Dembeck v. Wright – Treatment of Severance Payments under Family Law

Under what circumstances, if any, does a spouse “own” on the date of marriage an entitlement to a severance payment that he or she later receives?

Background

The parties were married in 1998 and separated in 2007. Prior to separation, the husband was terminated from his employment and was paid 18 months’ salary in lieu of notice and eight weeks of severance pay under the Employment Standards Act. It is the treatment by the court of this latter payment that forms the basis of the appeal.

Specifically, the trial judge held that since the severance payment had fully accrued before the date of marriage, it was a property interest held by the husband as of that date for the purposes of calculating his Net Family Property.

The wife appealed the trial judge’s decision.

Analysis

To determine the treatment of the severance payment under family law, the Court of Appeal set out to answer three fundamental questions:

  1. What is property?
  2. What property is subject to deferred sharing?
  3. On which date is property to be valued?

In formulating its answers, the court canvassed case law and scholarly work on these issues, articulating a number of principles along the way. For example, the court stipulated that the meaning of property under the Family Law Act must be guided by general property principles.

On this point, the court took special pains to emphasize that while property evades easy characterization, it is useful to think of it as a right over something that is enforceable against others. This said, the court clarified that property under the Family Law Act should not be read as including every interest, particularly those bearing no relation to the marriage.

Having reasoned in this manner, the court examined jurisprudence specific to the treatment of severance payments, and held that courts in Ontario have consistently held that entitlement to severance pay is only property once it has crystallized.

Moreover, the court stated that in order for a severance package to be considered property at the date of separation or date of separation, there must be a right or entitlement to it at that date.

Having regard to the particular facts of the case, the court reasoned that until the husband was terminated, he had no right or entitlement to severance. As such, the trial judge erred in concluding that the husband’s accumulated severance under the Employment Standards Act as of the date of marriage was property owned by him at that time.

Finally, the court explained that to permit the retroactive reclassification of property would inject uncertainty into court proceedings and potentially increase the consumption of time, money and energy involved in the resolution of family law disputes.

On this basis, the appeal was allowed in part.

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