Spousal Support In Retirement
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Does Spousal Support End in Retirement?
Contrary to what many may believe, in Ontario, a spouse’s obligation to pay spousal support is not automatically terminated, or even reduced, when they retire. If you pay periodic spousal support, how long support is paid depends on your situation.
Noted by Justice Major of the Supreme Court of Canada in Boston v. Boston, the “purpose of spousal support is to relieve the economic hardship suffered by reason of the marriage or its breakdown […] there is no reason per se that spousal support cannot continue past the date of retirement”. However, on retirement, a spouse may apply to vary their support order if their ability to pay support is compromised, the needs of the spousal receiving support has changed, or there are concerns of double recovery. The decision of whether to vary support depends on whether the applicant can demonstrate a material change in circumstances.
What is a “material change in circumstances”?
A material change in circumstances is a substantial, continuing change, which was either not foreseen or could not have been reasonably contemplated, that, if known at the time, would likely have resulted in a different order (L.M.P. v. L.S.).
As it can be reasonably contemplated that most people will eventually retire, one would be tempted to conclude that a spouse’s retirement can never be used to justify the elimination, or even a reduction, of their support obligation. This is not the case. As was held by Justice McKinnon in Walts v. Walts, the test for a material change is not whether the change was or was not foreseeable by the parties at the time of the previous order, but instead whether the event that has since occurred (such as income reduction due to retirement), was taken into account in the order that was made.
What then are the factors that will be considered by the court when determining whether or not to vary a support order following retirement? Generally speaking, courts will be reluctant to vary a spousal support order upon payor retirement in a long marriage (20 years or more), where the payor is retiring early, where support has been paid for less than the length of the marriage, or where the payor is retiring to avoid paying spousal support:
When will a retirement be described as “early”?
The courts are not always clear. However, an “early” retirement is either a retirement on a reduced pension or a retirement on a full or unreduced pension before 65 years of age, in the absence of health issues or other special circumstances. Early retirement will be accepted where justified by health issues, economic uncertainty, or lay-offs where there is not a reasonable prospect of finding new employment (Spousal Support Advisory Guidelines: The Revised User’s Guide).
In some cases, the courts have found the retirement decision itself to be reasonable, but then a part-time employment income is imputed to the early retiree.
Another issue that may arise in retirement situations is that of “double recovery”, also referred to as “double dipping”. As was explained by Justice Major in Boston v. Boston:
What is “double recovery”?
Describes the situation where a pension, having already been equalized and divided as property, is then additionally considered as income in the calculation of spousal support payments. Upon dissolution of the marriage, the spouses divide their family net property, each spouse receive assets and an equalization payment is made that are supposed to take into account the value of any future pension income. However, if a spouse later shares in the pension income as spousal support, the spouse can be said to be recovering twice from the pension, or “double recovery”: first at the time of the equalization of assets and again as support from the pension income.
Justice Major in Boston v. Boston found that: It is generally unfair to allow the spouse receiving spousal support to reap the benefit of the pension both as an asset and then again as a source of income.
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 the equalization or division of matrimonial assets when the payee spouse’s continuing need for support is shown.
However, 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 in spousal support orders or agreements due to need as opposed to compensation, 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, still experiences economic hardship from the marriage or its breakdown.
In light of the uncertainty involving support in retirement, spouses who are in the process of separating or divorcing are well advised to have their lawyers address their pensions and retirement accounts in their separation agreement and when drafting the provisions of their support order. At Stephen Durbin and Associates, our lawyers will specify such things as:
- Whether a spouse’s retirement will constitute a material change that automatically entitles them to have their support obligation re-calculated on the basis of their post-retirement income;
- Whether the payor is entitled to retire before they reach the age of 65 and, if yes, the circumstances under which they may take early retirement; and
- In situations where the payor’s pension has been equalized, whether or not the recipient should be entitled to receive a double recovery.
Seek a lawyer who understands the implications and considerations of pensions and retirement accounts when separating.
Please be advised that all articles written on this website are for informational purposes only and do not constitute legal advice on any subject matter. The information contained within these articles is subject to change at any time and should not be acted upon without previous consultation with legal counsel.