Double Dipping in the Division of Assets
One of the issues that can frequently come up, particularly when couples separate later on in life and when they have higher net worth assets is the question of “double dipping”.
The question is, if the spouses divide their property such that one spouse is bought out and paid compensation for their interest in an asset, how does that impact on income and any spousal support entitlement in the future?
The Supreme Court of Canada considered this question as it relates to pensions in Boston v. Boston 2001 SCC 43. In brief, the facts of this case were as follows:
- It was a 36 year marriage;
- The wife was a homemaker and primarily responsible for raising 7 children, while the husband pursued his career outside of the home and supported the family.
- The parties agreed when they separated that the wife would receive an equalization payment for her interest in the husband’s pension and the husband would retain his pension for the future. The husband would then pay spousal support in an agreed upon amount over time indexed to inflation.
- The husband sought to vary this agreement once he started collecting his pension based on the material change in circumstances as the wife had prudently invested the equalization payment that she received, which generated income for her. He claimed that it was double dipping for the wife to have been compensated for her share of the pension and then additionally receive spousal support based in part on the income that he received from her portion of the pension that had already been equalized in the division of property.
Ultimately the court did agree with the husband that the wife could not be permitted to “double dip” in this respect, and the spousal support paid to the wife was reduced to be based only on the husband’s income from the portion of the pension that had not been equalized.
The Supreme Court of Canada did make it clear that there would be some exceptions to this approach in that income from a pension that had been equalized could still be considered in the spousal support analysis if;
- the payee had used their equalized assets prudently, in order to produce income; and
- despite this there was still some economic hardship for the payee that was directly related to the breakdown of the relationship and the payor had the ability to pay.
In the case M.C.D. v. D.A.D. 2017 BCSC 1832, one spouse was paid an equalization payment for their interest in the business. The spouse retaining the business argued that they should not pay spousal support based on the income generated from the business in the future, as the other spouse had already received compensation through the division of assets. The argument was that for the payee spouse to receive further benefit from the income generated by the business would constitute “double dipping”.
The Court rejected that argument in this instance on the basis that when a spouse retains marketable assets with an income yield as part of the equalization of family assets, they cannot eliminate such income from the determination of their capacity to pay as it relates to spousal support.
There is a clear distinction made between pensions which are considered to be liquidating assets and other types of assets, such as a functioning business, which are marketable assets and have an ongoing income yield.
One of the distinctions is that a successful business can produce income on an ongoing basis that can be spent without depleting the value of the business.
It is important when dealing with these types of assets and the very complex nature of spousal support, to consider how the division of property could impact on spousal support in the future.