Judge Considers the Parties’ Liquidity When Determining the Method of Equalization Payment
Written on behalf of Shariff & Associates
When a pension has to be equalized, the parties will need to decide on a method of payment to implement the equalization payment. There is no presumption that a payment must be made by transferring a lump sum out of a pension plan. One key consideration is whether the pension holder has access to other liquid assets. Overall, the parties’ respective financial positions need to be considered, as the payor may be disadvantaged if required to deplete their liquidity to make the payment.
Parties Disagreed on Method of Making the Equalization Payment
In Korie v. Korie, the parties had reached a settlement on several family law matters, but certain property issues remained unresolved. Their most significant assets were the respondent’s pension, the matrimonial home, and their jointly owned investment property. Two key issues remained regarding their property. The first concern was the method for making the equalization payment, and the second was whether the applicant was entitled to relief based on an unjust enrichment claim. On the first issue, the parties agreed that the respondent would make an equalization payment of $201,604.21 to the applicant; however, they could not agree on how the equalization payment should be made. The respondent argued that payment should be made through a Locked-In Retirement Account (“LIRA”) rollover from his pension under section 10.1(3) of the Family Law Act (FLA). Whereas the applicant suggested she should be paid from the proceeds of the sale of the two properties according to section 9(1)(a) of the FLA. In VanderWal v. VanderWal, the court recognized there is no presumption that an equalization payment must be made by transferring a lump sum out of a pension plan, and that each case depends on its own facts.
The judge first explained that the decision to order a lump sum transfer from a pension plan is discretionary, and that the factors courts consider must be weighed within the context of the FLA’s primary goal, which is to arrive at a division of assets that is fair to both spouses. In evaluating the method of transfer from a pension, in Gielen v. Gielen, the court recognized that one of the primary considerations is whether the pension holder can access other liquid assets. This could have different outcomes, as there might not be other assets available to satisfy an equalization payment. Additionally, the payor could be left with no liquid assets after satisfying the equalization payment. Yet, courts have also considered a payor’s preference for a deferred payment of a pension share. For example, in Tupholme v. Tupholme, the payor argued the applicant’s refusal to accept a transfer of a share of a pension on a deferred basis was unacceptable as there was no reason why transferring the pension on that basis should not occur. However, the judge noted that there was no authority for such a presumption, and that a pension holder cannot force the recipient “to accept a deferred payment of a share of [a] pension to ease [their] own liquidity position”.
The Court Considers Each Party’s Liquidity
Nevertheless, courts do take note of the parties’ respective financial positions. And in some cases, they have concluded that placing the parties in a “position of equal liquidity is very important as they both try to rebuild their lives”. But in Korie, the judge did not receive calculations of the parties’ respective anticipated cash flows after the sale of their properties. Nor was there evidence about the disposition costs or capital gains tax rate, or the contingent tax liability to be applied to the equalization payment, and this was necessary information if a pension rollover was to be chosen. Ultimately, the judge was concerned that paying the equalization payment in cash would be unfair. The pair agreed that the applicant was entitled to a $201,604.21 equalization payment. But the respondent had less than $9,000 in liquid assets outside of the proceeds from the sale of their two properties. And the equalization payment the respondent faced paying was more than 50% of his share of the proceeds. Consequently, the respondent would leave the marriage with less than 25% of the parties’ liquid assets, while the applicant would have more than 75%.
The judge also considered that the respondent carried debts of $101,245.94 that would need to be serviced in case, and that the respondent would be disadvantaged in the search for a new home if he was forced to use the proceeds of the sale of their properties to pay the equalization payment. It was also important that the respondent had already agreed to pay the applicant spousal support at the high end of the Spousal Support Advisory Guidelines. And this amount was equivalent to half of the parties’ net disposable income. In Jackson v. Mayerle, the court determined that the quantum and duration of spousal support were relevant factors in deciding whether to award a lump sum transfer of a pension. Overall, in Korie, the judge decided that the equalization payment would be fulfilled by a rollover of the respondent’s pension into a LIRA for the applicant. The parties had been married for nearly 20 years, intermingled their funds, jointly invested, and anticipated that “they would exit the marriage as equals”.
Applicant Makes Unjust Enrichment Claim to Side-Step the Equalization Scheme
Although the parties agreed on a number for equalization, the applicant requested that she be compensated $60,000 for half of a debt that she alleged the respondent brought into the marriage, as well as $20,366.36 for half of the renovation costs that she paid to renovate their investment property. The judge identified this as a claim for unjust enrichment. In Kerr v. Baranow, the Supreme Court of Canada outlined three elements that a claimant must establish: (1) an enrichment or benefit to the other party, (2) a corresponding deprivation of the claimant, and (3) the absence of a juristic reason for the enrichment.
The judge determined that the claim for both the pre-marriage debt and the renovation costs could not succeed. Firstly, the applicant did not establish that the respondent brought a $120,000 debt into the marriage; consequently, she was unable to establish either enrichment or deprivation. Notably, the judge noted that she could have identified the debt as a date-of-marriage deduction, which would have affected the final equalization amount, or she could have sought to vary her share of the equalization payment. However, she did not pursue either, and she could not “use unjust enrichment to effectively pursue a run-around to the equalization scheme as set out in the FLA”.
The applicant also failed to establish an unjust enrichment claim relating to the renovation costs. The judge accepted that the renovation enriched the respondent, since the property was rented and the respondent benefited from the income. This satisfied the first element of the test. However, the test is not simply whether the respondent was enriched; the second element requires showing that the enrichment corresponded to the applicant’s deprivation. However, there was no indication that the applicant had faced an economic loss. Looking to the third element, the applicant also failed to prove that there was no juristic reason for any loss. The parties were joint owners of the property, and both contributed to the down payment and upkeep, and both would benefit from any increase in the property’s value. The parties mixed their finances and expected to be rewarded equally, and the judge felt it would be “inequitable to attempt now to look back and carve out certain expenses to be paid to the applicant”.
Judge Looks to the Fairness of the Parties’ Financial Position
This case illustrates the importance of resolving property issues in a manner that is fair to both parties, taking into account the specific circumstances. Here, the parties intermingled and jointly invested their finances, and the judge felt they should exit the marriage in an equal financial position. This impacted the method of equalization payment, meaning certain expenses could not be carved out from the equalization and paid to one spouse.
Experienced Divorce Lawyers Helping You With Equalization and Net Family Property Issues
Considering the complexities of dividing net family property, especially when pensions and liquidity are key factors, it is critical to have experienced legal guidance. The dedicated family law team at Shariff & Associates in Markham assists clients in navigating these intricate equalization matters, striving to achieve a just and equitable financial result. Whether your case involves negotiations, complex asset valuation, or court litigation regarding payment methods, we are equipped to protect your financial future. To discuss your separation and how we can advocate for your fair share, please reach out to us online or call 905-591-4545 to schedule a review of your situation.