Is Post-Separation Severance Pay Already “Earned” at the Date of Marriage?

Generally, the rule under Ontario Family Law is that divorcing spouses are entitled to deduct any assets of property they owned on the date of the marriage from their Net Family Property.  Although this may sound simple, “property” consists of the rights or entitlements instead of more tangible assets.  This causes questions to arise and the answers can become a bit murky.

The Court was asked to address a narrow, but not unusual, scenario which can be described this way:

  1. Spouse 1 works for a company for several years
  2. Spouse 1 marries Spouse 2
  3. Several years later, Spouse 1 gets terminated from their employment and accepts a reasonable severance package
  4. Spouse 1 and Spouse 2 later separate, on their way to divorcing

The issue in this case is: on the date of marriage, did Spouse 1 ‘own’ or already ‘earn’ any portion of the severance pay that was later existent because of their termination?  And should that portion (as calculated on the date of their marriage) be deducted from Spouse 1’s Net Family Property calculation as something that was ‘brought into’ the marriage to Spouse 2?

This was the scenario in a case called Dembeck v. Wright.  The couple had been married for almost 10 years when the husband lost his job and received an 18-month severance package.  The package included 8 weeks statutory termination pay as required by the Ontario Employments Standards Act (the ESA), with the balance being common-law notice of termination.  The couple separated three days after the husband was fired.

The wife wanted the entire amount of the severance and termination pay to be included in the husband’s Net Family Property.  In contrast, the husband claimed that most of the $190,000 severance package was deductible, since it was ‘property’ and that he had ‘earned’ the entitlement to most of it before the marriage even took place.

The Court of Appeal in this case, which was only asked to rule on the 8-week ESA termination pay portion, agreed with the wife.  The held that while the Family Law Act defined ‘property’ very broadly and included both present and future interests, the right to the severance and termination pay can only be considered ‘property’ once is has crystallized.  The ESA does not grant an employee an absolute right to termination pay, it accrues only once the employee has been terminated without notice; therefore, it can only be demanded from the employer if and when that triggering even takes place.

In order for the husband’s ESA termination pay to be considered ‘property’ at the date of marriage, he must have had a right or entitlement to it at that date.  Since his right or entitlement only arose after his termination, and did not ‘accumulate’ over time, and he was not entitled to the marriage-date deduction.