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The Alberta Court of Appeal

February 4, 2022

Alberta

,

Canada

Issue

Is a lump sum payment received from Veterans Affairs Canada for injuries from service excluded from the division of marital property?

Conclusion

Funds from Veterans Affairs Canada ("VAC") for a spouse's injuries from service are exempt from distribution in their entirety. If viewed as property, these funds are governed by s 7(2)(d) of the Family Property Act as they are akin to an award for damages in tort for pain and suffering. (Stalzer (Estate) v Stalzer)

In Stalzer (Estate) v Stalzer, the parties were married for 16 years. The husband commenced divorce proceedings, but died three years before trial. The husband's estate had received lump sum VAC disability benefits for the husband's injuries from service. The Court found that the VAC benefits were properly governed by s. 7(2)(d) of the Matrimonial Property Act, RSA 2000, c M-8 (the predecessor to the FPA) as they were akin to an award for damages in tort for pain and suffering, and were therefore exempt from distribution in their entirety.

No further Alberta cases were located discussing whether VAC benefits form part of family property for the purposes of equalization.

In Rooker v Rooker, the parties were married for 20 years and had two children. The husband was in the military and received numerous monthly benefits including benefits from Veterans Affairs Canada ("VAC"). The Court of Appeal recognized that the VAC benefits were provided as compensation for the disability endured by military service and its relative impact on earning capacity, however, the benefits formed part of the husband's ability to pay support, and therefore was included in the husband's income for the purpose of calculating support.

In Nichol v. Nichol, during the relationship, the husband was employed with the Canadian Forces as military police. While deployed, he suffered a work-related injury and returned to Manitoba, where he was ultimately diagnosed with post-traumatic stress disorder. The husband received a lump sum payment pursuant to s. 45 of the Canadian Forces Members and Veterans Re-establishment and Compensation Act (Veterans Charter). The wife brought a petition claiming she was entitled to a share of the disability award paid to the husband. The Court found that s. 8(1) of the Manitoba Family Property Act exempted the disability award, as they were funds received from a statutorily-created compensation scheme that did not require fault to award compensation. The lump-sum award was for personal injury or disability, and there was no economic loss element to award. The Court held that the disability award paid to the husband pursuant to s. 45 of the Veterans Charter was not compensation for loss to both spouses, and it was therefore excluded from sharing. The wife's petition was dismissed.

Law

Section 7 of the Family Property Act, RSA 2000, c F-4.7 ("FPA") states:

Distribution of property

7(1) The Court may, in accordance with this section, make a distribution between the spouses of all the property owned by both spouses and by each of them.

(2) If the property is

(a) property acquired by a spouse by gift from a third party,

(b) property acquired by a spouse by inheritance,

(c) property acquired by a spouse before the marriage,

(d) an award or settlement for damages in tort in favour of a spouse, unless the award or settlement is compensation for a loss to both spouses, or

(e) the proceeds of an insurance policy that is not insurance in respect of property, unless the proceeds are compensation for a loss to both spouses,

the market value of that property at the time of marriage or on the date on which the property was acquired by the spouse, whichever is later, is exempted from a distribution under this section.

In Stalzer (Estate) v Stalzer, 2019 ABQB 658 (CanLII), the parties were married for 16 years. The husband commenced divorce proceedings, but died three years before trial. The husband's estate had received lump sum VAC disability benefits for the husband's injuries from service. The Court found that the VAC benefits were properly governed by s. 7(2)(d) of the Matrimonial Property Act, RSA 2000, c M-8 (the predecessor to the FPA) as they were akin to an award for damages in tort for pain and suffering, and were therefore exempt from distribution in their entirety:

(l) Veterans’ Affairs Canada (VAC) Lump Sum Disability Benefit

[125] I agree with the Estate that any funds from the VAC for Mr. Stalzer’s injuries from service are exempt from distribution in their entirety.

[126] The Alberta Court of Appeal in Rooker v Rooker, 2017 ABCA 87 at paras 9-12, characterized VAC disability benefits as income for support purposes and not as property.

[127] Alternatively, if viewed as property, these funds are governed by s 7(2)(d) of the MPA as they are akin to an award for damages in tort for pain and suffering: Sarvanis v Canada, 2002 SCC 28 (CanLII), [2002] 1 SCR 921 at paras 34 and 35 and Storey v Simmons, 2013 ABQB 168 at para 18.

No further Alberta cases were located discussing whether VAC benefits form part of family property for the purposes of equalization.

In Rooker v Rooker, 2017 ABCA 87 (CanLII), the parties were married for 20 years and had two children. The husband was in the military and received numerous monthly benefits including benefits from Veterans Affairs Canada ("VAC"). The Court of Appeal recognized that the VAC benefits were provided as compensation for the disability endured by military service and its relative impact on earning capacity, however, the benefits formed part of the husband's ability to pay support, and therefore was included in the husband's income for the purpose of calculating support:

[5] In recent years, trial courts have diverged on how to treat VAC benefits for support purposes. The courts that have excluded all or a portion of the VAC benefits have done so largely in reliance on a Federal Court decision in Manuge v Canada, 2012 FC 499, [2013] 4 FCR 647. Manuge was a class action suit brought on behalf of members and former members of the Canadian Forces against the Crown. The court in Manuge was called upon to determine the legality of the Crown’s policy of reducing long term disability benefits payable to disabled members under its insurance plan. In that case, and for that purpose, the Federal Court characterized the VAC benefits as not being a form of income replacement and accordingly the reduction by the Crown was not contractually justified.

[6] The decisions that exclude a payor’s VAC benefits as income for support purposes rest on that characterization, namely that the purpose of VAC benefits is not income replacement. See Storey v Simmons, 2013 ABQB 168, 559 AR 42; AVR v MJA, 2016 SKQB 272; Wells v Campbell, 2015 BCSC 3; LF v CGC, 2014 BCSC 1069; ALP v ELG, 2016 BCSC 2180.

[7] A different approach was taken by the only appellate court to have determined the issue. In Vaughan v Vaughan, 2014 NBCA 6, 415 NBR (2d) 286, the New Brunswick Court of Appeal considered the context in which Manuge was decided and found that it was not determinative of whether it was appropriate to include VAC benefits in income for the purpose of spousal or child support under the Divorce Act, RSC 1985, c 3 (2nd Supp). The court preferred the analysis in Darlington v Moore, 2013 NSSC 103, [2013] NSJ No. 205 which concluded that the objectives of the Divorce Act, and the requirement to consider the “condition, means, needs or other circumstances”, required the court to take a broader view of what ought to be included in income for the purposes of support.

[8] In Darlington, the court concluded that the objectives of the Divorce Act and the Maintenance and Custody Act, RSNS 1989, c 160 directed that income for child support and spousal support purposes include tax free disability income. In adopting the Darlington ratio in Vaughan, the New Brunswick Court of Appeal said at para 26:

I am persuaded by the ratio in Darlington. This is not a situation where benefits should be excluded because of the interpretation of a contract of insurance. Rather, trial judges should endeavour to determine support payments based on the broad policy objectives contained in the Divorce Act. When fashioning a spousal or child support order, the court is obligated to consider the “condition, means, needs and other circumstances of each spouse”. This includes the tax-free disability payments, and, in future, these payments should be taken into consideration in the calculation of child and spousal support.

[9] We agree. Manuge cannot be used to determine whether VAC benefits should be included in income for the purposes of child and spousal support. Rather that determination must be made under the legislation governing its award, specifically the Divorce Act and the Federal Child Support Guidelines (the Guidelines). The question to be determined is whether these payments form part of the means and ability to pay of the payor, a fundamental consideration in determining entitlement to and quantum of spousal support. Similarly under s 1(a) of the Guidelines, one of the stated objectives is the requirement to establish a fair standard of support for children that ensures that they continue to benefit from the financial means of both spouses after separation. It is within that framework that the question must be asked and answered. VAC benefits seen through this lens are means from which support can be paid.

[10] Section 19 of the Guidelines provides that a court “may impute such amount of income to a spouse as it considers appropriate in the circumstances” and proceeds to list a number of circumstances. The list is non-exhaustive. Where a court is satisfied that inclusion of non-taxable benefits fairly reflects a person’s ability to contribute to the joint obligation to support the children of the marriage, a court is entitled to take those amounts into consideration.

[11] This is not inconsistent with the purpose of the pension legislation under which the benefits are payable. The legislation recognizes the obligation of Canada to provide compensation to those members of the forces who have been disabled or died as a result of service and to their dependants. See Pension Act, RSC 1985, c P-6, s 2. The Government of Canada website states that the purpose of the Veteran’s Affairs Disability Pension is to “provide compensation for...the disability endured and its relative impact on earning capacity.”

Conclusion

[12] The chambers judge concluded that the VAC benefits being received by the appellant were properly included in his income for the purposes of support. We find no error in his conclusion. The appeal is accordingly dismissed.

In Nichol v. Nichol, 2017 MBQB 144 (CanLII), during the relationship, the husband was employed with the Canadian Forces as military police. While deployed, he suffered a work-related injury and returned to Manitoba, where he was ultimately diagnosed with post-traumatic stress disorder. The husband received a lump sum payment pursuant to s. 45 of the Canadian Forces Members and Veterans Re-establishment and Compensation Act (Veterans Charter). The wife brought a petition claiming she was entitled to a share of the disability award paid to the husband. The Court found that s. 8(1) of the Manitoba Family Property Act exempted the disability award, as they were funds received from a statutorily-created compensation scheme that did not require fault to award compensation. The lump-sum award was for personal injury or disability, and there was no economic loss element to award. The Court held that the disability award paid to the husband pursuant to s. 45 of the Veterans Charter was not compensation for loss to both spouses, and it was therefore excluded from sharing. The wife's petition was dismissed:

[34] In Manitoba, the phrase “compensation for loss to both spouses” has been used to distinguish between awards which compensate for an injury itself as opposed to lost wages or earning capacity arising from that injury. Where the funds received are personal to the recipient and represent general damages, pain and suffering or other non-economic loss, the funds are not shareable. However, where the funds represent lost wages or loss of future earning capacity they are shareable. (see Hilderman, Dixon v. Dixon 1981 CanLII 3456 (MB QB), 1981 Carswell Man 41 and Girouard v. Girouard [(1992), 1992 CanLII 13023 (MB QB), 40 R.F.L. (3d) 157 (Man. Q.B.)]

[35] This approach reflects the fact that a marriage or common-law union is a financial partnership and that an injury to one spouse often results in an economic impact on the household as a whole.

[36] The question is whether the Disability Award is intended to be treated as a loss to both spouses. I find that it is not.

[37] The interpretation of s. 50 of the Veterans Charter, upon which the petitioner relied heavily, does not accord with the wording of the section itself. The purpose of s. 50 is to give a spouse or dependent child of a member/veteran the ability to apply to receive the Disability Benefit in two circumstances:

(i) where the member/veteran has died prior to making an application; or

(ii) where the member/veteran made an application but no decision regarding the application had been made prior to the member/veteran’s death.

There is nothing in the section which suggests that a member/veteran, having applied for and become entitled to the Disability Award prior to his or her death, is unable to deal with it as he or she sees fit.

[38] Further, s. 50 clearly refers to the ability of both a survivor spouse or a dependent child to apply for or receive the benefit. The ultimate division of the Disability Award is specifically addressed in s.55 of the Veterans Charter:

Division of Award

55 If a disability award is payable to a survivor or a person who was, at the time of the member’s or veteran’s death, a dependent child, the following rules apply:

(a) if there is a survivor but no person who was a dependent child, the survivor is entitled to 100% of the disability award;

(b) if there is a survivor and one or more persons who were dependent children,

(i) the survivor is entitled to 50% of the disability award, and

(ii) the persons who were dependent children are entitled, as a class, to 50% of the disability award, divided equally among them; and

(c) if there are one or more persons who were dependent children but no survivor, each of those children is entitled to the amount obtained by dividing the disability award by the number of dependent children.

[39] It cannot be said that the Disability Award is intended to represent compensation for loss to both spouses where both a survivor spouse and dependent children are contemplated as recipients and even then only in the specific circumstances established by the Veterans Charter.

[40] Further, there is no element of the Disability Award which considers the effect of a member/veteran’s impairment on the spouse. The calculation of the award is based entirely on the member/veteran’s impairment and its effect on that individual.

[41] The best that can be said of s. 50, insofar as the petitioner’s argument is concerned, is that it reflects the overall purpose of the Veterans Charter generally and of the Disability Award specifically to provide compensation to families of members/veterans. It is clear that the Veterans Charter is not legislation created solely for those who served in Canada’s military; elements also extend to a spouse, common-law partner and families of those who serve and have served. There are a variety of programs available under the Veterans Charter which achieve this overall objective. As an example, the “Rehabilitation Services and Vocational Assistance Program” is available to a veteran and the veteran’s spouse. Several programs under the Veterans Charter permit a spouse or dependent children to apply to receive death benefits in circumstances similar to those detailed in s. 50. It is in this way that the Veterans Charter achieves its broader purpose.

[42] Entitlement to any award under the Veterans Charter is predicated upon meeting specific defined parameters in the legislation. Had Parliament intended for the Disability Award to benefit both spouses equally, it would have clearly stated so and made provision for same. There is nothing in either s. 50 or the other provisions relating to the Disability Award which make the award a joint asset. Even a liberal interpretation of the Veterans Charter cannot support a finding that the Disability Award represents a loss to both spouses.

[43] Finally, interpreting the Disability Award as a loss to both spouses suggests an equivalent loss suffered by both spouses as a result of the injury to the military serving spouse. In effect, the petitioner is saying that the respondent’s injury is her injury. This approach would minimize the injury suffered by the member/veteran when the injury suffered is personal to that member/veteran. A spouse has no inherent economic interest in the personal impairment and suffering of his or her partner.

[44] I find that the Disability Award paid to the respondent pursuant to s. 45 of the Veterans Charter is not compensation for loss to both spouses. It is precisely the type of award which s. 8(1) of the FPA excludes from sharing: funds paid to one spouse for non-economic loss as a result of personal injury are not the joint asset of both spouses.

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