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Is Post-Separation Severance Pay Already “Earned” at the Date of Marriage?

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Is Post-Separation Severance Pay Already “Earned” at the Date of Marriage?

As I have written in the past, the general rule under Ontario family law is that divorcing spouses are entitled to deduct from their Net Family Property any assets or property that they owned on the date of the marriage. It sounds simple enough. Yet when that “property” consists of rights or entitlements instead of more tangible assets, questions frequently arise and the answers can become a bit murky.

In an interesting case, the court was asked to address a narrow – but not unusual – scenario. It can be best described this way:

1) Spouse A works for a company for several years.

2) Spouse A marries Spouse B.

3) Several years later, Spouse A gets terminated from employment, and accepts a reasonable severance package.

4) Spouse A and Spouse B later separate, on their way to divorcing.

The issue is this: On the date of marriage, did Spouse A “own” or already “earn” any portion of the severance pay that was later because of the firing? And should that portion (as calculated on the date of marriage) be deducted from his or her Net Family Property calculation, as something that was “brought into” the marriage to Spouse B?

This was the scenario in a case called Dembeck v. Wright. The couple had been married for almost 10 years when the husband lost his job and accepted an 18-month severance package, which included 8 weeks statutory termination pay as required by the Ontario Employment Standards Act (the “ESA”), with the balance being common-law notice of termination. The couple separated three days after the husband was terminated.

The wife wanted the entire amount of the severance and termination pay included in the husband’s Net Family Property; in contrast the husband claimed that most of the $190,000 severance package was deductible, since it was “property” and that he had “earned” the entitlement to most of it before the marriage even took place.

The Court of Appeal – which was only asked to rule on the 8-week ESA termination pay portion – agreed with the wife. While conceding that the Family Law Act defined “property” very broadly (and included both present and future interests as well as both vested and contingent ones), the right to severance and termination pay can only be considered “property” once it has crystallized. Furthermore, the ESA does not grant an employee an absolute right to termination pay; it accrues only once the employee is terminated without notice, and can only be demanded from the employer if and when that triggering event takes place.

With all this in mind, in the present case the Court ruled that in order for the husband’s ESA termination pay to be considered “property” at the date of marriage, he must have had a right or entitlement to it at that date. His right arose only afterwards, and did not “accumulate” over time. Accordingly he was not entitled to the marriage-date deduction.

For the full text of the decision, see:

Dembeck v. Wright, 2012 ONCA 852 http://canlii.ca/t/fv15d

At Russell Alexander, Family Lawyers our focus is exclusively family law, offering pre-separation legal advice and assisting clients with family related issues including: custody and access, separation agreements, child and spousal support, division of family property, paternity disputes, and enforcement of court orders. For more information, visit us at www.RussellAlexander.com.