When Personal Injury Settlements Intersect with Net Family Property Calculations in Ontario

When a personal injury settlement for one party occurs within a marriage, those funds can pose important issues at separation. Under Ontario’s Family Law Act, spouses must equalize their Net Family Property upon separation, but not all settlement proceeds are necessarily swept into that calculation.

Section 4(2) of the Act expressly excludes “damages or a right to damages for personal injuries… or the part of a settlement that represents those damages” from net family property. This suggests that awards for General Damages (pain and suffering), and direct out-of-pocket special damages should ordinarily be excluded.

Where complexity arises is with damages intended to replace lost income, especially future lost income, and with structured settlements. In Hunks v. Hunks (2017 ONCA 247), the Ontario Court of Appeal concluded that annuity payments from a structured settlement intended to replace future loss of earnings should be treated as income rather than property, meaning they do not increase the recipient’s net family property for equalization but may still be relevant for support claims. That said, the Court is very careful only to deal with annuity payments as a result of a structured settlement; they are silent on other closely related issues such as lump-sum

payments which are generally thought to “benefit the family” (para 56) in a way that does not dismiss their inclusion from net family property calculations.

The jurisprudence is not uniform. For lump-sum, unstructured settlements where the award represents lost future income, some trial decisions (e.g., Lukovnjak v. Weir, 2016 ONSC 6893; Bonnick v. Bonnick, 2016 ONSC 657) have excluded those sums from net family property, but no appellate decision has definitively ruled on the treatment of lump-sum future-income awards. Similarly, future care costs have been excluded in some instances, though again, without Appellate-level confirmation.

Courts have emphasized that what ultimately matters is how the settlement was allocated (or could be allocated) among the heads of damage and, in the case of lump-sum awards, how the recipient actually used those funds. If damages awards for pain and suffering are comingled, used to purchase a matrimonial home, or placed into a joint account, their exclusion from the equalization calculation may be lost.

In short: although the statutory exclusion under the Family Law Act provides a strong foundation for excluding personal-injury damages from net family property, the application remains highly fact-driven. Until the Court of Appeal addresses those categories explicitly, significant uncertainty remains.

If you would like to discuss Net Family Property Calculations or any other family law related matter in Ontario, please reach out to us at McDonald, Simon, Stewart and Reidy LLP. Our team is here to provide expert legal guidance and help you understand your rights and obligations. Don’t hesitate to contact us for a consultation - we’re ready to assist you!

Please reach out to us at info@mcdonaldsimon.com or call us at 519-273-2734.

Disclaimer: This blog should not be construed as legal advice. Each individual circumstance has nuances that need to be considered by a licensed legal professional and there is no one-size-fits-all answer in the law. If you require legal advice, please contact someone who is licensed with the Law Society of Ontario and is properly insured to provide legal services or practice law.