Spousal Support Advisory Guidelines July 2008
The formulas are intended to generate appropriate outcomes in the majority of cases. The formulas set out in Chapters 7 and 8 have been designed to cover a wide range of typical cases. There will be unusual or atypical cases, however, where the formulas generate results inconsistent with the support factors and objectives found in the Divorce Act and an appropriate result can only be achieved by departing from the formula.
The term exceptions refers, under the Advisory Guidelines, to recognized categories of departures from the ranges of amounts and durations for spousal support under the formulas. Exceptions are the last step in a support determination in cases covered by formulas. The formulas provide two other opportunities, discussed above, to shape awards that are responsive to the exigencies of individual cases. First, the ranges for amount and duration provide considerable scope to adjust within those ranges to the particular facts of any case (Chapter 9). Second, restructuring provides a further means to push and pull amount and duration above and below the ranges generated by the formula (Chapter 10). Only if neither of these steps can accommodate the unusual facts of a specific case should it become necessary to resort to these exceptions.
As we emphasize throughout this document, the Advisory Guidelines are informal rules and are not legally binding. In principle, the formula outcomes can be ignored whenever they are viewed as inappropriate. Departures from the formula outcomes could thus have been left entirely to case-by-case determination, without any need for categorical exceptions. In our view, however, it is important to the integrity of the Advisory Guidelines that exceptions be listed and defined. It is only the systemic benefits of consistency, predictability, coherence and fairness that encourage all concerned to work within the formula ranges. We took the view that exceptions should be stated, to structure and constrain departures from the formula in the interests of consistency and predictability.
We recognize that any list of itemized exceptions will not be exhaustive. There will always be unusual and even one-of-a-kind fact situations in spousal support cases, as in family law generally. But there are certain familiar categories of "hard" cases that come up with sufficient regularity that an exception can both recognize their existence and offer some guidance to their resolution. Following conventional legal principles, a spouse who claims to fall within one of these exceptions ought to bear the burden of proof.
Since the release of the Draft Proposal, one surprise has been the failure of lawyers and judges to use the listed "exceptions" to the formulas. In this final version, we have therefore assembled all the exceptions in one chapter, with more refinements and specifics about their potential use. We have also added some new exceptions, reflecting the feedback received since the Draft Proposal. For ease of reference, we will first list all the exceptions, before discussing each in turn:
- Compelling financial circumstances in the interim period
- Debt payment
- Prior support obligations
- Illness and disability
- Compensatory exception in shorter marriages without children
- Property division: reapportionment of property (B.C.), high property awards?
- Basic needs/hardship: without child support, custodial payor formulas
- Non-taxable payor income
- Non-primary parent to fulfil parenting role under the custodial payor formula
- Special needs of child
- Section 15.3: small amounts, inadequate compensation under the with child support formula
We have listed this exception first, as it is the first exception that most will encounter. There are some situations in the interim period where there may have to be an exception for compelling financial circumstances. When spouses separate, it is not always possible to adjust the household finances quickly. One of the spouses may have to bear large and often unmovable (at least in the short run) expenses, most likely for housing or debts. In most instances, the ranges generated by the formulas will cover these exceptional cases, but there may be some difficulties where marriages are shorter or incomes are lower or property has not yet been divided. Interim spousal support can be adjusted back to the formula amounts once a house has been sold or a spouse has moved or debts have been refinanced.
Below we offer some examples of how this exception might operate.
In Example 8.1, Ted earns $80,000 gross per year and Alice makes $20,000. Alice and the two children remain in the family home after the separation. Assume that Alice has to make a large monthly mortgage payment, in the amount of $2,100 per month, as the couple had recently purchased a new home. Under the with child support formula, the range for spousal support would be $471 to $1,021 per month, on top of child support of $1,159 monthly.
At the interim stage, spo[usal support might have to be increased above the upper end of the range if Alice continues to make the mortgage payments. If Ted were to make the mortgage payments, then spousal support might have to be reduced below the lower end of the range at this interim stage.
The "compelling financial circumstances" in the interim period will usually involve such mortgage or debt expenses, especially under the with child support formula where the spouses are more often at the limit of their abilities to pay after separation. But there can also be other kinds of "compelling financial circumstances" at this interim stage, as in the next example.
In a modification of Example 7.2, Karl and Beth have been married for only two years. They have no children. Beth was 25 when they met and Karl was 30. When they married, Beth was a struggling artist who earned a meagre gross income of $12,000 a year giving art lessons to children. Karl is a music teacher with a gross annual income of $60,000. With Karl’s encouragement, Beth stopped working during the marriage to devote herself to her painting. They lived in a house Karl owned before the marriage, which Beth will get some share of when the property is eventually divided. Beth has gone to live with a friend, but wants to rent her own apartment.
Using the without child support formula, a two-year marriage would generate a range for amount of 3 to 4 percent of the gross income difference of $60,000 (assessing Beth’s income as zero, which it would be at the point when interim support is claimed). The result would be support in the range of $150 to $200 per month for between one and two years.
Until Beth finds work and gets her share of the property, she is going to require a minimum of $1000 per month. Even restructuring the award to provide $400 per month for a year would not meet these needs. The interim exception could be relied upon to make an interim award in a higher amount.
While we have added another exception below for "basic needs/hardship" under the without child support formula more generally, it is preferable to use this interim exception for shorter term or purely transitional needs. The "basic needs/hardship" exception should only be considered at the trial or initial determination stage, after a full review of the merits on all the evidence, including any interim exception granted.
The existence of marital debts does not necessarily affect spousal support. In many cases debts are adequately taken into account in property division, reducing the amount of shareable property. However, where a couple has a negative net worth, i.e., debts greater than assets, then the allocation of the debt payments can have a dramatic impact upon ability to pay.
If the payor is required to pay a disproportionate share of the debts, then there may have to be some reduction in support from the lower end of the range generated by the formulas. The reduction may only be for a specified period, depending upon the balance remaining to be paid. At the end of that period, support could automatically revert to an amount within the range or, in some cases, a review may be ordered at that time. Conversely, if less frequently, the recipient may sometimes need an amount of support above the upper end of the range, in order to make payments on a family debt.
Where assets exceed debts, however, there can be little reason for a debt exception, as the party responsible for the debt will usually also hold the corresponding asset or other assets.
The limits of this exception can be refined, thanks in part to feedback received since the Draft Proposal:
- the total family debts must exceed the total family assets, or the payor’s debts must exceed his or her assets;
- the qualifying debts must be "family debts";
- the debt payments must be "excessive or unusually high".
Each of these three refinements deserves comment.
In all property regimes, this spousal support exception can apply where total family debts exceed total family assets. In some Canadian property regimes, however, courts are empowered to allocate specific assets to a particular spouse, so that it is possible to leave one spouse with net assets and the other spouse is left with the family debts. In these regimes, the debt payment exception should be extended to this situation where one spouse has a "net debt" position.
The debts must be "family debts", i.e. debts taken into account in the division of the family or marital property or debts incurred to support the family during cohabitation.
Further, most debt payments can be accommodated within the formula ranges and it is only "excessive or unusually high" debt payments that compel going outside the ranges to make an exception. Implicit in this latter condition is that the debtor has made all reasonable efforts to refinance and reduce the debt payments first.
An obligation to pay support for a prior spouse or for prior children will affect the support to be paid to a subsequent spouse. Generally speaking, the courts have adopted a first-family-first approach for payors in such cases, subject to a very limited exception for low-income payors. Under the current law, courts determine the amount of any support for the second spouse taking into account the prior support obligations and the payor’s budget.
We have created an exception for these prior support obligations. Most often, the prior support obligation will involve child support, but spousal support may also be involved after a longer first marriage and then a shorter second marriage.
In the vast majority of cases, the prior support obligation will involve a payment to another party. But there can also be cases where a spouse is a custodial parent for a prior child in his or her care who is not a "child of the marriage". A custodial parent in this case has as much of a "prior support obligation" as does a support payor. We have modified this exception since the Draft Proposal to recognize this reality.
Where there are prior support obligations, the payor’s gross income will have to be adjusted to reflect those obligations, before computing the gross income difference and applying the percentage ranges to that difference. Adjusting for a prior spousal support obligation is simple, as spousal support is paid on a gross or before-tax basis: deduct the amount of spousal support paid from the spouse’s gross income to establish the spouse’s gross income. For a prior child support obligation, as child support is paid on a net or after-tax basis, the calculation is slightly more complicated: first, gross up the child support amount to reflect the payor’s marginal tax rate on the amount paid and then deduct the grossed up amount from the spouse’s gross income.
The effect of this prior support deduction is to leave the payor spouse with a lower gross income. The payor would thus have a lower income, the size of the gross income difference would be reduced and hence the formula amount of support for the second spouse would be lower.
An obligation to pay support for a prior spouse or prior children requires a slightly different adjustment under this formula, which works with net incomes rather than the gross incomes of the without child support formula. . In calculating the payor spouse’s individual net disposable income, this exception will require that any amounts of support paid to prior spouses or children be deducted, thereby reducing the size of the pool of individual net disposable income between the current spouses and also reducing the payor’s share of that smaller pool. Because we are working with net income under this formula, there is no need to gross up any child support amounts and the software can work out the after-tax value of the gross amount of spousal support.
Where a payor has a child of a prior relationship in his or her care after separation, a child who is not a "child of the marriage", the spouse has a different sort of "prior support obligation" towards that child, one not fixed in a support agreement or order, but an obligation nonetheless. Consistent with our approach for custodial parents under the with child support formula, the custodial parent’s support obligation towards that prior child can be estimated by using an amount of "notional child support", based upon the table amount for that child or children for a person with the custodial parent’s Guidelines income. In some cases, a further adjustment may have to be made for any section 7 expenses paid by the custodial parent.
- Assume the same facts for Ted and Alice in Example 8.1, but this time assume that Ted’s 16-year-old son of an earlier marriage comes to live with Ted after separation. In calculating the range under the with child support formula, Ted’s income would have to be reduced by the one-child table amount ($719, using Ontario figures), which would reduce the range for spousal support to Alice, down from $471 to $1,021 to $15 to $471 monthly.
Many cases of illness or disability can be accommodated within the formulas. The central concern in many of these cases will be the recipient’s need for long-term or indefinite support. Indefinite (duration not specified) support would be available under the formulas after 20 years of marriage or based upon the "rule of 65". And, in most medium-to-long marriages, with or without children, the ranges for duration and amount offer considerable scope to accommodate the needs of an ill or disabled spouse. Disability will be an important factor in locating the amount and duration within the ranges in these cases, a point already noted above in Chapter 9.
In some medium-length marriages, where the formulas generate time limits, restructuring may have to be employed (Chapter 10). Under restructuring, the monthly amount can be reduced and the duration extended beyond the maximum, especially where spousal support is effectively bridging until retirement, when the recipient’s pension and old age benefits become payable. For this to be effective, the support amounts generated by the formula would have to be large enough to allow for a reasonable lower amount of monthly support. Example 7.8, the case of Gail and Brian, where Brian is suffering from a chronic illness at the end of their 15 year marriage, illustrates the use of restructuring to deal with the needs of an ill or disabled spouse.
For many cases, however, neither the breadth of the ranges nor the expanded possibilities of restructuring are seen to provide an adequate response to illness or disability. In these cases, there are three distinct approaches to long-term disability, three approaches that became more sharply defined after Bracklow in 1999. Because these are "hard" cases, more of them turn up in the reported decisions. Below we have framed these three approaches using the language of the Advisory Guidelines, as courts increasingly have used the Guidelines to consider these issues.
Faced with a recipient with a long-term disability, Canadian courts have responded with one of three approaches, here stated in declining order of frequency.
- Lower Amount, Extend Duration: most courts will extend duration, even to be "indefinite", while keeping the amount within the range, at or near the low end;
- No Exception: a slightly smaller number of courts will fix an amount in the range, often towards the upper end, and use the maximum duration, even though that means support will end while need continues;
- Increase Amount, Extend Duration: a much smaller group of courts will respond to the greater need in disability cases by increasing amount and extending duration.
After Bracklow, the law in this area remains uncertain. In our view, the third approach is the least consistent with Bracklow. The case law is dominated by the first two approaches, each of which can find support in the Bracklow decision. Our preference would be the second, "no exception" approach, which seems more consistent with the modern limits of spousal support as a remedy. But a slight majority of the reported cases see these cases as exceptions, mostly preferring the first, "lower amount, extended duration" approach. For now, as there is no dominant pattern or trend in the case law, we must recognize the possibility of an exception for these cases and leave the law to develop.
In order to explain the use of the ranges, restructuring and these three alternative approaches, it is best to use an example. We will change the facts slightly in Example 7.3, the case of Bob and Sue.
Bob and Sue have been married for 10 years. Sue is now 38, and Bob earns $65,000 per year. There are no children. Assume that Sue worked as a hairdresser, earning $25,000 a year, but then became ill and unable to work towards the end of the marriage, with no prospect of future improvement. She now receives $10,000 per year thanks to CPP disability.
Under the without child support formula, the applicable percentages for amount after a 10 year marriage would still be, as on the original facts, 15 to 20 percent, but now applied to a gross income difference of $55,000. Spousal support under the formula would be in the range of $687 to $917 per month (or $8,250 to $11,000 annually) for a duration ranging from 5 to 10 years.
At the maximum duration, Sue would only obtain spousal support until age 48. Suppose Sue wants to receive support until age 60, another 12 years or 22 years in total.
Restructuring could be attempted. The maximum global amount under the formula would be $110,000 ($917 per month for 10 years). If this global amount were stretched over 22 years (and ignoring any discounting for time), that could generate an annual amount of $5,000 per year or $417 per month.
Under the "no exception" approach, Sue’s support would be limited by the maximum amount and duration generated by the formula, subject to an extension of the maximum duration by means of restructuring. Current law offers support for this "no exception" approach, specifically the Bracklow case itself. Bracklow involved a support claim by a disabled spouse on facts quite similar to those in our example of Bob and Sue. The final result in Bracklow is consistent with the without child support formula, without resort to an exception.
Bracklow involved a seven-year relationship. At the time of the original trial, Mr. Bracklow was earning $44,000 gross per year and Mrs. Bracklow’s income from CPP was $787 per month, or roughly $9,500 per year. The final result in the case, taking into account the interim support paid, was a time-limited order of $400 per month for slightly more than seven years. The with child support formula yields a similar result. Under the formula, after a 7 year marriage the range for support is 10.5 to 14 percent of the gross income difference, which in Bracklow was $34,500. The range for support would therefore be $301 to $402 per month (or $3623 to $4830 per year) for a duration of 3.5 to 7 years duration. Thus the results generated by the formula might also be seen as appropriate for the case of Bob and Sue.
If Sue’s claim for support is seen as warranting an exception, our preferred solution would be to extend the duration of support to age 60 as Sue requests, but for an amount at the low end of the range, i.e. $687 monthly or $8,250 per year. Typically these will be cases where the recipient is younger or the marriage is shorter or the payor’s income is not high. Under this exception, we suggest that it is best to lengthen the maximum durational limit, while keeping the amount within the range, more specifically at or near the lower end of the range.
Under the third approach above, a court might order the upper end of the range, or $917 per month in Sue’s case, but without any time limit of 5 to 10 years. Duration would be thus be "indefinite (duration not specified)", which for practical purposes might be "permanent" in such a case. As stated earlier, this third approach is used much less often and is least consistent with Bracklow.
At most, what we propose here is a limited exception for illness and disability cases, as these are the cases that the courts often treat as exceptional. Some might propose that there be a similar and additional exception based upon age for older recipient spouses. In our view, there are sufficient accommodations for age in the without child support formula. The recipient’s age will be a factor in fixing amount and duration within the ranges and there is also the rule of 65 for indefinite support.
Some would even broaden this exception beyond illness and disability, into something more like a "basic social obligation" exception, where the recipient has basic needs beyond any formula support for one of any number of reasons. We believe that the sheer breadth of a basic social obligation exception would undermine the integrity and consistency of any formula or guidelines.
The illness or disability exception will usually arise where there are problems with the maximum duration under the without child support formula, where the marriage is of short-to-medium duration. Under the basic with child support formula, there will be much less need for this exception, given the lengthy maximum duration available to a primary parent under the shorter-marriage test for duration.
Disability does come up regularly under the custodial payor formula, as it often explains why the mother is the non-custodial parent. Under the custodial payor formula, there is another exception described below, an exception for a non-custodial parent to fulfil her or his parenting role, a parenting exception that may provide more spousal support for an ill or disabled non-custodial parent. However, if the non-custodial parent is not actively involved in parenting, perhaps because of the illness or disability, then the illness or disability exception might be applied.
Three years after the release of the Draft Proposal, the language of the Advisory Guidelines is now being used to address these difficult issues of illness and disability, but the law remains in a state of flux. Some courts make an exception, others don’t, and we have to await further developments.
The merger over time concept incorporates both compensatory and non-compensatory elements. In longer marriages the without child support formula thus generates high percentage ranges for sharing the gross income difference. In these longer marriages, by recognizing strong non-compensatory claims to the marital standard of living, the formula amounts also fully recognize any compensatory claims based on loss of earning capacity or career damage.
For short- or medium-length marriages, however, the without child support formula produces smaller amounts of support, reflecting the reduced importance of compensatory considerations, especially as most of these will be marriages without children. More important in these short-to-medium marriages is the transitional function of non-compensatory support, with the transition being longer or shorter depending upon the expectation and reliance interests flowing from the length of the marriage.
But some short- or medium-length marriages can involve large compensatory claims, disproportionate to the length of the marriage, even without any children involved. These compensatory claims may relate to an economic loss or may involve a restitutionary claim for an economic advantage conferred. Some examples come to mind:
- One spouse is transferred for employment purposes, on one or more occasions, forcing the other spouse to give up his or her job and to become a secondary earner.
- One spouse moves across the country to marry, giving up his or her job or business to do so.
- One spouse works to put the other through a post-secondary or professional program but the couple separates shortly after graduation as in Caratun v. Caratun before the supporting spouse has been able to enjoy any of the benefits of the other spouse’s enhanced earning capacity.
There could undoubtedly be other examples.
If a claimant spouse can prove such a disproportionate compensatory claim, then this exception allows for an individualized determination of the amount of spousal support, based upon the size and nature of that claim. The formula will not offer much assistance.
The compensatory principles set out in Moge, and reaffirmed in Bracklow, continue to develop in the case law. Thus, the precise scope of this exception will reflect the evolution of those principles.
A compensatory exception is unnecessary under the with child support formula, given the weight given to compensatory considerations in the construction of this formula and the generous maximum durations available under the two tests for duration.
Spousal support is only determined after the division of family or matrimonial property. In Canada, there is a different regime for property division in every province and territory. All the property regimes have a few common characteristics: special rules governing the matrimonial home, a defined pool of family or matrimonial property, and a strong presumption of equal division of that pool. In most cases, there will be some net accumulation of property and it will be divided equally. Apart from the debt payment exception already mentioned, there are two other situations where a possible "property" exception has been suggested in determining spousal support: unequal division of property, or high property awards.
The remedies of property division and spousal support perform distinct functions and have different rationales. In the Draft Proposal, we therefore did not propose a general exception for unequal property division. We were less categorical about any exception for high property awards. We do recognize that British Columbia’s property law is different and thus justifies an exception, as B.C. law allows unequal division or "reapportionment" on grounds that ordinarily are taken into consideration for the spousal support remedy.
Before considering these exceptions, we realise that, in many settlements, the division of property is used to fund a lump sum payment of spousal support. The Advisory Guidelines can actually assist in negotiating that outcome, as the ranges for amount and duration can offer guidance in converting all or a portion of periodic spousal support into a lump sum amount through restructuring. But this is not an "exception", just restructuring and paying the lump sum spousal support through property division. Any "property exception" would work the other way, i.e. the unequal division or high property award is made first and then spousal support is reduced below the ranges because of the property division.
Unlike any other Canadian matrimonial property statute, the British Columbia Family Relations Act empowers a court to
reapportion, or divide unequally, property between spouses on grounds that overlap with spousal support considerations. Among the
grounds in section 65(1), entitled
"Judicial reapportionment based on fairness", can be found factor (e):
1. If the provisions for division of property between spouses under section 56, Part 6 or their marriage agreement, as the case may be, would be unfair having regard to
- the duration of the marriage,
- the duration of the period during which the spouses have lived separate and apart,
- the date when property was acquired or disposed of,
- the extent to which property was acquired by the spouse through inheritance or gift,
- the needs of each spouse to become or remain economically independent and self-sufficient, or
- any other circumstances relating to the acquisition, preservation, maintenance, improvement or use of property or the capacity or liabilities of a spouse, the Supreme Court, on application, may order that the property covered by section 56, Part 6 or the marriage agreement, as the case may be, be divided into shares fixed by the court.
Factors (e) (self-sufficiency) and (f) (capacity or liabilities) are frequently used to adjust for the economic disadvantage of the lower-income spouse at the end of the marriage. There is a substantial case law on reapportionment on these grounds, which we do not need to repeat here. One of the concerns of the case law has been to avoid double recovery.
In its spousal support decisions since the release of the Draft Proposal, the British Columbia Court of Appeal has applied reapportionment law in the context of the Spousal Support Advisory Guidelines. In many instances, any adjustment for reapportionment can be made by reducing support within the ranges. But sometimes an exception has to be recognized: spousal support may have to be reduced below the formula ranges where a sufficiently large reapportionment order has been made under section 65 on the grounds stated in clauses (1)(e) and (f).
In the distinctive property regime in British Columbia, and only in British Columbia, there is thus an exception available where a sufficiently large reapportionment order has been made on these "spousal support" grounds.
Some have suggested that a high property award should constitute an exception for spousal support purposes. On this view, property and support are alternative financial remedies that can be substituted, one for the other, so that a high property award always justifies lower spousal support. While this view does find some acceptance in the case law, so too does the more compelling view that property and support are governed by distinctive laws and serve different purposes and that a high property award should not in and of itself dictate a significant reduction of spousal support. Recognizing high property awards as an explicit exception would, in our view, inappropriately entrench a contested view. Again, we have to leave the law to develop further in this area.
If there were an exception of this kind, it would result in an amount of spousal support set below the low end of the range or for a shorter duration, where there is a high property award.
It should be kept in mind that the Advisory Guidelines can already accommodate some of these "high property" concerns, without any exception. First, each spouse is expected to generate reasonable income from his or her assets and income can be imputed where a spouse fails to do so. The income imputed will affect the operation of the formula (Chapter 6). Second, as discussed above, property-related concerns may, in some cases, determine whether support is fixed at the upper or lower ends of the ranges for amount or duration, e.g. an absence of property to be divided or a large amount of property or continuing equalization payments (Chapter 9). Third, many high property cases are also high-income cases, bringing into play the ceiling above which the formula will not necessarily apply (Chapter 11).
Finally, there will be some cases where a high property award means no entitlement to spousal support, as the recipient of the property will thereby become economically self-sufficient, overcoming any disadvantage or need at the end of the marriage (Chapter 4). This is not an "exception" to the Advisory Guidelines, however, but an instance where the threshold requirement of entitlement is not met, so that the Advisory Guidelines are not engaged.
One last property point: the Advisory Guidelines on amount and duration do not change the law from Boston v. Boston governing double-dipping, mostly from pensions. That law remains in place, as a possible constraint upon the amount of support, determining if some portion of income should be excluded from the formula because it has been previously shared under property division.
The without child support formula works well across a wide range of cases from short to long marriages with varying incomes. In some parts of the country and in some cases, there is a specific problem for shorter marriages where the recipient has little or no income. In these shorter-marriage cases, the formula is seen as generating too little support for the low income recipient to meet her or his basic needs for a transitional period that goes beyond any interim exception.
Restructuring in these cases will sometimes still not generate an amount or a duration that is sufficient, in the eyes of some, to
relieve any economic hardship of the spouses arising from the breakdown of the marriage", as stated in section 15.2(6)(c)
of the Divorce Act. To complicate matters further, the amount required to meet basic needs will vary from big city to small
city to town to rural area. Whether restructuring provides a satisfactory outcome, i.e. more support for a shorter time, will depend
upon where the recipient lives. Thus the problem for these short-to-medium-marriage-low-income cases seems to be most acute in big
We did not wish to change the structure of the formula itself for this one sub-set of cases. The best approach to these cases was to create a carefully-tailored exception, the basic needs/hardship exception, leaving the basic formula intact for the vast majority of cases where the formula produces a reasonable range of outcomes.
Other exceptions may avoid the need to resort to this basic needs/hardship exception. In some short marriages without children, the compensatory exception may apply, with more generous outcomes than under this exception. The basic needs/hardship exception is non-compensatory. In other cases, in shorter marriages, the compelling financial circumstances at the interim stage can provide for a higher amount of support for a transitional period, such that no further exception need be applied by the time of trial. Earlier, we made clear that basic needs/hardship exception should only be considered at the trial or initial determination stage, after a full review of the merits on all the evidence, including any interim exception granted.
The basic needs/hardship exception applies under the without child support formula and the custodial payor formula, only in these circumstances:
- the formula range, even after restructuring, will not provide sufficient income for the recipient to meet her or his basic needs
- the reason will be that the recipient’s base or non-support income is zero or too low
- the marriage will typically be short to medium in length, e.g. 1 to 10 years
- the payor spouse will have the ability to pay.
We should be clear that this exception is only intended to ease the transition in these hardship cases. It is not intended to provide the marital standard of living, but only a standard of basic needs. And it is not intended to provide support for a long period of time after a shorter marriage, but only for a short transition period.
One situation where the basic needs/hardship exception has been applied is immigration sponsorship cases, where a marriage breaks down while a sponsorship agreement is in place. Most spousal sponsorship agreements now run for a period of three years from the date the immigrating spouse becomes a permanent resident. In some cases of very short marriages, the three-year agreement has been used as a measure of the appropriate duration for the period that the payor spouse covers basic needs through spousal support.
A simple example will illustrate the application of this exception:
Rob and Donna have been married for 5 years, a second marriage with no children. Rob earns $60,000 per year. Donna is 53 years old and has no income. Much turns upon why Donna has no income.
If Donna has no income because she moved twice in the past 5 years to accommodate Rob’s employment transfers, then the compensatory exception would apply, with spousal support based upon Donna’s loss.
But if Donna has no income because she has few skills and is unemployed at the end of the marriage, then her entitlement will be non-compensatory. Under the without child support formula, the range would be $4,500 to $6000 per year ($375 to $500 per month) for 2 = to 5 years. This range would not meet Donna’s basic needs in any part of Canada.
By means of restructuring, using the maxima for amount and duration, the formula could generate as much as $15,000 per year for 2 years. In some parts of Canada, that might be enough to meet Donna’s basic needs. In a city, however, Donna might need $20,000 a year for those two years to meet her basic needs, as part of the transition from married life.
In the end, we remain uneasy about recognizing this exception. Many would suggest that the restructured outcome for Donna of $15,000 per year for two years is perfectly reasonable, even in a big city, so that no exception is warranted at all. Others would see the restructured amount as too low, or the duration as too short, thus warranting an exception, and cases to that effect can be found in the post-Guidelines case law. For the most part, those who pressed for this exception can be found in big cities and it may be that this specific exception is not necessary outside of those big cities.
Both formulas produce a "gross" amount of spousal support, i.e. an amount that is deductible from taxable income for the payor and included in taxable income for the recipient. As we noted in Chapter 6 on Income, some payors have incomes based entirely on legitimately non-taxable sources, usually workers’ compensation or disability payments or income earned by an aboriginal person on reserve. In these cases, the payor is unable to deduct the support paid, contrary to the assumption built into the formulas for determining amount.
Some of the recipients may pay little or no tax on the support income received, due to their low incomes, but that is not our concern here. Nor are we concerned with payors who earn income tax-free by working "under the table" or by understating their income for tax purposes. Here we are concerned with payors who legitimately receive their income on a non-taxable basis.
What warrants this non-taxable exception is when the non-deductibility of the spousal support poses a problem for the payor’s ability to pay, as the non-taxable payor is unable to pay the gross amount of spousal support that would be required of a payor with the benefits of deductibility.
Under the without child support formula, ability to pay will usually only become an issue in longer marriage cases, marriages of 15 years or more. In these longer marriage cases, the 50/50 net income "cap" will simplify the use of this exception, as the upper limit on spousal support will be equalization of the spouses’ net incomes. A simple example helps to explain why.
Donna and Jeff have been married for many years, with two adult children. Later in his career, Jeff experienced became unable to work and Jeff now receives a disability pension of $37,500 per year, non-taxable. Grossed up, his disability pension would be worth $50,000 per year. Donna works part-time on account of health issues and earns $10,000 gross per year.
Under the without child support formula, if Donna and Jeff have been married for 25 years and using the gross income difference, spousal support would be $1,250 to $1,667 per month, indefinite (duration not specified). But Jeff cannot deduct any amount for the spousal support paid, even though Donna will have to include it as taxable income.
In this final version, we have added a net income "cap" under this formula, so that the upper end of the range for support would leave both Jeff and Donna with 50 per cent of the net income. This net income calculation takes into account Jeff’s inability to deduct his support and Donna’s payment of tax on that support. The "cap" would kick in at $1,318 per month (using Ontario tax rates), well below the formula’s upper limit of $1,667 monthly (if Jeff’s income were taxable, the "cap" would still take effect, but much higher, at $1,575 per month).
That would only leave a narrow range of $1,250 to $1,318 per month if we applied the "cap" literally. Practically, the non-taxable exception would mean that a court or the parties will likely have to go lower than $1,250 per month in most cases, in consideration of Jeff’s ability to pay.
What if Donna and Jeff were married for 20 years? Using the gross income difference, the range would be $1,000 to $1,333 per month, indefinite (duration not specified). The net income "cap" would only have a small impact here, as it would limit the upper end of the range to $1,318. Ability to pay concerns for Jeff’s position would be much diminished and this non-taxable exception may not be required.
The problems are actually more serious at higher income levels, especially where the support recipient has to pay a higher rate of tax. If the payor receives $68,388 non-taxable, the equivalent of a grossed-up income of $100,000 and the recipient earned $30,000 per year, the net income "cap" has an even greater impact than it does for Donna and Jeff. Most cases of non-taxable income involve low-to-middle incomes rather than such higher incomes.
Because the with child support formula already uses net incomes for its calculations, the basic formula automatically adjusts for the non-deductibility of support. The result is that the whole range under this formula is reduced downward, but it is important to be aware of the reduction and the amounts involved. Another example can help, if we go back to the familiar example of Ted and Alice.
Ted and Alice have been married for 11 years and have two children aged 8 and 10, as in Example 8.1. Alice still earns $20,000, but Ted now receives a non-taxable disability pension totalling $56,900 per year (grossed-up, this would be equivalent to $80,000 of employment income). This means that Ted still pays $1,159 per month in child support and there are no section 7 expenses. When Ted earned $80,000 per year in employment income, the spousal support range was $474 to $1,025 per month, using Ontario rates. Now that Ted receives a non-taxable disability pension, the range is reduced to $380 to $797 per month. The difference in the two ranges reflects the effect of Ted being unable to deduct the spousal support for tax purposes.
It might be possible to make an exception here, to increase spousal support above the upper end of the automatically-reduced non-taxable range, pushing up towards $1,025 per month, in order to improve the financial situation of the recipient and the children. At $1,025 per month, however, almost 61 per cent of the family’s net disposable income or monthly cash flow would be left in Alice’s household.
The important point is to appreciate how much the basic with child support formula has reduced the range for amount when the payor’s income is non-taxable, in order to make the necessary judgment about whether an exception should be made, to increase spousal support above the calculated range.
In every one of these non-taxable exception cases, it is necessary to balance the tax positions of the spouses — the reduced ability to pay of the payor spouse, who can’t deduct the support paid, and the needs or loss of the recipient spouse, who still has to pay taxes on spousal support and only receives after-tax support.
In many cases, the custodial payor formula will apply because a father has become the custodial or primary parent of older children, after a medium to long marriage. In these cases, this hybrid formula will provide reasonable amounts of spousal support for durations that will extend beyond the children reaching the age of majority. But in some cases the custodial payor formula will be applied after a shorter marriage, with younger children.
There is an exception distinctive to the custodial payor formula, flagged earlier in Chapter 8 and reflected in the Nova Scotia case of Davey v. Davey. It is quite a narrow exception, unlikely to be raised very often, but worth noting. To come within this exception:
- the recipient spouse and non-custodial parent must play an important role in the child’s care and upbringing after separation
- the marriage is shorter and the child is younger
- the ranges for amount and duration are low enough and short enough under the custodial payor formula that the non-custodial parent may not be able to continue to fulfil his or her parental role.
Some of these cases may involve an element of illness or disability, as in Davey. Under this exception, however, the focus is upon the recipient’s parenting role, rather than the disability. Most often, the exception will be used to extend the duration of spousal support, until the child is old enough and the parenting functions are much reduced. Less frequently, the amount of support might need to be increased, to ensure the recipient spouse has sufficient resources to meet the specific demands of parenting.
In practical terms, this parenting exception should be considered first, before reaching the more general illness and disability exception discussed above. If the non-custodial parent does not play an important parenting role, perhaps because of the illness or disability, then the more general exception can be properly used.
A child with special needs can raise issues of both amount and duration in spousal support law, issues that may require an exception.
First, duration. A child with special needs can obviously affect the ability of the primary parent to obtain employment, whether part-time or full-time. This may require that the duration of support be extended beyond the length of the marriage or beyond the last child finishing high school, the two possible maximum time limits under the with child support formula.
Second, amount. Again, a special needs child will often mean that the primary parent cannot work as much, perhaps not even part-time, and thus the amount of spousal support will be increased because of the recipient’s lower income, an adjustment that can be accommodated by the with child support formula. But even then, there may be a need to go above the upper end of the range, to leave an even larger percentage of the family’s net disposable income in the hands of the primary parent, above the typical maxima of 54 per cent (1 child) or 58 per cent (2 children) or even 61 per cent (3 children). In these cases, spousal support awards go beyond the usual compensatory rationale under the with child support formula, to reflect a larger component of supplementing the children’s household standard of living. The table amount of child support and section 7 expenses for the special needs child may not fully reflect all the costs imposed upon the recipient spouse’s household by that child.
The with child support formula gives priority to child support, as required by s. 15.3(1) of the Divorce Act and by similar provisions found in provincial statutes. In cases where the spouses have three or four children, or where there are large section 7 expenses, there may be little or no room left for spousal support, despite the substantial economic disadvantage to the custodial parent. The maximum time limits may end spousal support after the last child finishes high school or after the length of the marriage, despite the potential inadequacy of the compensation in such cases. The Advisory Guidelines must be consistent with section 15.3(2) and (3) of the Divorce Act and thus there must be an exception for duration, using the terms of s. 15.3(2):
- as a result of giving priority to child support
- the court is unable to make a spousal support order or the court makes a spousal support order in an amount less than it otherwise would have been
- or the parties agree to those terms as part of an agreement.
This section 15.3 exception would recognize that spousal support may have to continue past the time limits in these cases. And, further, in some of these cases, the amount of spousal support may even have to increase upon variation or review as the children cease to be "children of the marriage", but any of these increases in amount should remain within the formula ranges. These outcomes are entirely consistent with compensatory theory and section 15.3 of the Divorce Act.
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