Best v. Best

Best v. Best
Collection
Supreme Court Judgments
Date
1999-07-09
Report
[1999] 2 SCR 868
Case number
26345
Judges
Lamer, Antonio; L'Heureux-Dubé, Claire; Gonthier, Charles Doherty; Cory, Peter deCarteret; McLachlin, Beverley; Iacobucci, Frank; Major, John C.; Bastarache, Michel; Binnie, William Ian Corneil
On appeal from
Ontario
Subjects
Family law
Notes
SCC Case Information: 26345
Decision Content
Best v. Best, [1999] 2 S.C.R. 868
Theodore Clifford Best Appellant
v.
Marlene Shirley Best Respondent
Indexed as: Best v. Best
File No.: 26345.
1999: February 17; 1999: July 9.
Present: Lamer C.J. and L’Heureux‑Dubé, Gonthier, Cory, McLachlin, Iacobucci, Major, Bastarache and Binnie JJ.
on appeal from the court of appeal for ontario
Family law -- Equal division of net family property -- Defined benefit pension -- Actuarial methods of valuing pension resulting in widely differing values -- Whether termination pro rata or termination value-added method better accords with the Family Law Act -- Family Law Act, R.S.O. 1990, c. F.3, Preamble, ss. 4, 5, 9.
This appeal dealt with the treatment of pensions in the division of property on divorce, especially the appropriate technique for determining the value of the appellant’s pension. The parties separated after 12.08 years of marriage. The appellant had contributed to his pension plan for 20.52 years before marriage and the benefits were vested. He was still working at the time of trial. The pension plan was a defined benefit plan, meaning that the annual pension benefit paid upon retirement is calculated according to a fixed formula: 2 percent of the average of the retiree’s five highest annual salaries, multiplied by the total number of years of service prior to retirement. Also at issue were the determination of the appellant’s likely date of retirement for purposes of determining pension value during the marriage, whether part of the appellant’s equalization obligation could be settled “if and when” he received the pension, whether his spousal support obligation should have been terminated on retirement, and costs.
In valuing the pension, both sides agreed to use a “termination” method, meaning that the pension’s value at separation was calculated by assuming that the appellant stopped working on the date of separation. Different actuarial methods were put forward for valuation of the amount of the pension to be attributed to the marriage period. The termination value-added method, which was advanced by the respondent, determines the pension’s present value 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 termination pro rata method advanced by the appellant first calculates the present value of the pension benefit accrued on the date of separation. Second, the pension’s value on the date of marriage is determined by multiplying this pension value by the ratio of the number of years of pensionable service prior to the marriage divided by the total pensionable service up to separation. The amount attributable to the marriage is the difference between the value on the date of separation and the value on the date of marriage.
The dispute over valuation methods arose when the parties’ actuaries sought to determine the pension’s value as of the date of marriage. The value at marriage was higher under the pro rata method than it was under the value-added method. As a result, the amount attributable to marriage -- the difference between the value at separation and the value at marriage -- was accordingly smaller under the pro rata method. The trial judge and the Court of Appeal both found in the respondent’s favour and used the value-added method.
In valuing the pension, the trial judge had to make an assumption about the likely date on which the appellant would have retired, taken from the perspective of the date of separation. The trial judge disregarded the fact that the appellant was still working at the time of trial and decided that, from the perspective of the time of separation, the appellant would have retired when eligible for early retirement.
The trial judge ordered that the appellant could satisfy his equalization obligation in monthly instalments over 10 years. He rejected the appellant’s request that part of the equalization be paid “if and when” the pension was received. The trial judge also ordered monthly spousal support payments of $2500. The trial judge awarded the respondent a portion of her costs. The Court of Appeal upheld these conclusions and awarded costs on the appeal to the respondent.
Held (L’Heureux-Dubé J. dissenting in part): The appeal should be allowed on the issues of the valuation method and costs and dismissed in all other aspects.
Per Lamer C.J. and Gonthier, Cory, McLachlin, Iacobucci, Major, Bastarache and Binnie JJ.: Generally speaking, the pro rata method yields a valuation of a defined benefit pension that is fairer than the valuation produced by the value-added method.
The parties agreed it would be assumed that the appellant stopped working on the date of separation (the termination method). The pension’s value on the date of separation is determined by calculating the benefit earned under the pension’s benefit formula and then the amount that, if invested on the date of separation, would provide that income stream starting at the assumed retirement date. This calculation, also known as “discounting” the pension’s value back to the separation date, requires the use of certain assumptions, such as the date of retirement to determine the length of the discounting period, the employee’s longevity and a discounting rate to reflect the effects of inflation and investment return. The parties agreed in principle on the pension’s value on the date of separation.
Under the Family Law Act, the value of assets owned prior to the marriage must be excluded from the equalization of assets. The parties disagreed as to the proper method to value the pension as of the date of marriage. Under the pro rata method, the pension is described as increasing in value at a constant rate over time; under the value-added method, the pension is described as increasing slowly at first and more quickly later according to the effects of compounding. At any point in time, the pro rata method will assign a higher value to the pension than the value-added method. If, as here, the employee accumulated pensionable service prior to marriage, the pension’s value on the date of marriage will differ widely depending on which method is used. Both methods are recognized as acceptable from an actuarial point of view.
Unfortunately, the Family Law Act does not specify which method is to be used. The only guidance is s. 4(1) of the Family Law Act, which provides that the court must calculate each spouse’s “net family property”, which is defined as the value of all assets owned by each spouse on the date of separation less the value of all assets owned on the date of marriage. The Family Law Act does not prescribe how the value of any particular asset is to be determined. Consequently, a present-value calculation, as used by the value-added method, is not necessarily to be preferred over any other method. The words “calculated as of the date of the marriage” in s. 4(1) do not reflect a legislative choice of one actuarial method over another but rather address the more basic issue that a spouse cannot exclude an asset from his or her net family property simply because it was owned before the marriage. Further, s. 4(1) does not provide that the value at marriage cannot be mathematically derived from the value at separation.
The Family Law Act does not require that a defined benefit pension’s value at marriage be calculated in the same way as the value of other types of assets; it only requires that net family property be calculated by subtracting the value of all assets at marriage from the value of all assets at separation. If proper consideration for the nature of a defined benefit pension requires a valuation method different from methods used for other assets, the Family Law Act does not preclude it. Absent clear legislative direction, the pro rata method, which enjoys the imprimatur of the actuarial profession, should be considered. The general purpose of matrimonial property statutes is to divide marital assets as equitably as possible. The legislative silence as to any preference between value-added or pro rata method means that the defined benefit pension must be valued according to the method that values the pension most equitably.
The Court should choose the valuation method that most nearly describes how the defined benefit pension’s value varied over time, with proper regard for the nature of the asset itself. Unlike an interest in a defined contribution plan, the ultimate annualized benefit paid under a defined benefit plan is unrelated to the size of contributions or rate of return on investment. It is 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 in an investment asset. Treating a defined benefit pension as gaining value in that way constitutes a major weakness of the value-added method.
The respondent’s arguments favouring the value-added method are also problematic. A subjective feeling that the promise of a pension takes on greater importance as an employee approaches retirement does not translate into an objective increase in value that should be reflected in an equalization calculation. Further, the value-added method does not take into account the decreasing value of the dollar owing to inflation. The 1976 dollar at marriage is worth more than the inflated 1988 dollar at separation and yet is subtracted directly from the inflated dollar at separation, meaning that all inflation on the pension’s total value is treated as a “gain” in value during the marriage. In addition, the value-added method as it was applied in this case used different assumed retirement dates for valuing the pension at marriage and at separation.
The pro rata method better reflects the nature of a defined benefit pension by averaging the pension’s present value over each year of service. The true value of the defined benefit plan -- namely, the benefit itself -- increases 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 increases at the rates of inflation and return on risk-free investments. It also reflects the fact that, in a “best earnings” defined benefit pension, the effect of a salary increase is not limited to the particular year in which it occurs, but extends over the entire period of service. Further, the pro rata method involves less speculation than the value-added method: it 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.
Although the value-added method could be reformed to address these concerns, the pro rata method generally values defined benefit pensions more equitably under the Family Law Act. Note, however, that the possibility of using a retirement method (as opposed to a termination method) of valuation remains open, although it might be at odds with the present wording of the Family Law Act.
The many issues raised by pension valuation in equalization calculations are complex and deserve legislative attention. Until the legislature addresses this area in an amendment to the Family Law Act, the parties will have to reach agreement on a proper valuation method or, as in this case, refer the dispute to the courts.
The second issue in this case concerns the assumed retirement age that the court used in valuing the pension. Retirement age is crucial to valuation because it determines the length of the discounting period and the length of time that the pension is paid out. 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 presence of an early retirement provision will almost always be relevant to the choice of a likely retirement age. The trial judge’s conclusion was not unreasonable in light of the evidence prior to separation. It was not unfair to take the facts as frozen as of the date of separation, thereby disregarding evidence available after separation but before trial, such as the fact that the appellant continued to work past the assumed retirement date.
The trial judge’s decision to allow the appellant to settle his equalization obligation with instalment payments over 10 years was within his discretion and deserves deference because the choice of method for settlement is highly contextual and fact-based. An “if and when” payment scheme, under which the appellant would pay a share of the pension benefits if and when received, should not be declared to be the default rule for equalization payments involving pensions. Although an “if and when” scheme has clear advantages where the difference in net family properties is owing to the capitalized value of a pension -- in particular, it avoids exposing the pension-holder to the hardship of having to pay a lump sum immediately -- its disadvantages include a continued financial link between the ex‑spouses and a difficulty in determining the appropriate share to be paid over. Furthermore, the total amount paid is indeterminate and can result in over- or underpayment, depending on the pension-holder’s life span; in this respect, an “if and when” settlement method effectively renders valuation of the pension unnecessary. This is inconsistent with the appellant’s principal position in this case and may conflict with the Family Law Act because it effectively employs a “deferred” retirement method of valuation.
The trial judge did not include the future pension benefits as “income” in determining the appellant’s ability to pay spousal support. There was therefore no need to decide the issue of “double dipping”, i.e., whether a pension, once equalized as property, can also be treated as income from which the pension-holding spouse can make support payments. There was also 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. The agreement to use the termination method justified disregarding post-separation evidence for the narrow issue of pension valuation. Given that the amount of spousal support was linked to the appellant’s salary, that order might now be variable on the basis of a change in circumstances.
The parties were to bear their own costs in all courts.
Per L’Heureux-Dubé J. (dissenting in part): While the actuarial profession may accept both the value-added and pro rata valuation methods, 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. The reasons of both the trial judge and the Court of Appeal found the value-added method was more consistent with the Act, produced a fairer value and found no justification for using a different valuation method because the asset was different. These reasons were adopted.
The criteria set out in the Act are not satisfied by both methods, and even if they were, the courts must go further to determine the method which best accords with the Act. Only the value-added method captures the letter and spirit of s. 4(1) of the Family Law Act. While the general purpose of the Act is to effect the adjustment of property in an equitable manner, the specific purpose of the valuation of the pension is to determine the increase in value of the assets during marriage. The legislature developed a scheme for apportionment and the Court is merely to use the valuation method which best determines the increase in value of the pension for the marriage partners. As the primary consideration of courts must be to abide by the legislation, particularly an enabling statute, there was no reason for the 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. The Act quite simply stipulates that the value of the asset is to be determined by subtracting one specific value from another, with those values being determined as of the close of that particular business day. It directs that the courts must go beyond a simple analysis of the annualized benefit to be paid and use a method which values the pension according to both human and fiscal factors. If using the value-added method were to lead to hardship or an unconscionable result, a remedial provision is available under s. 5(6).
The analysis of fairness, being both orderly and equitable, should not be result-driven. 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. It would be inequitable to deprive the respondent of her share of the good fortune that arose during the marriage. Three main reasons 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. Second, the majority of pension schemes calculate the annual benefit amount payable to the employee by some function of the highest years of salary. The value-added method will recognize this reality and the significance of those highest years falling within the period of the marriage. Thirdly, the early retirement provision (rule of 90) makes years of service later in a career more significant. Certain years of service later in a 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 value of the benefit. The premise that all years which contribute to the pension must be of equal value is not only extraordinary but also totally unrealistic. Lastly, it would not be illogical for Parliament or the legislature, as a matter of policy, to choose a method of valuation which may be found to benefit the non-employee spouse when the couple is closer to retirement age. 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.
Costs would have been awarded to the respondent throughout.
Cases Cited
By Major J.
Referred to: 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 (1986), 55 O.R. (2d) 704; Rawluk v. Rawluk, [1990] 1 S.C.R. 70; Clarke v. Clarke, [1990] 2 S.C.R. 795; 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.
By L’Heureux-Dubé J. (dissenting in part)
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.
Statutes and Regulations Cited
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 Cited
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.
APPEAL from a judgment of the Ontario Court of Appeal (1997), 35 O.R. (3d) 577, 156 D.L.R. (4th) 717, 31 R.F.L. (4th) 1, 103 O.A.C. 344, 15 C.C.P.B. 170, [1997] O.J. No. 4007 (QL), dismissing an appeal by the appellant from a judgment of Rutherford J. (1993), 50 R.F.L. (3d) 120, 1 C.C.P.B. 8, [1993] O.J. No. 2444 (QL), and subsequent endorsement as to costs, [1994] O.J. No. 1241 (QL). Appeal allowed in part, L’Heureux-Dubé J. dissenting in part.
William J. Sammon and Jirina Bulger, for the appellant.
Frank C. Tierney, Shawn L. C. Peers and Ian R. Stauffer, for the respondent.
The judgment of Lamer C.J. and Gonthier, Cory, McLachlin, Iacobucci, Major, Bastarache and Binnie JJ. was delivered by
//Major J.//
1 Major J. -- 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