COURT FILE NO.: FC-08-1664-2 DATE: 20160802 SUPERIOR COURT OF JUSTICE - ONTARIO
RE: Ron Walts, Plaintiff AND Donna Walts, Respondent
BEFORE: Madam Justice J. Mackinnon
COUNSEL: Gregory A. Ste. Marie, for the Plaintiff Suzanne Y. Cote, for the Respondent
HEARD: April 19, 2016
Endorsement
[1] In an endorsement dated November 4, 2013, Justice Minnema dismissed Mr. Walts’s motion seeking to terminate his spousal support obligation on account of his upcoming retirement. In so doing, Minnema J. found that the retirement was voluntary and occurred before Ms. Walts could reasonably access her retirement funds and therefore before the aggregate retirement savings could be expected to keep both former spouses at reasonable standards of living.
[2] In the present motion to change, Mr. Walts seeks a reduction in the amount of the spousal support payment on the basis that Ms. Walts can now access her LRSP given that she has reached the age of 55. Ms. Walts asks that the motion be dismissed. She relies on the prior finding of voluntary retirement and denies that any material change of circumstances has occurred since the decision rendered on November 4, 2013.
Overview
[3] Mr. Walts is 57, soon to be 58 years of age. Ms. Walts is 56 years of age. They were married for twenty eight years, separating on April 20, 2007. Their three children were all young adults by then. A separation agreement was signed on August 31, 2007. It provided for equalization of their net family properties. As part of that, Ms. Walts received $342,561 directly from Mr. Walts’s employment pension that was placed into a locked-in retirement account. The amount was the maximum transferable amount calculated under the Pension Benefits Division Act , S.C. 1992, c. 46, Sched. II. Spousal support was paid based on his income of $87,763 per annum and hers of $24,771 per annum, in the amount of $1,584 per month. This was half-way between the mid-point and high end of the Spousal Support Advisory Guidelines (SSAG) calculations. Spousal support was indexed annually and was subject to a material change in circumstances clause.
[4] The provisions with respect to spousal support were subsequently included in a Divorce Order granted on August 26, 2008.
[5] By the time the initial motion to change was issued in November 2012, Mr. Walts’s income had increased to $99,894 per annum and the spousal support had increased to $1,754 per month. Ms. Walts’s income, other than from spousal support, was $29,478. Both parties had re-partnered and had some financial benefit from their living arrangements. Mr. Walts would retire on August 29, 2013 at age 55 and his pension income would then be $44,832 per annum. Ms. Walts’s LRSP account had matured to about $480,000.
[6] The income that Ms. Walts was, and still is, receiving derives from long-term disability and CPP disability benefits. She has been unable to work for medical reasons since 1998. In October 2012, Mr. Walts had a heart attack, followed by an angioplasty. He found his work very stressful and was concerned about its impact on his health.
Justice Minnema’s Reasons, 2013 ONSC 6787
[7] The parties agreed that the motion to change heard by Justice Minnema could be heard before Mr. Walts’s retirement date and would be determined on the basis that he would in fact retire as he planned. Minnema J. dismissed the motion on the basis that no material change in circumstances had taken place. He concluded that Mr. Walts’s retirement was voluntary. He found there was a lack of evidence to support his argument that he was forced to retire because he was unable to work for medical reasons. The Justice also found that Ms. Walts could not reasonably draw on her LRSP at age 53 and accordingly, if the spousal support were terminated, she would suffer a reduction of $21,000 per annum in her income.
[8] Justice Minnema then noted that spousal support had only been paid for six years in relation to a twenty-eight-year marriage. In closing he stated at paragraph 47:
Given the voluntary nature of Mr. Walts’ retirement and its significant impact on Ms. Walts, I find that he has not met his onus of establishing a material change of circumstances. His decision to retire occurs before Ms. Walts can reasonably access her retirement funds, and therefore before the aggregate retirement savings in this case can be expected to keep both former spouses at reasonable standards of living.
The current motion to change
Mr. Walts’s Position
[9] Mr. Walts raises three points in support of his current motion, commenced in May 2015, seeking a reduction in spousal support:
- Ms. Walts can, as of reaching age 55 in March 2015, access her LRSP account. She should do so in a reasonable way and the income so generated should reduce his spousal support obligation.
- Mr. Walts relies on a medical report and a letter from his former employer, which were not before Minnema J., to support the appropriate nature of the part-time employment he has subsequently obtained. That employment is at Canadian Tire and generates $25,000 per annum. The undivided portion of his pension is $21,740 per annum, so that $46,702 is the income figure he proposes should now be used for purposes of the SSAG.
- For purposes of the SSAG, Mr. Walts submits that reasonable use of Ms. Walts’s LRSP can replace the current spousal support payment, and that ongoing spousal support to her should be in the amount of $536 per month, this being the amount that would equalize their net disposable incomes. Mr. Walts also submits that his spousal support obligation should be reviewed when he reaches 65 years of age.
Ms. Walts’s Position
[10] Ms. Walts acknowledges that she can access her LRSP account as of age 55, but submits she should not be expected to do so. The financial advice she has received is to the effect that so doing would deplete the account quickly and would not provide for her at the required income level for her probable life expectancy. Ms. Walts submits that the finding of voluntary retirement is res judicata such that this court should not base a spousal support payment on Mr. Walts’s current actual income. She says there has not been any material change in circumstances since Minnema J.’s order in November 2013, and the motion to change should be dismissed. She is, however, prepared to acknowledge that a review date should be set as of her 65th birthday, when she will start to receive her own employment pension.
Legal Principles
[11] The first issue is to determine whether the threshold requirement to change a spousal support order made pursuant to the Divorce Act , namely to establish a material change in circumstances, has been met. The test for a “material change” as confirmed by the Supreme Court of Canada in L.M.P. v. L.S., 2011 SCC 64, [2011] 3 S.C.R. 775, is a change that is substantial, continuing, and that “if known at the time, would likely have resulted in a different order”. Professors Rogerson and Thompson state in the Spousal Support Advisory Guidelines: The Revised User’s Guide , at page 76:
L.M.P. is now the leading case on the threshold test for variation. The test is not whether the change was or was not “foreseeable” by the parties at the time of the previous order. The language of “foreseeability” is mistakenly transposed by lawyers and judges from the case law dealing with spousal support agreements – first Pelech and now Miglin . Some prefer to restate the “material change” test as a change that was not “foreseen” in the initial order, but even this often leads to confusion. The better approach is to focus on what was “contemplated” or “taken into account” in the initial order.
[12] This approach is, in my view, to be preferred to one which asks whether the support payor’s retirement was foreseeable or foreseen at the time the original order was made. Most Canadian employees do retire; retirement is not an unexpected event. It is more useful to inquire whether the event that has since occurred, for example, income reduction due to retirement, was taken into account in the order that was made. This inquiry lends itself more naturally to an analysis of issues that arise from the timing of and reasons given in support of retirement in relation to whether the income reduction does or does not constitute a material change in circumstances.
[13] Professors Rogerson and Thompson also note that a motion to change an order is neither an appeal of the order nor a hearing de novo . They say at page 77, on a motion to change, “the court must limit itself in its order to whatever variation is justified by the material change of circumstances”.
[14] The order which Mr. Walts now seeks to change is the original Divorce Order dated August 26, 2008. But the central finding Minnema J. made in his reasons for dismissing the previous motion to change, that Mr. Walts’s retirement in 2013 was voluntary, is a decided fact, and was properly conceded as such.
[15] The letters from Mr. Walts’s former employer and family physician need to be considered in light of this decided fact.
[16] Three cases specific to the issues in this motion to change were discussed by both counsel: Boston v. Boston, 2001 SCC 43, [2001] 2 S.C.R. 413; Bullock v. Bullock (2004), 48 RFL (5th) 253 (Ont. S.C.) ; and Cossette v. Cossette, 2015 ONSC 2678 (Div. Ct.)
[17] In Boston, the Supreme Court addressed the question of the obligation of the support recipient to use her own assets to generate income after the retirement of the support payor. In this regard, it is important to bear in mind that Mr. Boston’s retirement at age 63 or 64 (extrapolated from the lower court decisions), had been conceded at the Court of Appeal level to be a material change in circumstances. The comments the majority makes at paragraphs 54 and 56 must be read with this in mind:
[54] I agree with Czutrin J.’s reasons in Shadbolt and Professor McLeod’s comments in annotation to that case. When a pension is dealt with by the lump-sum method, the pension-holding spouse (here the husband) must transfer real assets to the payee spouse (here the wife) in order to equalize matrimonial property. The wife can use these real assets immediately. Under a compensatory spousal support order or agreement, the wife has an obligation to use these assets in an income-producing way. She need not dedicate the equalization assets to investment immediately on receiving them; however, she must use them to generate income when the pension-holding spouse retires . The ideal would be if the payee spouse generated sufficient income or savings from her capital assets to equal the payor spouse’s pension income. In any event, the payee spouse must use the assets received on equalization to create a “pension” to provide for her future support.
[56] However, where the payee spouse receives assets on equalization in exchange for a part of her former spouse’s pension entitlement, she must use those assets in a reasonable attempt to generate income at least by the time the pension starts to pay out. The reason for this requirement is clear. The payee spouse cannot save the assets that she receives upon equalization and choose instead to live on the liquidation of the payor spouse’s pension when he retires. If she were permitted to do so, the payee spouse would accumulate an estate while the payor spouse’s estate is liquidating. (Emphasis added)
[18] In my view, the references to timing which I have underlined must be read in light of the concession in Boston that the income reduction due to retirement was a material change in circumstances. The requirement for the pensioned spouse/support payor to establish a material change in circumstances is not obviated by these references. The timing issue which arises here was not an issue in Boston. It should not be taken as a ruling that any retirement, however early, premature or voluntary, triggers an obligation on the support recipient to necessarily start to draw down on his or her retirement savings at that point in time.
[19] Bullock builds on Boston in its consideration of the timing of an income reduction caused by retirement in relation to whether a material change in circumstances has occurred. In para. 1, Justice Corbett said:
[1] Does withdrawal from the workforce at age 62 qualify as a “material change of circumstances” justifying variation of spousal support? While every case must be looked at on the basis of the unique circumstances of the parties, as a general proposition, a payor of spousal support should make his or her retirement plans on the basis that support will continue until aggregate retirement savings can be expected to keep both former spouses at reasonable standards of living. Otherwise, our regime of spousal support will tend to leave payee spouses in positions of financial need, often dire need, at a time in their lives when they cannot take meaningful steps to ameliorate their own condition.
[20] In this context Bullock is authority for the proposition that the court should consider the payor’s choice of retirement date in relation to what is reasonable for both payor and recipient having regard to their aggregate retirement resources and the ability of these resources to provide reasonable standards of living for both parties. Ms. Walts concedes that she can now access her retirement savings. The issue for the court as described in Bullock is whether the parties’ aggregate retirement savings can now be expected to provide both parties with reasonable standards of living.
[21] In Cossette, the support payor submitted that his retirement was a material change in circumstances because he was contractually eligible to retire. He argued that he should not be required to continue to work past the eligibility date in order to satisfy a support obligation. The Divisional Court clearly disagreed. In so doing, the Court held that it is not the law that voluntary retirement can never constitute a material change in circumstances, but that contractual eligibility to retire is not sufficient on its own to establish a material change in circumstances.
[22] Cossette is also important because it is an appellate decision approving and adopting the reasoning set out in para. 1 of Bullock.
[23] From these cases I conclude that if the court finds that reduced ability to pay due to retirement is a material change in circumstances, and the support payor’s pension has been accounted for in the asset distribution to the support recipient, the recipient needs to make reasonable use of those assets to generate income when the retirement pension goes into pay.
[24] Although not referred to by counsel I also note a decision of the Manitoba Court of Appeal in Cymbalisty v. Cymbalisty, 2003 MBCA 138, 44 R.F.L. (5th) 27. There the issue was whether the support recipient should be obliged to cash in her R.R.S.P.s to replace spousal support payments upon the retirement of the other spouse. The court explains the options before the motion judge as follows, at para. 17:
The court could either require the wife to use her R.R.S.P.’s to replace the spousal payments now and return to request a reinstatement of her spousal support when she has depleted her assets, or continue her spousal support payments now, permitting the wife to follow her long-standing plan to wait until her retirement to begin to utilize her R.R.S.P. to replace her employment income and Employment Insurance.
[25] The Court of Appeal upheld the decision of the motion judge that it was appropriate to wait until the recipient’s own retirement at which time she should endeavour to replace her employment income by having recourse to her R.R.S.P. account.
[26] The ability of both spouses to reasonably support themselves from their individual retirement savings may also be an important factor in determining whether and to what extent the spousal support order should be changed after a material change in circumstances has been established. As part of the needs/ability to pay analysis, Boston suggests consideration be given to what the comparative retirement incomes of the former spouses are/would be at the time of the motion of change.
Analysis
[27] Justice Minnema heard the initial motion to change on July 11, 2013, and released his decision on November 4, 2013. In the current motion to change, Mr. Walts has attached a letter from his former employer, dated April 15, 2014, and a medical report from his family physician dated November 20, 2013. He submits these are admissible according to Hesketh v. Brooker, 2013 ONSC 1122, at para. 28:
[28] The ruling acknowledged, however, that Mr. Gajdzik was free to re-apply for a variation if he could obtain medical evidence confirming his alleged inability to work.
[28] In my view, this is not authority for the proposition that a litigant may re-litigate an issue already considered and rejected by the court. Evidence that Mr. Walts could have obtained and tendered to Minnema J. cannot be relied on now in support of different factual conclusions than those already made. Rather, Mr. Walts may endeavour to establish that subsequent to the July 11, 2013 hearing his health circumstances have been such that his part-time employment at Canadian Tire, from which he earns about $25,000 a year, is reasonable. He submits that the employer’s and doctor’s letters do just this.
[29] I disagree.
[30] The employer’s letter is attached as an exhibit to Mr. Walts’s affidavit. It is not affirmed or under oath. The letter refers primarily to events that predated the hearing before Minnema J.. In terms of what observations the employer made that might post-date that hearing, the letter says:
By early summer [2013] in discussions with Mr. Walts, I could see that the work was taking a toll on him and once again I advised that he get out of the environment. I informed him that the organization was to continue to transition drastically for another one to two years at a minimum, and that the stress levels would not be significantly reduced until the organization finally stabilized.
[31] The employer then states his knowledge of Mr. Walts’s retirement on August 29, 2013. He adds that it appears that Mr. Walts heeded his advice in reaching the decision to retire.
[32] Were this information tendered in proper evidentiary form, I would have concluded from it that the employer was aware of and agreed with Mr. Walts’s decision to leave his former employment because of the ongoing stressful work environment.
[33] The letter from Dr. Kristen Tonon was also attached as an exhibit to Mr. Walts’s affidavit. However I am proceeding on the basis that it has been served with the appropriate notice under the Evidence Act . This report is dated November 20, 2013. Much of the letter relates to events predating the July 11, 2013 hearing. Dr. Tonon notes the importance of stress management counselling after Mr. Walts’s myocardial infarction on October 24, 2012. She says:
In returning to work following this I recognized that Mr. Walts worked in a highly stressed environment. Because of this high stress environment and the health implications of this, I recommended that he return to work gradually on a part-time basis, starting in January 2013. In April 2013, after returning to work full-time, I subsequently recommended that he return to work on a part time basis, as well as suggested that he consider removing himself from his work environment altogether, as he approached retirement age.
[34] These remarks certainly corroborate Mr. Walts’s own testimony. They do not go so far as to include a recommendation that he should retire from his employment for medical reasons or that he should not obtain any alternate employment. No specific age is provided in relation to retirement. More importantly they predate the July 11, 2013 hearing. They do not constitute a medical opinion or observation based on circumstances pertaining to Mr. Walts’s health arising after that hearing.
[35] Dr. Tonon also wrote:
He retired on August 29, 2013, resulting in a positive change in his health (lower blood pressure reading, lowering of a blood pressure medication.) Therefore, should he need to return to work, I would recommend that he try to do so in a much lower stress environment.
[36] These observations and the recommendation are made subsequent to the July 2013 hearing. They provide evidence of some medical or health benefit attained following retirement and do support Mr. Walts working in a lower stress environment. Dr. Tonon does not say that he should only work part-time or that his current part-time employment at Canadian Tire is what he can reasonably manage from a medical standpoint. Indeed, the letter was written before Mr. Walts obtained that employment. The views expressed by Dr. Tonon are not current. She does not report on Mr. Walts’s current medical situation.
[37] I was not persuaded that Dr. Tonon’s report provided a sufficient evidentiary basis on which I could safely base a finding that as of May 2015, the date at which Mr. Walts asks the reduction to take effect, he could only work part time in an environment such as Canadian Tire provides and that accordingly his current actual income (with or without “double dipping”) should now be used for the purposes of determining his ability to pay ongoing spousal support. Such a series of findings would require a current and more detailed medical report than the one provided by Dr. Tonon dated November 20, 2013.
[38] Mr. Walts’s submission may have assumed that if he established any material change in circumstances, even related only to Ms. Walts’s needs or ability to generate her own income, that this court could then address the issue of quantum of ongoing spousal support based on his current income. I do not agree. Unless he establishes a material change in his ability to earn income that is not a voluntary reduction, the court will continue to impute his pre-retirement income of $99,894 per annum. Dr. Tonon’s letter provides some evidence, as of its date, in support of taking a less stressful position, which might well lead to reduced income, but I do not have evidence that would allow me to decide that Mr. Walts is only reasonably capable of earning $25,000 per annum. Her letter does not provide a medical or health justification to fill the substantial gap between the former employment at $99,894 as Senior Director Business Management and Optimization for Shared Services Canada, and part-time hours as a service advisor at Canadian Tire, earning $25,000.
[39] Nor did Mr. Walts provide evidence of any type of a job search for other available, suitable positions. The only current job information he submitted is in relation to his work at Canadian Tire. He has not demonstrated what other jobs, and what attendant incomes, he might be able to take with his doctor’s approval.
[40] For these reasons, I do not find that Mr. Walts has proven on a balance of probabilities an inability, as of May 2015 and forward, to earn less than his former employment income of $99,894 per annum. It follows that the issue of whether Mr. Walts’s full pension income, or only the undivided portion of it, should be included in his income for spousal support purposes does not arise.
[41] Ms. Walts concedes that as of March 2015 when she reached age 55 she became legally eligible to withdraw from her LRSP account. Her position that she ought not to be required to use the LRSP yet is supported by a financial illustration prepared by her investment advisor. The advisor based all of the scenarios he presented on the assumption that Ms. Walts’s need was for $4,820 per month net after income tax. That assumption was not borne out by the evidence.
[42] I concluded that her actual current need was closer to $4,200 net of tax per month. I accepted many of the submissions from Mr. Walts based on productions of Ms. Walts’s actual expenditures for her vehicle, meals outside the home, vacations, gifts and health expenditures which showed her budgeted expenses had been overstated. I agreed with Mr. Walts that, having regard to the joint ownership of her home with her current partner, only one half of these expenses should be included in her budget. I also accepted his arguments that the repayment to Great West Life on account of a CPP overpayment did not represent an income reduction or an ongoing current expense given that she had retained most of the overpayment, used it towards the reimbursement, and she had resubmitted her income tax return which generated a significant refund sufficient to offset most of the remaining balance due. Further, the final monthly payment will be made in August 2016.
[43] There were other weaknesses in Ms. Walts’s financial illustration. In particular I note omissions for indexing of her CPP disability and Great West Life disability benefits, as well as with respect to her British Columbia Government employment pension, when in receipt after age 65.
[44] For these reasons, I was unable to accept the conclusions set out in this report.
[45] Mr. Walts also obtained a financial illustration. It took the approach that Ms. Walts would withdraw an annual amount from her LRSP sufficient to replace the annual spousal support payment, which is now $21,317 on an ongoing basis. This illustration concluded she could do so without depleting the LRSP account until she reached age 95.
[46] The primary flaw in this report is the assumption that the LRSP should replace the spousal support payment. I am not aware of a principle of law that would require a spousal support recipient to plan her retirement investments on this basis. The majority in Boston, expressed the ideal that both former spouses would be able to generate relatively equal incomes for their retirement years. The Manitoba Court of Appeal in Cymbalisty suggests the recipient’s own retirement savings may be properly utilized to replace her own employment income on her retirement. Here that would equate to Ms. Walts replacing her current disability payments which amount to almost $30,000 annually.
[47] In my view, consideration also should be given to the fact that the cash flow projection in this illustration is not guaranteed. This is a reality not a criticism, but it is an important point of distinction from Mr. Walts’s federal indexed defined benefit pension.
[48] Additionally since this illustration is based on income replacement it does not consider what Ms. Walts’s future needs may be. Further, it was based on an initial deposit of $538,424, which is what the account held on May 31, 2015, but, due to market fluctuations, the account had declined to $494,534 on February 29, 2016.
[49] Mr. Walts has the onus to establish that Ms. Walts’s entitlement to access her LRSP account is a material change in circumstances. This requires more than just demonstrating that Ms. Walts has the legal entitlement to do so. Just as being entitled to retire on a pension is not necessarily a material change in circumstances, neither is the legal eligibility to withdraw from an LRSP. Mr. Walts needs to present evidence that demonstrates on a balance of probabilities that Ms. Walts should reasonably be required to do so.
[50] Ms. Walts is a 56 year old woman, permanently disabled from employment. She will have ongoing health needs, and is currently assisted by coverage available to herself and her common law partner. The continuation of his contribution is hoped for, but not assured. Her current financial needs are known, but her needs may increase as she ages. She cannot know this now, but it is prudent for her to contemplate the possibility. Her primary retirement asset is the LRSP account, which is subject to market fluctuations. She cannot access her own pension until she is 65 because so doing would eliminate her long-term disability payments.
[51] Faced with these realities and uncertainties is it objectively reasonable for Ms. Walts to continue to build that retirement account rather than to start to draw on it now? Put another way, should the court impute an additional $21,317 annual income to her on the basis that such income is reasonably available to her from her LRSP?
[52] I was not persuaded by the financial illustration presented by Mr. Walts that it is reasonable to require Ms. Walts to draw on her LRSP account now. Nor was I persuaded given the considerations set out above that I should impute income to her on the basis that she should reasonably be required to draw on her retirement savings at this time.
[53] A consideration of the SSAG does not assist Mr. Walts. Even if the court accepted his financial illustration and concluded that Ms. Walts should now withdraw $21,317 per annum from her LRSP account, the SSAG range based on her own total income and his imputed income at his pre-retirement level would not mandate any reduction to the current spousal support payment. The current amount would remain well within the range.
[54] Courts have also considered factors such as duration of spousal support payments in relation to the duration of the cohabitation, the motivation of the support payor (e.g. personal lifestyle decision or true inability to pay), and the age of both former spouses. None of these considerations are helpful to Mr. Walts.
[55] My conclusion is that Mr. Walts has not established that it is reasonable in all of the circumstances to expect Ms. Walts to start to withdraw from her LRSP account at this time in order to increase her self-generated income. I do not find that he has established a material change of circumstances in relation to her income.
[56] I note that there were other issues raised by both parties with respect to travel expenses, other personal expenditures, and their comparable net worth.
[57] I did not find these issues material to the outcome of the motion. I find that the decline in Mr. Walts’s net worth, now $6,500 without factoring in the value of his employment pension, was significantly impacted by his voluntary income reduction. Other than her LRSP, Ms. Walts’s main asset is her $200,000 equity in her jointly owned home. For now this asset is appropriately used in that her half of the carrying costs appear to be reasonable in relation to what a reasonable rent might cost.
Life Insurance
[58] Mr. Walts also notes increased renewal costs for his life insurance policy effective September 2017, when this cost will increase from $35 per month to $170 per month. Ms. Walts is the irrevocable beneficiary, and the policy is intended as security for support. Therefore, it is reasonable for the parties to contribute equally to the increased cost at that time.
Review Date
[59] Both parties suggested a review date should be built in at their respective age of 65. I have decided the review should take place when Mr. Walts reaches age 65. It does not seem unreasonable that by that date, and subject to any intervening material changes in circumstances, Ms. Walts should be prepared with a prospective retirement plan to present to the court, outlining her expected needs and means on a go forward basis.
Costs
[60] I encourage counsel to agree on the issue of costs of this motion. Failing agreement, I will receive written submissions not to exceed three pages plus attached bills of cost and any offers to settle the motion. These should be exchanged between the parties and delivered to me by September 12, 2016.
Madam Justice J. Mackinnon
Date: August 2, 2016
COURT FILE NO.: FC-08-1664-2 DATE: 20160802 ONTARIO SUPERIOR COURT OF JUSTICE RE: Ron Walts, Applicant AND Donna Walts, Respondent BEFORE: Madam Justice J. Mackinnon COUNSEL: Gregory A. Ste. Marie, for the Applicant Suzanne Y. Cote, for the Respondent ENDORSEMENT J. Mackinnon J. Released: August 2, 2016