Law Times

Page 12 November 27, 2017 • Law Times www.lawtimesnews.com Will be treated as future income stream More certainty about annuity payments helps lawyers BY MICHAEL MCKIERNAN For Law Times F amily lawyers say they will benefit from some certainty about the treat- ment of structured settle- ment annuity payments after the province's top court ruled they should be considered income and not property under Ontar- io's Family Law Act. Despite establishing them- selves as an increasingly popular alternative to lump-sum payouts in Ontario personal injury cases over the past three decades, the characterization of structures in family law cases has remained a matter of debate, with only a few Superior Court decisions weigh- ing in on the issue. But in its March 27 judgment in Hunks v. Hunks 2017 ONCA 247 2017 ONCA 247, the Court of Appeal for Ontario finally had its say about the products, which divide high-value court settlements into regular tax-free instalments. The practical effect of Ontar- io Appeal Court Justice Eileen Gillese's decision, on behalf of a unanimous three-judge panel of the court, is that the structured settlement does not make up part of the net family property to be divided after a marriage breakdown. Instead, the ongoing pay- ments will be treated as a future income stream for the purposes of a spousal support calculation. "This has been a big grey area for family lawyers," says Russell Alexander, principal at Lindsay, Ont. firm Russell Alexander Collaborative Family Lawyers, noting that the treatment of any structured settlement can have a big effect on divorce nego- tiations due to the fact that they will frequently involve six- or seven-figure sums of money. "I think the court gets it right in characterizing it as an income stream, but the most important thing is to have some certainty on point," says Carolyn Lloyd, a London, Ont. family lawyer. "That will help both family lawyers and personal injury law- yers, because now we have a bet- ter idea of what happens if there is a marriage breakdown," says Lloyd, a partner at Lerners LLP, a firm with a strong personal in- jury practice group. "Whether or not they agree with the result, I think everyone agrees it's a decision that needed to be made. It's long overdue to have something definitive on this issue," she adds. Brittany Gillingham, a law- yer and principal at Guelph, Ont.-based McKellar Struc- tured Settlements, a broker of the products, says it's not un- usual for recipients of structured settlements to suffer marital problems after the accident that resulted in their payout. "Individuals who suffer a catastrophic injury are much more likely to get a divorce than a member of the general public, so it becomes even more impor- tant to recognize the difference between taking a settlement as a lump sum to pay off a mortgage and structuring a portion of it," she says. The Hunks case dates back to 1996, when Donna Hunks suf- fered serious physical injuries while out shopping, just months after marrying her second hus- band Gary Hunks. Unable to return to work, she settled her lawsuit with a grocery store for around $570,000. After paying her legal fees, she took about $200,000 in a lump sum, which the appeal court decision says was put to the benefit of her family. A fur- ther $300,000 was placed in a structure, which paid out $1,300 per month, increasing by two per cent annually from 1999. The structure payments are guaranteed for the rest of Donna Hunks' life, and she also had 13 years of the minimum 25- year payment period remaining when the pair separated in 2011. A Superior Court judge ruled the structure was property un- der the FLA but that it did not meet the criteria for exclusion as damages for personal injury. On appeal, Gillese concluded the payments were better char- acterized as income for two rea- sons. First, she wrote that the unique properties of structured settlements distinguished them from other types of annuity, noting that they are not available to the general public and that the Canada Revenue Agency con- siders the casualty insurer that purchases the annuity to be its owner. Secondly, Gillese concluded that structured settlement an- nuities are more analogous to disability benefits than to a pen- sion, which is considered prop- erty under the FLA. Gillingham says she was im- pressed by the appeal court's technical understanding of the way structured settlements work, but she adds that the decision is still limited by the factual cir- cumstances of the Hunks case. She says the court leaves open the possibility of a different finding if the structured settle- ment payments were for a pur- pose other than replacing future wages. As a result, Gillingham says, personal injury lawyers may still be able to prevent structure pay- ments being characterized as income by indicating how much of the recovery is meant for the claimant's future care and using it to fund the structure. "The way that you take the settlement and use it is going to matter if you get a divorce," Gill- ingham says. LT STRUCTURED SETTLEMENTS What do your clients need? The means to move on. Guaranteed. ™ Baxter Structures customizes personal injury settlements into tax-free annuities that can help your clients be secure for life. » Pre- and post- settlement consultation and support » Caring professionalism for over 30 years » No fee to you or your clients Need more information? Contact us at 1 800 387 1686 or baxterstructures.com Kyla A. Baxter, CSSC PRESIDENT, BAXTER STRUCTURES Untitled-5 1 2017-11-20 9:03 AM Carolyn Lloyd says a recent decision will 'help both family lawyers and personal injury lawyers, because now we have a better idea of what happens if there is a marriage breakdown.'

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