Annuity Payments and Spousal Support 

Annuities as Capital or Income for Support Purposes 

The old joke about annuities is you make a fortune on the headline and then the fine print takes it all back. Perhaps indeed, in jest, there is truth.¹ But while this modern proverb may approach death and taxes in its certainty, another danger lies in wait: a former spouse with delusions of grandeur and your annuity payments as the object of their desire. 

So what happens if your ex-spouse is laying claim to these payments? We’ll answer that and more below but first start by outlining some more basic principles of spousal support obligations. 

Periodic Spousal Support Payments: 

Among other variables, the quantum of spousal support payable in any given year by one ex-spouse to another is a function of the income each party is earning. Because of this, we often see family law litigants at odds with one another on the correct income to be used for the purposes of calculating support obligations. 

To this end, we often have clients ask questions like: “shouldn’t her business income be included?” and “why isn’t his rental income being accounted for?” 

In most areas, the answers are simple. Yes, with some potential caveats, the business income should be included and so should the rental income. But what about annuity payments? 

Annuity Receipts and Income for the Purposes of Calculating Support: 

Most annuities involve the payment of a capital sum (the “principal”) to a financial institution in exchange for a guaranteed, steady stream of payments in the future. For retirees, these financial products are often used to protect against outliving the retirement fund that’s been put aside throughout their working life; for those looking to provide for their loved ones after their own passing, they are also commonly used to provide a testamentary disposition as part of inheritance under a Last Will and Testament. 

In each of these cases, the stream of periodic payments being made to the recipient can look deceptively close to income, and problematically for a payor from a family law perspective, deceptively close to income for the purposes of calculating support. Thus, in any given scenario, how do you know what legal treatment your annuity receipts will receive? Will I have to pay a quantum of support that is in part determined by these annuity receipts? 

Like many points of law, the answer is contextual and fact-driven. However, some general principles can be gleaned from the case law. See, for example, Laurain v. Clarke, 2011 ONSC 7195 at paras 17-105. First and foremost, annuity receipts that are driven by a capital sum received as part of an inheritance will be treated as periodic payments of capital and not income for the purposes of calculating support. They will not be available to an ex-spouse looking to increase a support obligation. Second, the devil is in the details: maintaining a sum of capital’s distinct treatment as being differentiated from income requires ongoing care and diligence, not being tethered to a single point in time but instead being subject to continuous review. 

If you are an annuity recipient, or your former spouse is an annuity recipient, we recommend that you take the time to carefully review the unique circumstances of your case with legal counsel. 

This article was written by Family Law Lawyer, Sam McColl. For additional information, please do not hesitate to contact him at sam.mccoll@mckenzielake.com.  

If you require assistance with any Family Law matter, speak to a Family Lawyer at McKenzie Lake Lawyers LLP by calling (519) 672-5666. 

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¹For theatre afficionados, Shakespeare’s King Lear continues to play at the Stratford Festival until October 29, 2023