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Retirement and a Consequent Income Reduction In Schulstad v. Schulstad, the Court of Appeal for Ontario rendered a decision on an appeal of an order terminating the husband’s obligations to continue to pay spousal support and maintain life insurance for the wife’s benefit past the husband’s retirement date. Prior to his retirement, Mr. Schulstad worked as a general surgeon earning an annual salary of over $250,000 USD.  In January 2014 he brought an application to terminate his spousal support and life insurance obligations effective June 1, 2016 on the basis that he was planning to retire in June 2016.  He also sought to reduce his obligations leading up to his retirement date. At the time of his application, Mr. Schulstad was paying Mrs. Schulstad $10,000 CAD per month in spousal support and maintaining life insurance policies at a monthly cost of about $300 USD.  Mr. Schulstad estimated that his post-retirement income would amount to approximately $35,000 to $40,000 USD from pensions and investments. The parties had been married for over 24 years when they separated in 1990.  The marriage was described as

… [A] long-term traditional marriage where [Mrs. Schulstad] made significant sacrifices for the [Mr. Schulstad]. During the marriage, she worked to support the family while he finished medical school. The family then relocated to Ottawa where the respondent completed his residency in general surgery. As Byers J. stated, “[t]ogether … they made him a doctor.” The respondent thereafter continued to further his career working as a surgeon while the appellant stayed home to care for their child.

A Material Change in Circumstances Mr. Schulstad’s application for the termination of his support obligations was heard ten months before he was set to retire.  Justice Lacelle of the Superior Court of Justice concluded that Mr. Schulstad’s imminent retirement and consequent reduction in income represented a material change in circumstances from the time the original spousal support order was made. The Court determined that the parties’ respective assets and income would be about equal after Mr. Schulstad’s retirement.  Justice Lacelle therefore terminated all spousal support and insurance obligations, effective on the anticipated date of retirement. Mrs. Schulstad’s Appeal Mrs. Schulstad appealed the decision of the Superior Court of Justice to the Ontario Court of Appeal on 3 grounds:

  1. The application judge erred in considering Mr. Schulstads application in that it was premature;
  2. The application judge erred in finding that Mr. Schulstad’s retirement and reduction in income were a material change in circumstances; and
  3. The application judge erred in finding that the parties would be in financially similar circumstances after Mr. Schulstad’s retirement.

The Court of Appeal dismissed Mrs. Schulstad’s first 2 grounds of appeal, but agreed with her on the third ground. Parties Were not in Financially Similar Circumstances Post-Retirement The Court of Appeal concluded that, contrary to the findings of the application judge, the factors that resulted in economic disadvantage to Mrs. Schulstad during the marriage and after its breakdown still existed and the lost advantage had not been recovered by her. The application judge unduly focussed on the parties’ respective net worth, and failed to appreciate the material disparity between the parties’ expected incomes.  She made errors that led her to believe that Mrs. Schulstad’s assets and government pensions would have permitted her to have a similar income to that of Mr. Schuldstad.  The application judge also failed to include potential income that Mr. Schulstad could generate from the notional investment of the equity from his house, and conversely did include the value of Mrs. Shulstad’s house when assessing her income potential. Given Mr. Schulstad’s materially larger assets and potential income, the Court of Appeal concluded that it was an error for the application judge not to assess whether the spousal support and insurance should have been reduced rather than terminated. Entitlement to Support Continued to Exist While the Court of Appeal remitted the issue of the appropriate reduction in support and life insurance back to another application judge of the Superior Court of Justice, the Court expressed its view that the evidence did establish that Mrs. Schulstad’s entitlement to support based on a compensatory basis and a needs basis continued to exist:

The disparity in the parties’ potential incomes and income-producing assets is indicative of the appellant suffering economic disadvantage arising from her role during the parties’ long-term marriage and its breakdown. In contrast, the respondent gained a significant economic advantage from the marriage that has not been affected by the marriage breakdown. A finding that the appellant is no longer entitled to support would undermine the objectives under s. 17(7) of the Divorce Act.

Pending the determination of a new application to assess the appropriate amount of support, the Court of Appeal ordered Mr. Schulstad to pay spousal support in the amount of $1,000 per month, perhaps forecasting the approximate amount the Ontario Superior Court may ultimately award to Mrs. Schulstad. Predicting the Consequences of Retirement on Your Support Obligations While every case is unique, the Schulstad decision provides us with some insight about the potential consequences of retirement on a support obligation.  Although a payor may experience a significant decrease in income post-retirement, he or she can not necessarily assume that support obligations will automatically fall away.  One must look at whether there are ongoing economic consequences from the breakdown of the marriage, and examine the likely outcome of a needs and means analysis. For help with issue of spousal support or any other family law matter, kindly contact the experienced lawyers at Gelman & Associates at (416) 736-0200 or 1-844-742-0200 or contact us online for a confidential initial consultation.

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