Does Retirement End Spousal Support Payments?

I just read an excellent paper on retirement and its impact on the payment of spousal support which I thought might be of interest to my readers. The paper is entitled “Can a Support Payor Ever Retire?” by Jodi R Fleishman. I would be happy to provide you with a copy of the paper – just send me an e-mail request.

Considering Canada’s aging population, the issue of retirement and its impact on spousal support is becoming of great interest to baby boomers.  Ms Fleishman suggests that recent developments in the law in the area of spousal support may throw a wrench into the retirement plans of many support payors. It used to be the case that, more often than not, payors who paid support for a number of years and were eligible for retirement qualified for a corresponding reduction in their support payments. That is no longer the case.

In two recent Divisional Court decisions, payors who had paid spousal support for number of years applied to have their payments reduced based upon retirement, which each argued was a “material change in circumstances”.  The Courts disagreed.  No reduction in support was granted since, in each particular case, retirement was not considered to be a material change in circumstances.

In Cossette, the Divisional Court reiterated that: “A support payor cannot choose to be voluntarily under-employed whether by retirement or otherwise and thereby avoid his or her spousal payment spousal support payment obligations.”  Cossette was the first Ontario appellate decision state that a payor with a support obligation to a spouse cannot just retire because s/he wants to retire. That is, the payor cannot just unilaterally decide to leave the workforce and, thereby, avoid his or her spousal support obligations.

The subsequent Divisional Court decision in Hickey v Princ extended the principle to consider not only the reasons for the retirement, but also the payor’s means and ability to continue to work, including his capacity to be employed at another job.

The main points emerging from the above cases, and those that have followed, can be summarized as follows:

1. Parties cannot avoid spousal support by unilaterally deciding to leave the workforce, whether by retirement or otherwise.
2. There is no reason why a support order cannot continue past the date of retirement.
3. Evidence that a payor voluntarily retired in order to frustrate a support order is clearly an important fact militating against a finding of a material change. In such a case, the court may impute income to the payor up to the amount he would have earned had he not retired or withdrawn from the workforce.
4. The court should consider the motivation for retirement and whether it is reasonable in light of the ongoing spousal support obligations.
5. Even if there is evidence that the payor did not choose to retire in order to avoid paying spousal support, that does not end the matter i.e. there is not an automatic right to vary support. Instead, one must look at whether the decision to retire was voluntary (not compelled by a mandatory retirement policy or health limitations) and whether the payor retired at such a time when the payor still had the capacity to continue working either in the current employment or in some other employment.
6. The issue is whether the payor’s ability to pay has been compromised. Ability to pay is not restricted to pension income alone, but may include capacity to earn income either from the job the payor has chosen to leave or from other employment following retirement.
7. Where a payor retires earlier than expected and the recipient spouse has good reason to rely upon support being provided for several more years, the payor may be expected to seek new employment opportunities.
8. Whether the pay or consider the financial circumstances in impact on the recipient spouse is one of the factors the court will consider on application to vary support
9. The court must satisfy itself that there has been a change in the “means, needs and other circumstances” of one of the former spouses before a change in the support will be ordered. “Means” includes both actual income and income earning capacity as well as other pecuniary resources, capital assets and evidence of overall wealth.

What can be done? Make sure settlement documents are drafted carefully. That is, if a Separation Agreement is being prepared, ensure that the language of that Agreement sets out the parties’ clear intentions. The more specific the parties can be, for example, about whether or not the payor’s retirement is a material change in circumstances, the less likely they will have to argue the issue at a later date when the payor retires.  The Agreement should be specifically worded not only to include whether retirement will be a material change, but should also include a notice period to be provided to the support recipient of the payor’s voluntary or involuntary retirement. The more specific the parties can be in their Separation Agreement regarding whether they intend the payor’s retirement to be a material change, the better. The terms of the Agreement can also include the intended retirement age, the circumstances surrounding the retirement, how the variation or termination of spousal support will be dealt with, how the new support amount will be calculated and whether or not support will include pension income. This will give the parties much more clarity in the future and would result in less litigation.