In a recent decision, Hunks v Hunks, 2017 ONCA 247, the Court of Appeal ruled that structured settlement payments received after separation to replace lost wages should be classified as “income” not “property” for the purpose of calculating equalization and support.
In Hunks v Hunks, the wife was injured in an accident during the marriage. A portion of the proceeds of her personal injury settlement were used to create a structured settlement/annuity for her, which provided her with monthly payments, increasing by 2% per year, for the duration of her life or a minimum guarantee period of 25 years, as well as four equal lump sum payments of $15,000.00 to be paid once every five years from 2009 to 2024.
An issue arose at trial as to whether the annuity payments should be treated as income or property. If the payments are income, they would be taken into account when determining spousal support. If the payments are property, the annuity would have to be valued and included in the wife’s Net Family Property, meaning it would be taken into consideration when calculating her entitlement to or obligation to pay an equalization payment. Since some personal injury proceeds are excluded from the Net Family Property calculation pursuant to section 4(2)(3) of the Family Law Act, the court would then have to determine whether that exclusion applies to these funds.
The trial judge classified the annuity as property, and held that it was not excluded under s. 4(2)(3) of the Act, and therefore had to be included in the wife’s Net Family Property calculation. The annuity payments would therefore not be treated as income for support purposes. The trial judge found the annuity to be a form of savings plan to replace Ms. Hunk’s loss of future earnings. The trial judge found that on a balance of probabilities, the annuity was purchased for future loss of income, based on the evidence she had before her including that the sum of money used to purchase the annuity ($302,306.00) was almost identical to the sum of money attributed to “future income loss” in the breakdown of the personal injury settlement ($302,100.00).
The Court of Appeal reversed the decision, finding that the annuity payments should instead be considered as income and not property for two reasons:
- The annuity was a “structured settlement”, which is when some or all of a personal injury settlement is deposited with a life insurance company in exchange for guaranteed payments, something that cannot just be purchased by an individual and is unique to people who have suffered an injury; and
- The annuity was found to be more analogous to disability benefits than a pension, since the purpose is to replace the income the wife would have earned had she been able to work. In contrast, a pension or retirement plan has been described as a future income stream of benefits from a trust.
This case helps clarify the situation when spouses separate and one spouse is in receipt of payments from a structured settlement. If it is clear the structured settlement was purchased to replace “lost wages” the party would have earned had he or she not been injured, according to Hunks the structured settlement payments should not be considered part of the spouse’s “property” on the date of separation, but part of his or her “income” instead. Although Hunks does not address this situation in particular, if a structured settlement is instead purchased using funds earmarked for “pain and suffering” and/or “future care needs”, the payments may be exclyded from property pursuant to section 4(2)(3) of the Family Law Act. If, as pointed out by Justice Gillese, a significant portion of the funds came from a spouse’s claim for damages, that case may be distinguishable from the Hunks and it may be more appropriate for a court to classify some or all of the annuity payments as “property” to be included in the equalization calculation between the parties.
If you are separating and in receipt of payments from a structured settlement, you should seek legal advice on your particular situation in order to determine how your structured settlement payments should be treated.
Nadine Russell is a lawyer practicing in all areas of family law including divorce, separation, custody and access, support issues and marriage contracts. If you have any questions about this article or any other family law matters, please contact Nadine at [email protected] or 519.660.7839.