Vancouver Spousal and Child Support Awards are based on formulas under the Child Support Guidelines and the Spousal Support Guidelines.
In order for the BC court dealing with spousal or child support to set the right amount an accurate determination of the husband, wife’s or spouse’s income must be made. Income attribution and imputed income are key arguments.
The area is a minefield for the unwary and make sure you have a top lawyer on your side to prevent disaster.
Lorne MacLean, Q.C. argues numerous appeals on spousal support and child support cases that deal with the proper determination of income of both spouses. In many cases MacLean argues for imputation of income to either or both spouses based on pre tax company income which is far different than a business owning spouse’s tax return income and what a paying or reciving spouse’s income should be fixed at if they are underemployed. Mr. MacLean told the Supreme Court of Canada, in the precedent setting case of Leskun, that paying spouse’s can’t be allowed to reduce their income when called upon to pay support any more than a receiving spouse can refuse to work to increase support.
In the recent BC Court of Appeal decision in Marquez the court dealt with the concept of imputed income, general spousal support principles and reapportionment of family property and held that:
- that a husband’s bonus routinely received should be included in his income for support purposes,
- that his business expense deductions of about 20% were reasonable for calculating his income
- that reapportionment didn’t justify an award below the Spousal Support Advisory Guidelines
- that self sufficiency was not met by a spartan lifestyle but rather a lifestyle approaching that of the marriage lifestyle, and
- that an imputed income to the wife of $25,000 on the basis in the future she might work in the secretarial field was unfounded.
The case is a long one and for those who want to get a very good review of the law on the thorny issue of imputed and attributed income. Here is the official summary followed by key passages on point:
Summary:
The appellant appeals a final order of spousal support awarded her in the parties’ divorce action following the breakdown of a 20-year marriage and two children. She submits the trial judge erred in imputing income to her, in calculating the respondent’s income from his net business income without including his periodic bonus income, and in awarding the appellant support below the SSAG range because of a reapportionment of the net equity in the family residence in her favour. The respondent cross appeals a final order of sole custody to the appellant and the failure to grant him unconditional reasonable access, the judge’s order that the court had no jurisdiction to order the children and respondent attend a single counselling session to facilitate the repairing of their relationship, and the judge’s delay in apportioning the children’s extraordinary expenses for two years when he had awarded the appellant spousal support and imputed income to her.
Held: Appeal and cross appeal allowed in part.
The appeal: There was no evidentiary basis for imputing income to the appellant who had significant compensatory and non-compensatory claims for spousal support. There was an evidentiary basis for the judge’s deduction of 20% from the respondent’s gross business income for reasonable business expenses. The respondent’s bonus income, albeit not guaranteed but constant over the past several years should have been imputed to some extent in calculating his income. Reapportionment of family property in favour of a payee spouse does not by itself require an award of spousal support below the SSAG range.
The cross appeal: The older child is now an adult and the issue of custody has no merit. The respondent who was awarded joint guardianship of the children was entitled to reasonable access. The court has jurisdiction under the Divorce Act to impose a term that the children and respondent attend for a single counselling session. The appellant is required to share proportionately in the children’s extraordinary expenses based on the amount of her spousal support income.
What is A Reasonable Support Award Related To?
34 Non-compensatory support acknowledges the interdependencies that marriage creates and which often “cannot be easily unravelled” (Bracklow at para. 30). It allows for a level of entitlement to meet the spouse’s “needs” following marriage breakdown. “Needs”, however, is a relative concept that extends beyond a level of support for the mere basic necessities of life; non-compensatory support includes a level of support that takes into account the standard of living enjoyed by the spouses during the marriage. In Moge, Madam Justice L’Heureux-Dubé recognized the importance of this latter factor, particularly with respect to long-term marriages (at 870):
Although the doctrine of spousal support which focuses on equitable sharing does not guarantee to either party the standard of living enjoyed during the marriage, this standard is far from irrelevant to support entitlement [citations omitted]. Furthermore, great disparities in the standard of living that would be experienced by spouses in the absence of support are often a revealing indication of the economic disadvantages inherent in the role assumed by one party. As marriage should be regarded as a joint endeavour, the longer the relationship endures, the closer the economic union, the greater will be the presumptive claim to equal standards of living upon its dissolution [citations omitted.]
In short, in the proper exercise of their discretion, courts must be alert to a wide variety of factors and decisions made in the family interest during the marriage which have the effect of disadvantaging one spouse or benefiting the other upon its dissolution. In my view, this is what the Act [Divorce Act] mandates, no more, no less.
(iii) Imputing income for child and spousal support
36 For the purposes of both child and spousal support, there is a broad judicial discretion to impute income to either or both spouses. However, the party seeking to have income imputed to the other spouse has the burden of establishing an evidentiary basis for such a finding.
37 The test for imputing income for intentional under-employment or unemployment is one of reasonableness, having regard to the parties’ capacity to earn income in light of their age, education, health, work history and work availability. A spouse’s capacity to earn income will include that person’s ability to work or to be trained to work. See Van Gool v. Van Gool (1998), 113 B.C.A.C. 200, 44 R.F.L. (4th) 314 at paras. 28-31, Barker v. Barker, 2005 BCCA 177, 45 B.C.L.R. (4th) 43 at para. 19, and McCaffrey v. Paleolog, 2011 BCCA 378, 24 B.C.L.R. (5th) 62 at para. 46.
38 Although the legal foundation for awarding spousal support is different from that of child support (see Kerr v. Baranow, 2011 SCC 10, [2011] 1 S.C.R. 269 at para. 208), the test for imputing income for the purpose of fixing the quantum of support is similar. Again, the test is one of reasonableness, having regard to the same factors to be considered in imputing income for child support. However, the concept of “needs” for non-compensatory support also includes a consideration of the marital standard of living: Myers v. Myers (1995), 65 B.C.A.C. 226, 17 R.F.L. (4th) 298 at para. 10, Moge at 870, Bracklow at para. 36. “Means” has been interpreted to include all capital and other sources of income (Leskun v. Leskun, [2006] 1 S.C.R. 920 at para. 29).
41 The SSAG includes a spousal support exception where there has been a reapportionment of property. While that exception may be applicable in the circumstances of a short relationship and/or no children, where it can be demonstrated that both compensatory and non-compensatory bases for an award of spousal support can be adequately met by a reapportionment of property, reapportionment per se does not require a spousal support award outside the SSAG ranges. The application of the SSAG where there has also been a reapportionment of property was discussed in McEachern v. McEachern, 2006 BCCA 508, 33 R.F.L. (6th) 315, where Prowse J.A., for the Court, stated:
62 The fact of reapportionment (of both assets and debt) is a factor which should be taken into account in applying the Advisory Guidelines. Here the reapportionment was not substantial given the length of the marriage and the roles played by the parties in the marriage. I am satisfied that it can properly be taken into account by considering an award at the lower end of the range suggested by the Advisory Guidelines.
Improper Income Attributed to Wife
i) The appellant’s income
43 The appellant submits the trial judge erred in imputing to her an annual income of $25,000 as of May 1, 2012, for the purpose of spousal support, and as of January 1, 2014, for the purpose of her proportionate share of the children’s s. 7 special and extraordinary expenses, in the absence of any evidence to support a finding that she had the capacity to earn such income. She says the trial judge clearly contemplated that she would have to retrain after an absence of some 20 years from the workforce, to acquire some marketable skills and that even then she might have difficulty securing employment. She also relies on the lack of any finding by the trial judge that she was intentionally unemployed.
44 The trial judge accepted that the appellant was entitled to an award of compensatory support. She had given up her career as a university professor in the field of civil engineering to immigrate with the respondent to Canada. Thereafter, the arrival of two children of the marriage resulted in her assuming the primary responsibilities of child care and household management. Her assumption of this role in the marriage provided the respondent with the opportunity to advance in his career. He currently has an earning capacity that is significantly greater than that of the appellant.
45 The appellant has not worked outside the home for the past 20 years. She was 54 at the date of trial. Her prospects of any meaningful employment are unquestionably slim. The trial judge recognized this fact (at para. 89) when he acknowledged that even with some form of retraining, it was uncertain what employment at her age (and I would add in today’s employment market) she might obtain. She will never achieve the potential maximum earning capacity she might have reached had she continued working as a university professor. The appellant also has some health issues and difficulty with English, which may further impact on her employability. While the appellant has a responsibility to do what she can to become self-sufficient, that objective must be balanced against a level of entitlement that takes into consideration the length of the parties’ relationship (21 years), the functions performed by each of them in the marriage, and the marital standard of living.
46 The trial judge recognized many of these factors. However, it is unclear to me the evidentiary basis he relied upon for his order imputing an annual income of $25,000 to the appellant as of May 1, 2012 is unclear to me. It seems to me that while an expression of intention to seek secretarial training might provide an evidentiary basis for a future review, it does not provide the requisite evidentiary basis for the imputation of income especially where there has been no finding that the appellant was intentionally unemployed. This is particularly so given the other impediments to the appellant’s employability to which I have referred.
47 Moreover, self-sufficiency must be considered in the context of the marital standard of living. Here, the post-separation income disparity between the spouses is significant. A spousal support award that provides the appellant with an annual income of $18,000 only, with no evidentiary basis to assume she has the capacity to earn an annual income of $25,000 or a finding that she is intentionally unemployed, is clearly inadequate to meet both the compensatory and non-compensatory level of support to which she is entitled. It seems to me that the better route to address any concerns the trial judge may have had about the appellant’s efforts to retrain and attempts to obtain some form of employment would have been to order a review of the amount of her support after a reasonable period of time. In my view, two years would have been a reasonable period to meet that purpose.
Husband’s Business Deductions Reasonable But Bonus Added To Income For Support
(ii) The respondent’s income
48 The appellant submits the trial judge should not have deducted any business expenses from the respondent’s gross business income and should have imputed bonus income to the respondent in calculating his income for child and spousal support.
49 Section 19 of the Guidelines clearly contemplates the deductibility of business expenses provided they are reasonable. Business expenses are a legitimate cost of producing business income. The issue to be determined in assessing whether business expenses are reasonable is whether, for the purposes of child and spousal support, individual business expenses are properly attributable to the business. In that regard, ss. 19(1)(g) and (2) of the Guidelines provide that a business expense that may be reasonable for income tax purposes may not be reasonable for child or spousal support purposes.
50 In Egan v. Egan, 2002 BCCA 275, 214 D.L.R. (4th) 687, the Court commented on this issue, albeit in the context of the deductibility of capital cost allowance for certain personal property in the calculation of a payor’s Guidelines income. There, Prowse J.A. stated (at para. 30):
I respectfully agree with the interpretation of s.11 [in Schedule III of the Guidelines] adopted by the Saskatchewan Court of Appeal [in Rudachyk v. Rudachyk (1999), 180 Sask. R. 73 (C.A.)] and with the pragmatic approach taken by that court in relation to the issue of deductibility of contested CCA claims for Guidelines purposes. In my view, that approach contemplates that if there is some evidence supporting the reasonableness of the expense (beyond the fact that it [is] allowable under the Income Tax Act), the court is unlikely to deny the deduction in calculating the payor’s income.
51 Going forward, the trial judge in my view adopted a similar approach to determining reasonable business expenses for the respondent. The expenses disallowed by the CRA were ones for which no documentation had been provided to support their business purposes. The percentage of business expenses allowed by the CRA from the respondent’s gross business income may be summarized as follows: 2008 – 28%, 2009 – 19%, and 2010 – 19%. An average of these percentages would be 22%. In this context, including the percentages for allowable business deductions by the CRA, the 20% allocated by the trial judge can be supported on the evidence and in my view was not unreasonable.
52 I am persuaded, however, that the trial judge erred in principle in failing to consider, in the calculation of the respondent’s Guidelines income, the respondent’s pattern of bonuses over the years, or fluctuating income based on his periodic receipt of annual bonuses. Where income fluctuates from year to year, s. 17 of the Guidelines offers an alternative to the conventional manner of calculating Guideline income based on “Total income” in the T1 General form as adjusted by Schedule III. In this case, that additional bonus income while not guaranteed was also not arbitrary. The evidence establishes that where the project the respondent oversaw successfully completed on time, on budget, and met the quality standards, the respondent could reasonably expect to receive additional bonus income. The evidence also demonstrated a fluctuating net business income in the three years preceding the trial of $158,473 for 2009 (including a $20,000 bonus), $126,368 for 2010 (no bonus), and $140,800 (80% of $176,000 gross business income and including a $20,000 bonus) for 2011.
53 The test in s. 17(1) of the Guidelines is what is “fair and reasonable”, having regard to the payor’s income in the preceding three years. However, in 2008 and 2009, the respondent was working on the Olympic Village project which realized for him a higher than typical business income. At the same time, the bonus income he received in each of those years and in 2011 was a constant amount of $20,000. In my view, the trial judge erred in failing to include in his calculation of the respondent’s income an amount for the periodic, albeit not guaranteed, bonus income that the respondent often receives upon the successful completion of a project. In light of the higher than usual income in 2008 and 2009, I would propose averaging the respondent’s 2010 to 2012 net business income, and infer the same amount from 2011 for 2012. While it may be that the respondent did not receive a bonus in 2012, I think it reasonable to infer that he is likely to continue to receive such additional income at times in the future. Accordingly, I would calculate the respondent’s Guidelines income in an amount that reflects his receipt of periodic bonuses, at $135,989 (the average of $126,368 [2010 net business income], 140,800 [2011- estimated 80% of gross business income] and $140,800 [2012 -estimated 80% of gross business income]).
This area is very complex as you can see if you made it to this part of the blog. Call Lorne MacLean, Q.C. at 604 602 9000 if you have an attributed income dispute to get sound legal advice and a strategy for resolving this issue.
