DATE: 2001-10-10 DOCKET: C34038
COURT OF APPEAL FOR ONTARIO
LASKIN, ROSENBERG and CRONK JJ.A.
B E T W E E N :
Paul D. Amey, Applicant (Appellant)
- and -
Patsy Elizabeth Meiklejohn Respondent (Respondent in Appeal)
GUY PAUL MEIKLEJOHN for the appellant Mark Abradjian, for the respondent
Heard: September 14, 2001
On appeal from the judgment of Justice Patricia H. Wallace dated March 31, 2000
ROSENBERG J.A.:
[1] The appellant and respondent, whom for convenience I will refer to as the husband and wife respectively, separated in 1990 after 23 years of marriage. In 1993, they entered into a separation agreement settling spousal support and division of net family property. The husband agreed to pay support in the amount of $1,800 per month. At the time, the husband was employed as a primary school principal. The parties anticipated that the husband would retire and suffer a corresponding reduction in income at some point, probably when he reached the “90 factor”[^1]. However, the husband’s health began to deteriorate and when, as a result of changes to the terms of employment, the husband became eligible to retire under an “85 factor” programme, he took early retirement. Upon retirement, the husband’s income decreased from $82,000 to $48,600 under his pension. While his expenses were also reduced, the husband suffered a net reduction in disposable income of about $16,000.
[2] The separation agreement included a clause providing that either party could bring an application to court to vary the support “based on a material change in circumstances” including “a significant change in the income of either or both parties”. Following his retirement, the husband invoked this clause and brought an application to reduce the spousal support. Wallace J. found that the husband had demonstrated a material change in circumstances by reason of the early retirement but that he had not established a significant change in his income. She therefore dismissed the application. The husband submits that she erred in her decision because she failed to give effect to the rule against “double-dipping” as dealt with in the recent decision in Boston v. Boston, 2001 SCC 43. He also submits that, in any event, the applications judge misapprehended the evidence.
[3] While I have concluded that application of Boston v. Boston does not warrant a reduction in the spousal support, I am also of the view that the applications judge did make several errors that require reversal of her decision. For the reasons that follow, I would allow the appeal and reduce the spousal support to $1,200 indexed annually to the cost of living. I would make the reduction effective as of October 15, 2001.
THE FACTS
[4] The husband and wife married in 1968 and separated in December 1990. They are now divorced. They have two adult children. The husband was employed as a teacher and later as a principal in the public elementary school system. The wife was economically dependent upon the husband throughout the marriage. The husband and wife entered into a separation agreement in 1993 containing the spousal support and variation clause mentioned above. In 1998, the husband remarried. His second wife has two dependant children. She has an income of approximately $27,000.
[5] At the time the parties entered into the separation agreement, the husband’s first available date to retire on an unreduced pension was September 2001 at age 56 [the “90 factor”]. In 1998, teachers became eligible for early retirement using the “85 factor”. This advanced the husband’s earliest available date to retire on an unreduced pension to April, 1999. The husband had been experiencing stress-related illness and on the advice of his physician he elected to retire on April 1, 1999. The applications judge found that this decision was taken in good faith. Upon retirement, the husband began to collect a pension of approximately $48,600. This pension is fully indexed to the cost of living. The husband also received a retirement gratuity of approximately $40,000 gross. This retirement gratuity had not been taken into account in the equalization of net family property. The husband’s pension is now his sole source of income. When he turns 60 he will be eligible for Canada Pension Plan benefits. According to the evidence, the impact upon the husband’s pension when he becomes eligible for CPP is not clear. However, the husband is now only 55 years of age.
[6] The wife suffers from a number of health problems of her own and has only been able to work part time. At the time of the application before Wallace J. she earned approximately $22,000 from employment.
[7] When he retired, the husband, without notice to the wife, cancelled health care coverage from his employer. As a result, the wife is no longer covered by any extended health care. In cancelling the health care in the manner that he did, the husband breached a term of the separation agreement. Under the agreement, the wife had the option to insist that the coverage be maintained, albeit at her cost through a reduction in the spousal support. The husband also cancelled certain insurance policies that named the wife as beneficiary. As I understand the evidence, the net unanticipated cost to the wife of these decisions by the husband is $300 per month. In other words, for the wife now to find comparable extended health coverage and insurance on the husband’s life it will cost her $300 more per month than it would have, had the husband complied with the separation agreement. Finally, the husband elected to take a reduced pension to enhance the survivor benefit for his second wife (60% rather than 50% of the pension). Had he not made this decision, his pension would have been approximately $49,600 instead of $48,600.
[8] At present, the parties have the following assets. In accordance with the separation agreement, the husband transferred his interest in the matrimonial home to the wife (a value of $30,000) and paid her a further $15,000. The wife’s net worth as a result of the separation agreement and a modest inheritance is in the range of $170,000, consisting principally of the house ($135,000) and RRSP’s ($60,000). The husband’s only real asset is his pension.
THE REASONS OF THE APPLICATIONS JUDGE
[9] As I have indicated above, the applications judge found that the husband’s unanticipated early retirement constituted a material change in circumstances potentially triggering a right to reduce the spousal support of $1,800 per month. She held, however, that there was no significant change in income within the meaning of the agreement because when other benefits are taken into account, the husband’s available income is in the range of his gross income when the separation agreement was negotiated.[^2] According to the applications judge, these other benefits consist of the following:
(i) the contribution of $27,000 per annum to the husband’s household from the income of his second wife;
(ii) reduction in income tax and other expenses upon retirement;
(iii) CPP benefits without clawback worth $7-8,000.
[10] The applications judge also took into account the choice made by the husband to enhance the survivor benefit for his second wife resulting in a $1,000 per annum reduction in his pension and his bad faith decisions concerning extended health insurance and life insurance. The applications judge made only passing reference to the principal of “double dipping”. It did not seem to play any part in her decision.
ANALYSIS
“Double Dipping” and Boston v. Boston
[11] The decision of the Supreme Court of Canada in Boston v. Boston was released after the applications judge’s judgment. In Boston, the court dealt at some length with the problem of “double recovery” or “double dipping”. As explained by Major J. for the majority at paragraph 1, these terms “describe the situation where, after an equal division of assets on marriage breakdown, one spouse claims continued support from the previously divided or equalized assets of the other spouse”. Major J. described at paragraph 3 how the problem arises where, as here and as in Boston, a pension is involved:
When a pension changes from an asset into income the “double recovery” difficulty can arise, usually in the following way. On marriage dissolution, the parties equalize the matrimonial assets. The pension-holding spouse (the husband in this appeal) must include the future right to his pension as part of his net family property. For the husband to retain his pension, the payee spouse (the wife in this appeal) must get other assets of the same value, in order to equalize their net family property. While the husband is still employed, he may be obliged to make spousal payments to the wife. When he retires, however, and his pension comes into pay, the wife is said to be making a double recovery if she continues to receive spousal support from the husband’s pension income, as she received assets equal to the capital value of the pension at the time of settlement. If support payments from the pension are maintained, she is collecting twice from the same source.
[12] Major J. concluded at paragraph 63 that it is “generally unfair to allow the payee spouse to reap the benefit of the pension both as an asset and then again as a source of income”, particularly where the payee spouse receives capital assets that she retains to increase her estate. To avoid double recovery, the court where practicable is to focus on that portion of the payor’s assets that was not part of the equalization or division of matrimonial assets.
[13] Major J. recognized, however, that there are a number of caveats to the generally undesirable double recovery. A rationale for avoiding double recovery is that the payee spouse is in a position and under an obligation to generate income from the assets that have been transferred to her upon separation. However, as Major J. pointed out at paragraph 59, “it may be unreasonable to expect the payee spouse to generate investment income from the matrimonial home”. The support payments should provide “a level of income sufficient to maintain a lifestyle that is comparable to that enjoyed during the marriage”. Allowing the spouse to remain in the matrimonial home contributes to this goal.
[14] Major J. also recognized, at paragraph 65, that where the spousal support agreement is based mainly on need, rather than compensation, double recovery may be permitted. As he also said, “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”.
[15] There are a number of factors that lead me to conclude that the general rule against double dipping does not apply in this case. A significant portion of the husband’s pension was not equalized because it was probably undervalued at the time of the agreement. Further, a portion was earned by the husband after separation and the employer subsequently “sweetened” the pension. The parties could not agree on the unequalized portion of the pension, but it could be over 50%. No actuarial evidence was available in this regard. Also, it is apparent that, to a significant extent, the amount of spousal support is based upon need rather than compensation. The wife is in poor health, has a limited ability to earn income, and received only a modest amount from the equalization of net family property. Finally, most of the wife’s assets are tied up in the matrimonial home and at this point in her life it is not unreasonable for her to retain the home. RRSP’s are her other significant asset and it is also not unreasonable for her to retain those, especially since she has no entitlement to survivors’ benefits should the husband predecease her, and the husband cancelled the life insurance. She thus has almost no ability, at this time, to generate income from her assets. In the words of Major J. in paragraph 65 of Boston, “an economic hardship from the marriage or its breakdown persists”. This means that some spousal support must continue even if a portion of it will have to come from the equalized part of the husband’s pension. I would not give effect to the ground of appeal based upon alleged double dipping.
Misapprehension of evidence
[16] I am, however, of the view that this appeal must succeed on the ground of misapprehension of evidence. The premise underlying the applications judge’s decision was that the total of the various benefits that flowed to the husband following retirement brought his available income within close range of his gross income when the separation agreement was negotiated. Thus, there was no significant change in income. I cannot agree and I will deal with each of the factors referred to by the applications judge.
(i) Decrease in expenses
[17] There is no question that after he retired, the husband’s expenses decreased. However, there was still a substantial decrease in his net disposable income from $38,050 to $21,550, roughly a 40% decrease. This is a significant decrease by any standard. The significance of the decrease can be seen from another point of view. Following retirement, the husband’s gross income (net of spousal support) is now approximately $26,400; the wife’s, approximately $43,600.
(ii) Contribution to the household by the second wife
[18] The husband’s second wife has an income of $27,000. The applications judge assumed that she assists the husband by sharing many of his expenses. However, the applications judge did not, it seems, take into account that this combined income had to spread over a household of four persons. In my view, the applications judge unreasonably emphasized the impact of the second wife’s income.
(iii) CPP benefits
[19] The applications judge said the following about CPP benefits:
Although no evidence was led, I believe he is entitled to CPP benefits to age 65 without “clawback”, which would add $7‑8000 to his income, assuming he earns less than $8,000 per year from other sources.
[20] On appeal, counsel for the parties could not agree on whether the trial judge was correct in her understanding of the relationship between CPP and the teachers’ pension. They could, however, agree that the husband would only be entitled to start collecting CPP at the earliest when he turned 60 years of age. Since the husband was 52 at the time of his retirement and was only 54 at the time of the application, the availability of CPP should not have been a factor on the application.
[21] In view of the cumulative effect of these errors, the decision of the applications judge cannot stand. It remains to determine the appropriate amount of support.
Setting the support
[22] In my view, the husband has met the onus of showing that there was a material change in circumstances and a significant decrease in his income. The amount of spousal support must be varied in light of the economic implications of the husband’s retirement and the substantial reduction in his income occasioned by it: Doe v. Doe, 1999 CanLII 3065 (ON CA), [1999] O.J. No. 2564 (C.A.) at paragraph 4.
[23] Counsel for the husband suggested that if the Boston v. Boston principles did not apply, at the least the monthly spousal support should be reduced to $1,083. This would roughly equalize the income of the husband and the wife. The difficulty with this approach is that it fails to take into account the wife’s increased needs (approximately $300 per month) brought about by the bad-faith decisions of the husband with respect to insurance and extended health care. The husband, in fairness, must bear some of this cost. On the other hand, it is also fair to take into account that the wife’s ability to remain in the matrimonial home assists her in maintaining her lifestyle: Boston v. Boston at paragraph 59.
[24] Taking all the circumstances into account, I would reduce the spousal support to $1,200 per month. Further, since, in my view, the spousal support is based on need, as well as compensation, and since the husband’s pension is fully indexed, I would order that the spousal support be indexed annually to the cost of living.
[25] A potentially difficult question is whether this order should be retroactive to the date of retirement. Counsel for the husband fairly pointed out, however, that since the retirement gratuity was not equalized it may be that any variation in the order should not be fully retroactive. The value of the gratuity after tax was approximately $24,000. A very rough equalization would give the wife $12,000.[^3] The reduction in the spousal support that I have ordered amounts to $7,200 per annum. The husband retired in April, 1999. Thus, just over two years have elapsed since the reduction in his income. In the circumstances, it would not be unfair to make the change in the support prospective only.
CONCLUSION
[26] Accordingly, I would allow the appeal, set aside the judgment of the applications judge, allow the application to vary the spousal support and vary the support to $1,200 per month indexed annually to the cost of living. The variation shall take effect on October 15, 2001. I would invite counsel to make written submissions concerning the costs of the application and the appeal within fifteen days of release of these reasons.
(signed) “M. Rosenberg J.A.”
(signed) “I agree John Laskin J.A.”
(signed) “I agree E. A. Cronk, J.A.”
RELEASED: October 10, 2001 “JL”
[^1]: Meaning the sum of his age and years of service. [^2]: The applications judge also referred to the retirement gratuity, but she does not appear to have considered it as part of the determination that the husband’s gross income was within the same range before and after retirement. [^3]: As I understand it the parties were content that we could treat the whole of the retirement gratuity as part of the husband’s net family property. I should not be taken as having decided that issue. For a discussion of the treatment of such gratuities see the Annotation by Professor McLeod to Sutton v. Davidson (2000), 1999 ABCA 280, 1 R.F.L. (5th) 157 (Alta. C.A.) at pp. 158-60.