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.
Often the pension holder is the breadwinner 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 homeowner 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.
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 homeowner, you will want to argue against such a provision and leave open the potential of spousal support from the equalized pension.
There is pending legislation in Ontario that will allow a pension to be divided at the 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.