Vancouver Support Averaging Income Lawyers analyze fluctuations in a paying parent or spouse’s income to assess a fair spousal and child support payment. A recent BC Court of Appeal case of Harras v. Lhotka allowed an appeal by a husband of a decision using his 3 year average of income instead of the 5 year average agreed to in a separation agreement. Vancouver Support Averaging Income Lawyers explain that the BC Court of Appeal just ruled that there is no set rule for what income is to be used for cases where income fluctuates other than it must be fair.
So, for self-employed persons, commission salespersons, real estate agents, actors and others we can’t just look at their most recent tax return if it would not be fair. In some Vancouver support cases incomes go up and down, some cases the income is going steadily down and in some cases the income is going steadily up. Vancouver Support Averaging Income Lawyers know each of these cases may well involve a different approach to what year or years of income are looked at.
MacLean Law is a multiple winner of Vancouver’s Best Family Law Firm. Lorne MacLean, QC heads the skilled family law team that handles these difficult cases. Call him today at 604-602-9000.
Our firm handles all types of financial issues related to the negotiation, mediation and trial work of family law matters. We act for both the paying and receiving spouses and parents of children to ensure fair child and spousal support is paid. These issues can be confusing and stressful particularly in cases where incomes fluctuate, are going up or are going down or to zero in cases where the economy leads to job loss or business failures.
Vancouver Support Averaging Income Lawyers Look At Fair Income Figures
26 In some cases, averaging is considered appropriate (or “fair”) where the payor’s income has fluctuated substantially from year to year. For example, in Dornik v. Dornik, 1999 BCCA 627, this Court held that the chambers judge erred in determining Guideline income based on the respondent’s sworn statement as to his anticipated income, rather than averaging income from the preceding three years. The respondent was self-employed through a personal corporation, apparently in the construction industry. At paras. 18-19, the Court said the following:
On behalf of the respondent, Mr. Lecovin submitted that it was reasonable to take the respondent’s sworn statement as to his anticipated income for 1997 as the guideline income, because the most recent earnings are the best guide for payments that are to be made in the future. As a general proposition that submission may have force, but in this case, the tax forms and financial statements plainly show that the respondent’s source of income was fluctuating. Given the nature of the business the respondent is in, that is hardly surprising.
In light of the provisions in the Guidelines and the material before the chambers judge to which I have referred, I am of the view that the chambers judge erred in finding that the respondent had a guideline income of $31,500.
[27] Similarly, in Cornelissen v. Cornelissen, 2003 BCCA 666, this Court applied three year averaging where the preceding five years disclosed wide fluctuations in income, ranging from a low of $155,477 to a high of $943,822. At para. 31, Prowse J.A. said the following:
For the purposes of the application of s. 17, Mr. Cornelissen’s income over “the last three years” was $155,477 (1999), $468,300 (2000) and $943,822 (2001), inclusive of those amounts the trial judge found should have been added back into Mr. Cornelissen’s income. In my view, these three years present a fair picture of Mr. Cornelissen’s historical income in that they include a year in which his income was noticeably low (1999), and a year when his income was noticeably high (2001). In these circumstances, I conclude it would be fair and reasonable to apply s. 17 by using the average of these three years’ income as the basis for determining Mr. Cornelissen’s income for Guidelines purposes with respect to ongoing child support. [Emphasis added.]
[28] Thus, the trial judge was held to have erred in principle by relying on the payor’s income in 2001 as the sole basis for estimated income in 2002 (at para. 26).
Sometimes Vancouver Support Averaging Income Lawyers Use Current Income
[29] However, in Bell v. Bell, 1999 BCCA 497, this Court held that actual income earned was a fairer representation of income available for child maintenance, despite (and apparently because of) “considerable fluctuation” in the payor’s income:
[12] Turning to the question of the maintenance for the children, it is my view that the learned trial judge erred in fixing Mr. Bell’s income at a figure far in excess of what he was earning. The guidelines that apply in this case require a fair fixing of income for this purpose. I think that the amount that the husband actually earns is a far better indicator of what figure should be used for this purpose than is achieved by averaging, particularly in an economy where employment is sometimes scarce and where there can be wide fluctuations. [Emphasis added.]
[30] This passage has been held to stand for the proposition that “wherever possible, salaries should be fixed for guideline purposes on the basis of amounts actually earned”: Wallace v. Wallace, 2000 BCCA 81 at para. 19.
[31] While perhaps not determinative of the results in each case, it is noteworthy that in both Dornik and Cornelissen, three year averaging resulted in an income lower than the payor’s most recent earnings, while in Bell, averaging resulted in an income substantially higher than the payor’s most recent earnings.
[32] Lower courts have often considered averaging more appropriate in cases where income fluctuates. For example, in de Bruijn v. de Bruijn, 2011 BCSC 1546, Fenlon J. (as she then was), refused to average income where the respondent’s income showed a pattern of decline over the preceding four years. At para. 35, she said the following:
With respect, I do not accept Ms. de Bruijn’s submission that Mr. de Bruijn’s income should be fixed at an average of his 2008, 2009 and 2010 earnings under s. 17(1) of the Guidelines. This is not a situation in which Mr. de Bruijn’s income regularly fluctuates up and down. For the past four years his income has been in decline. To ignore that reality and base his support obligations on a number greater than his current earnings would, in my view, be unjust. [Emphasis added.]
Vancouver Support Averaging Income Lawyers Should Use Current Income For Steadily Increasing Incomes
[33] This Court has likewise described the application of averaging to steadily increasing income as an error in principle: Jakob v. Jakob, 2010 BCCA 136 at para. 48. In Jakob, the payor’s income had increased from $15,276 to $35,333 over three years. The chambers judge had applied a three year average to determine his income for Guideline purposes. At paras. 46-48, the Court said the following:
The calculation of income for the payment of support is based on a payor’s capacity to pay; it is a payor’s income or earning capacity that determines the amount of support he or she will be required pay. Actual income may not always reflect a payor’s capacity to pay. Where income has fluctuated in previous years, in the sense that it has increased and decreased over a fixed period of time, and it is anticipated that it will continue to fluctuate in that manner, it may be appropriate to take an average of fluctuating income for a fixed number of years to calculate a payor’s income or earning capacity.
Those were not the respondent’s circumstances. Between 2005 and 2008, his income had steadily increased from $15,276 in 2005, to $22,454 in 2006, to $35,333 in 2007. Based on the new evidence, his actual income at the time of the application was about $35,000, or at least three times higher than his 2005 income. Therefore, his capacity to pay spousal support was materially greater than the $23,029 found by the chambers judge.
… In my view, the chambers judge erred in law by calculating the respondent’s income based on an average of his previous three years’ annual income, when his income was increasing over that period of time. Given the steady increase in the appellant’s income, his 2007 income (being the last year of the three-year period) more closely reflected his actual income or income capacity. …
Vancouver Support Averaging Income Lawyers Can Average If Income Declines If No Proof Decline Will Last
[34] By contrast, in at least one case, this Court has applied averaging in circumstances where there has been a drop-off or decline in income, and the resulting average exceeds current earnings: see Grossi v. Grossi, 2005 BCCA 47.
[35] In summary, the averaging approach to income determination under s. 17 is very fact specific. Generally speaking, averaging will be applied where income fluctuates, or where the payor has not demonstrated a lasting decline in earnings. Ultimately, it depends on fairly calculating the amount of income reasonably available to pay child support. Depending on the reasons for a pattern of fluctuating income (or, as in Grossi, declining income), averaging may be more or less appropriate. If, for example, a substantial increase in income in one of the three previous years is due to receipt of what might be fairly viewed as a non-recurring amount, averaging may be inappropriate. If, however, the nature of a payor’s employment or business is such that wide fluctuations in income are normal and expected, averaging may be more appropriate. As the Court stated in Jakob at para. 46, “[w]here income has fluctuated in previous years, in the sense that it has increased and decreased over a fixed period of time, and it is anticipated that it will continue to fluctuate in that manner, it may be appropriate to take an average of fluctuating income for a fixed number of years” to determine current income.
Vancouver Support Averaging Income Lawyers Can Use 5 Year Average Not Current or 3 year Average
[36] Outside the context of s. 17, in rarer cases, courts have upheld the use of averaging of income over a period of longer than three years. In Oulette, the payor spouse earned income through his involvement in a trucking and excavation business, as the owner of a holding company which operated in partnership with a company owned by his brother. In determining prospective child support, the trial judge noted that revenues were declining, but held that a five year average of the income available to the payor would be the fairest method of determining his Guideline income. The payor appealed on the basis that s. 17 does not permit averaging outside of a three year period. This Court upheld the five year average approach as an exercise of the broad discretion available under s. 19(1). At paras. 66-67, Tysoe J.A. (for the Court) wrote the following:
… Although the judge did not expressly state that he was imputing income to Mr. Ouellette in using the five-year average, it is my view that he was exercising the broad discretion under s. 19. …
In my opinion, the judge did not err in finding it appropriate in the circumstances to use a five-year average of the Partnership’s earnings in determining the amount of income to be attributed to Mr. Ouellette for support purposes. Mr. Ouellette testified that the two years prior to the trial had been financially hard for the business as a result of the economic downturn in 2009, and a three-year average would not have accurately reflected the potential earning capacity of Mr. Ouellette. In addition, the parties separated approximately three years prior to the trial, and Mr. Ouellette may have manipulated the revenues and expenses of the business during this period in order to minimize the amount available to him for support purposes. A five-year average was more representative.
[Emphasis added.]
[37] Thus, averaging over a five year period may be an appropriate exercise of the court’s discretion under s. 19 where it would more accurately reflect the income available to a payor spouse than a three year average would.
In the end result paying and receiving spouse’s need to ensure the proper method is applied. There will be strong disagreements in self employed and fluctuating income cases. Don’t leave thousands of dollars on the table or get stuck overpaying beyond your means. Hire one of the best Vancouver Support Averaging Income Lawyers immediately.
Call us toll free to meet at any of our 6 offices in BC and Alberta at 1-877-602-9900.
