Appeal Court Tackles Interplay Between Pension Valuation and Equalization
In its recent decision in Van Delst v. Hronowsky, the Ontario Court of Appeal framed its ruling by noting that upcoming legislative and regulatory reforms around Family Law (now postponed until 2021 due to the impact of the COVID-19) aim to bring clarity to child support, spousal support, and the division of family property.
Similarly in the pension law area, in 2012 the Ontario government passed legislation to “simplify the valuation of pension for purposes of calculating net family property.” It did so by establishing a formula for pensions, and one that was to be applied by pension administrators instead of being determined through litigation (which involved competing pension valuations offered by retained actuarial experts).
“Thus, courts largely got out of the business of pension valuations,” the Appeal Court said, observing that these initiatives bespeak a policy to provide “both certainty and fairness”, and to avoid having spouses engage in costly litigation.
However, the court went on to lament:
The Ontario rules for valuating provincially regulated pensions for equalization purposes are relatively clear and easily applied. However, the valuation of federally regulated pensions is not as certain. Parliament has not reformed the law regarding pension valuations to bring it in line with the Ontario legislation. Until it does, Ontario courts must apply, to the extent reasonably possible, the provincial approach to valuing federal pensions for family law equalization.
Against this background the court considered the facts, which involved spouses who had separated after almost 20 years marriage. Each spouse had a pension that fell under the federal (rather than provincial) scheme of regulation. Although the former couple were able to resolve the rest of their financial issues, they disagreed about the value of their respective federal pensions for the purposes of their Net Family Property (NFP) calculations, and by extension disagreed on how to achieve equalization. They proceeded to trial to resolve that narrow issue.
The trial judge began by setting a “normal retirement date” for each spouse, which – unlike federal pensions – all provincially-regulated plans are required to have. After hearing evidence, the judge concluded that the husband intended to retire at age 65, and the wife, at age 60. The judge valued their pensions and made the NFP equalization calculation accordingly.
On later appeal, the Court of Appeal was asked to rule on whether the trial judge had erred in her approach, including the tailored rationale she used to set the “normal retirement date” for each spouse. In particular, the appeal raised the question of whether and to what extent the detailed provincial pension scheme should be applied to this assessment for Family Law valuation purposes.
The Appeal Court reviewed the interplay between the federal and provincial pension regimes. When imputing the value of a pension for NFP purposes, the Family Law Act required courts to use the approach stipulated by provincial pension legislation “with necessary modifications”, even when it is a federal pension that is being considered.
The Appeal Court noted that the phrase “with necessary modifications” meant that the substance of the provincial pension regime was to be applied, but with some details adjusted as needed. The default regime must be used by the court, unless one party can show that a modification is necessary. As the Appeal Court explained:
In summary, the legislature has signalled a clear intention in … the [Family Law Act] that that a non-Ontario pension be valuated wherever possible in the same manner as an Ontario regulated pension. This means that the valuation formula in the [provincial pension regime] should be applied to a non-Ontario pension with modifications only where necessary. In addition, … to the extent that other Ontario statutory provisions or regulatory requirements impact the valuation of a pension for family law purposes, they too should be applied to the valuation of a non-Ontario pension.
In other words, a pension administrator should, to the extent possible, valuate a non-Ontario pension as if it were an Ontario pension. This is consistent with the purpose of the valuation exercise, which is to obtain a fair, predictable, and consistent division of net family property. Thus, it is important that provincial and federal pensions be valuated in the same manner, to the extent reasonably possible.
Here, rather than defaulting to the provincial approach with needed modifications only, the trial judge had wrongly customized the pension valuation to the spouses’ specific circumstances, including the case-specific assessment of each spouse’s normal retirement date. This approach was in error.
Instead, based on the legislation and the pensions’ own wording, the “normal retirement date” for each spouse should have been the date they turned 60. The Court of Appeal sent the matter back to trial, to have the equalization re-calculated using that corrected figure.
From a broader policy standpoint, the Appeal Court also added some important instructions to be heeded in future cases like this one:
I add the following regarding the process to be followed when valuating non-Ontario pensions. Generally, the same process should be followed as with a provincially regulated plan. The parties should request that the pension administrator generate a value based on the Ontario law. If a pension administrator, who is not regulated by the provincial legislation, refuses to calculate the value, or if issues arise regarding the necessary modifications to be made, directions from the court may be sought. The preferable approach is that a single jointly-appointed expert provides expert evidence. The appointment of competing valuators should be avoided because it encourages the type of costly valuation litigation that the new legislation was designed to avoid.
For the full text of the decision, see:
Van Delst v. Hronowsky, 2020 ONCA 329