This article is written by Vanessa Lam, a family lawyer at MacDonald & Partners LLP and a contributor to MyLawBid, an online Canadian lawyer referral service. For more information about MyLawBid, visit http://www.mylawbid.com.
Spousal support remains one of the most difficult areas to predict, and subsequently, one of the hardest areas to advise clients on. Yet it is often the area where the most questions come up. Do I have to pay my spouse support? How much should a person pay to his or her spouse and for how long? What if one person wants to retire? What if one person remarries?
Entitlement to Spousal Support
The Divorce Act and provincial support legislation mandates a careful review about entitlement for support after considering the financial means, needs, and circumstances of both spouses, the roles of each spouse during the marriage, the effect of the roles and the breakdown of the marriage on both spouses’ current financial positions. Once entitlement has been established, most spouses really want to know how much and how long support will need to be paid for.
Spousal Support Advisory Guidelines – Amount and Duration
To make spousal support awards more predictable and consistent, the federal government has introduced the Spousal Support Advisory Guidelines (SSAG). The SSAG does not consider entitlement, but simply amounts and duration once entitlement is determined. The SSAG consists of two main formulas: the “with child support” formula for relationships where child support is also being paid; and the “without child support” formula for relationships where no child support is being paid. The “with child support” formula considers the child support payable in considering the after-tax disposable income of each spouse. There are also variations of this formula for situations such as shared custody or where child support is payable for adult children. The “without child support” formula relies heavily on the length of cohabitation (including pre-marital cohabitation for married spouses) and the difference in gross income of each spouse. Software exists to help run the formulas after inputting specifics such as the income of the parties, child support arrangements and the ages of the children, and the length of the marriage.
However, the SSAG are not legislated or mandatory, but advisory in nature. They are increasingly followed by the courts when presented, and some courts insist that reasons be given if the court decides to order spousal support outside the SSAG range. There is often a wide discrepancy between low, mid, and high range suggested by the SSAG formula, both in terms of the amount of support to be paid each month and in terms of the suggested duration of time that support should be paid. Many people neglect to consider where within the range the support should fall, which should be carefully thought out after considering property division, if any, arising from the breakdown of the marriage and the circumstances of the children and spouses.
There are also ceilings and floors for when the payor spouse’s income falls above $350,000 or below $20,000 or $30,000 where the SSAG formula alone should not be used, but require individual adjustments. Exceptions should also be considered for cases where there are unusual circumstances, such as prior support obligations or where one spouse has a serious illness or disability.
Tax Consequences of Spousal Support
Unlike child support, spousal support paid on a periodic basis (usually month) is tax-deductible to the payor and taxable to the recipient. Since the payor is usually in a higher tax bracket than the recipient, periodic spousal support results in a tax savings to the separated spouses. If the payor has the resources to pay lump sum spousal support, the lump sum payment is not tax-deductible to the payor nor taxable to the recipient. Lump sum spousal support may be useful when there are concerns about the payor paying support and when there are resources available to make a clean break between the parties. The SSAG formulas allow you to consider what the equivalent lump sum amount would be.
Review or Variation of Spousal Support
In addition to considering the appropriate amount of spousal support on relationship breakdown, spouses should also consider that there may be situations where spousal support should be reviewed or varied. There may be a specific event in the future where a review of spousal support would be appropriate – such as one party returning to the workforce after caring for the children full-time, one person retiring, or child support ending. There may also be a material change in circumstances where one party seeks to vary spousal support, such as one party losing his or her job or a party becoming ill or disabled. In these cases, the SSAG are still helpful to examine, but a Canadian family lawyer will be able to help you consider how it might apply in your circumstances.
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