Division of Assets - Continued

Non-Spouses and Property Claims

Parties who are not spouses, and persons who have lived together for less than two years, even if they have a child together, are excluded from the provisions of Parts 5 and 6 of the FLA. As a result, a party has no automatic entitlement to property owned only by the other party, and only the joint ownership of an asset vests any presumptive property rights.

Where non spouses both own an asset, the law that applies is that which applies to any situation in which more than one person owns a piece of property, such as the Partition of Property Act or the Strata Property Act, the law of contract and the principles of equity.

Where only one party owns an asset, the non-owning party must establish an entitlement under the law of trusts. Barring the unlikely existence of an express trust, most non-owners must prove that the owner was unjustly enriched in some manner by their contributions and, having proved the enrichment, seek the imposition of a constructive trust over the property where the claim cannot be readily satisfied.

The primary cases on unjust enrichment and the constructive trust are Pettkus v Becker, [1980] 2 SCR 834 and Peter v. Beblow, [1993] 1 SCR 980, but the law is most recently reviewed and summarized in the Supreme Court of Canada’s 2011 decision in Kerr v. Baranow, 2011 SCC 10. In a nutshell, to establish unjust enrichment, the non-owner must prove that:

  1. the owner received a benefit from the direct or indirect contributions of the non-owner (such as a free renovation);
  2. the non-owner suffered some sort of material loss corresponding to the deprivation (such as the wages the non-owner would have received performing the renovation for someone else); and,
  3. there is no juristic reason for the benefit or the deprivation (such as a contract).

Where unjust enrichment is proven, the court will seek to remedy the enrichment by requiring the owner to pay a monetary award. Where the owner cannot satisfy the monetary award, the court will impose a trust over the subject property in favour of the non-owner.

Unjust enrichment can be time-consuming and costly to prove.  It will likely rarely result in the equal sharing that is presumed in the FLA.  In a case where the relationship is less than two years, the party seeking an interest in the other’s property will have to produce clear evidence of unjust enrichment to have a hope of any substantial award.

Tax Consequences

The division of certain assets can result in significant income tax consequences, such as investments, corporations or real property subject to capital gains. Payment of dividends or share transfers can also attract income tax. It is important to be able to recognize these situations and seek the assistance of trusted accountants or tax lawyers.  Do not overlook your obligation to obtain tax advice from a qualified expert regarding the disposition of assets; the consequences can be significant and costly. Do not rely upon the client telling you, “My accountant says it is okay.”

Division of Pensions

Under Part 6 of the FLA and ss. 63 to 65 of the provincial Pension Benefits Standards Act, the court may order a pension plan administrator to split the accumulated benefits of a pension plan member. The federal Pension Benefits Standards Act (Canada) makes federal pensions subject to provincial legislation regarding property division on marriage breakdown. Only spouses may seek the division of pensions under Part 6.

Since enforcement difficulties may arise with pension plans that are not governed by provincial legislation, you should be aware and advise your clients about problems in satisfying the client’s share of such a pension and of remedies such as seeking a compensation payment or other appropriate measures.

Very few lawyers understand how pension plans operate and how to assess their value.  Whenever the present value of pension benefits needs to be ascertained, obtain such valuation from a qualified pension actuary.  A pension expert is often necessary to explain how pension plans operate and recommend effective means of division.

A pension may be a family’s most valuable asset. Pension plans are highly variable and may have unusual characteristics. Find out the answers to the following questions:

  • Does the plan charge a fee to divide the pension?
  • Can the plan member retire early?
  • Does the spouse start collecting his or her share of the pension when the member does?
  • What happens when the plan member dies?
  • Can the pension be rolled over into a locked-in RRSP or another retirement savings vehicle, like a LIF or a LIRA account?

Assessing the Pension

Part 6 of the FLA divides the different types of plans into categories to be considered under the Act.  Division 2 deals with division of benefits in local plans, including defined contribution plans, defined benefit plans, hybrid plans and matured plans.  Division 3 deals with division of annuities, benefits under a supplemental pension plan, benefits for individuals, disability benefits and benefits in an extraprovincial plan.  Division 4 deals with survivor benefits.

The FLA, at s. 127, specifically allows parties to agree that a non-member may receive more than 50% of a member’s pension and that parties can agree to waive an entitlement in each other’s CPP credits.

Local Plans

The first step is to determine what kind of local plan is relevant.

The most common form of pension plan is a “defined benefit” plan. This type of plan is calculated on a formula that is not related to the employee’s contributions. The employer’s contributions are not fixed but are flexible, to take advantage of changing circumstances such as inflation, interest rate adjustments and so forth. These plans are divided by making the non-member spouse a limited member of the plan. When the member retires or becomes eligible to retire, the limited member will receive a separate pension. Alternatively, the limited member may direct the plan to transfer the limited member’s share to a locked-in retirement savings account.

Section 115 provides that the spouse may receive his or her proportionate share of the benefits by a separate pension or by receiving the commuted value of the benefits.  The separate pension or transfer of the commuted value may occur no earlier than the earliest date that the member could elect to commence his or her pension.  This means that the spouse can receive the benefit of the pension before his or her ex-spouse actually retires.  The usual age for these types of plans to elect to commence a pension is 55.  However, be sure to check with the pension provider to be sure.

A “defined contribution” plan is a retirement savings account to which the member, employer, or both have contributed and appreciates over time. The accumulated value of the plan is available to the member upon retirement to purchase an annuity, a retirement income fund or another retirement vehicle, or to draw from as income. Defined contribution plans are divided by rolling over the non-member’s share to a locked-in retirement savings account.

Section 114 of the FLA provides for the transfer of the non-member’s interest in the pension to the non-member, or with the agreement of the pension administrator, to become a limited member of the pension.

A “hybrid” plan is a plan where benefits are determined by a combination of a defined contribution provision and a benefit formula provision, or where there is an option to choose between these provisions at pension commencement.  Section 116 of the FLA provides that hybrid plans may be divided as if all of the benefits were in a defined contribution plan or a defined benefit plan with the consent of the administrator.  If there is no consent, each part of the plan will be divided according to sections 114 and 115.

Matured local plans are divided according to s. 117.  It allows the non-member to receive his or her monthly share of the pension.  If the member dies first, the non-member receives the survivor benefits payable under the pension.

Disability Benefits

Section 122 of the FLA specifically allows disability benefits to be paid, and addresses situation where an agreement or court order provides for dividing disability benefits payable under a pension plan.  There is no age limit for when a former spouse is entitled to receive a share of disability benefits.

Extraprovincial Plans

Section 123 provides for the application of the pension division rules set out in the legislation governing the plan.  However, if there are no rules, or if the rules provide for a result that is inconsistent with the policies advanced by the FLA, the benefits can be divided so that the spouse receives a share of the income stream when the member’s pension commences.

Dividing the Pension

The division of local plans is managed by the administrator of the plan. The administrator may have specific requirements for the wording of the order or agreement and should be consulted as a matter of course whenever a pension is among the family assets.  It can be useful to telephone the pension provider with any questions you have about the division of the pension.  They are accustomed to such questions and can generally provide you with the answers you require.

The Division of Pensions Regulation, BC Reg 77/95 outlines the formulae for determining the non-member spouse’s share of a local plan. The Regulation excludes contributions made prior to marriage, however the parties may, by order or agreement, include all or part of any pre-marriage contributions in the benefit split. See Mailhot v. Mailhot, 1988 CanLII 179 (BCCA).

The division of pensions can be complicated and you should read Part 6 very carefully whenever you are required to deal with the division of a pension. You should consider consulting or retaining counsel expert in pensions to assist.

CPP Credits

CPP retirement benefits are authorized by the Canada Pension Plan and are available to anyone who has made at least one pensionable contribution during their working career. Married spouses and persons qualifying as “common-law partners” under the Act may apply to have the pensionable credits accumulating during the period of their cohabitation equalized between them. Spouses may apply on the making of a divorce order or declaration of nullity, or earlier upon the one-year anniversary of their separation. Common-law partners may apply upon the first anniversary of their separation and must apply within four years of separation, following which the former partner’s consent is required.  A fee is required to split the pension credits.

The splitting of CPP credits is mandatory upon the application of a spouse or a common-law partner within the prescribed time periods. The Canada Pension Plan provides that the minister is not bound by the directions of an order or written agreement as to the division (or not) of pensionable credits, unless provincial legislation expressly permits parties to elect not to equalize their pensionable credits. BC is one of the few provinces with such legislation, in that s. 127 of the FLA specifically provides that, an agreement may provide that, despite the Canada Pension Plan, unadjusted pensionable earnings under that Act will not be divided between the spouses. See Canada Pension Plan, s. 55.2(3) for language to be used in Agreements.

 

 

Community Discussion

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To the analysis of  "Where non spouses both own an asset, the law that applies.." you should consider adding a reference to the Property Law Act, e.g., s. 13.