Determining the income available for child support or spousal support can be complicated when the payor’s income is irregular. Income can be earned through various payment structures and may include dividends or bonuses in addition to a base income. When calculating income, all forms of compensation and additional revenue sources must be included in order to accurately reflect the amount of support available. However, even where the parties agree that these other sources of income should be included for the purpose of settling a quantum of support, there can still be issues around how and when the payments should be made.
Where the payor’s total income fluctuates or has income that is derived from periodic or irregular sources, there are questions about how support should be paid on those portions of income and when it can be paid.
In Knapp v. Knapp, the husband argued that his bonus should not be taken into account in assessing his ability to pay support and produced spousal support calculations based on his income excluding his bonus. He pointed out that it was his first bonus in four years and that there was no certainty that he would receive a bonus in future years. The court was not convinced by that argument and included the husband’s bonus in the calculation of income as it did impact his ability to pay support. Instead, the judge noted that if he does not receive a similar bonus in subsequent years spousal support could be adjusted based on a material change in circumstances.
Murray v. Murray highlighted the differences in income calculation that can arise based on additional income. In that case, the question centred on whether the husband’s bonus should be included as income in the year in which it was declared rather than in the following year when it was included in the husband’s income for income tax purposes. The court concluded that when looking at income over an extended period, the difference in timing is not significant since any deferred bonus income will always be included the following year. The judge was satisfied that it was not necessary to match the bonuses with the year in which they were declared. The bonuses paid to the husband should be included in his income in the year in which they were paid out to him.
The manner in which a support payor is compensated can impact how support can be paid.
In Easton v. Coxhead, the husband received a base salary and was eligible for two bonuses throughout the year which totalled up to 50% of his compensation. He argued that he should share his bonus when it was received rather than make support payments monthly based on total anticipated compensation. He was concerned that his income could be lower than in the previous year and that he could face cashflow challenges leaving him unable to afford the monthly payments if they were based on his total compensation. The wife disagreed with this approach. She alleged that support should be paid on the total income including the bonus on a monthly basis. She pointed to the fact that the timing of the bonus was predictable and that they had tended to increase rather than decrease.
The court looked to numerous prior cases which highlighted that sharing a bonus upon receipt can be the fairest approach in some circumstances. For example, in Cernic v. Cernic, where the payor earned a bonus based on performance, the judge determined that it was appropriate for him to share a percentage of his bonus when it was received. Overall, the goal is to ensure payment schedules reflect how the payor is compensated.
For Justice Madsen in Easton, making additional payments when the income distributions are received ensures the recipient is not being paid too much or too little while also avoiding the need to make adjustments later on. Considerations linked to the payor’s cash flow were also relevant. Here, under the wife’s preference, the amount of income she received would be disproportionate to the amount available to the husband. Moreover, historically the two parties enjoyed a lifestyle that was dictated by when income was received, and it was not clear why one party should share in the bonus before it is even earned. Carrying that forward, both parties could continue to bear the burden of the timing in any extra amounts the husband might earn.
Parties with unpredictable finances should carefully consider their financial disclosure in family proceedings relating to support. The standard for disclosure was described in Meade v. Meade. In that case, Justice Kiteley wrote that “it is inherent in the circumstances of those who are self-employed or who have irregular income and expenses, that they have a positive obligation to put forward not only adequate, but comprehensive records of income and expenses”. This does not mean that audited financial statements are required, but there must be information to enable the recipient spouse to draw conclusions and to be able to establish a proper level of support. Ultimately, there must be enough information presented to be able to conclude what the total income of the payor is.
In arriving at an equitable amount of support each year, a 2016 British Columbia case noted the importance of parties exchanging financial information each year so that adjustments to support could be made in line with the legal obligation to increase support payments with any increased income that the payor received. In that case, the parties were ordered to exchange income tax returns each year, with the payor advising the recipient within seven days of learning of any increase in base salary and the amount of any bonus he was to be paid for as long as he was obligated to pay support.
If a party has irregular income and is paying support, it can be difficult to determine how much to pay and when to make payments. In these circumstances, it might not be appropriate to simply look at the payor’s total income over the year and calculate a monthly support payment. As a result of the different compensation structures, varied payment schedules, and the fact that some income, such as bonuses, are not guaranteed, it may be necessary to take into account additional issues when determining support payments such as the need for full financial disclosure, the payor’s cash flow, and the schedule of support payments.
Contact the Family Lawyers at Boulby Weinberg LLP for Assistance with Irregular Income and Support Payments
Boulby Weinberg LLP in Toronto focuses exclusively on family law matters and regularly assists clients in resolving complicated support issues that involve irregular or fluctuating incomes. The firm’s family and divorce lawyers assist with all aspects of family property and finance including spousal support, child support, support variations, property division & equalization, and pensions. To discuss your matter further or arrange a confidential consultation please complete our online questionnaire or contact the firm at 647-494-0113 ext. 102.