The Effect of Early Retirement on a Support Payor’s Obligation to Pay Spousal Support

Can a former spouse retire early on a full pension when he or she is still able to work and earn an income, and then terminate or change the amount of spousal support being paid to his or her former spouse? Ontario case law suggests otherwise.

The recent Ontario Court of Appeal decision, Hickey v. Princ [2015], warns support payors that spousal support will not be reduced or terminated where the payor retired at a time when he or she had the capacity to continue working in their existing position or obtain other gainful employment.

In Hickey, the Ontario Court of Appeal held that the Trial Judge erred in allowing a former husband reduce and discontinue paying spousal support to his former wife who was totally dependent on his support payments. The former husband retired at the age of 51 on a full pension when he was still able to work and earn an income.

Before a motion to change a spousal support order under the Divorce Act can be granted, a Court must conduct the two-step process as described in Willick v. Willick [1994] by the Supreme Court of Canada.

First, a Court must consider whether the conditions for variation exists, i.e. whether there has been a material change in the condition, means, needs or other circumstances of either former spouse since the order was made. A “material change” is a change that, if known at the time, would have likely resulted in different terms.  The onus is on the party seeking a change, which is often the payor spouse.

In Hickey the word “means” was interpreted to include the support payor’s actual income, his or her income-earning capacity, pecuniary resources and capital assets, based on the Supreme Court of Canada’s ruling in Strang v. Strang [1992].

This means that if a payor spouse is fully capable of earning income from some other source other than his or her pension income and is reasonably young enough to continue earning employment income, a court will likely consider the payor spouse’s capacity to earn income from the other source when determining whether a material change in circumstances has occurred.

Hickey also relied heavily on the line of reasoning opined by the Divisional Court in Bullock v. Bullock [2004], later confirmed by the Ontario Court of Appeal Cossette v. Cossette [2015].

Bullock proposes that support payors should make retirement plans knowing that support will continue until retirement savings can keep both former spouses at reasonable standards of living.

In Bullock, the payor husband commenced an application, seeking to terminate or reduce spousal support, citing as cause his business’ failure and his inability to earn income.

Justice Corbett in Bullock declined to assess the payee wife’s need for support and to order an end date for the payment of support because he found that despite a reduction in payor husband’s income, the payor husband had capacity to earn more than enough income to warrant continuation of the support. The Court emphasized that a support payor cannot choose to be voluntarily underemployed whether by retirement or otherwise and avoid his or her spousal support payment obligations.

Similarly, Cossette stands for the principle that parties cannot avoid their support obligations by unilaterally deciding to leave the workforce.  In Cossette, the trial judge dismissed a retired husband’s Motion to change seeking to terminate spousal support on grounds that the retirement was not a material change and that the husband’s evidence was insufficient to prove that his retirement was necessary. The payor husband’s appeal was also dismissed.  He did not provide documents to support the claim that his depression rendered him unable to work.

This means that if the decision to retire is voluntary and not compelled by a mandatory retirement policy or health implications, a payor spouse cannot escape his or her spousal support obligations.

If a material change in circumstances is found, a Court will then move on to the second step of the two-step process in Willick and decide on the variation to be made, including the quantification and duration of support, based on the objectives set out in s. 17(7) of the Divorce Act:

1. any economic advantages or disadvantages to the former spouses arising from the marriage or its breakdown;
2. apportion between former spouses any financial consequences arising from the care of child of the marriage over and above the obligation for the support of any child of the marriage or simply put extraordinary or special expenses i.e. s. 7 expenses;
3. relieve any economic hardship of the former spouses due to the marriage breakdown; and
4. promote economic self-sufficiency of each former spouse within a reasonable period of time.

Hickey considered both the issues of “double dipping” and time limited support orders in cases where the support recipient is disabled even though no material change in circumstances was found.

The Supreme Court of Canada has recognized a general rule against “double dipping” subject to exemptions in Boston v. Boston [2001]. Therefore, if a payor’s pension plan has been considered before retirement when parties equally divided their “net family property” (i.e. addressed property matters), it cannot then be considered after retirement for the purposes of income for spousal support subject to exceptions.

However, both Hickey and Bullock permitted double recovery. The Ontario Court of Appeal in Hickey relied on an exemption that the spousal support was based on the former spouse’s need arising out of disability and Justice Corbett in Bullock suggested that Boston did not apply where the support payor chose to retire early or had a continued earning capacity and where income ought to be imputed to the support payor.

Support payors should also be aware that if a court finds evidence that the payor voluntarily retired to frustrate a support order, the Court may impute income to the payor up to the amount that he or she would have earned if the payor had not retired: Teeple v. Teeple [1999].

The Ontario Court of Appeal in Hickey also ruled that support should be indefinite where the support payee is disabled, as it makes self-sufficiency, under s. 17(7)(d) of the Divorce Act, unattainable.

Contrary to case law in other jurisdictions, specifically decisions like Powell v. Levesque [2014] and Lemoine v. Lemoine [1997] in British Columbia and New Brunswick respectively, that stand for the proposition that a payor should not be held to support obligations that force him or her to continue working despite eligibility for full retirement benefits, Ontario Courts in both Hickey and Cossette declined to follow these decisions to the extent that they were inconsistent with Ontario authorities and/or have at least distinguished Powell on the grounds that one of the reasons the payors chose to retire was their desire to stop paying spousal support.

Given the state of law in Ontario then, support payors should be cognizant that if they voluntarily retire early (i.e. before 65 in most cases), they will find it difficult to terminate or vary their support obligations.  It is best to plan in advance. At a minimum, provide many months’ notice of any intention to retire.