Ipsofactoj.com: International Cases [2001] Part 2 Case 3 [SCC]


SUPREME COURT OF CANADA

Coram

Best

- vs -

Best

LAMER CJ

BASTARACHE J

BINNIE J

CORY J

DUBÉ J

GONTHIER J

IACOBUCCI J

L’HEUREUX J

MAJOR J

McLACHLIN J

9 JULY 1999


Judgment

Major J

(delivering decision of the majority)

  1. This appeal raised some of the contentious and confusing issues surrounding the treatment of pensions in the division of property when a marriage ends. A central issue here was the appropriate technique for determining the value of a defined benefit pension under Ontario’s Family Law Act, R.S.O. 1990, c. F.3. The legal proceedings in this divorce action have been costly, and these reasons will hopefully end the parties’ prolonged conflict.

  2. I have concluded that, absent special circumstances, a pro rata method of pension valuation best achieves the purpose of the Family Law Act, namely, the equitable division of assets between spouses. It will be evident that, while the division of pensions can raise many complex questions, this Court can only address the limited issues involved in this particular appeal. It will be equally evident that legislative changes to the Family Law Act are required to provide further guidance for the equitable division of pension assets between spouses on the termination of marriage. In the absence of legislative action, couples undergoing divorces where pension benefits are an issue will have little choice in the absence of an agreement but to resort to expensive litigation.  

  3. The intent of the Ontario legislature, expressed in the Family Law Act, is to divide the value of all assets accumulated during the marriage equally among the separated spouses. To reach that result in the case at bar required determining the growth in value of the pension owned by the appellant husband during the marriage. If it were not for the complexities of valuing defined benefit pensions, this would be relatively simple. 

  4. However, the Court was faced with two different actuarial methods for valuing the pension’s growth during the marriage. The appellant favoured the “termination pro rata” method, which required the pension benefit to be paid at retirement to be calculated as if the employee terminated employment on the date of separation. The pension’s value on the date of separation is the present value of that income stream, using an assumed retirement age and accepted actuarial assumptions regarding rates of interest, inflation, and longevity. The value on the date of marriage is obtained by multiplying the value on the date of separation by a fraction equal to the number of years of pensionable service that occurred prior to the marriage over the total number of years of pensionable service prior to separation. The amount accrued during the marriage is the difference between the values on the date of separation and on the date of marriage; the non-employee spouse (in this case, the respondent wife) would be entitled to half that amount upon separation.

  5. The respondent favoured the “termination value-added” method. This method uses the same process as the pro rata method to value the pension on the date of separation:  the determination of the pension benefit earned followed by a calculation of the present value of that income stream on the date of separation. Under the value-added method, the value on the date of marriage is calculated in a similar way: the employee is assumed to have terminated employment on the date of marriage, the pension benefit earned to that point is calculated, and the present value for such an income stream, discounted back to the date of marriage, is determined. Once again, the amount accumulated during marriage is the difference between the two values, and the non-employee spouse is entitled to half of it. 

  6. The value-added method essentially treats the pension as an investment asset that grows with the employee’s salary and increases with the compounding of amounts previously earned. Under the value-added method, each successive year is of increasingly higher value. As a result, in cases like this one where there is significant pensionable service prior to the marriage, the value-added method allocates more value to the later years of pension holding than to the earlier years. In this case, the marriage lasted for just over 12 (or approximately 37 percent) of the appellant’s 32 years of pensionable service before separation, but the value-added method apportions about 88 percent of the pension’s value to that period.

  7. In contrast, the effect of the pro rata method is that all years of pensionable service are treated as equal; the growth of the pension is uniform over time, with no pension year more valuable than another. In this case, the pro rata method assigns approximately 37 percent of the pension’s value to the marriage. Because this method assigns more value to the pre-marital years and less to the marital years than the value-added method, it is obvious why the appellant submitted this method to be the more equitable.

    I. FACTS

  8. The appellant, Theodore Clifford Best, was born on April 14, 1935. He was employed as a school principal since 1960 and served as an elected trustee of the Ottawa Board of Education since 1972. He and the respondent, Marlene Shirley Best, were married on February 7, 1976, when Mr. Best was 40 years old. Both spouses had been married before, and this second marriage was turbulent.

  9. The parties separated with no hope of reconciliation in February 1988, and a divorce judgment in 1989 ended their 12-year childless marriage. After the divorce, extensive litigation ensued over the division of property. The trial in 1993 lasted approximately 12 days. Many of the property disputes decided by the trial judge were not appealed. The important issue in dispute was the fair division of the appellant’s pension rights as a member of the Teachers’ Superannuation and Superannuation Adjustment Funds, in which he enrolled in September 1955, 20.52 years before the marriage. 

  10. The pension plan was a “defined benefit” pension, meaning that the annual pension benefit paid to retirees is calculated according to a benefit formula. In this case, upon retirement, the appellant was entitled to an annual benefit equal to 2 percent of the average of his five best annual salaries, multiplied by the total number of years of service prior to retirement. The appellant’s pension also contained an early retirement provision, which allowed an employee to retire and obtain an unreduced pension without penalty as soon as the sum of the employee’s age and years of service reached 90. The pension was indexed for inflation, both before and after retirement, according to the Consumer Price Index. The appellant’s pension benefits vested prior to the date of marriage.

  11. The Ontario Court (General Division) decided the action in the respondent’s favour on October 15, 1993:  see Best v Best (1993), 50 R.F.L. (3d) 120. At that time, the appellant was 58 years old and was still employed and accumulating pensionable service. The respondent was also 58 at the time, but was not employed, owing in part to poor health. The appellant retired on June 30, 1996, while the case was on appeal. The Ontario Court of Appeal dismissed the appellant’s appeal on October 3, 1997: see Best v Best (1997), 35 O.R. (3d) 577. At that time, both parties were 62 years old.

    II. RELEVANT STATUTORY PROVISIONS

  12. Family Law Act, R.S.O. 1990, c. F.3

    [Preamble] Whereas it is desirable to encourage and strengthen the role of the family; and whereas for that purpose it is necessary to recognize the equal position of spouses as individuals within marriage and to recognize marriage as a form of partnership; and whereas in support of such recognition it is necessary to provide in law for the orderly and equitable settlement of the affairs of the spouses upon the breakdown of the partnership, and to provide for other mutual obligations in family relationships ....

    ....

    4.

    (1)

    In this Part,

    ....

    “net family property” means the value of all the property, except property described in subsection (2), that a spouse owns on the valuation date, after deducting,

    (a)

    the spouse’s debts and other liabilities, and

    (b)

    the value of property, other than a matrimonial home, that the spouse owned on the date of the marriage, after deducting the spouse’s debts and other liabilities, calculated as of the date of the marriage;

    “property” means any interest, present or future, vested or contingent, in real or personal property and includes,

    ....

    (c)

     

    in the case of a spouse’s rights under a pension plan that have vested, the spouse’s interest in the plan including contributions made by other persons;

    “valuation date” means the earliest of the following dates:

    1.

    The date the spouses separate and there is no reasonable prospect that they will resume cohabitation.

    2.

    The date a divorce is granted.

    .....

    (4)

     

    When this section requires that a value be calculated as of a given date, it shall be calculated as of close of business on that date.

    5.

    (1)

    When a divorce is granted or a marriage is declared a nullity, or when the spouses are separated and there is no reasonable prospect that they will resume cohabitation, the spouse whose net family property is the lesser of the two net family properties is entitled to one-half the difference between them.

    ....

    (6)

     

    The court may award a spouse an amount that is more or less than half the difference between the net family properties if the court is of the opinion that equalizing the net family properties would be unconscionable, having regard to,

    ....

    (h)

    any other circumstance relating to the acquisition, disposition, preservation, maintenance, or improvement of property.

    ....

    9.

     

    (1)

     

    .... the court may order,

    (a)

    that one spouse pay to the other spouse the amount to which the court finds that spouse to be entitled under this Part;

    ....

    (c)

     

    that, if necessary to avoid hardship, an amount referred to in clause (a) be paid in instalments during a period not exceeding ten years or that payment of all or part of the amount be delayed for a period not exceeding ten years; and

    (d)

    that, if appropriate to satisfy an obligation imposed by the order,

    (i)

    property be transferred to or in trust for or vested in a spouse, whether absolutely, for life or for a term of years .... 

    (3)

    If the court is satisfied that there has been a material change in the circumstances of the spouse who has the obligation to make instalment or delayed payments, the court may, on motion, vary the order, but shall not vary the amount to which the court found the spouse to be entitled under this Part.

    III. JUDICIAL HISTORY

    A. Ontario Court (General Division) – Rutherford J. (1993), 50 R.F.L. (3d) 120

  13. In determining this appeal it is necessary to outline the careful and comprehensive reasoning of the trial judge. He first sought to determine the age at which the appellant was likely to retire, an important factor in the valuation of the appellant’s pension. Had the appellant terminated employment on the date of separation, February 1988, he would have qualified for early retirement under the “rule of 90” by increase in age alone on September 9, 1992, at age 57.4. Rutherford J. concluded that, looking at it from the perspective of the date of separation, the evidence justified choosing that date as the most likely retirement date. Because he refused to use “hindsight”, the assumption was that the appellant did not continue to earn pensionable service beyond February 1988. In choosing a probable retirement date of September 9, 1992, the trial judge had to ignore the fact that the appellant was still working on the date of judgment.

  14. The trial judge then proceeded to the question of valuation methods. Because there was no significant dispute over the pension’s value on the date of separation, the trial judge accepted the respondent’s figure of $424,912.

  15. The dispute over valuation methods arose when the parties’ actuaries sought to determine the pension’s value as of the date of marriage. The respondent’s actuary, H. Wayne Woods, used the “termination value-added” method, which yielded a pension value of $52,871 on the date of marriage. Subtracting this from the pension’s value at the date of separation ($424,912) yields $372,041, which the respondent argued was the proper value of the pension to be attributed to the appellant’s net family property under the Family Law Act.

  16. The appellant’s actuary, Bernard Potvin, used what was called a “termination, prorated” method. Under this method, because there had been significant pre-marital pensionable service, the pension contributed only $151,480 to the appellant’s net family property.

  17. Rutherford J. then considered the arguments in favour of each method. Mr. Woods testified for the respondent that the value-added method was more consistent with the valuation of other assets under the Family Law Act. Mr. Potvin testified for the appellant that the pro rata method yielded a more equitable result because it weighted each year of service equally and gave a fairer division of the pension between pre-marital and marital years. While the value-added method was appropriate for other assets, Mr. Potvin maintained that the pro rata method was more suitable to valuing a defined benefit pension. The trial judge noted that, although the marriage took place during 12 years of the appellant’s 32 years of pensionable service, the value-added method apportioned over 80 percent of the pension’s value to the marriage period. The pro rata method credited the marriage with approximately 37 percent of the pension’s value. The difference between the amounts attributable to the marriage under the two methods is $220,561.

  18. Rutherford J. stated that no cited case law dealt with the specific issue of valuing a defined benefit pension on the date of marriage.

    He then held as follows (at p. 140):

    In my view, particularly in circumstances such as exist in this case, there is considerable force to the argument in favour of the prorated method. The force is most easily felt when one compares the 12-year marriage out of 32-year pension accrual with the over 80% of the pension’s value allocated to the marriage period as a result of the value added method. However, whatever one’s view of the equity inherent in it, I do not see the prorated method as consistent with the equalization of the value of property contemplated by s. 5 of the Family Law Act. I prefer the value added method for the valuation of Mr. Best’s pension to the prorated method because the former is more consistent with the method of determining the value of other assets in the same exercise. While there is a certain equity in spreading the pension’s value out equally over each year of service, it appears to be based on a theory favouring distribution and equal weight for each year that is somewhat artificial.

    The trial judge accepted the respondent’s valuation that the pension accumulated $372,041 in value over the course of the marriage. He discounted this amount by 28 percent for income tax, yielding a final value of $267,869. Rutherford J. then performed the equalization calculation under s. 5(1) of the Family Law Act, and, after an adjustment not relevant here, concluded that the appellant owed the respondent an equalization payment of $147,649.50.

  19. Rutherford J. ordered the appellant to satisfy his equalization obligation first by transferring his interest in the matrimonial home, which he found to be worth $60,065, to the respondent. Given that the bulk of the equalization obligation was owing to the value of the pension, which would not produce income for the appellant until some point in the future, the court allowed the appellant to pay the remaining $87,584.50, with interest, in monthly installments over a 10-year period, similar to a mortgage repayment scheme.

  20. Rutherford J. next addressed the issue of spousal support, noting that the appellant had been paying the respondent $1900 per month in support since 1988. e noted that the appellant’s annual income totalled approximately $100,000, that he intended to continue working as a school principal although he did not plan to seek reelection as a school board trustee, and that he was recently married to a woman who had a long teaching career, was working half-time, and had substantial equity in her home.

  21. The trial judge contrasted this position with that of the respondent, who did not have any real basis for self-support. Although she was employed as a secretary at the time of the marriage, her secretarial skills had become outdated and she would require training and experience in order to find a job. Although she had obtained a bachelor’s degree and qualified as a real estate salesperson, the trial judge concluded (at p. 143) that “her age, her osteoarthritic condition and the prevailing economic circumstances seriously cloud her prospects for earning a substantial livelihood and becoming self-supporting”.

  22. Rutherford J. ordered the appellant to pay the respondent $2500 per month in spousal support, and added that the payment would increase or decrease proportionally to any change in the appellant’s salary. Rutherford J. also ordered the appellant to  retain the respondent as a beneficiary of his medical plan as long as possible. 

  23. On June 6, 1994, after receiving further submissions from the parties, Rutherford J. entered an endorsement relating to costs:  see Best v Best, [1994] O.J. No. 1241 (QL). Although the respondent had made an offer of settlement that was more favourable to the appellant than the judgment rendered, numerous factors detracted from the respondent’s presumptive right to costs from the date of her settlement offer. Dismayed with the high bills of costs in this case -- approximately $50,000 for the appellant and $90,000 for the respondent -- the trial judge held that the respondent was entitled to recover $45,000 in costs.

    B. Court of Appeal for Ontario – Charron J.A. (Finlayson and Doherty JJ.A. concurring) (1997), 35 O.R. (3d) 577

  24. On October 3, 1997, the Court of Appeal dismissed the appellant’s appeal. Charron J.A. agreed on all points with the trial judge’s reasoning regarding pension valuation. She added that, since the trial judge’s reasons had been released, the Court of Appeal had decided in Kennedy v Kennedy (1996), 19 R.F.L. (4th) 454, that a retirement date must be chosen “on a case by case basis upon consideration of all of the relevant evidence” (p. 460). Charron J.A. concluded that Rutherford J. had followed this rule by examining all the evidence before him in choosing a probable retirement date of September 9, 1992. 

  25. Charron J.A. also noted, at p. 585, that using “hindsight” in choosing a retirement date for valuation purposes would “introduce great uncertainty in the litigation process” and “may well militate against the early resolution of matrimonial disputes”. Charron J.A., at p. 585, considered that post-separation evidence could be relevant to determine “the probable age of retirement as contemplated by the pension plan holder” on the date of separation (emphasis in original). Conduct contemplated as of the separation date, as well as the fact of separation itself, could also be relevant, but facts that were unknown to or not contemplated by the pension holder at separation could not.

  26. Charron J.A. then addressed the appellant’s argument that, instead of ordering monthly instalments, the trial judge should have ordered that the equalization payment be made on an “if and when” basis, such that the appellant would pay the respondent her share of the pension benefit if and when he received it. Charron J.A. adverted to the fact that many Ontario courts had made use of “if and when” orders, but that such orders are complicated and not always suitable. Charron J.A. concluded that Rutherford J. did not exceed his discretion by preferring an amortized payment scheme over an “if and when” arrangement. 

  27. Charron J.A. also rejected the appellant’s argument that the spousal support order should terminate upon his retirement, and decided that Rutherford J. was within his discretion in his award of costs. She dismissed the appeal and awarded costs on appeal to the respondent.

    IV. ISSUES

  28. The appeal concerns the following issues:

    1. Did the Court of Appeal and the trial judge err in concluding that the Family Law Act requires the use of the value-added method to value a defined benefit pension for purposes of the equalization calculation?

    2. Did the Court of Appeal err in upholding the trial judge’s finding that the appellant was likely to retire on September 9, 1992?

    3. Should the Court of Appeal have allowed the appellant to settle his equalization obligation on an “if and when” basis?

    4. Should the Court of Appeal have ordered that the appellant’s spousal support obligation terminated at his retirement?

    5. Did the Court of Appeal err in upholding the trial judge’s decision regarding costs?

    V. ANALYSIS

    A. Valuing the Defined Benefit Pension

    (1) Overview

  29. To understand the controversy in this case, it is helpful to consider the nature of the asset at stake. For present purposes, it is important to distinguish between the defined benefit pension plan at issue, and a defined contribution pension plan. 

  30. A defined contribution plan consists of an investment account in each employee’s name into which the employer (and often the employee) deposits contributions. Apart from the fact that the employer makes contributions, a defined contribution plan functions much like a personal Registered Retirement Savings Plan (RRSP). Over time, a defined contribution pension accrues value just like an investment portfolio. At retirement, a defined contribution account is customarily liquidated and used to purchase a pension annuity to provide the retiree with regular income.

  31. A defined benefit pension, such as the appellant’s, works in a different manner. A defined benefit pension plan pays its members a fixed pension benefit independent of the financial performance of the “pension fund”. The plan does not assign particular assets to an individual employee’s account. Participants in a plan do not receive individual statements reflecting investments. Instead, contributions are generally placed into a single pool of pension plan assets. When a pension member retires, the pension plan provides the retiree with a pension annuity, calculated according to a prescribed “benefit formula” on the date of retirement. 

  32. The benefit formula can take different forms, although it is usually based on the number of years of pensionable service and the salaries earned over the particular employee’s career. The appellant’s pension falls into the category of “final earnings” defined benefit pensions, which calculate the benefit by multiplying a base percentage by the number of years of service to retirement and the average of the employee’s last five years’ salaries. (Strictly speaking, the appellant’s pension is a “best earnings” salary, since it focuses on the best years, not the final ones. In many cases, the last years are also the best paid, such that the difference will not matter.)  Defined benefit pensions may be organized differently, such as “career average earnings” plans, where the pension benefit is constituted by percentages of salary earned in each year of service, and “flat benefit” plans, where the pension benefit is calculated by multiplying a fixed dollar amount by the number of years of service. See Ontario Law Reform Commission, Report on Pensions as Family Property: Valuation and Division (1995) (hereinafter OLRC Report), at pp. 12-13.

  33. A defined benefit pension plan is also funded differently from a defined contribution plan. Because the pension benefit is defined by the benefit formula, the amount that a retiree receives as a pension does not depend on the contributions of the employee over the course of employment. Employee contributions are generally a fixed percentage of salary; in some defined benefit pension plans, the employees make no contributions at all. The employer contributes whatever amount is necessary to fund the plan in light of current employee contributions, if any, and expected payouts, which are usually estimated by actuaries. Although contributions to a defined benefit pension plan are invested to ensure that the plan remains solvent and able to meet its payout obligations, the employees do not profit directly if the pension fund earns a superior return, nor do their benefits decrease if the market plummets. (I leave aside the possibility of a pension plan’s being underfunded, which is not an issue in this case.) The formula “defines” each employee’s pension benefit irrespective of contributions or investment return.

  34. According to a 1990 survey by Statistics Canada, 90.7 percent of pension plan members in Canada belonged to defined benefit pension plans, and 59.8 percent belonged to “final earnings” or “best earnings” defined benefit plans. See OLRC Report, supra, at p. 85, n. 4, and p. 91, n. 21. 

    (2) Valuation Methods

  35. Valuing a defined benefit pension prior to retirement is necessarily artificial. The true value of the appellant’s pension benefit cannot be determined with finality until retirement, when the total number of years of service and the five best salaries are known with certainty. The actuarial profession has developed different valuation methods that reflect different assumptions, all of which are sound from an actuarial point of view. The problem is determining whether one method is preferable from a legal perspective under the Family Law Act. 

  36. The various methods of pension valuation upon marriage breakup can be generally classified according to two characteristics:

    1. the way they determine the pension’s value at separation, and

    2. the way they describe the pension’s growth in value during the period leading up to separation.

    (a) Termination Method v Retirement Method

  37. The first methodological distinction concerns the way in which an actuary determines the pension’s value on the date of separation. The two principal actuarial methods for this calculation are the “termination” method and the “retirement” method.

  38. The “termination” method requires the actuary to determine the annual pension benefit by assuming that the employee spouse stopped working on the date of separation. The “retirement” method requires the actuary to consider possible post-separation increases in the pension’s value in order to determine as closely as possible what the pension benefit will actually be when the employee retires in the future. The choice between termination and retirement methods raises many important questions, such as the use of post-separation evidence obtained in “hindsight” and speculation as to future salary increases owing to promotions and improvements in the terms of the pension plan. In this case, it suffices to note that the parties agreed to use a termination method.

  39. Under the termination method, the pension’s value on the date of separation is determined by calculating the benefit earned as of that date under the pension’s benefit formula. This “pension benefit” is the annual amount that the employee would receive starting on the date of retirement. The actuary then determines the amount that, if invested on the date of separation, would provide the same income stream as the pension (the “lump-sum present value” or “capitalized value”). This calculation is also called “discounting”:  the pension benefit’s value on the date of its payment is discounted back to yield its present value on the date of separation. 

  40. The discounting calculation requires the use of certain assumptions. First, the actuary must use an assumed date of retirement to determine the length of the discounting period. The later the retirement date, the longer the discounting period, the lower the pension’s present value. The actuary also makes assumptions about the employee’s longevity:  the longer the employee lives, the longer the pension will be paid, the higher its value. 

  41. Finally, the actuary must choose a discounting rate to reflect the effects of inflation and investment return. Inflation is particularly important here in light of the fact that the appellant’s pension is indexed, meaning that the value of the pension benefit increases to match the Consumer Price Index. Even if the appellant were assumed to terminate employment on the separation date, prior to the date he would actually retire and start receiving a pension benefit, the numerical value of the pension benefit would actually increase between termination and retirement in order to compensate for the dollar’s loss of purchasing power over time. From my reading of the record, it appeared that the actuaries in this case accounted for indexing by using “net interest rates”, meaning that the discounting rate used was lower than the usual risk-free rate of return. See Canadian Institute of Actuaries, Standard of Practice for the Computation of the Capitalized Value of Pension Entitlements on Marriage Breakdown for Purposes of Lump-Sum Equalization Payments (1993) (hereinafter CIA Standard of Practice), at pp. 10-11. This lower discounting rate reflects the fact that an indexed pension has a higher value than an unindexed one.

  42. One member of the actuarial profession has noted that the term “termination method” is ambiguous and might suggest that post-separation increases in pension value owing to indexing should not be taken into account in determining the pension’s value on the date of separation. See J. B. Patterson, “Confusion Created in Pension Valuation for Family Breakdown Case Law by the Use of the Expressions ‘Termination Method’ and ‘Retirement Method’” (1998), 16 C.F.L.Q. 249, at pp. 249-56; J. Patterson, Pension Division and Valuation:  Family Lawyers’ Guide (2nd ed. 1995), at pp. 187-88. Accordingly, one case has adopted the term “real interest method” to describe a valuation method that adjusts the discounting rate to account for indexing. See Bascello v Bascello (1995), 26 O.R. (3d) 342 (Gen. Div.), at pp. 354 and 360.

  43. For present purposes, I will continue to refer to the method as a “termination” method, in accordance with the definition advanced by the Canadian Institute of Actuaries. See CIA Standard of Practice, supra, at p. 5. The reason is that the method used here still values the pension benefit on the assumption that the employee spouse terminated employment on the date of separation; it does not speculate as to post-separation salary increases owing to non-inflationary factors, such as promotions, plan improvements, and additional years of service. In those material respects, the method is still a “termination” method; it is simply a termination method whose discounting rate is a “net” or “real” interest rate to reflect the fact that the pension is indexed.

  44. Under this termination method, taking account of indexing, the respondent’s actuary determined the pension to have a present value of $424,912 on the date of separation. Apart from the appropriate retirement age, the appellant does not dispute the methodology used in this calculation. Although the appellant’s actuary reached a slightly lower number ($421,983), probably because of different assumptions as to interest rate and longevity, the actuary did not consider the difference significant. I therefore accept the respondent’s figure of $424,912 for the pension’s value at separation.

    (b) Value-Added Method v Pro Rata Method

  45. The controversy in this case arose because of the second characteristic that distinguishes pension valuation methods, that is the representation of the pension’s increase in value over time. Different assumptions regarding how a pension increases in value over time result in different figures for the pension’s value on the date of marriage. In the following example, the Canadian Institute of Actuaries describes the standard approaches to this issue:

    At valuation date #1 (e.g., marriage), the plan member had 10 years pensionable service, had accrued $2,000 of annual pension entitlements, which at that date had a value of $5,000. At valuation date #2 (e.g., separation), the plan member had 25 years pensionable service, had accrued $30,000 of annual pension entitlements, which at that date had a value of $240,000.

    There are three possible approaches to addressing a member’s pension entitlement acquired during marriage. One approach is sometimes referred to as “value added”. Such approach develops the pension asset acquired during marriage as follows:

    $240,000 - $5,000 = $235,000

    [I omit the second method, referred to as the pro-rata (on benefits) method, which is not advanced by either party in this case.]

    A third approach is sometimes referred to as pro-rata (on service). Such approach develops the pension asset acquired during the marriage as follows:

    (25 - 10)

    25

    x

    $240,000

    =

    $144,000

    See CIA Standard of Practice, supra, at p. 6. For brevity’s sake, I refer to the pro rata (on service) method as the “pro rata method”.

  46. The different figures reached under the value-added and pro rata methods are the result of different theories about how a pension increases in value from the point where the employee enrols in the pension, where the pension has a value of zero, to the separation date. According to the pro rata method favoured by the appellant, the pension increases in value at a constant rate over time. The value-added method pressed by the respondent shows the pension increasing slowly at first and more quickly later, along a parabola or “growth curve”.

  47. The pro rata method will always assign the pension a higher value than the value-added method at any point in time prior to separation. This difference poses no problem if the employee spouse (here, the husband) only starts earning defined benefit pension rights after the date of marriage; the value at marriage is zero regardless of which method is used. But where the employee spouse was a member of the pension prior to the marriage, the values obtained for the date of marriage diverge widely, in this case in the amount of $220,561.

  48. The evidence was, and the parties agreed, that both the value-added and pro rata methods are acceptable ways to value a defined benefit pension from an actuarial point of view. The legal question is whether any particular method is mandated or preferable under Ontario’s Family Law Act. 

    (3) Statutory Language

  49. In interpreting a statute, the courts should give effect to the intent of the legislature as expressed through the statute’s text. Here the text of the Family Law Act does not prescribe how any particular asset’s value is to be determined. The most guidance it gives is s. 4(1), which requires the court to calculate each spouse’s “net family property”, which is defined as the value of all assets owned by each spouse on the “valuation date” (here the date of separation, February 28, 1988) less the value of all assets owned on the date of marriage (here February 7, 1976). The statute’s aim is then to divide equally the difference between the spouses’ net family properties, such that neither spouse’s share of the wealth accumulated during the marriage period exceeds the other’s. There is room for judicial discretion to divide net family properties unequally (s. 5(6)), but it is not implicated in this case.

  50. The respondent’s position was that the value-added method fitted the statutory scheme as it calculated the pension’s present value on both dates, enabling the court to plug both values into the net family property calculation, but that the pro rata method did not fit the scheme because it did not calculate the pension’s present value on the date of marriage. The trial judge and the Court of Appeal agreed, preferring the value-added method because it was, in their view, “more consistent” with the calculation prescribed by s. 4(1).

  51. I disagree as I am persuaded that the pro rata method in most cases and particularly in this one reaches a more equitable result, in conformity with the intent and language of the Family Law Act. The appellant’s actuary, Bernard Potvin, testified that the pro rata method calculated the value at marriage by multiplying the present value on the date of separation by a fraction dividing the years of pensionable service prior to the marriage (approximately 20.52)  by the years of pensionable service prior to separation (approximately 32.6). According to Mr. Potvin, this calculation yields a value of $270,503 for the appellant’s pension as of the date of marriage. The appellant’s net family property under s. 4(1) would be the separation value ($424,912) added to the value of the other assets owned by the appellant on the date of separation, less the marriage value ($270,503) added to the value of other assets owned by the appellant on the date of marriage. This calculation fits precisely within the mathematical operations described in s. 4(1).

  52. The respondent submitted that the statute requires more. Specifically, she objected that the pro rata method used the value at separation to “construct an arbitrary figure” for the pension’s value as of the date of marriage. The respondent read s. 4(1)’s provision that the value of the assets at marriage be “calculated as of the date of the marriage” to mean that the marriage value must be the lump-sum present value of the pension, meaning the amount that, if invested on the date of marriage, would produce the same return as the pension when the appellant retired. She argued that only a present value calculation produces a value “as of” the marriage date. 

  53. Although the respondent’s theory of pension valuation is permissible under s. 4(1), it is not mandated. If the legislature had meant to prefer a present-value valuation method over any other method, it could easily have provided for it. I do not agree that s. 4(1) phrase “calculated as of the date of the marriage” reflects a legislative choice of one actuarial method of pension valuation over another. Instead it addresses the more basic issue that a spouse cannot exclude an asset from his or her net family property simply because the asset was owned before the marriage. If the phrase “calculated as of the date of the marriage” were left out of the statute so that it read: “‘net family property’ means the value of all the property .... that a spouse owns on the valuation date, after deducting .... the value of the property .... that the spouse owned on the date of the marriage”, it would mean a spouse could claim that assets owned before the marriage were not subject to equalization at all, even to the extent that they increased in value during the marriage. 

  54. By providing for a deduction of the value of property owned on the date of marriage calculated as of the date of the marriage, the statute ensures that increases in asset value during the marriage period are equalized between the spouses, regardless of whether the asset was owned by one of the spouses prior to the marriage. The language of the statute does not address the more challenging problem of what method should be used to determine the actual amount by which the assets’ value increased.

  55. The respondent submitted that the value at marriage calculated under the pro rata method is “artificial” because it varies depending on the date of separation, all other factors being equal. The respondent contrasted this with the value-added method, which produced a fixed pension value for the date of marriage irrespective of the value at the date of separation. Yet s. 4(1) does not provide that the value at marriage cannot be mathematically derived from the value at separation. As stated above, the statute does not address methods of valuation except to say that they must produce a value for the pension on the date of marriage and on the date of separation.

  56. The respondent asserted that proponents of the pro rata method, such as the Ontario Law Reform Commission and the Canadian Institute of Actuaries, have “conceded that a legislative amendment would be required to introduce this method into the law of Ontario”. This statement is inaccurate. It is true that the OLRC and the Canadian Institute of Actuaries have recommended that the pro rata method be adopted in Ontario by means of legislation, but this recommendation results from their finding that the current law fails to take a position on the subject of pension valuation. Contrary to the respondent’s argument, neither organization maintained that the pro rata method is foreclosed by the Family Law Act. This is evident in the following passages of the OLRC Report [ pp. 1, 84-87, and 147; footnotes omitted]:

    The valuation and division of pensions in Ontario presents many problems. Currently, the law contains no special provisions for valuing pensions and gives little guidance on the appropriate methods to use. Couples face considerable difficulty and expense in valuing these assets for Family Law Act equalization purposes. The Family Law Act merely requires that a member of a pension plan share the value of the pension as of the date of separation with his or her spouse. Since there are no standard guidelines for the various economic assumptions and methods that must be used, the parties and their lawyers spend considerable time negotiating questions of valuation. Failure to agree on these issues often results in lengthy judicial proceedings.

    ....

    The Family Law Act requires that pensions be valued on marriage breakdown and that the value be settled through the equalization process. The Family Law Act does not, however, stipulate how that value is to be determined ....

    .... The Commission believes that standards for the valuation of defined benefit plans should be prescribed as a matter of law. A stipulated method of pension valuation would reduce the expense, delay, and litigation arising from disputes concerning the proper valuation of pensions.

    Legislation would eliminate the need for spouses on marriage breakdown to rely on the courts to resolve pension valuation issues. A legislated valuation process would provide certainty and reduce costs .... The mandatory provisions for valuing pensions should be set out in regulations to the Family Law Act. This will require an amendment to the Family Law Act, providing that the value of pension property is to be determined in accordance with prescribed regulations.

    ....

    Clarification of the law regarding the application of the value-added and pro rata methods of adjusting for pre-marriage accruals in valuing pension assets is critically important. Because the application of the two methods results in different pension values for equalization purposes, it is desirable that a method be prescribed. The present state of the law leads to disputes and may result in expensive and lengthy litigation. The use of both methods can be justified and criticized on a number of grounds.

    These statements do not support the view that the Family Law Act prefers one valuation method over another. Indeed, they express exactly the opposite position.

  57. The respondent also argued that s. 4(1) does not distinguish between different types of property, and that consequently pension assets cannot be valued “in a different way” from other assets. The Ontario Court of Appeal emphasized this point by noting (at p. 590) that the value-added method was “entirely more consistent with the formula set out in the Act for the calculation of net family property and with the methodology used with respect to other assets”. Yet the statute does not require that the values at marriage be calculated in the same way for different types of assets; it requires only that the net family property value be calculated by subtracting the value at marriage from the value at separation. As stated above, both methods satisfy this criterion. The Court of Appeal recognized this when (at p. 590) it quoted and appeared to approve of p. 148 of the OLRC Report:

    In addition, while it can be argued that the value-added method is more consistent with the procedure by which the value of other assets is adjusted for pre-marriage accruals under the Family Law Act, it is also true that the pro rata on service method complies with the adjustment requirement, albeit in a different manner, by assigning a value to accruals made during the marriage.

    I therefore disagree with Justice L’Heureux-Dubé that the Family Law Act contains “stated requirements” (para. 138) or “clear and unambiguous wording” (para. 139) that operate to exclude the pro rata method.

  58. It is true that the present value calculation used by the value-added method imitates the common method used in valuing other assets such as annuities or bonds. However, Ontario courts performing equalization calculations have often considered different methods when valuing unconventional assets, such as corporate goodwill or the value of a business. In Christian v Christian (1991), 7 O.R. (3d) 441 (Gen. Div.), at p. 464, the goodwill attached to a husband’s interest in an accounting firm was valued by taking the firm’s maintainable fee revenue and applying an “appropriate” multiplier based on expert evidence. See also Chinneck v Chinneck, [1995] O.J. No. 2786 (QL) (Gen. Div.), at para. 86. In Perrier v Perrier (1987), 12 R.F.L. (3d) 266 (Ont. H.C.), at p. 270, the court chose to value a business using the going concern method, rather than the “shareholders’ agreement” or “liquidation value” methods, because the “going concern” method was “[t]he fairest method”. In none of these cases did the choice of valuation method depend on the chosen method’s resemblance to methods used in valuing other types of property. Thus, contrary to the assertions of L’Heureux-Dubé J., the lump-sum present value method is not “the method to which the legislature has subjected all other assets” (para. 147), nor must courts “apply one method of calculation across the board” (para. 153).

  59. The respondent relied on s. 4(4) of the Family Law Act, which requires that an asset’s value on a particular date be calculated “as of close of business on that date”. In my opinion, this innocuous provision is aimed at facilitating valuation of volatile assets like securities, commodities or perhaps real estate, the value of which can change significantly from minute to minute. The respondent, however, read s. 4(4) to require the use of a lump-sum present value method of valuation. I disagree with this strained reading. The pro rata method unquestionably provides a value for the pension as of the date of marriage. If there is ever a dispute that the pension’s value as of the close of business is different from the pension’s value as of 9 a.m. on the date of marriage, I assume that actuaries will make the appropriate adjustment. Since no such dispute exists here, s. 4(4) is irrelevant to this case.

  60. The Family Law Act does not require that all property be stretched to fit one valuation method without regard to the fact that different types of assets may accumulate value in different ways. If proper consideration for the nature of a defined benefit pension suggests that a different method should be used to determine its value, the statute does not preclude it. 

  61. Because of the many contingencies involved in any effort to value a pension before it is “in pay”, all valuation methods will involve some degree of artificiality. The expert witnesses in this case conceded as much during their testimony. The respondent’s statement that the pro rata method “constructs” an “arbitrary” marriage value neglects the fact that all pre-retirement pension valuations rest on speculative assumptions. One such assumption is whether a lump-sum present value method provides an accurate model for the increase in a pension’s value over time. The value-added method assumes it does, the pro rata method assumes it does not. Absent clear legislative direction, I am loath to conclude that the pro rata method, which enjoys the imprimatur of the actuarial profession, must be ruled out because it rests on a different assumption from another method.

  62. In light of the statute’s silence on the specific issue of valuation, the appellant argued that the pension asset should be valued according to the method that created the most equitable distribution of property. The appellant based this argument in the general purpose of the Act, with reference to the preamble’s emphasis on an “orderly and equitable settlement of the affairs of the spouses upon the breakdown of the partnership”. Ontario courts have noted that the Family Law Act silence regarding valuation methods requires courts to apply principles of equity and fairness. The comments of Walsh J. in Rawluk v Rawluk (1986), 55 O.R. (2d) 704 (H.C.), at p. 709, are à propos:

    While the Act speaks of value, it contains no definition of that term nor, indeed, guidelines of any kind to assist in the determination of its meaning other than the provision contained in s. 4(4) that when value is required to be calculated as of a given date, it shall be calculated as of close of business on that date. Absent any statutory direction, “value” must then be determined on the peculiar facts and circumstances as they are found and developed on the evidence in each individual case.

    In affirming Walsh J.’s use of the remedy of constructive trust, Cory J., writing for a majority of this Court, emphasized the remedy’s importance in achieving “a division of property that is as just and equitable as possible”. See Rawluk v Rawluk, [1990] 1 S.C.R. 70, at p. 97 (emphasis added). In Clarke v Clarke, [1990] 2 S.C.R. 795, Wilson J. noted, at p. 836, that the general purpose of matrimonial property statutes was to “effect the adjustment of property in an equitable manner”.

  63. In the particular setting of pension valuation, a number of Ontario courts have also applied equitable principles in choosing a valuation method. Two cases have expressly adopted the termination pro rata method because the court concluded that it produced a fairer result. See Valenti v Valenti (1996), 21 R.F.L. (4th) 246 (Ont. Ct. (Gen. Div.)), at p. 256, and Deane v Deane (1995), 14 R.F.L. (4th) 55 (Ont. Ct. (Gen. Div.)), at pp. 76-78; see also Miller v Miller (1987), 8 R.F.L. (3d) 113 (Ont. Dist. Ct.), at p. 123.

  64. The court in Shafer v Shafer (1996), 25 R.F.L. (4th) 410 (Ont. Ct. (Gen. Div.)), at pp. 428-29, used the value-added method but noted that the statute did not require it. Although the respondent cites cases holding that the statute required use of the value-added method, these cases generally rely on the reasons of the trial court or the Ontario Court of Appeal in this case. See Beaudoin v Beaudoin, [1997] O.J. No. 5504 (QL) (Gen. Div.), at para. 33; Patrick v Patrick (1997), 34 R.F.L. (4th) 228 (Ont. Ct. (Gen. Div.)), at p. 231; Spinney v Spinney, [1996] O.J. No. 1869 (QL) (Gen. Div.), at para. 16; Munro v Munro, [1995] O.J. No. 1769 (QL) (Gen. Div.), at para. 15; Rusticus v Rusticus, [1995] O.J. No. 516 (QL) (Gen. Div.), at paras. 50-51.

  65. I am of the opinion that the Family Law Act, on its face, does not state any rule indicating a preference for the value-added method over the pro rata method or vice versa. This legislative silence means that the appellant’s defined benefit pension must be valued according to the method that values the pension most equitably.   

    (4) Equitable Concerns

  66. The Court’s duty is to determine which valuation method most fairly apportions the pension’s value to the pre-marital and marital periods. This fairness analysis should not be result-driven. The appellant argued the unfairness of the value-added method by showing that it apportioned 88 percent of the pension’s value to a period of marriage that constituted only 37 percent of the years of service. While this fact is relevant, it is not sufficient to carry the day. It is possible for an asset to increase slowly in value and then rise dramatically in a short period of time. It would be inequitable to deprive the respondent of her share of the good fortune that arose during the course of the marriage. The Court should decide which valuation method most nearly describes how the defined benefit pension’s value varied over time, with proper regard for the nature of the asset itself. 

  67. At this point, it is worthwhile to recall the difference between a defined benefit pension and a defined contribution pension. The value of a defined contribution pension is directly related to the contributions made by the employer and, if applicable, the employee. Each contribution is used to purchase investment assets; the greater the contribution, the more investments are purchased, the greater the final pension benefit. It is obvious that a defined contribution pension increases in value more quickly when contributions are of greater value. Furthermore, because a defined contribution pension is essentially an investment account, the contents of which will be used to purchase a pension annuity at retirement, the value of that pension annuity necessarily tracks the value of the assets in the pension account, including increases owing to investment return. It stands to reason that growth of the pension’s value can be represented in the same way as growth in the value of the investment assets. As a result, valuation of defined contribution pensions does not pose the problems  encountered here. It is simply a matter of looking at the pension account statement for the date of marriage and the date of separation. See generally OLRC Report, supra, at p. 84, n. 3.

  68. In contrast, an employee’s interest in a defined benefit pension is not tied to specific pension assets or to the amount of contributions. The pension benefit formula in this case fixed the benefit with reference to years of service and the highest salaries earned. I therefore believe the trial judge confused the issue when (at pp. 140-41) he related the value of a year’s membership in a defined benefit plan to the value of employee contributions during that year. Unlike an interest in a defined contribution plan, the ultimate annualized benefit paid to an employee under a defined benefit plan is unrelated to the size of contributions or rate of return on investment.

  69. It is therefore far from self-evident that the increase in value of an interest in a defined benefit pension plan should be modelled after the increase in value of a defined contribution plan or an investment asset. This is a major weakness of the value-added method advocated by the respondent. The value-added method treats a defined benefit pension as a lump-sum investment that grows in value at an adjusted rate based on the prevailing risk-free rate of return. Because this produces a compounding effect, the value-added method assigns a greater portion of the pension’s growth to the latter years before the valuation date. This assignment of value, however, is totally unrelated to any actual change in the value of the pension. 

  70. This is highlighted by an example. Suppose the appellant had actually terminated his employment on the date of marriage, and that, at that time, he had 20 years of service and the average of his five best-paid salaries was (hypothetically) $60,000. Under the benefit formula, he would have earned an annual pension benefit of $24,000 (2 percent x 20 x $60,000). Twelve years later, at the date of separation, since he had quit his job and not accumulated any more years of service or reached a higher salary level, his annualized pension benefit would still be $24,000. (The effect of pre-retirement indexing is ignored for purposes of simplicity.)  Common sense would suggest that, since the interest in the pension has not changed over the course of the marriage, none of it should be considered “net family property” for equalization purposes.

  71. Under the value-added method, however, the actuary would calculate (a) the lump sum that, if invested in risk-free assets on the date of separation, would produce an annual income of $24,000 at retirement. Assume the applicable discount rate and actuarial assumptions yielded a present value at separation of $100,000. Then the actuary would determine (b) the lump sum that, if invested in risk-free assets on the date of marriage, would produce the same stream of income ($24,000 annually) beginning on the date of retirement. Discounting $100,000 over the 12-year marriage period at  a 3 percent interest rate yields a present value on the date of marriage of $70,138. Under the value-added method, the difference between the values of (a) and (b) – in the example, $100,000 minus $70,138, i.e. $29,862 – will be considered “net family property”. This is so even though the annualized benefit to be paid – which is a defined benefit pension’s only meaningful value – did not change at all after the marriage. The result is that the employee spouse (here, the appellant) must equalize a growth in assets that did not actually take place. I do not see any equity in that result.

  72. The respondent argued that a pension does have a higher value later in life than it does earlier on, even if the numerical value of the benefit remains unchanged. The respondent maintained that the promise of a pension takes on greater importance as an employee approaches retirement age, and submitted that the proximity of a pension has a significant impact on the way older married couples plan their lives and structure their finances, whereas it may have no impact at all on the decisions of younger couples. I do not think this consideration is relevant. All assets owned by a married couple become more important as the couple grows older and the time to plan for retirement diminishes. But to say that a subjective feeling that an asset is “worth more” at age 60 than at age 30 translates into an objective increase in value to be reflected in an equalization calculation is unrealistic. While an annuity is a greater comfort at the separation date than it was at the marriage date, this fact does not justify treating it as an asset that grew at an investment rate over the course of the marriage. Such treatment simply penalizes the employee spouse for the inexorable fact that time has passed.

  73. On a similar note, the value-added method’s subtraction of two present values raises the added problem of constant dollars. It is fairly plain that, owing to inflation, a dollar in 1976 purchased substantially more than a dollar in 1988. As a result, amounts having the same real value in constant dollars will have a smaller numerical value when expressed in 1976 dollars than in 1988 dollars. The value-added method does not appear to account for this difference; instead, it subtracts the 1976 figure directly from the inflated 1988 figure. See, e.g., Patterson, Pension Division and Valuation, supra, at p. 163. The result  is that all the inflation occurring between 1976 and 1988 on the pension’s total value – even on the portion earned prior to 1976 – is treated as a “gain” in value during the period of marriage. This “gain” is another consequence of the value-added method’s use of capitalized values, and does not reflect any real change in the value of the pension benefit over the time that the appellant and the respondent were married.

  74. Another problem afflicting the value-added method as used in this case is the use of a different retirement age assumption in determining the value at marriage than is used for determining the value at separation. In valuing the pension at the date of separation, Rutherford J. chose an assumed retirement age of 57.4 years (the appellant challenged this decision, and it is dealt with in Section 5 below). However, in valuing the pension at the date of marriage, Rutherford J. adopted the respondent’s actuary’s use of a retirement age of 65. This different retirement age created a double reduction in the marriage value. 

    • First, it reduced the pension’s present value at retirement because it contemplated that the pension would be paid out for 7.6 fewer years than if the appellant had retired at age 57.4. 

    • Second, it lengthened the discounting period for the date of marriage value:  the first pension payment was discounted back from the year 2000 (when the appellant would be 65) instead of from 1992 (when he was 57.4).

  75. The Court is at a disadvantage in evaluating the reason for choosing a retirement age of 65 in calculating the date of marriage value. The trial judge and the Court of Appeal did not address this, and neither did the respondent’s submissions in this Court. Judging from the testimony of the respondent’s actuary, the retirement age of 65 appeared to derive from the fact that, had the appellant terminated his employment on the date of marriage, he would not have satisfied the requirements of the “rule of 90" early retirement provision and could not have retired before the usual age of 65.

  76. I do not believe that there was any reason to value the pension on the date of marriage in light of an assumption that the employee terminated employment on that date. That assumption ignored the actual economic facts that occurred during the marriage, namely that the appellant worked continuously and eventually brought himself within reach of early retirement.

  77. It is true that there are compelling reasons not to take post-separation information into account when valuing the pension under a termination method – for instance, the notion that the non-employee spouse should not profit from the post-separation work of the employee spouse, and the concern that the employee spouse might behave strategically after the separation in order to decrease the value of the pension to be equalized. I consider the effect of these considerations in this particular case in Section 5 below. Regardless of the suitability of using post-separation evidence under a termination method, however, I do not believe there is any justification for refusing to use post-marriage evidence in calculating the date of marriage value. This is not “hindsight”, since conduct occurring between marriage and separation necessarily occurred before the date of separation. I have difficulty imagining a situation in which an employee spouse would strategically seek to postpone the retirement date through conduct prior to separation in order to reduce the pension’s present value. 

  78. The respondent might argue that the option of retiring before age 65 with an unreduced pension is itself a benefit that increased the pension’s value, and that the value of that benefit should be included in net family property because it accrued during the marriage. This argument fails because it effectively considers the pension’s value to be unaffected by the early retirement provision until the employee actually begins to qualify for the early retirement benefit. Put another way, the respondent would have the Court consider the early retirement benefit to have a value of zero until the employee began to satisfy the “rule of 90”. 

  79. Under the “rule of 90”, an employee only gains the right to retire before age 65 upon accumulation of more than 25 years of service. It is correct that the appellant met this qualification while he was married to the respondent. But it is incorrect to say that he was not earning the right to early retirement prior to that point. Each year is of equal importance in determining the employee’s satisfaction of the “rule of 90”. Had the appellant not accumulated 20 years of service prior to marriage, the early retirement benefit would not have vested, if at all, until after the separation. Those early years of service were hardly less important to the earning of the early retirement benefit than the years of service during the marriage. 

  80. This approach is consistent with that of the Canadian Institute of Actuaries in valuing early retirement benefits. The CIA considers that early retirement benefits may have actual value even prior to the time that the employee gains the right to retire early. See CIA Standard of Practice, supra, at p. 5:

    Accrued benefit enhancements and grow-in ancillary benefits (such as the right to unreduced early retirement subject to total age/service combinations, and/or bridging benefits) contingent only upon future service, to the extent accrued at the valuation date, must specifically be addressed by the actuary.

    The phrase “must specifically be addressed” means that the actuary must present a separately identified value of such benefits, without any discount for possible future forfeiture.

    The Ontario Law Reform Commission has also adopted this position:

    The Commission therefore recommends that the proposed Pension Valuation Regulations should provide that, where a pension plan contains a provision for an early retirement benefit payable to a member on an unreduced basis once certain vesting requirements are met, such a benefit should be valued on the following basis:

    (a)

    vesting of the unreduced early retirement benefit should be assumed for the purposes of pension valuation, and

    (b)

    a discount for the possibility that plan membership will terminate prior to the member meeting the vesting requirements should be applied.

    See OLRC Report, supra, at p. 123. The statements of the CIA and OLRC support the view that early retirement benefits that are contingent on years of service should not be viewed as obtaining value only once they are vested. They are continuously earned over the course of the employee’s service. This view is particularly justified in this case, where it was known prior to separation that the appellant actually became eligible for early retirement. As a result, I do not think that the trial judge and the Court of Appeal were justified in using a higher retirement age to value the pension at the date of marriage.

  81. This argument, apart from highlighting a weakness of the value-added method as applied in this case, dovetails with the appellant’s argument in favour of the pro rata method. The appellant argued that, under the benefit formula, the most important factor in calculating the value of his pension is the number of his years of service. The benefit formula incorporates years of service directly, so that each additional year of service effectively increases the annual pension benefit by 2 percent of the average of the best five years’ earnings. If the “five best salaries” term does not change, each year of service increases the pension benefit by an equal amount. In this respect, an employee’s earlier years as a member of the plan are just as valuable as the later years. See Ramsay v Ramsay (1994), 1 R.F.L. (4th) 447 (Sask. Q.B.), at p. 453.

  82. I agree with the appellant that the pro rata method reflects this aspect of his defined benefit pension. By averaging the pension’s present value over each year of service, the pro rata method incorporates the fact that the true value of the defined benefit plan – namely, the benefit itself – increased at a constant (or arithmetic) rate with the passage of time, not along a growth curve (or geometric rate). The pro rata method accurately takes account of the pension’s nature as a future asset, instead of misleadingly treating it as a present asset with a lump-sum value that increased at the rates of inflation and return on risk-free investments.

  83. The respondent objected that the pro rata method is unfair because it does not reflect the impact of salary increases, which occur at fixed points in time and can significantly affect the pension’s value. Instead, the pro rata method treats the factor of the “average of five best years’ salary” as constant over the entire period of pensionable service. Because the highest-salaried years tend to be the later ones close to the separation date, the value assigned to earlier years under the pro rata method effectively credits earlier years with the value of higher salaries earned in later years. The respondent maintained that this is unfair, especially as applied in this case, where there is substantial pre-marital service. By attributing a significant portion of salary increases earned during the marriage to the pre-marital years, the pro rata method arguably undervalued net family property inequitably.

  84. Although it is true that salary increases do occur at fixed points in time and can be clearly separated out as occurring before or during the marriage, the Court should consider the particular role that salary increases play in the appellant’s defined benefit pension. In a defined contribution pension, a salary increase generally means an increase in contributions, which increases the assets held in the pension account. In a “career earnings” defined benefit plan, the salary earned in each individual year determines a portion of the final benefit, so changes in salary from year to year make a significant difference. In both cases, a year in which the employee’s salary increased truly does make a higher contribution to the pension benefit than the foregoing years. But in a “best earnings” plan like the appellant’s, a salary increase not only increases the value of the year in which it occurred, but also the value that was earned in all past years of service. As was stated above, each year of service adds 2 percent of the average of the five highest-salaried years, regardless of when those best-paid years occur. Thus, if an employee suffers a reduction in salary late in his or her career, for any reason, the pension benefit remains unaltered. The effect of a salary increase in a “best earnings” defined benefit pension is not limited to the particular year in which it occurred, but extends over the entire period of service. 

  85. The respondent’s view of salary increases rests once again on the implicit premise that, in valuing the pension on the date of marriage, the Court should assume that the appellant terminated employment on that date. As noted above, there is no principled reason to ignore information that is definitively known at the time of separation in calculating the date of marriage value. Calculating the benefit accrued at marriage based on only the five best salaries earned up to the marriage date is turning a blind eye to the more accurate information available on the date of separation. 

  86. On a similar note, I think the pro rata method is preferable because it involves less speculation than the value-added method. Although any valuation of a pension before retirement will involve actuarial assumptions that can be proved wrong by future events, the pro rata method requires only one discounting calculation and also does not artificially ignore relevant information available at separation in determining the value on the date of marriage. The nature of a “best earnings” defined benefit pension makes this particularly important. I also note that the termination pro rata method appears to be the rule for valuation of defined benefit pensions in other Canadian provinces and in many American states. See Quebec Regulation respecting supplemental pensions plans, (1990) 122 G.O. II, 2318, ss. 36, 37, 40; Pension Benefits Act, S.N.B. 1987, c. P-5.1, s. 44(8); General Regulation - Pension Benefits Act, N.B. Reg. 91-195, s. 28(2); Corpus Juris Secundum (1986), vol. 27C, § 558, at pp. 53-54; Humble v Humble, 805 S.W.2d 558 (Tex. Ct. App. 1991), at pp. 560-61.

  87. It is possible that the value-added method may be reformed to address the concerns I have raised and that it might provide a fairer valuation if the pension were structured in a different way. Generally speaking, however, the pro rata method yields a valuation of a defined benefit pension that is fairer than the valuation produced by the value-added method. Since the Family Law Act’s primary goal is a division of assets that is fair to both spouses, I believe that the pro rata method is the preferable method of valuation under Ontario law.

  88. One additional point deserves mention. While the parties here agreed to use  a “termination” method of valuation, I do not wish to foreclose the possibility of future litigants’ using a “retirement” method in a future case. My conclusion that all the information available at the time of separation should be used in calculating the pension’s value at separation and at marriage ordinarily suggests that one should also consider post-separation information to the extent it bears upon the benefit formula. For instance, it is now known as a fact that the appellant retired at age 61 with 40.83 years of service. His best-salaried years could also be ascertained with precision. It is quite likely that such a calculation, which essentially corresponds to a “retirement” method, would have provided the fairest possible valuation of the defined benefit pension in this case. 

  89. I note that the use of a “retirement pro rata” method has found favour in other provinces. See Family Relations Act, R.S.B.C. 1996, c. 128, s. 74; B.C. Reg. 77/95, s. 6; Hierlihy v Hierlihy (1984), 48 Nfld. & P.E.I.R. 142 (Nfld. C.A.), at p. 146. It also seems to be the rule among American “community property” states. See, e.g., Corpus Juris Secundum, supra, at p. 57; but see Humble, supra (rejecting the retirement pro rata method in favour of the termination pro rata method). 

  90. A retirement method could have much to recommend it, particularly given that a pension’s true value might change drastically after the marriage due to changes in the benefit formula or substantial increases in salary. As I have suggested, there are compelling reasons to treat these changes as having an effect over the entire life of the defined benefit pension, not just at the time that they occur. The OLRC also favours a retirement method. See OLRC Report, supra, at pp. 104-6.

  91. I am aware that a retirement pro rata method could take two possible forms. The Canadian Institute of Actuaries describes a “projected” retirement method, whereby the future accumulation of years of service, salary increases, and changes to the benefit formula would be estimated from an actuarial perspective. See CIA Standard of Practice, supra, at p. 5. This method could involve many speculative assumptions, but might be appropriate in a case where the employee spouse’s final salaries and years of service were known with sufficient certainty prior to retirement. The OLRC recommends this type of method but suggests a discount for the possibility that the employee might terminate employment earlier:  OLRC Report, supra, at p. 106; see also Knippshild v Knippshild (1995), 11 R.F.L. (4th) 36 (Sask. Q.B.), at pp. 48-50. 

  92. Another possible retirement method is the one available in British Columbia, Newfoundland and certain American states, which could be called a “deferred” retirement method. Under this system, calculation of the ultimate amount due to the non-employee spouse is deferred until the actual retirement date, when the final years of service and best-salaried years are crystallized. Cf. Rutherford v Rutherford (1980), 14 R.F.L. (2d) 41 (B.C.S.C.), at pp. 60-61, and Hierlihy, supra, at pp. 145-46. Decisions in other provinces - including some in Ontario - have employed this method or a similar one. See Gilmour v Gilmour, [1995] 3 W.W.R. 137 (Sask. C.A.), at pp. 141-42; Bourdeau v Bourdeau, [1993] O.J. No. 1751 (QL) (Gen. Div.), at paras. 20-22;  Rauf v Rauf (1992), 39 R.F.L. (3d) 63 (Ont. Ct. (Gen. Div.)), at pp. 65-66; Porter v Porter (1986), 1 R.F.L. (3d) 12 (Ont. Dist. Ct.), at pp. 26-27; Moravcik v Moravcik (1983), 37 R.F.L. (2d) 102 (Alta. C.A.), at p. 108; George v George (1983), 35 R.F.L. (2d) 225 (Man. C.A.), at p. 243. A task force of the Canadian Institute of Actuaries has recommended the use of a “deferred settlement method” along these lines. See Canadian Institute of Actuaries Task Force on the Division of Pension Benefits upon Marriage Breakdown, Draft Paper, The Division of Pension Benefits upon Marriage Breakdown (1998), at p. 9. Because this valuation method necessarily defers division of the pension until retirement, it is usually used in conjunction with an “if and when” payment scheme, which is discussed below in Section C.

  93. For present purposes, it is enough that the parties to this appeal have agreed to use a termination method. The possibility of using a retirement method remains open, and in view of its comportment with reality, desirable. I note that some sources have suggested that a deferred retirement method might be at odds with the present wording of the Family Law Act. This conclusion seems to be based on the view that the equalization payment should be calculated without regard to any change in asset value after separation. See OLRC Report, supra, at p. 105, and Marsham v Marsham (1987), 59 O.R. (2d) 609 (H.C.), at p. 614. In addition, a deferred retirement method effectively equalizes the pension separately from other assets, which might appear at odds with s. 4 of the Family Law Act, which provides that each spouse’s “net family property” is calculated by adding together the value of all the assets owned by the spouse. However, it may be that these statutory objections can be met and overcome. I leave them for another day.

  94. For the foregoing reasons, I believe that the termination pro rata method produces a fairer valuation of defined benefit pensions for equalization purposes than the termination value-added method. The pro rata method is not without flaws, nor will it inevitably be preferable to the value-added method. Although cases may arise where other considerations will tilt the balance in favour of a different valuation method, the nature of defined benefit pension indicates that, as a general rule, the pro rata method is preferable.

    (5) Retirement Age Assumption

  95. The final struggle in the valuation debate is the assumption used by the trial judge that, on the balance of probabilities, the appellant would likely have retired at age 57.4, looking at the matter from the separation date. As stated, retirement age is crucial to valuation because it determines both the length of the discounting period and also the length of time that the pension will last. Both factors materially affect a pension’s present value on the date of separation.

  96. The presence of an early retirement provision such as the “rule of 90” will almost always be relevant to the choice of a likely retirement age. Before 1996, some Ontario courts applied a presumption that, unless the evidence clearly indicated otherwise, the employee spouse would retire as soon as an unreduced pension was available. See, e.g., Weaver v Weaver (1991), 32 R.F.L. (3d) 447 (Ont. Ct. (Gen. Div.)), at p. 457; Leeson v Leeson (1990), 26 R.F.L. (3d) 52 (Ont. Dist. Ct.), at p. 59; Forster v Forster (1987), 11 R.F.L. (3d) 121 (Ont. H.C.), at p. 124; see also G. E. Burrows, “Pension Considerations on Marriage Breakdown Retirement Age” (1995-96), 13 C.F.L.Q. 25, at p. 43; J. G. McLeod, Annotation to Alger v Alger (1989), 21 R.F.L. (3d) 211. Although the Ontario Court of Appeal has rejected this presumption in favour of a decision based on all the evidence, the availability of early retirement without penalty continues to be an important factor, and a trial judge’s finding of fact on the matter will not be disturbed lightly. See Huisman v Huisman (1996), 21 R.F.L. (4th) 341 (Ont. C.A.), at p. 348; Kennedy, supra, at p. 460.

  97. Determining when early retirement becomes available, if at all, has produced several different approaches in Ontario. The trial judge in this case assumed that the employee spouse terminated employment on the date of separation. That meant that the employee’s years of service were frozen at that point, and the right to early retirement under the “rule of 90” could only be reached by virtue of the increase in the employee’s age. Thus Rutherford J. concluded that, if the appellant here had truly stopped working on the date of separation, February 1988, he could only have collected an unreduced pension on September 9, 1992, at age 57.4.

  98. Other decisions use a slightly different assumption, namely that the employee continued to work after the date of separation, such that eligibility for early retirement came more quickly as the employee aged and accumulated more years of service. See Stevens v Stevens (1992), 41 R.F.L. (3d) 212 (Ont. U.F.C.), at pp. 214-15; Alger v Alger (1989), 21 R.F.L. (3d) 211 (Ont. H.C.), at p. 215; Deroo v Deroo (1990), 28 R.F.L. (3d) 86 (Ont. H.C.), at pp. 92-93; Hilderley v Hilderley (1989), 21 R.F.L. (3d) 383 (Ont. H.C.), at pp. 388-89; Miller, supra, at pp. 121-22. Some sources refer to this method as a “hybrid termination/retirement method”. See J. G. McLeod, Annotation to Weaver v Weaver (1991), 32 R.F.L. (3d) 448; see also Patterson, Pension Division and Valuation, supra, at p. 309; Radcliff v Radcliff, [1994] O.J. No. 2874 (QL) (Gen. Div.), at para. 23. Under this method, the appellant would have been eligible to take early retirement on June 7, 1990, at age 55.14.

  99. Finally, a minority of decisions have chosen a retirement date based on actual evidence of when the employee spouse intended to retire, but concluded that, because the employee spouse must be taken to have terminated employment on the date of separation, the employee spouse would retire prior to satisfying the early retirement provision and therefore take a reduced pension. See Salib v Cross (1993), 15 O.R. (3d) 521 (Gen. Div.), at pp. 532-34; Rickett v Rickett (1990), 72 O.R. (2d) 321 (H.C.), at p. 333. This has been referred to as a “strict termination” method. See McLeod, Annotation to Weaver v Weaver, supra, at p. 448.

  100. Although it is important to distinguish these different approaches, I need not determine whether one of these approaches is preferable in this case. The parties do not challenge the decision to consider the increase in age alone, nor do they challenge the conclusion that, using that method, the appellant’s earliest date for retirement with an unreduced pension was September 9, 1992. 

  101. The availability of early retirement, however, was only one piece of evidence that the trial judge considered in choosing the appellant’s likely retirement date. The respondent had testified that the appellant was bored with his job and planned to retire as soon as he satisfied the rule of 90. At the time of separation, the terms of the pension plan provided a maximum pension benefit of 70 percent of the average of the best five annual salaries. The appellant was likely to reach that point in 1990. It was only in 1992, after the separation, that the pension plan was changed to allow accumulation of pension credits above 70 percent. On the other hand, the appellant had testified that he had never considered retirement except in a general sense, and that, in light of the new financial obligations that arose because of the breakup of the marriage, he could not afford to contemplate retirement. Based on this evidence, Rutherford J. chose a retirement date of September 9, 1992.

  102. The appellant did not argue that this conclusion was unreasonable in light of the evidence available prior to separation. Instead, the appellant submitted that the trial judge should have considered evidence available after separation but before trial, in particular the fact that the appellant had continued to work past September 1992. According to the appellant, it was unfair to take the facts as frozen as of the date of separation. The appellant further invited this Court to consider the fact that he actually retired at age 61, while the case was before the Ontario Court of Appeal.

  103. I believe the logic of a termination method demands exclusion of “hindsight” evidence. The termination method seeks to determine the value of a pension on the date of separation, assuming the pension holder terminated employment on that date. As I noted above, the termination method does not incorporate increases in the pension’s value owing to events occurring after separation, such as post-separation years of service, plan improvements, and non-inflationary salary increases. This method has favoured the appellant in that it has excluded these important post-separation increases from his net family property. It would be unfair to the respondent to use hindsight in choosing a later retirement date but not in determining the number of years of service or the five best salaries. Just as the termination method prevents the respondent from benefiting from increases in the appellant’s pension after separation, it protects her from reductions in its value owing to a later actual retirement date than was in contemplation at separation.

  104. I therefore agree with the Ontario Court of Appeal that, under a termination method, post-separation evidence should not be used in determining a likely retirement date unless the evidence reflects facts that were within the employee spouse’s contemplation at the time of separation. The result urged by the appellant would enable spouses with pensions to reduce the amount of their equalization payments and profit from the length of divorce proceedings by delaying their retirement until after the close of all proceedings. Although there is no evidence of strategic behaviour in this case, I do not support a rule that could encourage it.

  105. I reach this conclusion because it is the most equitable in this case, notably in light of the parties’ choice of a termination method. In a case involving, for example, a “projected retirement” method, it might be preferable to use all evidence available in order to reduce the speculative quality of the projections as to post-retirement improvements. In such a situation it might be fair to use hindsight evidence in choosing the retirement age as well.   

    B. Settlement of the Equalization Obligation

  106. Having cleared the valuation hurdle, I am faced with a separate problem arising in the division of pensions:  how the appellant is to settle his equalization obligation.

  107. Once the pension and all other assets have been tallied to produce the appellant’s “net family property”, the appellant is required to pay the respondent an amount equal to one-half of the difference between his and her net family properties. Section 9 of the Family Law Act allows a court to choose among several methods for payment of the equalization amount, including an order of immediate payment, the granting of a security interest, an instalment scheme, postponement of payment, creation of a trust, and the transferral, partition or sale of property.

  108. The appellant submitted that, because much of his equalization burden is owing to his pension, he should be allowed to satisfy his obligation under an “if and when” payment scheme, meaning that he would pay the respondent a share of the pension benefits “if and when” he received them. Ontario courts have enacted such arrangements by ordering the employee spouse to hold a fraction of the pension in trust for the non-employee spouse, pursuant to s. 9(1)(d)(i) of the Family Law Act. See Hilderley, supra, at p. 395, and Marsham, supra, at p. 624. Ontario’s pension legislation also allows a court to order the pension plan administrator to pay over a portion of the pension benefit directly to the non-employee spouse. See Pension Benefits Act, R.S.O. 1990, c. P.8, s. 51.

  109. The trial judge rejected the appellant’s request but allowed him to settle his equalization obligation in instalments in the 10 years following the judgment. I believe this decision deserves deference. The choice of a method for settlement of the equalization obligation is highly contextual and fact-based. A payment method that is preferable in one case might be grossly unjust in another. 

    Wilson J. noted this in Clarke, supra, at pp. 835-36:

    Courts, generally speaking, employ two methods of dividing pensions. The first is to award lump sum compensation to the non-recipient spouse either by way of a money payment or a transfer of assets. The second is to preserve the jurisdiction of the court until the pension matures either by ordering periodic payments to be made to the non-recipient spouse or impressing the pension with a trust. When selecting the appropriate method of distribution it is important to bear in mind that the primary goal of the legislation is to effect the adjustment of property in an equitable manner. Of equal importance in some cases is the desire to sever the financial ties between the parties. These two goals may occasionally come into conflict .... The preferable result in any given case will obviously depend upon a number of factors and it is my view that appellate courts should not lightly interfere with the discretion of the trial judge in this regard.

    The appellant’s argument that the Court should declare the “if and when” payment scheme to be the default rule for equalization payments where a pension is involved must therefore be considered in light of the trial judge’s superior position in crafting a method of settlement.

  110. An “if and when” payment scheme has clear advantages when a major part of the difference in net family properties is owing to the capitalized value of a pension. The spouse who bears the equalization burden cannot use the pension asset to satisfy it; one cannot sell an interest in one’s pension or borrow money against it. If ordered to make an immediate payment, the spouse must sell or transfer other property. If the employee spouse’s equalization burden is high owing to a valuable pension, an order for immediate payment of a lump sum could conceivably expose the employee spouse to severe hardship. An “if and when” scheme alleviates this danger by drawing the equalization payment from the pension asset itself. See OLRC Report, supra, at p. 46.

  111. On the other hand, certain factors militate against the use of an “if and when” payment scheme. First and foremost, an “if and when” scheme also requires a continued financial association between the ex-spouses that obviates a “clean break” after the divorce. I note, however, that s. 9(1)(c) allows a court to delay an equalization payment for up to 10 years, suggesting that the Ontario legislature did not object to continued ties after divorce as long as they were only for a “limited” time. Thus an “if and when” scheme might be the appropriate option where retirement was clearly imminent. The Ontario Court of Appeal reached a similar conclusion in the homonymous but unrelated case of Best v Best (1992), 41 R.F.L. (3d) 383 (Ont. C.A.), at p. 388.

  112. However, a second complicating factor in the application of an “if and when” payment scheme  is the determination of the appropriate “share” of each pension benefit to be paid over to the non-employee spouse. One might presume simply to multiply the pension benefit by the same pro rata fraction used in the valuation exercise:  one-half of the years of service during marriage divided by the years of service to separation. But the appellant also suggests a second option using a different fraction: one-half of the years of service during marriage divided by the years of service to retirement, which is naturally a smaller fraction. Ontario courts appear to have recognized both options but employed the second one more frequently. See Bourdeau, supra, at para. 22; Rauf, supra, at para. 7; Hilderley, supra, at p. 395; Marsham, supra, at p. 624. In this case, the appellant offered us both possibilities without arguing which was legally preferable. I make no comment on the issue but simply point out that it complicates application of an “if and when” settlement.

  113. A third and more serious difficulty with the scheme proposed by the appellant concerns the actual amount that is eventually paid. The parties have spent great energy litigating the proper method of valuation for a defined benefit pension in order that the appellant’s “net family property” and equalization payment can be correctly determined as of the date of separation. But under an “if and when” scheme, it does not appear that payments end after the equalization amount has been paid, or that the non-employee spouse’s interest is protected in the event that the pension is less valuable than expected. Instead, there is a risk that a pension holder who lives long, or whose pension benefit proves more valuable than expected, might end up overpaying the non-employee spouse. Similarly, if the employee spouse dies before the full equalization amount has been paid, underpayment will result. These risks prompted the following comments by the OLRC at p. 37:

    The practice of using “if and when” arrangements to satisfy equalization payments has been less than satisfactory. The realization of the pension benefit occurs over the post-retirement life of the member, and the amount of the benefit paid depends on the life span of the member. As a result, an interest in the pension benefit to which a non-member spouse is entitled may never be realized if the member spouse dies prior to or soon after retirement. On the other hand, where the life span of the member spouse exceeds expectations, or the value of the pension benefit increases after separation, an overpayment to the non-member spouse may result.

  114. As an example, assume that the equalization amount on the separation date was $100,000 and that the court ordered that the appellant satisfy it by paying one-half of the pension benefit “if and when” it was received, but that the debt would grow at an interest rate of 5 percent to reflect the respondent’s immediate entitlement to the money. If the appellant retired seven years after the separation date, his equalization debt would have grown to $140,710. Assume he began receiving $30,000 per year in pension benefits and paid over $15,000 to the respondent each year. Under this scheme, the appellant would have discharged the debt and interest thereon after approximately 11 years. However, the “if and when” scheme proposed here would require the appellant to continue to make payments after that point. See J.G. McLeod, Case Comment on Monger v Monger (1994), 8 R.F.L. (4th) 182, at pp. 188-89. In addition, if the appellant had died before that point, the respondent would have no claim against the appellant’s estate for the outstanding portion of the debt.

  115. These conclusions suggest that, if the Court were to employ the “if and when” payment scheme advocated by the appellant, there would have been no point in calculating the pension’s capitalized value in the first place. The total amount paid under an “if and when” payment scheme seems to have no relation at all to the equalization payment calculated using the pension’s capitalized value. It appears to me that the appellant’s method not only defers the payment of the equalization amount, but also makes it impossible to calculate the total equalization amount that will be paid. Instead of being the vehicle for the payment of a fixed amount of money, the “if and when” method splits an indefinite stream of income. 

  116. I agree with the appellant that this is a reasonable and perhaps superior method of dividing pensions and that it deserves consideration when long overdue and much-needed legislative attention is turned to this area. However, it would seem to be inconsistent with the appellant’s principal position in this case, namely that the equalization amount should be calculated by valuing the pension using the termination pro rata method. An “if and when” arrangement as advocated by the appellant makes the equalization amount contingent upon the actual amount of pension benefits that the employee spouse receives, essentially applying a “deferred” retirement method of valuation. The OLRC Report supports this conclusion when it notes that “if and when” arrangements “effectively take a retirement approach to pension division.”  See OLRC Report, supra, at p. 105. I find it somewhat inconsistent that the appellant espouses one valuation method for purposes of calculating his equalization obligation, but then requests that his actual payment be structured in a way suggesting that the pension’s value is totally different.

  117. Finally, the “if and when” method advanced by the appellant, in so far as it would employ a “deferred” retirement method of valuation raises the same potential conflict with the wording of the Family Law Act that was discussed at para. 93. While it might be possible to craft an “if and when” payment scheme that would clearly fit within the confines of the Ontario statute, it is unnecessary to decide this issue, because the instalment scheme ordered by the trial judge serves the principal purpose of saving the appellant from the hardship of making a large lump-sum payment before he begins to receive the pension. Furthermore, the recalculation of the equalization obligation using the termination pro rata method will reduce the appellant’s payment burden. In light of the difficulties that seem to attend the crafting and administration of a fair “if and when” order in Ontario, I do not believe that Rutherford J. exceeded his discretion in choosing an instalment scheme for settlement of the appellant’s equalization payment.

    C. Spousal Support

  118. The appellant also asked us to alter the trial judge’s order requiring him to pay the respondent $2500 in monthly spousal support. The appellant submitted that the trial judge included the future pension benefits as “income” in determining the appellant’s ability to pay support. The appellant argued that this was error because much of the pension had been already subject to equalization as an “asset,” and that considering it as “income” for purposes of support would result in the respondent’s “double dipping” into the appellant’s pension.

  119. Cases and commentators appear to be divided on the issue whether a pension, once equalized as property, can also be treated as income from which the pension-holding spouse may make support payments. Several authorities appear to be on the side of at least taking a pension’s equalization into account when fixing the amount of support, if not excluding the equalized portion from consideration altogether. See, e.g., T. J. Walker, “Double Dipping – Can a Pension Be Both Property and Income?” (1994), 10 C.F.L.Q. 315, at p. 323; Shadbolt v Shadbolt (1997), 32 R.F.L. (4th) 253 (Ont. Ct. (Gen. Div.)), at p. 266; Butt v Butt (1989), 22 R.F.L. (3d) 415 (Ont. H.C.), at p. 420; Veres v Veres (1987), 9 R.F.L. (3d) 447 (Ont. H.C.), at p. 455. Other cases have expressed no concern with treating a pension as both property to be equalized and income from which to demand support. These cases generally state that the pension-holding spouse may always petition the court to vary the support order if support payments become too onerous after retirement. See, e.g., Nantais v Nantais (1995), 26 O.R. (3d) 453 (Gen. Div.), at pp. 458-59; Rivers v Rivers (1993), 47 R.F.L. (3d) 90 (Ont. Ct. (Gen. Div.)), at pp. 94-95; Flett v Flett (1992), 43 R.F.L. (3d) 24 (Ont. U.F.C.), at p. 34.

  120. Although double-dipping is a serious problem when spousal support orders are based in part on an equalized pension, I do not believe these concerns arise here. Rutherford J.’s reasons in granting spousal support do not suggest that he considered  the pension as a source of income for the appellant. He discussed only the appellant’s professional employment at the time, contrasting it with the respondent’s lower chances of finding work. It appears that Rutherford J. concluded that the appellant had sufficient assets, even excluding the portion of the pension attributable to the marriage, to continue paying support as long as he continued to draw a salary. The appellant does not argue that this conclusion was unreasonable.

  121. It is important to note that the trial judge was correct in taking into account the appellant’s continued employment when fixing the quantum of spousal support. As a general rule, the trial judge is entitled to consider any evidence available up to the time of trial. The parties’ choice of a termination method of pension valuation in this case constituted a narrow exception to this rule - events occurring after separation and before trial became irrelevant to the valuation of the pension, except as they showed facts in the parties’ contemplation on the separation date. Thus there was no error in valuing the pension as though the appellant terminated employment in 1988, even though in determining spousal support the trial judge recognized that the appellant was still employed in 1993.

  122. Given that the order made the amount of spousal support contingent on the appellant’s salary as a school principal, it would appear that in view of his retirement the order might now be varied on the basis of a change in circumstances, if, in fact, circumstances have changed. The vehicle for these determinations is an application to vary support obligations.

    D. Costs

  123. Rutherford J.’s separate endorsement regarding costs awarded the respondent $45,000, largely because the respondent was successful in pleading that the value-added method was the preferable pension valuation method under the Family Law Act. That position has not prevailed on the appeal before this Court. However, in light of the fact that the dispute was legitimate and complex, I do not believe either party should recover costs from the other. The parties will therefore bear their own costs in all courts.

    VI. CONCLUSION AND DISPOSITION

  124. As noted at the beginning of these lengthy reasons, the Ontario legislature’s silence on the issue of pension valuation has forced the unenviable task of choosing a pension valuation method into the hands of the parties themselves. A pension is often the most substantial asset owned by a married couple, and - as here, unfortunately - the significant disparity in valuations under different methods make agreement impossible. It is therefore necessary for courts to choose a valuation technique appropriate to each case as it comes before them. In accordance with the aims of the Family Law Act, I have chosen the pro rata method as the most equitable for valuing defined benefit pensions.

  125. It is the parties who suffer from the lack of legislative guidance. The known costs of this litigation are disproportionate to the amount in dispute. Duelling actuaries are an unfortunate consequence and a serious expense in divorce cases involving defined benefit pensions. This regrettable situation will continue until legislation is enacted to provide guidance on the valuation of defined benefit pensions in equalization calculations. The necessity of such assistance has been raised in the past by family law practitioners, the actuarial profession, the courts, and the academy, in the hope of resolving this complicated and expensive issue.

  126. The case is remanded to the trial court for the limited purpose of recalculating the equalization payment in accordance with the termination pro rata method, using an assumed retirement date of September 9, 1992. The other aspects of the equalization calculation that have not been appealed shall be applied in the same way they were applied in the trial court. In order to reduce the further costs of litigation, it would serve the parties’ interest to reach an agreement on the amount of the equalization obligation. If agreement is impossible, the trial court may appoint a special master to value the pension in accordance with these reasons. The parties shall bear their own costs in all courts.

  127. The appeal is allowed on the issues of the valuation method and costs. In all other respects, the appeal is dismissed.

  128. The issues posed in this case are answered as follows:

    1. Did the Court of Appeal and the trial judge err in concluding that the Family Law Act requires the use of the value-added method to value a defined benefit pension for purposes of the equalization calculation?

      Yes.

    2. Did the Court of Appeal err in upholding the trial judge’s finding that the appellant was likely to retire on September 9, 1992?

      No.

    3. Should the Court of Appeal have allowed the appellant to settle his equalization obligation on an “if and when” basis?

      No.

    4. Should the Court of Appeal have ordered that the appellant’s spousal support obligation terminated at his retirement?

      No.

    5. Did the Court of Appeal err in upholding the trial judge’s decision regarding costs?

      Yes.

    L'Heureux-Dubé J

    (dissenting in part)

  129. The main issue in this appeal relates to the division, at the date of separation of the parties, of one of the family assets, the appellant’s pension. This involves the interpretation of valuing pensions according to s. 4 of the Family Law Act, R.S.O. 1990, c. F.3 (hereinafter the “Act”).

  130. The narrow point of dispute between the parties essentially concerns the use of two methods of calculating such a pension, i.e., the value-added or the pro rata method. I agree with my colleague (at para. 48) that while both methods of valuation may be accepted in the actuarial profession, the choice of which method ought to be used for family law purposes remains a legal matter, and therefore, a matter of compliance with the applicable legislation.

  131. I also subscribe entirely to conclusions 2, 3 and 4 that my colleague reaches on subsidiary and connex issues. I disagree with conclusions 1 and 5 which I would answer in the negative.  Conclusion 1 relates to the appropriate method of calculating the pension asset at the time of separation. My colleague finds that the pro rata method is the more appropriate method of calculation for defined benefit pensions. He reaches this result for essentially the following reasons:

    1. Section 4(1) of the Act  allows for both methods of calculation.

    2. The silence of the Act on a specific method of evaluation requires the courts to value the pension according to the method that values the pension most equitably.

    3. The nature of a defined benefit pension suggests that a different method than that which is commonly used for other assets should be used.

    4. Thus the pro rata method values the pension most equitably.

  132. I disagree with each of these arguments and, in so doing, I adopt the reasons of the trial judge, Rutherford J. (1993), 50 R.F.L. (3d) 120, and the unanimous Court of Appeal (1997), 35 O.R. (3d) 577 (Finlayson, Doherty, and Charron JJ.A.). Both courts adopted the value-added method as the proper one in the evaluation of pensions in accordance with the Act. Their conclusions rest essentially on the following propositions:

    1. The value-added method is entirely more consistent with the Act.

    2. The use of a different approach cannot be justified on the basis that it is an asset of a different nature in the face of the Act.

    3. The value-added approach produces a fairer value of the pension accruals during marriage.

     I will briefly comment on each of these propositions.

    I. SECTION 4 OF THE ACT: THE DIVISION OF PENSIONS

  133. My colleague has made a thorough analysis of each method of calculating the pension. Although I subscribe to most of his analysis, I do not wholly accept his characterization of the value-added method. I prefer the summary of the two methods that is succinctly set out in the reasons of Charron J.A. writing for the Ontario Court of Appeal at p. 587:

    Under the value added approach, the value of the pension is determined at the date of marriage and again at the date of separation. The value accrued during the marriage is then determined by deducting the first value from the second. The value which is used in the determination of the net family property is therefore that portion of the value which was "added" during the time of marriage; hence the expression "value added".

    Under the pro rata approach the accrued pension to the date of separation is also calculated. The value attributable to the years of marriage is then determined by pro-rating this pension value on the ratio of either: (a) the benefits accrued during the marriage to the total accrued benefits (pro rata on benefits), or (b) the years worked during the marriage to the total years  worked by the pension holder (pro rata on service).

  134. The Act stipulates in s. 4(1) that “net family property” is defined, for the purposes of s. 5, as the value to be calculated by deducting the value of all property on the date of marriage from the value of all property on the date of separation as follows:

    4.

    (1)

    In this Part,

    “net family property” means the value of all the property, except property described in subsection (2), that a spouse owns on the valuation date, after deducting,

    (a)

    the spouse’s debts and other liabilities, and

    (b)

    the value of property, other than a  matrimonial home, that the spouse owned on the date of marriage, after deducting the spouse’s debts and other liabilities, calculated as of the date of the marriage ....  

    [emphasis added]

    To my mind, the value-added method is the only one which captures the letter and the spirit of this language. In this sense, the Act is not silent as my colleague asserts. It clearly sets out the method of calculation, although it does not specifically mention the value-added method. I agree with the trial judge when he concludes, at p. 140, “I do not see the prorated method as consistent with the equalization of the value of property contemplated by s. 5 of the Family Law Act”. With respect, I cannot accept the premise put forward by my colleague that both methods satisfy the criteria set out in the Act. Moreover, even if I were to accept such a premise, I maintain that the courts must go further to determine the method which best accords with the Act, as noted by the Ontario Court of Appeal at p. 590:

    In light of the provisions of the Act, it is my view that the trial judge in this case was correct in his analysis and conclusion. The value-added approach is entirely more consistent with the formula set out in the Act for the calculation of net family property and with the methodology used with respect to other assets.

    [emphasis added]

  135. Where the value-added method involves making assumptions on two separate dates at two separate times (the date of marriage and the date of separation), the pro rata method makes such assumptions from just one date (the date of separation). As Justice Major points out at para. 4 in his discussion of the pro rata method, “[t]he value on the date of marriage is obtained by multiplying the value on the date of separation by a fraction equal to the number of years of pensionable service that occurred prior to the marriage over the total number of years of pensionable service prior to separation”. I find it problematic that the value at the date of marriage under the pro rata method cannot be determined without relying upon the value of the asset at the date of separation multiplied by a fraction representing service for years that fall completely outside of the marriage.  

  136. While the general purpose of the matrimonial property statutes is to effect the adjustment of property in an equitable manner (see Clarke v Clarke, [1990] 2 S.C.R. 795, at p. 836),  the specific purpose of the valuation of the pension under the Act is to determine the increase in the value of the assets during the marriage. The language of the Preamble recognizes marriage as a form of partnership and the equal position of the spouses as individuals within marriage as follows:

    Whereas it is desirable to encourage and strengthen the role of the family; and whereas for that purpose it is necessary to recognize the equal position of spouses as individuals within marriage and to recognize marriage as a form of partnership ....

    With this in mind,  I do not share the view of my colleague (at para. 66)  that “[t]he Court’s duty is to determine which valuation most fairly apportions the pension’s value to the pre-marital and marital periods”. I suggest that the legislature has already seen fit to develop a scheme for such an apportionment and that the duty of this Court in the present case is merely to use the valuation method which best determines the increase in the value of the pension for the marriage partners.

  137. The Act quite simply stipulates that the value of the asset is to be determined by subtracting one specific value from another. In addition, the statute  stipulates in s. 4(4) that each value must be determined as of the close of that particular business day:

    4.

    (4)

    When this section requires that a value be calculated as of a given date, it shall be calculated as of close of business on that date.  

    [emphasis added]

    Thus, the Act requires the value of all assets at the close of the business day on the date of  marriage be subtracted from the value of all assets at the close of the business day on the date of separation (Rawluk v Rawluk (1986), 55 O.R. (2d) 704 (H.C.)). In keeping with the Act, the actuarial Standards of Practice also require that the value at the date of marriage be calculated according to interest rates “as of a given date”. According to G. E. Burrows, writing in his capacity as President of Pension Valuators of Canada in “Value Added or Pro Rata?” in Money & Family Law, vol. 10, no. 6, June 1995, p. 48, at p. 50:

    The Standard of Practice for the Computation of the Capitalized Value of Pension Entitlements on Marriage Breakdown for Purposes of Lump-Sum Equalization Payments established by the Canadian Institute of Actuaries states (on pp. 7 and 8) that the economic assumptions used to develop a value at the date of marriage must be based on rates developed according to interest rates at that particular time. This can only be accomplished by using the “Value Added” method, as the value used in the “Pro-Rata” approach uses rates in effect at the date of separation, which are often quite different from the rates in effect at the date of marriage. Of course, the choice of a different rate at the date of marriage could produce a much different value.

    [emphasis added]

  138. In my estimation, a particular method of valuation will either conform with these straightforward requirements or it will not. I find that the mathematical gymnastics required by the pro rata method in order to enable the courts to arrive at a value at the date of marriage conform neither with the stated requirements of the Act nor with its wording. 

  139. My colleague argues, at para. 55, that s. 4(1) of the Act “does not provide that the value at marriage cannot be mathematically derived from the value at separation”. With the greatest of respect, this approach does nothing more than reverse the basic principles of interpretation. The primary consideration of courts must be to abide by the legislation enacted by the Parliament or the legislature. As Cory and Iacobucci JJ. stated recently for this Court in R. v Gladue, [1999] 1 S.C.R. 688, at para. 25:

    the proper construction of a statutory provision flows from reading the words of the provision in their grammatical and ordinary sense, and in their entire context, harmoniously with the scheme of the statute as a whole, the purpose of the statute, and the intention of Parliament.

    See also Rizzo & Rizzo Shoes Ltd. (Re), [1998] 1 S.C.R. 27, at  para. 21; P.-A. Côté, The Interpretation of Legislation in Canada (2nd ed. 1992), at p. 219; E. A. Driedger, Construction of Statutes (2nd ed. 1983), at p. 87; Driedger on the Construction of Statutes (3rd ed. 1994), by R. Sullivan, at p. 131. An earnest interrogation into the intentions of the legislature must prevail over any preoccupation with loopholes which may be found pursuant to what the legislature has failed to prohibit. This is particularly true in an enabling statute. I see no reason in this case for this Court to depart from the clear and unambiguous wording of the statute and the assumption that the legislature intended to say exactly what is written.

  140. The appellant places considerable weight upon the recommendations of the 1995 report of the Ontario Law Reform Commission entitled Report on Pensions as Family Property: Valuation and Division (hereinafter  OLRC Report). What the appellant fails to mention, however, is that in its analysis of the strengths and weaknesses of the valuation methods, the OLRC itself  (at p. 147) gave credence to the argument that the value-added approach produces “a fairer value of pension accruals during marriage because it reflects the fact that in most defined benefit plans (final average or best years), the pension that is earned in the later years is higher in value” (emphasis added).

  141. The appellant also highlights the need for simplicity by relying on the following OLRC recommendation (at p. 148):

    On reflection, the Commission has determined that it should give preference to the pro rata on service method. In making this selection, the Commission seeks to provide a solution that, while fair to the parties, provides the least complex solution to the adjustment issue. In the Commission’s view, the pro rata on service method meets this criterion.

    While I do not agree with the proposition that the pro rata method is less complex, I am also mindful that simplicity is not the purpose of the Act. More importantly, this recommendation was clearly not the one retained by the legislature.

  142. However helpful the insights of the Commission may have been, the legislature is not bound in any way to implement its recommendations and its authority is nothing more than persuasive for the courts. It is clear that the legislature,  in the face of two separate recommendations to do so, has not judged fit to amend the Act. (See both the 1993 report of the Ontario Law Reform Commission entitled Report on Family Property Law, at p. 145, and the 1995 OLRC Report, at p. 148.)  I share the view of Charron J.A., at p. 590, where she writes:

    I certainly agree with the Commission’s view that clarification of the law is critically important, not only on this issue but with respect to many other aspects of pension valuation and division. While much may be said in favour of a legislative response as recommended by the Commission, the court cannot provide for such a remedy. It is bound by the existing statutory provisions.

    [emphasis added]

  143. In contrast with the opinion expressed by my colleague, at para. 56, I hold the view that the entire OLRC Report was specifically anchored in the need for a legislative amendment. The Commission recognized that an amendment to the Act was required (at p. 87):

    The mandatory provisions for valuing pensions should be set out in the regulations to the Family Law Act. This will require an amendment to the Family Law Act, providing that the value of pension property is to be determined in accordance with prescribed regulations.

    The Commission therefore recommends that the Family Law Act should be amended to provide the valuation of defined benefit plans for the purposes of determining an equalization entitlement under section 5 of the Act be made in accordance with “Pension Valuation Regulations” promulgated under that Act.

    [emphasis added]

    In my view, without amendments that provide for specific valuation according to the individual characteristics of each asset to be valued, the pro rata method falls outside the present scheme. My colleague takes the position that the Commission did not maintain that the pro rata method is foreclosed by the Act. In my estimation, the Commission did not address this issue directly because its recommendations (at pp. 86 and 87) were premised upon the view that the process of valuing pension property under the Act required reform. This premise was predicated on the divided case law and the demand for certainty (at pp. 85 et seq.). This need for certainty was also recognized by this Court in Clarke, supra.

  144. At no time did the Commission recommend that the pro rata method be used without the benefit of a comprehensive regulatory scheme that addressed individual pension formulae. An example of the breadth and specific nature of such an undertaking can be found in Part 6 of British Columbia’s Family Relations Act, R.S.B.C. 1996, c. 128. This is not a task for the courts. In the interim, I  believe that it is the role of this Court to interpret the principles of order and equity in a manner that is specifically tethered to the clear text of the Act.  

    II. THE FAMILY LAW ACT: NATURE OF THE ASSET

  145. The legislature has chosen to define many different types of assets as “property” for the purposes of calculation while disregarding the distinctive features of assets such as investments, ownership in land, shares, or pensions. “Property” is now defined in s. 4(1) of the Act as follows:

    4.

    (1)

    In this Part,

    ....

    “property” means any interest, present or future, vested or contingent, in real or personal property and includes,

    ....

    (c)

    in the case of a spouse’s rights under a pension plan that have vested, the spouse’s interest in the plan including contributions made by other persons ....

    This provision was drafted in accordance with the recommendation of the OLRC as contained in the Report on Family Law, Part IV,  Family Property Law (1974), at p. 101.

  146. In light of the fact that all assets listed in s. 4(1) are included as property under the Act, I see no reason to treat pensions in a different manner from other assets by recognizing individual pension formulae where the Act draws no distinction. I further suggest that to do so would fly in the face of the purpose of the Act as expressed by Charron J.A., at p. 590:

    The use of a different approach in the case of the pension asset cannot be justified on the basis that it is an asset of a different nature in the face of a legislative provision which expressly includes pension assets in the scheme of equalization with all other assets while at the same time providing for only one method of calculation.

  147. While one can appreciate that the appellant’s particular pension earnings are based on a factor composed of years of service and his best five years of salary, these features are not sufficient to remove the valuation of his pension from the method to which the legislature has subjected all other assets. Instead, such factors are important to the purpose of the Act, in so far as they attach to the period of time that coincides with the duration of the marriage, thereby affecting pension entitlement.

  148. My colleague in his reasons places great emphasis on the differentiation between a defined benefit pension and a defined contribution pension. While factually correct, such a distinction is not recognized by the scheme of the Act. Whether an increase in the value is attributable to an individual employee account or, instead, to the increased value of  a pool of pension assets amassed from individual contributions, is irrelevant under the scheme of the Act. Nor is it important to distinguish whether employees under a defined benefit plan profit directly from market increases or merely as members of the contribution pool. The Act is merely concerned with the value assigned to the individual, as a member of the fund, on the two relevant dates. 

  149. I also disagree with both the propositions of my colleague, that the value of an employee’s pension benefit is unrelated to the amount of contributions or investment return and that the trial judge was confused in this regard (see Major J. at paras. 33 and 68). Instead, I find that the very development of this type of pension formula by the pension provider is wholly dependent upon the contributions (that will increase over years of service as the salaries of each member increase) and on the subsequent investment return for the fund. After 12 days of hearing, including the evidence of several experts, Rutherford J. drew the right conclusion from the evidence and he was correct in his assessing the amount of the contributions made by the appellant throughout his years of service and how these increasing contributions were pooled to render the financial returns necessary to permit each member of the plan to recover a pension benefit.

  150. My colleague’s example (at para. 70) relates to a particular situation where the employee spouse terminates his or her employment on the date of marriage. He concludes, at para. 71, that it is inequitable for the employee spouse to equalize a growth in assets that did not take place, based upon the premise that the “annualized benefit to be paid .... [is the] only meaningful value”. My response is two-fold. 

    • First, I prefer the approach of Rutherford J. (at p. 141) that the purpose of the Act directs the courts to go beyond a simple analysis of the annualized benefit to be paid and to use a method which values the pension according to both “real human and fiscal factors”. I will expand upon my views on value during marriage in greater detail at paras. 159 et seq

    • Second, if using the value-added method were to lead to hardship or an unconscionable result in a given case there is a remedial provision available under s. 5(6) of the Act which reads:

    5.

    (6)

    The court may award a spouse an amount that is more or less than half the difference between the net family properties if  the court is of the opinion that equalizing the net family properties would be unconscionable, having regard to,

    ....

    (h)

    any other circumstance relating to the acquisition, disposition, preservation, maintenance, or improvement of property.

  151. I agree with Charron J.A. that ss. 4 and 5 cannot be read in isolation. In my colleague’s example, there are no further years of service during the marriage, nor are there additional contributions made by the employee spouse. While this may prove to be an appropriate scenario for a trial judge to exercise his or her discretion under s. 5(6) of the Act, I am not persuaded that the pro rata method should, for that reason alone, prevail, in as much as it does not accord with the wording and spirit of the Act. In my view, the value-added method operates in the present case to relate the years of pensionable service, the five best years of salary, the accrual of the 90 factor, and the decision of the marriage partners to rely upon the equal shares of the pension in their investment planning,  to the years of the marriage. As long as the appellant continued to provide service and to contribute to the pension fund, the value of the pool increased along a growth curve during the marriage.

  152. Just as I find it unnecessary to account for distinguishing features of the asset itself, I cannot accept that courts should consider how a pension varies generally over time — that is to say including the pre-marriage period. These features of the pro rata method simply do not form part of the Act, particularly as the Act is premised on a distribution of assets at the time of separation.

    III. THE FAMILY LAW ACT: ORDERLY AND EQUITABLE

  153. The preamble of the Act directs the courts to interpret the legislation in a way which is both “orderly and equitable”. The legislature has chosen to treat pensions in the same manner as other forms of property and to apply one method of calculation across the board — a choice that is based on the presumption that to do so is the most orderly and equitable way to value a pension. The Court of Appeal, at p. 591, was steadfast in its support of such objectives of the legislature:

    In my view, the value-added approach is not inconsistent with the stated legislative objective that there be an “orderly and equitable settlement of affairs of the spouses” as contended by the appellant. First, the choice of a single consistent approach furthers the legislative objective to provide an “orderly” settlement of affairs. Second, equity is generally achieved by the very application of the equalization provisions of the Act. Finally, these provisions cannot be viewed in isolation. As noted earlier, the Act provides for some flexibility in individual cases where the equalization of net family property causes hardship or an unconscionable result.

    [Italics in original; underlining added]

  154. I share my colleague’s view that the analysis of fairness being both orderly and equitable should not be result-driven. In addition, I support the  contention of my colleague (at para. 66) that it would be “inequitable to deprive the respondent of her share of the good fortune that arose during the course of the marriage”.

  155. I find the fact that the result can end up dictating the valuation method, instead of the valuation dictating the result is itself contrary to principles of order and equity. Although the equity of the overall result is relevant to the final divorce decree, it should not play a significant role in the valuation method of a particular asset. What is needed at the valuation stage is a method that takes both parties’ interests equally into account. This method must accurately reflect the value of the pension during the period of the marriage. By contrast, the final result regarding the division of property will vary according to the overall circumstances of the case. We must assume that the legislature intended the scheme of the Act to lead to an orderly and equitable result. As the Ontario Court of Appeal so aptly stated (at p. 590), “[t]here is no reason to believe that this legislative choice was inadvertent”.

  156. As previously mentioned, the legislature has provided a remedy where the court is of the opinion that equalizing the “net family property” would be unconscionable at s. 5(6) of the Act. Resort to this remedial power is, to my mind, preferable to asking the courts to determine a valuation method according to what may seem to be more equitable in a given case. 

  157. On the issue of apportionment, Burrows, supra, at p. 52:  

    Reported court cases that support the “Pro Rata” method reject the “Value Added” method mainly because they don’t like the apportionment that results with the “Value Added” method. Rather than attacking the method of  valuation when they don’t like the values it produces, they should determine an unequal sharing of assets, if they are of the opinion that the particular case warrants that.

    The “Value Added” method is the fairest way of apportioning the value and gives the apportionment that is the closest to the actual increases in value. It is also the method prescribed by the Family Law Act and subscribed to by people who have investigated this thoroughly.

    [emphasis added]

  158. Thus, the valuation exercise should allocate an objective dollar figure to the pension,  independent of the particular facts of a divorce. Even in cases where this may prove to be more difficult, the Act mandates that a court consider the different elements contributing to the value of the pension and determine whether they are properly attributable to a specific point falling within the marriage period. In my estimation, the Court of Appeal was correct in its assessment, at p. 591, that “equity is generally achieved by the very application of the equalization provisions of the Act”.

    IVFAIRNESS AND VALUATION

  159. What has, in some cases, been perceived as unfair, is instead the just result of the greater value ascribed to the later years of a pension than to those of the earlier years. Such a result is both logical and equitable in that it reflects the fact that the pension increases in value significantly more in the final years than in the early years, that is to say that the marginal utility of an extra year of work after year 30 is much higher than it would have been after year 10. This increase in value represents much more than the mere passage of time or even the global increase in the value of the relevant pension fund.

  160. I find that there are three main reasons which support the greater pension increase in value over the marriage years in this case. First, the time value of money makes the value of the pension greater the closer one gets to the actual commencement of benefit payments. Or, to put it another way, the earlier years of service appear less valuable because the value of the actual payments must be discounted over a greater number of years. The value-added method ascribes this increase in the value of the pension relating to the time value of money to the period of the marriage, hence the name, “value-added method”. The pro rata method fails to recognize this reality. For instance, to use  my colleague’s example (at para. 70), had the appellant quit his job the day before marriage to the respondent, under the pro rata method there would be no increase in value attributed to the period of marriage. The appellant did not “contribute” any years of service during that period. However, the value-added method would ascribe a value to the specific period of marriage since the value at the date of marriage was much less than the value of the actual pension at the date of separation. This method reflects the increase in value during the marriage as the date of first payment approached.

  161. Second, the majority of pension schemes calculate the annual benefit amount payable to the employee by some function of the highest years of salary. In this case, the appellant’s best five years are the only years used to calculate the value of the pension. In such a case, the value-added method will recognize this reality and the significance of those five years falling within the period of the marriage. As well, this method is more likely to reflect a direct link between the period of the marriage and the retirement planning of the couple. This is especially relevant in the present circumstances where the marriage falls within the years close to the age of retirement.

  162. The third factor, in the present case, that makes years of service later in a career more significant is the rule of 90. The effect of this rule is that, after a certain point in one’s career, the date of first payment of the pension can be brought forward by working additional years. Therefore, certain years of service later in one’s career will have the effect of not only decreasing the amount of time before the pension begins paying out, thus reducing the discounting effect, but also increasing the total number of years of payment and, therefore, the benefit. While the effect of this factor may be difficult to quantify, it is nevertheless a factor which makes the years of service later in one’s career more valuable than service in earlier years. 

  163. I find the premise that all years which contribute to the pension must be of equal value to be, not only extraordinary, but totally unrealistic. Certainly, courts do not make such assumptions when determining value for other types of payments in the family law context. For example, in the award of support payments, a professional salary is not divided such that each year of employment must be valued equally or pro rata. Despite the reality that the pre-marriage years spent in internships or articling periods were absolutely necessary for the professional to earn a greater income, courts do not make support orders by considering the number of years of employment service prior to the marriage along with the years of professional employment service prior to separation. Instead, the scheme of the Act directs courts to limit its consideration to those factors that are relevant after the date of marriage. As Major J. correctly points out, at para. 54, 

    the statute ensures that increases in asset value during the marriage period are equalized between the spouses, regardless of whether the asset was owned by one of the spouses prior to the marriage.

    [emphasis added]

    This must be distinguished from the use of factors prior to the marriage date in the valuation of such an increase.

  164. I am also of the view that it would not be illogical for Parliament or the legislature, as a matter of policy,  to choose a method of valuation which, as seems to be the case here,  may be found to benefit the non-employee spouse when the couple is closer to retirement age. The later years of marriage often represent a time when a return to the employment market and the opportunity to participate in the investment market is more difficult and, in many cases, impossible. As Iacobucci J. recently found in the case of Law v Canada (Minister of Employment and Immigration), [1999] 1 S.C.R. 497, at para. 101:

    It seems to me that the increasing difficulty with which one can find and maintain employment as one grows older is a matter of which a court may appropriately take judicial notice.  Indeed, this Court has often recognized age as a factor in the context of labour force attachment and detachment. For example, writing for the majority in McKinney, supra, La Forest J. stated as follows, at p. 299:

    Barring specific skills, it is generally known that persons over 45 have more difficulty finding work than others. They do not have the flexibility of the young, a disadvantage often accentuated by the fact that the latter are frequently more recently trained in the more modern skills.

    Parliament and the legislatures have repeatedly demonstrated their intent to protect those who may prove to be more vulnerable in our society by reason of growing older. 

    As Iacobucci J. writes in Law, supra, at para. 103:

    Parliament’s intent in enacting a survivor’s pension scheme with benefits allocated according to age appears to have been to allocate funds to those persons whose ability to overcome need was weakest. The concern was to enhance personal dignity and freedom by ensuring a basic level of long-term financial security to persons whose personal situation makes them unable to achieve this goal, so important to life and dignity.  

    [emphasis added]

    In this spirit, Parliament has created, among others, such legislation as the Canada Pension Plan, R.S.C., 1985,  c. C-8, and the Old Age Security Act, R.S.C., 1985, c. O9.

  165. The above analysis is illustrative of the “real human and fiscal factors” that formed the basis of the trial judgement. I agree with Rutherford J. in the following extract, at pp. 140-41:

    In my view, each year in the life of Mr. Best’s pension is not equal. In early years plan members pay relatively smaller contributions based on smaller salaries than they do in later years. But more important to “value” is the year’s distance from or proximity to realization of the benefit. The value of the year’s contribution has everything to do with how long it is until the yield or return of benefit, because the closer it is to return, the more valuable, in dollar terms, it becomes. This dimension has its human side. From both spouses’ point of view, a year of benefit accrual when they are young is of different significance to when they are in their 50s or 60s and have much less time to prepare for their future security.

    [emphasis added]

    VCONCLUSION AND DISPOSITION

  166. For the foregoing reasons, I dissent from my colleague’s analysis in that I am of the view, shared by both the trial judge and the Court of Appeal, that the value-added method is the one which is more consistent with the wording and spirit of the Act. The value-added method is the appropriate method under the Family Law Act for calculating the asset of the parties, in this case the appellant’s pension. I would, accordingly, dismiss the appeal with costs throughout.


Cases

Kennedy v Kennedy (1996), 19 R.F.L. (4th) 454; Bascello v Bascello (1995), 26 O.R. (3d) 342; Christian v Christian (1991), 7 O.R. (3d) 441; Chinneck v Chinneck, [1995] O.J. No. 2786 (QL); Perrier v Perrier (1987), 12 R.F.L. (3d) 266; Rawluk v Rawluk, [1990] 1 S.C.R. 70; Valenti v Valenti (1996), 21 R.F.L. (4th) 246; Deane v Deane (1995), 14 R.F.L. (4th) 55; Miller v Miller (1987), 8 R.F.L. (3d) 113; Shafer v Shafer (1996), 25 R.F.L. (4th) 410; Beaudoin v Beaudoin, [1997] O.J. No. 5504 (QL); Patrick v Patrick (1997), 34 R.F.L. (4th) 228; Spinney v Spinney, [1996] O.J. No. 1869 (QL); Munro v Munro, [1995] O.J. No. 1769 (QL); Rusticus v Rusticus, [1995] O.J. No. 516 (QL); Ramsay v Ramsay (1994), 1 R.F.L. (4th) 447; Humble v Humble, 805 S.W.2d 558 (1991); Hierlihy v Hierlihy (1984), 48 Nfld. & P.E.I.R. 142; Knippshild v Knippshild (1995), 11 R.F.L. (4th) 36; Rutherford v Rutherford (1980), 14 R.F.L. (2d) 41; Gilmour v Gilmour, [1995] 3 W.W.R. 137; Bourdeau v Bourdeau, [1993] O.J. No. 1751 (QL); Rauf v Rauf (1992), 39 R.F.L. (3d) 63; Porter v Porter (1986), 1 R.F.L. (3d) 12; Moravcik v Moravcik (1983), 37 R.F.L. (2d) 102; George v George (1983), 35 R.F.L. (2d) 225; Marsham v Marsham (1987), 59 O.R. (2d) 609; Weaver v Weaver (1991), 32 R.F.L. (3d) 447; Leeson v Leeson (1990), 26 R.F.L. (3d) 52; Forster v Forster (1987), 11 R.F.L. (3d) 121; Huisman v Huisman (1996), 21 R.F.L. (4th) 341; Stevens v Stevens (1992), 41 R.F.L. (3d) 212; Alger v Alger (1989), 21 R.F.L. (3d) 211; Deroo v Deroo (1990), 28 R.F.L. (3d) 86; Hilderley v Hilderley (1989), 21 R.F.L. (3d) 383; Radcliff v Radcliff, [1994] O.J. No. 2874 (QL); Salib v Cross (1993), 15 O.R. (3d) 521; Rickett v Rickett (1990), 72 O.R. (2d) 321; Best v Best (1992), 41 R.F.L. (3d) 383; Shadbolt v Shadbolt (1997), 32 R.F.L. (4th) 253; Butt v Butt (1989), 22 R.F.L. (3d) 415; Veres v Veres (1987), 9 R.F.L. (3d) 447; Nantais v Nantais (1995), 26 O.R. (3d) 453; Rivers v Rivers (1993), 47 R.F.L. (3d) 90; Flett v Flett (1992), 43 R.F.L. (3d) 24; Clarke v Clarke, [1990] 2 S.C.R. 795; Rawluk v Rawluk (1986), 55 O.R. (2d) 704; R. v Gladue, [1999] 1 S.C.R. 688; Rizzo & Rizzo Shoes Ltd. (Re), [1998] 1 S.C.R. 27; Law v Canada (Minister of Employment and Immigration), [1999] 1 S.C.R. 497.

Legislations

B.C. Reg. 77/95, s. 6.

Canada Pension Plan, R.S.C., 1985, c. C-8.

Family Law Act, R.S.O. 1990, c. F.3, Preamble, ss. 4(1), (4), 5(1), (6), 9(1), (3).

Family Relations Act, R.S.B.C. 1996, c. 128, s. 74, Part 6.

General Regulation -- Pension Benefits Act, N.B. Reg. 91-195, s. 28(2).

Old Age Security Act, R.S.C., 1985, c. O‑9.

Pension Benefits Act, R.S.O. 1990, c. P.8, s. 51.

Pension Benefits Act, S.N.B. 1987, c. P-5.1, s. 44(8).

Regulation respecting supplemental pension plans, (1990) 122 G.O. II, 2318, ss. 36, 37, 40.

Authors and other references

Burrows, G. Edmond. “Pension Considerations on Marriage Breakdown Retirement Age” (1995-96), 13 C.F.L.Q. 25.

Burrows, G. Edmond. “Value Added or Pro Rata?” in Money & Family Law, vol. 10, no. 6, June 1995, p. 48.

Canadian Institute of Actuaries. Standard of Practice for the Computation of the Capitalized Value of Pension Entitlements on Marriage Breakdown for Purposes of Lump-Sum Equalization Payments. Ottawa:  Canadian Institute of Actuaries, 1993.

Canadian Institute of Actuaries. Task Force on the Division of Pension Benefits upon Marriage Breakdown. Draft Paper. The Division of Pension Benefits upon Marriage Breakdown. Ottawa:  Canadian Institute of Actuaries, 1998.

Corpus Juris Secundum, vol. 27C, § 558. St. Paul, Minn.:  West Publishing Co., 1986.

Côté, Pierre-André. The Interpretation of Legislation in Canada, 2nd ed. Cowansville, Que.: Yvon Blais, 1992.

Driedger, Elmer A. Construction of Statutes, 2nd ed. Toronto:  Butterworths, 1983.

Driedger on the Construction of Statutes, 3rd ed. By Ruth Sullivan. Toronto: Butterworths, 1994.

McLeod, James G. Annotation to Alger v Alger (1989), 21 R.F.L. (3d) 211.

McLeod, James G. Annotation to Weaver v Weaver (1991), 32 R.F.L. (3d) 448.

McLeod, James G. Case Comment on Monger v Monger (1994), 8 R.F.L. (4th) 182.

Ontario. Law Reform Commission. Report on Family Law, Part IV, Family Property Law. Toronto: Ministry of the Attorney General, 1974.

Ontario.  Law Reform Commission. Report on Family Property Law. Toronto:  Ontario Law Reform Commission, 1993.

Ontario. Law Reform Commission. Report on Pensions as Family Property:  Valuation and Division. Toronto:  Ontario Law Reform Commission, 1995.

Patterson, J. B. “Confusion Created in Pension Valuation for Family Breakdown Case Law by the Use of the Expressions ‘Termination Method’ and ‘Retirement Method’” (1998), 16 C.F.L.Q. 249.

Patterson, Jack. Pension Division and Valuation:  Family Lawyers’ Guide, 2nd ed. Aurora, Ont.:  Canada Law Book, 1995.

Walker, Thomas J. “Double Dipping -- Can a Pension Be Both Property and Income?” (1994), 10 C.F.L.Q. 315.

Representations

William J. Sammon and Jirina Bulger, for the appellant (instructed by Barnes, Sammon, Ottawa)

Frank C. Tierney, Shawn L. C. Peers and Ian R. Stauffer, for the respondent (instructed by Tierney, Stauffer, Ottawa)


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