft changes will now include “[m]arital property division will be extended to common-law spouses who have lived together for two years in a marriage-like relationship, or who are in a marriage-like relationship of some permanence and have children together.”[60]
Despite the changes Ontario has made to the FLA, I would suggest, they did not go far enough. As renowned family law critic and editor of the Reports on Family Law, Phillip Epstein, has indicated, “many other jurisdictions, including Ontario, could learn from British Columbia’s efforts.”[61] In the end, the choice not to go through the marriage process either in a religious institution or a civil ceremony is a highly personal decision. It is a decision that could be wrought with many factors, but it should not be a decision, upon meeting the statutory definition of spouse, that prevents the couple from receiving all the rights and benefits that are enjoyed by married spouses both during the marriage and during the marriage breakdown.
Pension Valuation
When Bill 133 comes into force, perhaps one of the most significant changes with respect for pension reform for defined benefit plans will encompass how valuation is conducted. In an attempt to regulate the valuation of pension credits during a marriage breakdown, the PBA through O.Reg 287/11 given force by s. 67.2 of the draft legislation will provide for a specific set of formulas that the plan administrator will calculate to determine an imputed value for the pension.[62] In other words, “Bill 133 changes this system in two significant ways. First, it requires the valuation to be done according to a formula that is prescribed by regulation; second, it requires the valuation to be carried out by the administrator of the pension plan.”[63] Despite the reforms provided by Bill 133, there is a concern that needs to be addressed. This concern is whether the new rigid formulas, as prescribed by the regulations, will result in a fair evaluation of pension calculations
In its current state, “an actuarial valuation report prepared by the plan actuary is the key to identifying the employer’s required contributions, both with respect to the normal cost for funding the benefits as well as any special payments required to fund an unfunded liability or solvency deficiency.”[64] As such, the courts and the Law Commission of Ontario (“LCO”) have identified three methods for valuating a defined benefit pension plan. The first method, known as the retirement method involves calculating,
the present value of a pension’s future income stream based on the assumption that the employee will continue in employment – and accrue pension credits – until retirement. The pension’s value is calculated using estimates of the employee’s projected salary, benefits, and service at the assumed retirement date.[65]
In contrast, the termination method,
calculates the value of a pension’s future income stream by deeming the employee to have terminated employment and plan membership on the valuation date… An employee’s actual salary and years of pensionable service, as of the valuation date, are used to calculate the pension benefit to which the employee would be entitled on retirement. Future contingencies, such as salary increases, years of service, and plan improvements, are generally not taken into account.[66]
The final valuation method appears to be a hybrid between the termination and retirement. The hybrid termination-retirement method,
…combines elements of both the termination method (in that termination at the valuation date is assumed in order to determine the amount of the accrued pension benefit) and the retirement method (in that inflation is recognized where the plan is indexed and continued employment is assumed for purposes of eventual eligibility to take early retirement on an unreduced pension).[67]
It appears, when looking at the valuation methods in Ontario courts that “…the termination method seems generally to have found much more favour than the retirement method…”[68] for two main reasons. First,
by projecting salary levels and service credits that might be earned after the valuation date, the retirement method gives the non-member spouse the “fruits” of the member spouse’s post-separation labours and is therefore in conflict with the FLA requirement that value be determined as of the valuation date.[69]
Second, is
…its highly speculative nature, resulting from the fact that it requires the making of assumptions as to what the member spouse’s salary and service credits will be and what plan improvements will have been made by the time he does retire.[70]
Despite the pension valuation problems the LCO outlines in their analysis of Bill 133, they do not commit to one method to move forward with into the future. The reforms of Bill 133, and the formulaic methods to valuate pensions are designed, in part, to eliminate the debate between duelling actuarial valuations. However, I would suggest this method fails for a number of reasons.
First, the reforms of Bill 133 remove the availability to examine individual instances that falls outside the general provisions as accounted for in the Regulations. Because many defined benefit contribution pensions work similar to RRSP or savings accounts, individual circumstances may effect the date of retirement for the member spouse are not taken into account. Rather, multiple formulas are provided which give plan administrators varying time ranges as to determine the pension value. “…[P]ension provisions in Bill 133 include the elimination of flexibility in valuation of pensions. Currently, lawyers and judges can consider special circumstances such as a plan member’s shortened life expectancy…”[71] when determining the value of the member spouse’s pension. This falls short for the obvious reason that it ignores the individual circumstances of each member and eliminates discretion within the process.
Second, although the overall aim of Bill 133 is to reduce the amount of litigation in marriage breakdowns,[72] by placing the valuation squarely in the hands of pension administrators, the government has effectively taken the valuation process out of the hands of experts and placed it into those of generalists. Actuaries in Canada are a regulated profession, overseen by the Canadian Institute of Actuaries. There are regulations and rules of professional conduct, similar to that of lawyers, and tribunals are conducted in accordance with the principles of administrative law.[73] There is no such regulating body for pension administrators. As such, for example, should a non-member spouse commence an action where there are allegations of negligence or professional misconduct, the actuary would be covered by their personal or professional indemnity insurance. Whereas in the case of the pension administrator, should the same circumstances take place, and an action was launched against the pension administrator, it is ultimately the entire pension, and subsequently, the plan members who may bare the cost of the administrator’s error.
Third, the rigid formulas only provide a pre-tax valuation figure. Although plan administrators will be able to determine plan figures, their responsibility will end there. Many assets, such as a house are determined on an after tax basis. To determine the tax implications, a member or former spouse of the member will still need to contact an actuary to determine the relevant tax implications after the valuation figure has been assessed.
As such, plan members will likely require an outside actuary to estimate a tax rate in each case, which would defeat the simplicity intention of the bill and will entail additional costs. When combined with the fees charged by plan administrators, the actual cost to the plan member could increase in comparison with current practice.[74]
A final example of how a rigid formula may fail the member and non-member alike arises in the instance where a pension plan becomes or is likely to become insolvent.
If the non-member obtains 50% of the imputed value by a transfer to a retirement vehicle, and if the pension loses 30% of the imputed value, the member will be left with 20% of the imputed value.
If the pension goes down in value after V-Day [valuation day] because it is underfunded or insolvent:
(a) What decline post V-Day is required to trigger section under 5(6) FLA for an unequal division;
(b) How will the court adjust the pension division or EP [equalization payment] as a result;
(c) What if there is an order for a transfer of 50% of the imputed value but the pension has declined to less than 50% of the imputed value?[75]
It is individual circumstances such as these where the rigid calculations of the Regulations can lead to an inequitable result. Where the value of the member’s pension has decreased by such a dramatic amount after the valuation has been determined, the only recourse for the member is to bring an action under s. 5(6) of the FLA. In this instance, the member spouse would be seeking a re-equalization of the pension funds to equate for the loss or potential loss that they occurred when the pension’s solvency liabilities outweighed their solvency assets.[76] Although there is recourse under the FLA, if there was more flexibility in the valuation of the plan, such considerations could be taken into account.
Although there are concerns with placing the valuation of the pension in the hands of pension administrators, I would suggest that despite its shortcoming, improvements have been made. Section 22 of O/Reg 287/11 is a step in the right direction toward providing a fair and equitable valuation of the pension. By allowing for two valuation dates, Bill 133 can take steps toward tackling issues when there is a discrepancy between the values on each date.
Conclusion
When, then Attorney General Chris Bentley announced the changes that would encompass Bill 133 many thought it would be a big step into the future. Pundits have been calling for change since the seminal case of Nantais v Nantais.[77] In commencing the analysis Justice Brockenshire stated,
I commence my analysis by adding my own voice to the concerns raised by Justice Granger, Professor McLeod, and Catherine Aitken, that this whole very difficult area could and should be dealt with by Parliament and the provincial legislatures passing comprehensive pension legislation providing for the actual division of pensions on the breakdown of family relationships.[78]
Although the scope of changes for Bill 133 goes far beyond the realm of marriage breakdown and pension law, I would suggest that Bill 133 could have gone further to eliminate some of the issues addressed in this paper.
First, the traditional use of an ISM or DSM method for dividing a pension during a marriage breakdown can prove to be problematic. Although, on its face, an ISM does have an immediate result by allowing the non-member spouse access to the pension credits immediately, there can be valuation issues that can lead to an inequitable result. By transferring the result out of the member spouse’s plan immediately, there is a significant amount of built up credit that will be lost when the credits are transferred to another locked-in savings vehicle. As with any plan where interest in accrued, the more money that is invested in the vehicle, the higher the return will be. By allowing a non-member spouse to take from the plan, it will reduce the overall amount they otherwise would have obtained. Oppositely, in a DSM model, by forcing the non-member spouse to wait and see, the courts have bound the couple together when the very thing that brought them before the courts is a desire to separate. Thus, I would suggest a credit splitting or hybrid model between an ISM and DSM model is the most appropriate method to proceed with pension splitting. By having the pension remain in its original location, yet completely controlled by the plan administrators allow the necessary autonomy for them should they require access to the funds in the future.
Second, Bill 133 had the opportunity to bring equality in an area that is far overdue for such treatment. By not having the same equality rights for common-law spouses that married couples enjoy, I would suggest strikes to the very heart of the HRC and s. 15 of the Charter. Coincidentally enough, the British Columbia government is planning on updating its FRA and in its intended changes, will be an inclusive set of property rights for common-law spouses.
Third, much of the debate surrounding Bill 133 appears to be stemming from the formulaic valuation the Regulations are providing to the PBA. Although there are numerous actuarial interest groups pushing their message, I would suggest a rigid formula to calculate certain pensions is problematic. By not taking into account individual circumstances and potential insolvency issues of plans, the strict formula may lead to inequitable results for members and non-members alike.
Consequently, although there are numerous arguments to be had on either side of the debate surrounding Bill 133 coming into force, I would suggest the improvement made to streamline the amount of litigation involving pensions in family breakdowns does not go far enough and will ultimately lead to inequitable results for both member and non-member spouses.
[1] Ben Hovius & Mary-Jo Maur, Hovius On Family Law: Cases, Notes and Materials, 7th ed (Toronto: Thomson Reuters Canada Limited, 2009) [Hovius].
[2] Ibid.
[3] RSO 1990, Chapter F3 [FLA].
[4] RSO 1990, Chapter P8 [PBA].
[5] Bill 133, An Act to amend various Acts in relation to certain family law matters and to repeal the Domestic Violence Protection Act, 2000, 1st Sess, 39th Leg, Ontario, 2009 (assented to 14 May 2009), SO 2009 C11 [Bill 133].
[6] George Carson & Vanessa Lam, “Payment Issues: How Equalization Will Be Effected”, (05 October 2011) 2 online: Ontario Bar Association <http://www.oba.org/en/pdf/sec_news_fam_nov11_a2_Carson&Lam_Tab5.pdf>
[7] PBA, supra note 4 at s. 67.3(1).
[8] FLA, supra note 3 at s. 4.
[9] Best v Best, [1999] 2 SCR 868 at 107 [Best].
[10] John D. Gregory, “A New Era in Pension Division: Bill 133 and its Draft Regulation”, Legislative Comment on Bill 133 (2011) Law Society of Upper Canada [Gregory].
[11] Boston v Boston, [2001] 2 SCR 413 at 50 (Boston).
[12] Ari N. Kaplan, Pension Law (Toronto: Irwin Law Inc., 2006) at 306-307 [Kaplan].
[13] Ibid at 295; PBA, supra note 4 at s. 48(3), 48(14), 48(14.2).
[14] PBA, supra note 4 at s. 48(13).
[15] The valuation date is the date where the decision, made either by one or both spouses, that there was no hope of reconciliation for the marriage. This is a critical date for determining the net family property of each spouse.
[16] Carrigan v Quinn, [2011] OJ No 559 at 69 [Carrigan].
[17] Ibid at 72.
[18] Best, supra note 9 at 111.
[19] Gregory, supra note 10 at 25.
[20] Kaplan, supra note 12 at 307.
[21] Ibid.
[22] Ibid; Boston, supra note 11 at 49; Best, supra note 9 at 113.
[23] Ibid.
[24] Ibid at 308.
[25] Ibid at 309.
[26] Carrigan, supra note 14 at 77.
[27] Boston, supra note 11 at 108.
[28] PBA, supra note 4 at s. 67.1-67.6.
[29] Kaplan, supra note 12 at 309.
[30] PBA, supra note 4 at s. 67.3(1)
[31] Ibid at s. 67.3(2).
[32] FLA, supra note 3 at s. 10.1(4)
[33] PBA, supra note 4 at s. 51(1)-(2).
[34] Ibid at s. 67.3(6).
[35] Ibid at s. 66(4); Nicholas v Nicholas, (1998) 37 RFL (4th) 13 at 15 [Nicholas]; Gauthier v Gauthier, [2003] OC No 2098 at 17 [Gauthier].
[36] [2005] OJ No 2171 at 23,25; Nicholas, supra 34 at 15.
[37] Financial Services Commission of Ontario, Pension Unlocking, online: Financial Services Commission of Ontario <http://www.fsco.gov.on.ca/en/pensions/financial_hardship/Pages/default.aspx>.
[38] Part I of the constitution Act, 1982, being Schedule B to the Canada Act 1982 (UK), 1982, c 11 [Charter].
[39] FLA, supra note 3 at s. 1(1).
[40] Ibid at s. 29.
[41] PBA, supra note 4 at s. 1(1).
[42] Ibid at s. 67.1(1).
[43] [2003] OJ No 1560 [Wylie].
[44] Ibid at 21-24.
[45] Ibid at 18.
[46] Kerr v Baranow, [2011] 1 SCR 269 at 87 [Kerr].
[47] Ibid at 89.
[48] [2009] OJ No 5008 [Holloway].
[49] 1993 CanLII 126 [Peter].
[50] Kerr, supra note 46 at 50.
[51] [2003] OJ No 2268 [Halpern].
[52] RSO 1990, Chapter H 19 [HRC].
[53] Ibid at s. 10(1).
[54] Financial Services Commission of Ontario, Marriage Breakdown FAQs, online: Financial Services Commission of Ontario <http://www.fsco.gov.on.ca/en/pensions/Family-Law/Pages/marriage_breakdown_faqs.aspx>.
[55] [RSBC 1996] Chapter 128 [FRA].
[56] Cristin Schmitz, “B.C. Poised for a Major Family Law Overhaul”, The Lawyer’s Weekly (10 September 2010) online: The Lawyer’s Weekly <http://www.lawyersweekly.ca/index.php?section=article&articleid=1243> [Schmitz].
[57] Ibid.
[58] FLA, supra note 3 at s. 53(1).
[59] Schmitz, supra note 56.
[60] Ibid.
[61] Ibid.
[62] PBA, supra note 4 at s. 67.2; O Reg 287/11.
[63] Gregory, supra note 10 at 7-5.
[64] Kaplan, supra note 12 at 411.
[65] Ibid at 305.
[66] Hovius, supra note 1 at 368.
[67] Law Commission of Ontario, “Division of Pensions Upon Marriage Breakdown Final Paper – January 2009”, Legislative Comment on Bill 133, online: <http://www.lco-cdo.org/en/pensions-final-paper-sectionIV subsection C>.
[68] Ibid.
[69] Ibid.
[70] Ibid.
[71] Hovius, supra note 1 at 368.
[72] David Wolgelerenter, “Pension Valuation & Bill 133”, Legislative Comment on Bill 133 (2011) [Wolgelerenter].
[73] Canadian Institute of Actuaries, “Discipline”, online: Canadian Institute of Actuaries <http://www.actuaries.ca/about/discipline/discipline_e.cfm>; Canadian Institute of Actuaries, “What We Do”, online: Canadian Institute of Actuaries <http://www.actuaries.ca/about/what_we_do_e.cfm>.
[74] Canadian Institute of Actuaries, “What We Do”, online: Canadian Institute of Actuaries <http://www.actuaries.ca/about/what_we_do_e.cfm>.
[75] Law Society of Upper Canada, “Six-Minute Family Lawyer 2009”, Legislative Comment on Bill 133, (2009) 4-3.
[76] Kaplan, supra note 12 at 412.
[77] [1995] OJ No 3272.
[78] Ibid at 24.





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