Some pension plans are set up to provide a disability benefit to a member. The FLA provides for the division of these disability benefits [FLA, s 122]. (This provision does not apply to disability benefits paid under non-pension plans. This is because the FLA definition of “plan” [FLA, s 110] refers to plans that provide pensions.)
The FLA provides that compensation for disabilities is excluded property [FLA, s 85(c) and (d)], and therefore not divisible between spouses when the relationship ends, unless the compensation is for lost income. (Under the FRA, in contrast, disability benefits were usually regarded as family assets and therefore theoretically subject to division between the parties. Even so, typically under the FRA, disability benefits were reapportioned so that the disabled spouse received them all.)
In some cases, it is appropriate to divide disability benefits, such as where the non-disabled spouse has no ability to be self-supporting. In these cases, where the disability benefits are delivered through the pension plan, the FLA provides that the spouse can become a limited member of the plan and receive a share of the disability benefits in the same way as the spouse would receive a share of a matured pension. [FLA, s 122. See also Chapter 5, which discusses dividing benefits after pension commencement.]
| 9.1 Court order silent | Our plan provides disability benefits in addition to pension benefits. The member’s former spouse is a limited member of the plan. The member has qualified for disability benefits. The court order dividing the benefits doesn’t refer to disability benefits. Is the limited member entitled to a proportionate share of them? |
| No. If the agreement or order is silent about disability benefits, they are deemed to belong to the member. [FLA, s 122(3)] The limited member may be able to apply for a share of the benefits but, from the administrator’s perspective, they must be paid to the member until the administrator is presented with an order or agreement to the contrary. | |
| 9.2 Disability benefits: divisible family property? | Does Part 6 affect the law relating to whether or not disability pensions qualify as family property? |
| No. The FLA provides a mechanism for dividing disability benefits paid under a pension plan if there is an agreement or order specifying that that the benefits are to be divided. But the fact that there is a mechanism for doing this does not affect the initial question under Part 5 of whether or not the spouse is actually entitled to share of those benefits. |
| 9.3 Disability benefits under CPP | Does Part 6 allow for the division of a disability benefit paid under CPP? |
| No. Under the FRA, CPP disability benefits were considered to qualify as a pension and, as such, were family property by definition. [Webb v Webb, 1985 CanLII 226, 49 RFL (2d) 279 (BCSC); Coulter v Coulter, 1998 CanLII 5677, 60 BCLR (3d) 6 (BCCA)] It is likely that the same analysis that was applied under the FRA would apply under Part 5 of the FLA, which provides that a spouse’s entitlement under a “pension plan” qualifies as family property. [FLA, s 84(2)(e)] (The term “pension plan” in Part 5 is not restricted by the definitions in Part 6. The definitions in Part 6 apply only in Part 6: FLA, s 110.) CPP disability benefits not divisible under the CPP Act But even if CPP disability benefits qualify as “pensions” within the meaning of Part 5 and Part 6, the Part 6 pension division rules for benefits in local plans do not apply to CPP. The CPP Plan qualifies as an “extraprovincial plan”: see para 7.3. Division of CPP benefits is governed by the federal Canada Pension Plan, RSC 1985, c C-8, which provides its own rules for the division of unadjusted pensionable earnings between former spouses. The CPP rules, however, do not provide a mechanism for dividing CPP disability benefits. All that is available under the Canada Pension Plan is the ability to divide CPP unadjusted pensionable earnings. Dividing CPP too soon might prejudice the disabled spouse If the disabled spouse was the family’s main breadwinner, a division of CPP will probably result in reducing the disability benefit, with no offsetting amount being payable to the member’s spouse (at least until the spouse qualifies for the normal CPP benefit). For this reason, in Coulter v Coulter, the B.C. Court of Appeal reapportioned the CPP disability benefit 100% to the member and protected the spouse by awarding support. [See also para 11.21] CPP disability benefits might be taken into account in dividing other assets or awarding support The finding that a disability benefit (such as CPP disability benefits) qualifies as family property (because it is a “pension”) is only the beginning of the analysis. Entitlement to family property is subject to reapportionment under FLA, s 95. While there are a handful of cases where courts have divided disability benefits, or ordered that compensation be paid for them, many courts, often with little |
| analysis, will reapportion entitlement to provide the member with most, or all, of the disability benefits. The reason most commonly cited under the FRA for finding that an equal division is unfair is the member’s greater need for economic self-sufficiency. [See, for example, Fuller v Fuller, [1998] BCJ No 1738 (Lexis) (BCSC); McNiven v Feng, [1995] BCJ No 279 (Lexis) (BCSC); Kossen v Kossen, 1999 CanLII 6532, [1999] BCJ No 595 (Lexis) (BCSC)] However, in more recent cases, courts have taken into account that the disability benefits may have significant value and allocating them to the disabled spouse does not necessarily mean that their capital value should be ignored in arriving at a fair division of the remaining assets: Hemstreet v Hemstreet, 2006 BCSC 64. The factor of economic self-sufficiency is not included under s 95 of the FLA, so it is not at this point clear how a court would deal with this issue under the current family property legislation. However, FLA, s 95(2)(i) allows the court to consider any other factor that may lead to significant unfairness, which would seem broad enough to take into account a spouse’s disabilities (and the value of disability benefits) in arriving at an overall fair division of family property. | |
| 9.4 Disability benefits that are not a disability “pension” | Are disability benefits that are not paid under pension plans divisible between the parties when their relationship ends? If so, how are they divided? |
| The Part 6 rules apply to benefits that are paid under pension plans. Not all disability benefits will meet that definition. [See the Introduction to this Chapter] If the disability benefit is not provided under a pension plan within the meaning of Part 6 of the FLA, but is nevertheless divisible family property under FLA, Part 5, the administrator may be prepared to assist in dividing the benefits. If not, the member could be required to divide each payment between the member and the spouse. [See Webb v Webb, 1985 CanLII 226, 49 RFL (2d) 279 (BCSC); and Coulter v Coulter, 1998 CanLII 5677, 60 BCLR (3d) 6 (BCCA), where the spouse’s share took the form of support] Or, the value of the disability benefits could be taken into account in adjusting the division of other family property: see para 9.3. | |
| 9.5 Tax withholdings | Our plan provides disability benefits in addition to pension benefits. The member’s former spouse is a limited member of the plan. The member has qualified for disability benefits. The court order dividing the benefits provides for dividing the disability benefits between the parties. What are our obligations with respect to making separate tax withholdings? |
British Columbia Law Institute 123
| It is not possible to provide any tax advice in this publication and if tax issues arise, qualified professionals should be consulted. However, as a general principle, the ITA provisions that provide for the former spouses being separately taxed on their respective shares of pension benefits may not apply to disability benefits even if paid under a pension plan, so it may not be possible for the plan administrator to make separate withholdings. The plan may be required to make withholdings from the member’s share, and the former spouse would have to compensate the member for the taxes payable on the former spouse’s share. [FLA, s 141] | |
| 9.6 Disability benefits and limited member’s options | We have a member who is receiving disability benefits under the pension plan. Does this fact prevent a former spouse from applying to become a limited member? If the former spouse can become a limited member, does the payment of the disability pension restrict options in any way? For example, must the former spouse wait until the member’s disability pension is converted to a regular pension (something that will not take place until the plan member reaches age 60) before receiving a proportionate share of the benefit? Or could the former spouse apply for a lump sum transfer or a separate pension at the plan member’s earliest retirement age despite the plan member being in receipt of a disability pension? |
| Payment of disability benefits does not limit the options available to the limited member with respect to receiving a share of the pension benefits. In the case where the separate pension option (and, if applicable, the lump sum transfer option) would be available to the limited member if no disability benefits were being paid, those options continue to be available to the limited member notwithstanding the payment of the disability benefits. Part 6 provides that the payment of disability benefits does not affect the manner in which pension benefits are divided between the member and the limited member or the timing of that division. [FLA, s 122(4)] | |
| 9.7 Disability benefits | Under our plan, a member receiving disability benefits is also continuing to accrue pensionable service. How is that taken into account? |
| In determining the limited member’s proportionate share under Reg., s 17, the service would be subject to the same rules that apply to any other accrual of pensionable service as if the member had been working and not disabled.[SN1] |
[SN1]Updated by Stephen Cheng (Westcoast Actuaries)