Severance Payments on the Date of Separation

Under what circumstances, if any, does a spouse “own” on the date of marriage, an entitlement to a severance payment that he or she later receives? This is the question the Ontario Court of Appeal considered in Dembeck v. Wright. The case involved a couple that separated in 2007 after 9 years of marriage. The husband was terminated shortly before the separation and he was paid 18 months’ salary in lieu of notice and eight weeks’ pay for severance under the Employment Standards Act. It is the treatment of the severance that was the subject of the appeal. The trial judge held that the husband’s statutory severance rights had fully accrued by the date of marriage. As he had over 30 years of service, his right to severance on the date of marriage was equivalent to eight weeks’ pay. The judge held that this was a property interest that the husband had when the marriage began and should be included in his Net Family Property as of the date of marriage.

The Court of Appeal disagreed with this reasoning. It held that for the severance to be considered property as of the date of marriage, there must be a right or entitlement to it as of that date. The Act does not give this entitlement to every employee, only those whose employment has been terminated without notice. Severance is also not given where the employee has been guilty of wilful misconduct, disobedience or wilful neglect that hasn’t been condoned by the employer. Therefore, until the husband was terminated, there was no way to know whether he would be entitled to severance pay. Since severance pay is not something the husband could have had an entitlement to as of the marriage date, it should not form part of his NFP going into the marriage.The Court also explained that an interest that has not crystallized as of a certain date, cannot be retroactively classified as property after a future event renders it certain. Allowing this would inject uncertainty into the property division framework, which would potentially increase the consumption of time, money and energy that already accompanies the resolution of family law disputes.