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Benefits and Pensions MonitorSeizing The Unseizable By: John R. Varley An Ontario Court of Appeal has upheld provisions of pension legislation that pensions are immune from creditor seizure, even in the circumstance of an over-riding family law imperative. John R. Varley, of Pallett Valo, LLP, reports on Hooper v. Hooper and what it means for pension plan administrators. Marriage breakdowns can become viciously contentious, and pension plan administrators and their advisors are often caught in the cross-fire. Imagine being served with an Application brought by a former spouse for an Order seeking not only that 50 per cent of a retired plan member’s benefit be diverted to her for Family Law Act spousal and child support, but also that the remaining 50 per cent be paid directly to her because the retiree has welched on his obligations under an asset equalization order. You know that in the normal situation the legislation puts a 50 per cent cap on marriage breakdown execution against benefits in pay. You note that the equalization order did not divide the pension entitlement asset or direct that the equalization payment be made from it. Surely she is over-reaching and you can simply ignore the Application, confident that she will not succeed. Obligations Abused But the Application also sets out facts which are bound to appeal to anyone’s sense of equity and fairness. The plan member was only in pension pay because he had taken voluntary early retirement with a view to reducing his income and creating a basis upon which to ask the Court to reduce his support obligations and negate his support payment arrears. As well, though a prior Order had mandated him to pay over his severance entitlements for application against his equalization obligations, he did not do so. Indeed, after one initial equalization payment, he has consistently refused to make a single further contribution. In the meantime (despite her having obtained a Family Law Responsibility Office garnishment), the support arrears continued to build up, and his former wife (being totally disabled) was scraping by on CPP disability benefits. A heart-rending set of facts indeed, and those facts persuaded the Motions Court judge both to deny the former husband’s request for a reduction in his support obligation, and to appoint the former wife as an equitable receiver with rights to collect the second 50 per cent of the pension benefit, for application against the equalization obligation. Should the plan administrator comply with that Court Order when it is served? What right does it have to question the Court’s interpretation of the Act, or to question the propriety of the Court’s receivership appointment? What duty does the plan administrator have to the former wife, or to its pensioner? Primary Duty In this case, the Ontario Pension Board decided that its primary duty was to its former member, and to the integrity of the statutory scheme. It had no objection to the garnishment and to payment over to her of the full permissible 50 per cent. But on the facts as to the structuring of the equalization obligations here, it could not support a request that 100 per cent of the pension be diverted to her. It intervened on the hearing to say so. The Ontario Court of Appeal’s decision was recently reported as Hooper v. Hooper (2002) 59 O.R. (3d) 787.
In a unanimous and fully-reasoned decision, the Court reversed the original judgment. The relevant pension legislation clearly set out that pensions were to be immune from creditor seizure. Even in the circumstance of an over-riding family law imperative, the pension preservation purpose of the PBA dictated a 50 per cent limit on seizeability for support order obligations, and did not authorize enforcement for the equalization obligations. The Court, therefore, concluded that the appointment of an equitable receiver to collect the second 50 per cent did not meet the ‘just and convenient’test set out in the Courts of Justice Act. It could not be ‘just and convenient’ to appoint an equitable receiver to achieve a result which directly conflicted with the governing pension legislation. The Court went on to cast doubt in general on the use of the equitable receiver where, as here, the plan administrator was already complying to the extent the law allowed. Such an appointment simply added unnecessary and additional expense and complexity. The device should not have been used and the Court set the entire appointment aside. Helpful though that result may be, it does not end the debate. The Court was careful to note that if the equalization award had been directly against the pension assets, the legislation may not have prohibited a ‘stacking’ of 50 per cent for support on top of 50 per cent for equalization. As well, the Court expressed doubts on the propriety of the legislative constraints on accessing pension benefits to satisfy family property splits, and signaled that there could “undoubtedly” be cases where the equities between the parties may best be served by providing this access. Thus, the debate continues. Former spouses will still be advised by knowledgeable counsel to continue to reach for more than 50 per cent. Plan administrators will still need to take case-by-case legal advice to know whether they should accede (pleasing the spouse but breaching a duty to the former member) or resist (adhering to its duty to the former member, but possibly earning a lawsuit from the disappointed spouse). Perhaps it’s time our legislators spent a minute on the Court of Appeal’s plea for clarity in this messy area of the law.
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John R. Varley is senior counsel at Pallett Valo, LLP.