In Ontario, a severance package received after your Date of Separation is generally excluded from the Net Family Property (NFP) calculation, meaning you do not have to split the lump sum as a marital asset. However, the Canada Revenue Agency (CRA) and family courts consider severance as “income.” Therefore, it will heavily impact the calculation of your ongoing spousal support and child support obligations.
Navigating a separation is already one of life’s most stressful events. If you simultaneously experience a job loss and receive a severance package, the financial anxiety can be overwhelming. Many newly separated individuals are terrified that their ex-partner will immediately demand half of their hard-earned severance pay, leaving them with nothing to survive on while they hunt for a new job.
Understanding how to handle severance packages received post-separation in Ontario requires knowing the strict difference between “property” and “income.” 💰 Whether you reside in Toronto, Ottawa, Mississauga, or Hamilton, the legal principles applied by the Superior Court of Justice remain consistent. While the law generally protects your post-separation assets from property division, your legal duty to provide financial support to a dependent spouse remains fully active. This guide breaks down exactly how severance is treated and what steps you should take.
Property Division vs. Spousal Support: The Crucial Difference
To understand your rights, you must understand the two distinct pillars of Ontario family law. When a marriage ends, you must resolve both the equalization of net family property (splitting the wealth) and the ongoing monthly support obligations. Severance sits in a unique grey area between these two pillars depending entirely on the timeline.
| Legal Pillar | If Severance is Received BEFORE Separation | If Severance is Received AFTER Separation |
|---|---|---|
| Equalization (Net Family Property) | It is a marital asset. If the cash is sitting in your bank account on the Date of Separation, it is split 50/50. | It is not an asset. The cash did not exist on the Date of Separation, so it is excluded from equalization. |
| Spousal Support | The amount may be factored into historical income to determine future SSAG payment ranges. | It is treated strictly as income for the year it is received, which may increase or maintain your support payments. |
Step-by-Step Process for Handling Severance in Ontario
If you lose your job shortly after moving out, you must act strategically to protect your financial stability. Consulting a local family law firm from our directory is essential to ensure your severance is handled correctly under the Spousal Support Advisory Guidelines (SSAG).
Step 1: Pinpoint the Exact Date of Separation
The entire case hinges on the calendar. 📅 You and your ex-spouse must explicitly agree on the exact Date of Separation in your written separation agreement. If your employment was formally terminated (with the severance package offered) even one day after this agreed-upon date, the severance lump sum is shielded from being divided as an asset in your Net Family Property calculation.
Step 2: Review the Structure of the Severance Package
Employers structure severance in different ways. You must provide your family lawyer with the termination letter. Is the employer paying you a one-time lump sum, or are they providing “salary continuation” where you remain on the payroll for another 6 to 12 months? Salary continuation simply means your regular monthly spousal support payments will continue exactly as they did before, until the continuation period ends.
Step 3: Run the SSAG Calculations with the Severance
If you receive a large lump sum, the court views this as income for that specific tax year. 📊 Your lawyer will use specialized software, such as DivorceMate, to calculate how much spousal support you owe based on that inflated Line 15000 CRA income. Often, lawyers will negotiate to pay a portion of the severance lump sum directly to the ex-spouse as a “lump sum spousal support” payment, giving both parties a clean break.
Step 4: File a Motion to Change (If Needed)
Once the severance money runs out and you are officially relying on Employment Insurance (EI), your income will drop drastically. If you have an existing court order or separation agreement, you cannot simply stop paying support. Your lawyer must negotiate a temporary reduction or file a Form 15: Motion to Change at the Superior Court of Justice, proving that your job loss constitutes a “material change in circumstances.”
How Much Does it Cost in Ontario?
Managing the legal crossover between employment law and family law involves professional fees. As of May 2026, anticipate the following estimated costs in CAD:
- Employment Lawyer Consultation: Reviewing the fairness of your severance offer typically costs $300 to $600.
- Family Lawyer Fees: Drafting clauses regarding the severance in a separation agreement generally ranges from $2,000 to $4,500.
- Court Filing Fees: If you must file a Motion to Change your support due to job loss, court fees and process serving typically cost around $150 to $300.
- Tax Implications: Severance lump sums are heavily taxed by the CRA (often up to 30% withholding tax). Ensure support is calculated on your gross income, not just the net cash received.
How Long Does the Process Take?
Timing is a critical factor when cash flow is interrupted. ⏱ Negotiating a fair severance package with your former employer can take 3 to 8 weeks. Once the funds are secured, updating your separation agreement or running new DivorceMate calculations with your family lawyer takes roughly 2 to 4 weeks. If you must go to court to lower your support, expect a 4 to 8 month wait due to scheduling backlogs in Ontario courts.
Frequently Asked Questions (FAQ)
Can I put my severance directly into my RRSP to avoid paying support?
No. While transferring severance into an RRSP is an excellent strategy to lower your CRA tax bill, family courts still look at your gross total income before RRSP deductions. You cannot shield income from spousal or child support simply by investing it.
What if I paid an employment lawyer to get the severance?
In Ontario, you can generally deduct the legal fees paid to your employment lawyer from the gross severance amount before calculating spousal support. You only owe support on the actual income you get to keep. Provide the legal invoices to your family lawyer.
Will receiving severance affect my parenting time?
Job loss and severance do not affect your decision-making responsibility or parenting time. In fact, some parents use the time off work to request increased parenting time, as they have more availability to care for the children during the week.
Can my ex garnish my severance payout directly?
If you have massive unpaid arrears, the Family Responsibility Office (FRO) has the legal authority to issue a garnishment order directly to your former employer. The employer will be legally forced to send a portion of your severance directly to the FRO before you see a dime.
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