In a divorce, a pension can potentially play two roles. First, it is included as an asset in a net family property statement for the purposes of equalization. This means the spouse with the pension is generally expected to split the value of the pension accumulated during the marriage with their former spouse. At the same time, it is income, and the spouse with the higher income may be obligated to support their former spouse through spousal support.
When the payor spouse retires, their income may be entirely made up by their pension. So, they may be required to support their former spouse with an asset that they have already divided evenly. Depending on the length of the marriage, they may have shared the entire asset already. This is known as double dipping.
Double Dipping
In Canada, the leading case on double dipping is the 2001 Supreme Court of Canada decision, Boston v Boston. In that case, the Court held that double dipping was generally unfair, stating that when a pension is divided, the recipient spouse has an obligation to make reasonable efforts to use the funds they received in equalization to become self-sufficient before the payor spouse retires and their pension kicks in. In effect, the recipient could create their own pension to provide for future support.
Before allowing double dipping, courts must first focus on the portion of the paying spouse’s income and assets that have not been equalized. If these can provide an appropriate amount of support for the recipient spouse, double dipping should not occur.
Double dipping may be permitted if three things occur:
The spouse who receives an equalization payment must have made a reasonable attempt to invest the payment to generate an income which will allow them to be self-sufficient by the time the paying spouse retires.
The paying spouse must have the ability to pay
The recipient spouse must show that they are still entitled to support
In grey divorces, however, the recipient may not have enough time to become self-sufficient, especially if retirement is only a couple years away. Additionally, when the payor retires, this material change in circumstance may allow them to seek a variation in their spousal support obligations. And so, with a recipient who has not had enough time to become self-sufficient and a payor who is receiving a decreased income (and may have already shared their entire pension in equalization), a court must determine whether spousal support is still appropriate for both spouses to live comfortably. Though double dipping is generally to be avoided, it may be permitted in certain circumstances if there are no other sources of income to be found.
An Example: Melis and Zwanenburg
After 18 years of marriage, Caroline Melis and Cornelis Zwanenburg separated in 2006. In their divorce order, Cornelis received a substantial equalization payment from Caroline’s federal pension, and also received spousal support from Caroline.
Almost ten years after this order, Caroline retired. With her income significantly decreased, she brought a Motion to Change to terminate her spousal obligations. Cornelis countered that the spousal support should not be terminated but decreased. Thus, the court had to consider whether the unequalized portion of Caroline’s pension should be incorporated in calculating the amount of support of which Cornelis may be entitled. In other words, was Cornelis allowed to double dip?
Could double dipping occur in this case?
The court found double dipping could occur. After receiving the equalization payment, Cornelis invested much of it into an RRSP which, at the time of the decision, would have provided him with a modest income before exhausting at the end of his lifetime. Further, Cornelis was still entitled to support for giving up his career and because Caroline’s income provided a surplus and Cornelis had a continuing shortfall. Caroline also had the ability to pay.
Did Caroline have to share her pension?
With the three factors met, the Court considered the appropriate support amount before including the unequalized portion of Caroline’s pension. To do so, the Court calculated Caroline’s income and support obligations based upon her already equalized pension income and her other investments. The Court concluded that the amount of support payable based on this income would meet Cornelis’ needs. As such, although double dipping would have been permitted if needed, it was not required in this case.
Though double dipping did not occur in this case, it can still be permissible depending on the facts. If Caroline did not have additional investments, the court may have had no other option. One lesson to be learnt from Melis v Zwanenburg is that even though a recipient spouse has an obligation to become self-sufficient, it is not absolute; it is wise for the paying spouse to also make additional investments if they want to protect their pension from further division.