“Property” or “Income”? Appeal Court Rules on Structured Settlement Annuities
Recently the Ontario Court of Appeal delivered a ruling on a very narrow, but important, issue: Whether structured settlement annuity payments are considered “property” or “income” under Ontario family law legislation dealing with property-division by spouses on separation.
In Hunks v. Hunks, the wife had been injured while shopping at a supermarket. She was hit by either a shopping cart or a pallet and sued the store for damages. When her claim was later settled, about $300,000 from the proceeds of her settlement were used to create a structured settlement annuity. This paid out funds to her on a regular, pre-determined basis since she was no longer able to work.
At the point when she and the husband separated, the wife was still entitled to receive about 13 years’ worth of payments from the annuity.
In the context of determining their respective Net Family Property amounts for the purposes of equalization, a legal question arose as to whether the wife’s annuity payment entitlement should be counted as “property” or as “income” as those terms are used in the Ontario Family Law Act.
This was an important distinction: If they were “income”, then they would be taken into account when calculating spousal support obligations. If they were “property”, then their treatment would depend on other provisions of the Act that might allow for their exclusion.
The Court of Appeal concluded that such structured settlement annuities are properly considered “income” under the Act.
The key was that the annuity arose from a structured settlement, which is created when some or all of a personal injury settlement is deposited with a life insurance company in exchange for guaranteed, tax-free payments for the recipient’s lifetime, or for a specific number of years. The court noted that annuities arising from personal injury settlements are very specialized contracts, and are subject to certain legal contingencies and stipulations.
The net result is that the casualty insurer is actually the legal owner and beneficiary of the contract. Using the wife’s case as an example, it was the casualty insurer that purchased the annuity and made an irrevocable direction to the issuer of the annuity contract to make all payments directly to the wife. The court noted that an individual, such as the wife, is not entitled to purchase a structured settlement himself or herself.
With that vantage-point, it could not be said that during the marriage the wife “received” the $300,000 used for the structured settlement. The court also noted that payments received pursuant to a structured settlement annuity were analogous to disability benefits, which was another reason they should be treated as income. Like disability benefits – which prior courts have concluded is “income” for these purposes – structured settlement annuity payments are meant to replace employment income that the wife would have earned if she had been able to work. Since they provide her with financial support because she cannot work, they are “of the same nature as the income she would have earned had she not been injured.”
For the full text of the decision, see: