|JAMES D. L. KERR
|TO: Clients||FROM: James D.L. Kerr ● Lawyer
Tel 416 485-4254
Fax 416 485-8836
Certified Specialist Civil Litigation
|DATE: May 1, 2006|
|RE: FAMILY LAW IN GENERAL|
Family Law In GeneralThe law of Ontario consists of both statutes and decisions of judges in the past commenting on the law (which is called the “common law”). Since Canada is a federal country, we are affected by laws of both the Province of Ontario (such as the Family Law Act and the Childrens Law Reform Act) and the federal government (such as the Divorce Act). Both legislatures have the power to pass laws in their respective spheres of authority (or “jurisdiction”), which occasionally overlap. There is therefore some potential for conflict; however, by such executive steps as ministerial conferences, and other action, this rarely happens.
The Family Law ActThe Family Law Act is the most recent statute of the Province of Ontario in enacting reform in the area of family law. The Act provides for custody of, access to and support for children of the marriage; spousal support; orders restraining harassment; arrest of absconding spouses; and other collateral relief.
Judgment Equalizing Net Family Property
The Act provides, in Part I, that on the happening of a triggering event (death, separation, annulment or divorce, or at any time when one spouse feels that the other spouse is acting improvidently) a legal spouse may apply for an equal division of the growth of all assets (with certain exceptions, some of which are noted below) owned by either spouse during the marriage. It is important to note that, at least initially, property is not transferred, but that the spouse with the lower "net family property" (or "NFP") obtains a Judgment against the spouse with the greater NFP, for one half of the difference. In this way, the increase in the net worth during the marriage of both spouses is shared equally. The jurisdiction of the court to award a spouse more or less than one half of the difference between the spouses' NFPs is extremely limited. The Act does also provide, however, that property may be transferred in satisfaction of such a Judgment.
Many provisions of the Act can often result in considerable unfairness. Examples include valuing a business as a going concern for more than the owner can borrow against it; and excepting the value of a matrimonial home as a deduction on the date of the marriage. In fact, unfairness is built into the Act: it is not designed to be fair, but rather, the opposite.
That should come as something of a shock, but it is in fact government policy. Under predecessor legislation, the Family Law Reform Act of 1978, a trial Judge had a great deal of discretion to rearrange property rights, grant money Judgment, and so forth, in furtherance of his statutory mandate to achieve fairness. The volume of litigation under that legislation turned into a torrential flood, as spouses, often driven by a fire fuelled by emotion, warred upon one another. However, the Ontario legislature determined to take away this wide discretion and substitute a strict mathematical formula.
It was thought that if all the players knew the rules of the game and could count on their fingers, no case would go to trial; but it was also recognized that this might result in unfairness in some cases. Further, it was recognized that if the mere fact that the result was unfair would allow a party to avoid the mathematical formula, then there was no point to even having a formula. As a compromise, the Act provides that the formula applies unless the result is unconscionable, having regard to certain criteria set out in section 5.-(6) of the Family Law Act. Family law practitioners generally agree that "unconscionable" means at least grossly unfair; so the fact that the result is unfair is not sufficient to remove the situation from the applicability of the strict formula.
Of course, the volume of litigation and the number of trials continue unabated, because spouses fight for perceived wrongs at least as often as for money. (No one wants to think of himself or herself as a money-grubber, but simply as being entitled to what fairly belongs to him or her.) Legally, litigants hang their hats on "value": what is any asset worth? The Act, of course, does not define value, but leaves that up to the parties, assisted by lawyers, accountants, actuaries and appraisers. The parties now litigate over "value" as they once litigated over "fairness". The only difference is, now the law is blatantly unfair.The Act specifically provides that the value of a matrimonial home is not included in the value of the assets owned by a spouse on the date of the marriage. "Matrimonial home" is clearly defined in the Family Law Act as any property in which a spouse owns an interest on the date of separation which is normally occupied by the family. If one spouse owns the same house on the date of the marriage and the date of separation, the value of the house is not a deduction. Furthermore, according to the strict wording of the Act, it is not the equity in the house which is excluded, but its fair market value. Any mortgage registered against title to the house is a debt, which could in theory be offset against the value of other assets (stocks, bonds, etc.) owned by the spouse on the date of the marriage, thus lowering the owner spouse' net worth on the date of the marriage, and so increasing the owner spouse' net family property. However, the courts have recognized that this is grossly unfair and have declared that it is only the equity in the matrimonial home on the date of the marriage that is excluded as a deduction from net family property – in effect, amending the statute (which courts are not generally supposed to do!) to remove a gross unfairness which the legislature built into the statute.
Constructive TrustAs stated, above, the Act does not reorder property rights. "What's mine is mine; what's yours is yours; and what's ours is ours". It is only the value of the property that is shared between spouses, and not ownership. Furthermore, as stated above, Part I at present applies only to married couples. But while common law spouses, including unmarried homosexual couples, do not acquire the right to equalization under the Act, and neither married nor common law spouses acquire rights under the Act in specific pieces of property (other than a matrimonial home), they may have such rights at common law (i.e., judge made rules), pursuant to the doctrine of "restitution".
If one party contributes money or money's worth - perhaps even by staying home to look after the children - to the acquisition or improvement of property owned by another party in circumstances where the contributor expects to have an interest in the property, and it would be unfair for the owner to receive all of the benefit of the contribution, then a trust for the benefit of the contributor is forced on the owner. In other words, if I work weekends fixing up your yacht and increase its value, part of it is mine!This doctrine applies equally to married couples. Prima facie, it should rarely be "unfair" in the case of spouses, because the non-titled spouse gets judgment equal to half of the increase in value during the marriage. It may, however, be unfair if the property increases substantially in value after separation.
In Rawluk v. Rawluk, a decision released in February of 1990, the Supreme Court of Canada, by a split decision, ruled that, before determining the amount of an equalization payment, a trial judge must first determine who owns what family property; and in that regard, the judge must determine if a non-titled spouse has any interest in specific property owned by the other spouse.
The Ontario Court of Appeal in the case of Berdette v. Berdette, released in May of 1991, pointed out the important distinction between sharing of property (which was done under the predecessor legislation) and sharing of the value of property. In that case the wife, from a wealthy family, put the house, cottage and vacation homes, all of which were acquired from her family, in both parties’ names, bit on marriage breakdown she claimed that it was all hers alone because she paid for it. The court stated that the equitable considerations set out in section 5.-(6) of the act (which allows a court to award a spouse more or less than half of the difference between the spouses' NFPs) had no application to the determination of ownership of property. The result is that whether or not the result was fair has no bearing on the determination of who owns particular property: because she put the property inn both names, it was half hers and half his.Furthermore, in Berdette the court pointed out that the equalization rules only apply where there actually is a difference to share. In that case, all of the matrimonial property was jointly owned, and therefore the NFPs of the spouses were the same. There was no difference to give judgment for half of, and hence no opportunity to apply the equitable principles in section 5.-(6) of the Act. The Court of Appeal specifically acknowledged that this result was unfair, but said that there was nothing that could be done about it under the existing legislation.
Treatment of Inheritances
However the result in Berdette would have been different if the wife had kept her family’s gifts as investments. This is because an inheritance is treated differently, depending upon whether it is received before or after the date of the marriage.
If an inheritance is received prior to the date of the marriage, then the assets are valued as of the date of the marriage and (apart from a matrimonial home) are a deduction from the owner spouse’ NFP. Similarly, assets acquired by inheritance and owned on valuation date are valued as of the date of separation or death, and make up the positive side of the NFP ledger. In this way, any increase or decrease in the value during the marriage of the inheritance is shared between the spouses through the equalization of net family property.
On the other hand, one must realize that, as there was no “asset” on the date of the marriage, there is no “deduction” from NFP for an inheritance received during the marriage. Instead, it is specifically exempted from the sharing formula pursuant to certain rules. First, it must be traced to an asset existing as of valuation date – if it is used to pay debts, the exemption is lost. (A spent fortune is not a deduction.) Second, the asset must be owned by the person who received the inheritance – if the asset is put in the name of the other spouse, the exemption is lost (but if it is in their joint names, the exemption can be claimed in the part still owned by the recipient spouse). Third, income from the property is only exempt if the donor or testator provided so in the Will or Deed of gift. If the Will or Deed of gift is silent, however, income from the property is not exempt. Fourth, the property or income may be traced to an asset other than a matrimonial home, and in that case the successor, substitute or replacement property is also specifically exempt. Thus, if you inherit Canada Savings bonds, save the coupons and use them to acquire more bonds, the bonds – including all growth – are exempt. But, if it is used to purchase a matrimonial home, again, the exemption is lost.
The difference is immediately apparent. A spent fortune owned (in assets other than a matrimonial home) on the date of marriage remains a deduction (unless the recipient spouse has a negative NFP), even if it is traced to a matrimonial home; and if the matrimonial home owned on the date of the marriage is sold before valuation date, that part of the inheritance is also a deduction (because the house owned on the date of the marriage is then no longer a “matrimonial home”). The other spouse shares in any increase in the value of the inheritance – but also shares in any decrease in its value (again, unless the recipient spouse has a negative NFP, because NFP cannot be less than zero). On the other hand, a spent fortune inherited during the marriage is lost to the recipient spouse for all purposes, even if it was used to pay joint debts. But any increase in the inheritance is not shared with the other spouse, except to the extent that it is used to acquire a matrimonial home or replacement home, or is put in the name of the other spouse.
The parties can, however, change the rules in a prenuptial agreement; and the Act also provides that any property, which the parties agree, in a domestic agreement, is not to be included in the equalization of net family property, does not form part of a spouse’s net family property. In the absence of an agreement, a parent can bestow property on a child before the date of the child’s marriage. But unless it is given to a discretionary trust, the parent loses control over the property; and there will also be issues of valuation and ownership (i.e., does a spouse own property which is held by a trust for his benefit?).
As an absolute minimum, a parent planning to give property to a child should provide in a Will or Deed of gift who it is given to (i.e., is the Picasso a gift to the child? or to the child and his or her spouse?), and that income from property given or bequeathed to a child is exempt from sharing under Part I of the Act.
The government's position is that any harsh results of the Act can be avoided by appropriate financial planning. Indeed, the Act does provide for domestic contracts (the generic name for marriage contracts, prenuptial agreements, cohabitation agreements and separation agreements) to deal with and take precedence over the Act with respect to almost all matters. But even if the spouses do sign an agreement, the Act provides for any provision of a domestic agreement to be set aside if it is unconscionable at the time it was made, or at the time it is sought to enforce the agreement! Thus there are no guarantees that the best-planned and carefully documented agreement will actually be honoured, or that the legislation will not be changed in the future.
The legislature recognized that businesses could be destroyed by the breakdown of a marriage, and attempted to alleviate the situation by providing for pay out by instalments over a period of up to ten years (but no longer under any circumstances), with interest, and by empowering a Court to award interest in property, including shares in a farm or business. The Act specifically provides that "if appropriate" any property may be partitioned and sold. The problem with this arrangement insofar as a farm or business is concerned is that a financial institution will rarely lend the owner half of what a business valuator might think the farm or business is worth. A bank will value the business on a liquidation basis, whereas a valuator will value it on a "going concern" basis, usually at a much higher value. The result will be that, for many businessmen, marriage breakdown will result in the destruction or forced sale of the business which provided the financial support for the family over the years.
The spouses could agree in a domestic agreement to value a business the same way a bank would, recognizing that the owner spouse will have to borrow against his or her equity in the business to pay the equalization payment. Thus, goodwill and old receivables could be ignored for family law purposes, just as they are ignored for borrowing purposes. The spouses could also agree to waive the right to force a sale of the business, or to appoint a receiver and manager, and that collection be limited to garnishment of the proceeds of sale of the business, and of any other payments (wages, dividends and shareholder loans) to the owner spouse.This also avoids the problem of "double dipping". This problem arises when the non-titled spouse is entitled, not only to an equalization payment, but also to spousal or child support. The problem flows from the fact that the value of a business based upon goodwill includes the future income of the business. The non-titled spouse gets a share of this income "up front", as capital, in the equalization formula. The non-titled spouse then receives a portion of this income as second time, as spousal or child support, because the ability of the titled spouse to pay support is determined by this business income. The non-titled spouse thus receives some of the business income twice. The Ontario government has recognized the problem, but done nothing about it. The courts have also recognized the problem, but – like the Court of Appeal in the Berdette case – they can do nothing about it because the courts are bound by the provisions of the Act.
Pension plans must also be considered. For family law purposes, the value of a pension is based upon the present value of the future pension benefits, determined upon actuarial principles. In the event of a separation, the non-titled spouse will be entitled to half of the present value of the future pension benefits, which may be well more than half of the cash sitting in the pension fund! In the case of most federal employees, the Pension Benefits Division Act provides that, upon separation, a spouse (which includes either of two unmarried persons who cohabited in a common law relationship) may apply for a division of pension credits accrued during "the period subject to division", and upon application, up to fifty per cent of the value of the pension benefits can be paid out. In addition, Canada Pension Plan credits can also be divided between spouses on divorce.Usually the pension is not divided (except when the owner is close to retirement) but is dealt with in the equalization formula, by the non-owner spouse receiving a capital payment based upon the present value of the future payments. This can however be extremely unfair, because often the pension has considerable value but the owner has no access to the money until he or she retires. As in the case of a business, the pension often has greater value in the equalization formula to the non-owner spouse than it actually has to the owner – but in this case the owner cannot even borrow against his or her equity in the pension plan!
There is also a potential problem of “double dipping” with respect to pensions. The non-owner spouse may be entitled to an equalization payment based upon the present value of the future pension benefits in the equalization of net family property. Subsequently, the non-owner spouse could also claim spousal support, the quantum of which would be based upon the ability of the owner spouse to pay support from the pension income. The courts have recognized that it is unfair that the owner spouse has to pay the same amount twice – once as capital at separation, and a second time as support after retirement – but are bound by the provisions of the legislation to do so.
The Supreme Court of Canada has also dealt with this issue. In 2002, in Boston v. Boston, the Supreme Court varied an appellate decision, and restored the trial decision. The trial court had awarded the ex-wife a small amount of spousal support, which the appellate court increase to an amount of support which could only be paid by the ex-husband using pension income from a pension which had already been shared in the equalization formula. In that case, the Supreme Court said that the ex-husband could afford to pay increased spousal support, albeit in a lesser amount than awarded by the Court of Appeal, by drawing on only the portion of the pension that he built up after separation, so that the ex-wife would not get the same income twice. The Supreme Court lowered the quantum of spousal support, not because the husband could only pay if from the already equalized pension income, but because it found as a fact that the ex-wife’s need was not as great as she alleged, and that the ex-wife could afford to contribute more to her own support, and so not force the ex-husband to pay support from the already-equalized portion of the pension, by selling some of her capital property (part of the family farm, which she had acquired in the property settlement) and using the income and some of the capital for her own support.However, the Supreme Court also affirmed that, while it would be preferable to avoid “double dipping”, as was done in this case, if one former spouse had need and the other former spouse had an ability to pay, spousal support would be awarded, even if it meant paying spousal support from the portion of the pension that had already been equalized. Again, as in the Berdette case, the courts can do very little about the problem of “double dipping” because the courts are bound by the provisions of the legislation.
Ownership of Specific Property
Especially where property values have declined since the date of the marriage - so that both parties' NFP is nil - the most important question is not, "What is this property worth?", but, "Who owns this property?" However, the Family Law Act for the most part does not re-order property rights and sets no rules for determining who owns what - even though this may in many cases be the most important aspect of the parties' rights.
By way of example, imagine a situation where the wife goes to a department store and picks out a living room suite. She then sends the husband to the store, and he orders the suite and pays the bill with his credit card. When the credit card bill arrives, his wife pays the bill from the joint chequing account, into which both parties contribute their earnings - but the husband contributes a lot more, because he earns more. Now who owns the couch? The Act does not tell us.
The Family Law Act specifically provides that, if one spouse puts title to property in the name of the other spouse, or in the names of both parties, there is a presumption that it constitutes a gift to the other spouse of the property or of an interest in the property (whichever is applicable), unless the donor spouse proves the contrary. The common law rule that the spouse who received the "gift" holds it in trust for the other spouse is thereby reversed. Hence, if one spouse deposits his pay cheque to the joint account, half of the money belongs to the other spouse.
Apart from that, the Act provides no rules, and we must rely on common sense. Unless a valid domestic agreement sets out other rules, the following common law (or judge made) rules generally would seem to apply to determine who owns what.
Any property, title to which is registered somewhere (a motor vehicle or boat, real estate, shares in private corporations, proprietorship or partnership interest, etc.) belongs to the spouse in whose name it is registered, unless the other spouse proves that title is held in trust for the other spouse.
Bank accounts, investment brokers’ accounts and similar accounts, belong to the person in whose name they are held or registered, unless the other spouse proves that title is held in trust for him or her.
Property paid for and used exclusively by one spouse is prima facie owned by that spouse, but subject to proof that both spouses in fact enjoy it. For example, a spouse's personal effects, sports equipment, dresser, jewellery and clothes belong to that spouse.
Gifts to "the couple" from members of one spouse's family belong to that spouse, subject to title registration, above, and subject to proof that it was used and enjoyed by both spouses.
The children's property (including furniture, toys and clothing) belongs to both parties in trust for the children. It is sometimes forgotten that the non- custodial spouse also has to have a bed, toys and clothing for the children when he or she exercises overnight access. The children's property could be allocated between the parents in proportion to the time that each of them will spend with the children.
Any other property in the matrimonial home is owned by the spouses as joint tenants, unless a party proves otherwise.
Spouses who are about to acquire a principle residence (which will become their "matrimonial home" if they are married, or subsequently marry) can choose to limit their agreement to one dealing with the terms of co-ownership of the matrimonial home. But they could also choose to incorporate those terms into a more comprehensive domestic agreement. Any agreement concerning the house should include the following terms:
how they will hold title to the house (e.g., as joint tenants, as tenants in common - and in that case, in what ratio, if not equally - or in the name of one of them in trust for both);
their respective contributions to the cost of acquiring, maintaining and improving the property, and how those contributions are to be taken out when the property is sold;
the allocation between them of the cost of carrying the property, including mortgage, tax and utility payments, and the cost of major repairs and renovations (including an agreement as to how to determine whether the same will be made);
how they will end the co-ownership, including the terms under which either party can force either a third party sale of the property, or a purchase by one of them of the interest of the other in the property (the so-called "shotgun buy-sell" provision); and
whether, and if so to what extent, either of them has any obligation to indemnify the other with respect to obligations to third parties (including the mortgagee or family members) concerning the property, in the event of a shortfall on the sale of the property.
Spousal Financial Support
Spouses have mutual support obligations, both under the Family Law Act and pursuant to the Divorce Act. Pursuant to the definition of “spouse” in Part III of the Family Law Act, unmarried persons who have cohabited for an uninterrupted period of three years, or who are the parents of a child and cohabited in a relationship of “some permanence,” are also entitled to claim spousal support (i.e., an unmarried mother who never lived with the child’s father cannot claim spousal support).On a marriage breakdown, each spouse is entitled to claim financial support from the other. In some cases, one spouse claims "compensatory support", over and above the “normal” spousal support that is required to finance his or her ordinary living costs. By "compensatory support" is meant that when one spouse gives up a career potential to advance the career of the other spouse, then that spouse is entitled to be compensated for the contribution to the other spouse's career, or the loss of the spouse's own career, or both. This concept was developed in recognition of the fact that it is usually the wife, who often has a lower income potential in the best of circumstances, who gives up her career to look after the children, and directly and indirectly contributes to the career potential of the husband. It also responds to the statistical evidence that, following separation, the custodial parent (usually the wife) suffers greater financial hardship than the non-custodial parent does.
One instance in which a claim for lump sum compensatory support is often advanced is to make good the shortfall between the wife's entitlement to an equalization of NFP and the equity in the house, so that she can keep the matrimonial home in the final settlement. However, the Ontario Court of Appeal in the 1993 case of Elliott v. Elliott held that concentrating on only one factor in the marriage (the wife's cessation of employment) in isolation from other factors, including the ability of the husband to pay, was improper: it is difficult to unravel a marriage and of any duration in order to isolate and determine the particular effects of each decision to arrive at a once and for all lump sum spousal support award.
The Court of Appeal determined that these considerations favour an equitable sharing of the joint resources by periodic payment of compensatory support in the form in which the resources exists (i.e., the husband's future income stream). Periodic payment also overcomes another problem with the accuracy and fairness of the lump sum award, namely, that these depended on how accurate the expert's predictions as to the future contingencies turned out to be. The decision in Elliott will substantially reduce the effectiveness of claiming compensatory support in the future.
In 1993, in Moge v. Moge, the Supreme Court ruled that no one factor in the Divorce Act, 1985, was to be treated as paramount, and that the goal of attaining economic self-sufficiency was only one factor (of the four set out in the Divorce Act, 1985) to be considered. At the same time, however, the majority opinion confirmed other principles enunciated in the trilogy. The majority opinion reaffirmed the sanctity of contract, holding that, as a matter of public policy, parties will be held to their bargain, as set out in a Separation Agreement. The majority opinion also reaffirmed the principle that not all dependencies arising after a marriage breakdown ought to justify a support award. The mere fact of marriage does not entitle a spouse to support, but in some cases, a person will have to deal with a problem as if he or she had never been married.
On the other hand, marriage may give rise to an obligation to support the other spouse, depending upon the relationship that is established and the expectations that reasonably flow from the marriage. The Supreme Court ruled in early 1999, in the Bracklow case, that, “spouses may have an obligation to meet or contribute to the needs of their former partners where they have the capacity to pay, even in the absence of a contractual or compensatory foundation for the obligation. Need alone may be enough.” (per McLachlin, J., at p. 12). As a practical matter, Judges appeared to be willing to set aside any provision in an earlier agreement or order which has the result of causing one former spouse to live a life-style which is substantially lower than that of the other (payor) former spouse. The effective result is that no one could with any confidence rely upon a waiver of spousal support in a Separation Agreement or Marriage Contract.
In 2003, the Supreme Court of Canada released its decision in Miglin v. Miglin. In Miglin, the court dealt with the issue of the circumstances under which a court would award spousal support notwithstanding an express waiver of support in a separation agreement. The trial court ignored the waiver of support in the agreement and awarded spousal support for five years. The trial Judge felt, among other things, that it was unfair for the ex-wife to receive the matrimonial home, while the ex-husband received an income property, even though they were valued at the same amount by professional appraisers, and even though that was what the spouses agreed to. The trial Judge also found unfairness in the ex-wife’s loss of business income, which was only partially replaced by child support, the ex-husband’s payment of the mortgage, and time-limited consulting income from the ex-husband’s business.The Ontario Court of Appeal affirmed the quantum of the spousal support award, but removed the five year time limit – thus awarding the former wife spousal support indefinitely – and stated that it would be up to the ex-husband to apply to vary the award in the event of a change of circumstances in the future.
However, the Supreme Court, by a 7-2 majority, allowed the ex-husband’s appeal and dismissed the application for spousal support outright. The majority stated that, while the strict test in the trilogy was no longer applicable, the test used by the trial and appellate courts – that there had been a change of circumstances from the making of the agreement – was not correct, either. The Supreme Court, as a policy matter, wanted spouses to know that, if they settled their affairs, their agreement would be enforced unless either there was something unconscionable about the agreement when it was made, or it would be unconscionable to enforce the agreement in the face of significantly changed circumstances.
The Supreme Court therefore chose a middle ground, and its decision in Miglin envisages a two-stage process. In the first stage, the court looks at the circumstances surrounding the making of the agreement to determine if the agreement was fair. At this stage, the court does not limit itself to the test for unconscionability that would be used in the commercial context between persons of equal bargaining strength, but rather acknowledges that in the family law context a lower threshold of unfairness is appropriate. However, the Supreme Court expressly said that the emotional upheaval arising from marriage breakdown was not sufficient to give rise to a presumption of unfairness, especially where, as in this case, the spouses used professional advisers (accountants and lawyers). The Supreme Court also said that the spouses agreement did not have to comply with the regime of family law imposed by statute, but that the parties were free to craft their own regime of property and support to best suit their own requirements and circumstances. In this case, the Supreme Court ruled that there was nothing unfair about the wife getting the house while the husband got the business, and that the trial Judge was wrong to ignore the professional valuations simply because one of the assets generated a cash stream – something that was taken into account in the valuation process. The decision of the parties that the wife would be financially supported for a minimum of five years was fair in all the circumstances.
At the second stage, the onus is on the party seeking to set aside the provisions of the agreement to establish that it would be unfair to enforce the agreement in all the circumstances. The Supreme Court found that the circumstances at the time of the application for spousal support were within the reasonable range of what was foreseeable, and in fact what was foreseen, at the time the agreement was signed, and that there was nothing unfair about enforcing the agreement in the circumstances. In this regard, the Supreme Court noted that the wife had been told, when the agreement was signed, that she would have to plan to replace the consulting income after five years; her assets were significant and had increased in value since the separation; the children were older and in school and their mother could obtain at least part-time employment; her credentials and employability had increased during the marriage; and, as a consequence of the new regime of child support, she was now receiving substantial non-taxable Guideline child support.
As a result of the decision in Miglin, courts should be more willing to enforce the terms of agreements, and allow the parties to settle their affairs knowing they will be held to their bargains absent substantial unfairness. However, at this point it is too soon to tell.Although circumstances may change considerably after the marriage – especially if they have children – the parties should consider in their prenuptial agreement whether there are any circumstances under which they may have, or would not have, support obligations to the other spouse. In that regard, they should consider specifically the effect of having children; if the marriage turns out to be of short duration; and if either of them suffers a debilitating illness or accident. They should also bear in mind that a provision in an agreement which is unconscionable may be unenforceable; and whether it is unconscionable will depend upon the facts at the time the agreement was made, or at the time either party seeks to enforce the agreement. In other words, subsequent events may render unconscionable an agreement, or a term of an agreement, that might have been considered reasonable at the time the agreement was made.
Extent of the Support Obligation
There is no hard and fast rule as to when spousal support terminates. Each spouse has the obligation to contribute to his or her own support, and to become self-supporting. However, if, as is sometimes the case, the wife has been out of the work force for some time, she is entitled to a reasonable period of retraining. In addition, as she will not immediately command a high salary when she starts work, she would also be entitled to an ongoing support contribution until she was earning a higher income.
Some Judges would deal with this by a time limited and/or "declining balance" spousal support order. For example, the husband might be ordered to pay $1,500 per month for four years while the wife pursues her education and obtains employment, then $500 per month for another two years, then nothing. Other judges would simply order spousal support based on the present facts (i.e., $1,500 per month), and leave it up to the husband to either negotiate a reduction with the wife, or, failing agreement, apply for a variation, when the wife secures remunerative employment. In Miglin, referred to above, the Supreme Court did not comment on the decision by the Ontario Court of Appeal that the court should not be “crystal ball gazing” about future events, and that, accordingly, it was prima facie improper to place a time limit on future spousal support; rather, the payor should apply to the court to reduce or terminate spousal support in the event of a change of circumstances. Presumably this is still the law in Ontario.
The wife's remarriage, or commencing cohabitation with another man, would not automatically terminate or reduce the husband's spousal support obligation, unless an agreement or order (usually one made on consent, incorporating the provisions of an agreement) so provided. Otherwise, the wife's sharing accommodations with another man would only amount to a change in her circumstances which, depending on the details, might entitle the husband to apply for a reduction in the quantum of spousal support which he previously paid. If the wife commences to live with another man, her covivant would be expected to contribute to the household expenses in proportion to his income. (If he was unemployed for no good reason, a reasonable income might be imputed to him.) This would reduce the former wife's expenses, and in theory entitle the former husband to a reduction of the spousal support award.
If one spouse, for example the wife, is unable to secure employment, the only options are that either the husband supports her, or the state supports her. Since the state makes the rules, those rules favour the state. The husband is likely to be perceived as having an ability to support the wife, and the wife will likely be perceived as having a need for financial assistance. On that simplistic view, the husband will likely be ordered to support the wife, notwithstanding her actual or apparent circumstances.
The obligation of a person to support his or her former spouse if that spouse is unable to work as a result of a physical or mental disability presents a special problem. If, for example, the wife was incapacitated by a cause unrelated to the marriage or its breakdown (perhaps a genetic disease such as Multiple Sclerosis), the husband could be ordered to pay spousal support for the rest of her natural life. The Divisional Court of Ontario, in the most authoritative recent case on point, determined that, as between the state and the former spouse, it is the latter who must support a disabled spouse, whether or not the former spouse's disability arises out of the marriage or its breakdown.
This result may be one that is mandated by law, but there is also a moral dimension here. Forcing a person to financially support his or her former spouse for the rest of the former spouse's life, simply because they once were married, may be unconscionable, unless the former spouse's inability to support himself or herself arises out of the marriage or its breakdown. (However, it seems very close to the spirit of the words of Jesus when he said, "What God has put together, no man must put asunder.")
If I am unable to support myself because, after spending 30 years in the home, looking after my spouse and children, I have no marketable skills, or such skills as I do possess have little market value, then it is fair that my former spouse - who acquiesced in my remaining out of the job market for thirty years - contribute to the cost of my support, to a level commensurate with a reasonable life-style. Similarly, if I am unable to support myself because of medical depression caused by the manner in which my former spouse treated me during coverture or at the time of the marriage breakdown, then it is fair that my former spouse, who caused or contributed to my condition, also contribute to the cost of my support, to a level commensurate with a reasonable life-style. Also, if my former spouse has more than sufficient income and/or capital - whether because of conditions created by civil society for the good of all, or because of an education subsidized by all taxpayers, or just by the grace of God - to live a reasonable life-style, then his surplus income and capital should in all good conscience be employed to contribute to the cost of my support, to a level commensurate with a reasonable life-style - but in such a case, only after my former spouse is himself living a reasonable life-style.
However, if my former spouse has done nothing wrong - if he simply married poorly, and I am suffering from a disability which is genetically programmed, or which is a result of an accident which took place before or even after coverture, or which otherwise arose from no act of my former spouse - then he or she ought not to have to suffer a decline in his or her life-style to contribute to my support - at least, not until my former spouse is enjoying a level of comfort which is beyond the sustenance level but somewhere short of the luxurious level. Otherwise, all a spousal support is doing is replacing (or more likely subsidizing) the welfare system and forcing the other spouse to suffer without good cause.
In this regard, recently promulgated spousal support Guidelines, which are not mandatory but advisory only, seem to perpetuate the problem, by providing for a sharing (but less than equally) of the total income of both spouses indefinitely in the case of longer marriages. The Guidelines are extremely complicated but, because they are not mandatory, a Judge still retains discretion to ignore them and award spousal support on the basis of need and ability to pay – but without regard to fault. This is another area in which legislative changes can result in unfairness. So much judicial time was taken up determining who did what to whom, that the legislature decided to avoid the whole problem of mud-slinging by making the evidence inadmissible with respect to any evidence in the case (although it may still be relevant to custody and access). Thus the adulterous, wasteful, lay-about spouse is entitled to the same quantum of support as the faithful, hardworking, thrifty spouse, if they have the same available resources.Spouse do have the opportunity to decide for themselves what rules will govern their own spousal support obligations, if they choose to do so, be entering into a prenuptial agreement by which they agree to fund any such future medical disability with insurance. The Family Law Act gives them the right to do so, but unfortunately, there are no guarantees that their agreement will later be upheld.
Child Support Orders
The Family Law Act specifically provides that one cannot deal with custody of, access to or financial support for children in a prenuptial or cohabitation agreement, but only in a separation agreement. This is a recognition of the fact that circumstances change, and that what was considered appropriate before marriage may be irrelevant years later.
Under either the Divorce Act or the Family Law Act, both spouses have an obligation to contribute to the support of their children. Usually, one parent does this by taking care of the children most of the time, and the other parent contributes by taking them part time and by a cash payment to assist the custodial parent to care for their biological or adopted children. However, even where one parent only has access to the children, he or she may be entitled to child support if the non-custodial parent requires the financial assistance of the custodial parent to provide for the care of the children while they are in his or her care, and if the custodial parent has the ability to contribute to the cost of their care. Obviously, this situation will be rare.In addition to an obligation to biological or adopted children, a person may have legally enforceable support obligations to a child of which he is neither the natural nor the adoptive parent, if he stood "in loco parentis" to the child or children. This is a very difficult concept to explain, but it means that if I treat my covivante's child as my own while we live together, I have to continue to treat the child as my own after we break up. Historically, where there is a biological or adoptive parent lurking about, the courts have tended to place time limits on the support obligations of persons who stood in loco parentis.
Quantum and Duration of Child Support
The determination of the quantum of child support is a very difficult matter, and one which took up a great deal of judicial resources. Until a short time ago, there were no hard and fast rules, and many different child support theories, or "models". The most often used model was the Parras formula, in which the Ontario Court of Appeal set out the rules for determining the proper quantum of child support, by allocating child care costs between the parents in proportion to their incomes. Various permutations of the Parras formula have dealt with such details as deductions for necessaries of life, other support obligations, payment of spousal support, etc. In the result, there was a great deal of room for judicial discretion, and uncertainty, because of these permutations, in addition to the difficulty in determining the real costs of caring for the children.
Recent legislative amendments at both the federal and provincial levels substituted child support Guidelines for judicial discretion. The amount of basic child support is determined solely by the income of the non-custodial parent, the number of children, and the province of the payor's residence (which determines his top marginal rate of income tax). The non-custodial parent is also responsible to contribute to extraordinary childcare costs, such as day care, private school tuition, and exceptional medical costs, in proportion to his income, provided the expenses are reasonable in the circumstances. There is only limited authority for a Judge to depart from the formula so determined.It is also necessary to determine when a parent's obligation to support a child ceases. The Divorce Act and the Family Law Act set out different criteria but they basically amount to the same thing: a child who is either under the age of 16, or over that age and unable to withdraw from parental support due to illness, infirmity or "other cause". The case law has determined that pursuing an education is good cause, at least to the stage of the first postgraduate degree (depending upon the family's circumstances).
Income Tax Considerations
Income tax considerations are important in family law and must be considered by the parties before a case is settled. Child support is, as a result of companion amendments to the Income Tax Act, now paid on an after tax basis. Child support paid pursuant to orders made after April 30, 1997, is not taxable in the hands of the custodial parent, and not deductible from the taxable income of the non-custodial parent. Special rules apply in the case of international payments because of the provisions of the Income Tax Act and the various Tax Treaties, and in other cases.
Spousal support continues to be governed by the inclusion/deduction treatment of support, in which the payor deducts the support payments from his taxable income and it is included in the payee’s taxable income. Judges take income taxes into account in determining the quantum of support, both by "grossing up" the amount of spousal support to give the payee the required amount of after-tax income, and by determining what after-tax income remains in the payor's hands to pay his or her reasonable living expenses.
Because the non-custodial spouse usually pays income tax at higher top marginal income tax rates, the total family unit benefited significantly by the former inclusion/deduction treatment of child support. By way of example, if the husband earns $60,000 per year, and the wife earns $25,000 per year, then under the inclusion/deduction income tax regime, taxable income is transferred from the husband's 50% rate of tax to the wife's 17% rate of tax. Thus there was thus a significant income tax savings to the family unit, which allowed more money to be spent on the children.
The new formula and the tax treatment of child support apply only to Orders or agreements made after May 1, 1997. Previous orders and agreements are "grandfathered" and will receive the inclusion/deduction tax treatment, unless the parties agree to the contrary or file a joint election with Revenue Canada that they wish to have their old order receive the new treatment. However, these occasions will be rare, because usually one party will benefit from the previous treatment, and the other spouse can apply for a variation. If a variation application is heard after May 1, 1997, the varied order will receive the new tax treatment.
It is important to note that this was NOT progressive social legislation, but a tax grab by the federal government. Support income is now taxed at the higher top marginal tax rate of the support payor, instead of the lower tax rate of the support recipient. Revenue Canada has admitted that the new regime will generate additional tax revenue. Because more money will be spent on income taxes, the family unit will have less money to spend on the children. But because the custodial parent will usually benefit by not having to pay tax on a child support award, even if the quantum of support is lowered, there is a superficial appearance that custodial parents will benefit from the new non-taxable child support regime.The Family Law Act specifically provides that parties cannot deal in a prenuptial agreement or marriage contract with issues of custody, access and child support. Nevertheless the possibility that the parties may have children and accordingly have these rights and obligations, cannot be ignored when discussing these types of contracts.
Formalities of Domestic Agreements
A domestic agreement must be in writing, signed by the parties, and witnessed, in order to be legally binding. The courts have consistently refused to enforce oral agreements or promises between spouses if neither party bothered to have a formal agreement prepared and executed. The courts have also refused to enforce agreements which are not the product of the free choice of both parties. An agreement presented to one party a few days before their wedding, which must be signed if the ceremony is to take place, may not qualify as a free and voluntary agreement.
Independent legal advice is the single most important way to establish that a party is entering into an agreement freely and voluntarily, without any duress or undue influence, and with full knowledge of the contents of the agreement and what rights the party is giving up by signing the agreement. It is therefore common for each party to have his or her own lawyer, if not to negotiate the terms of the agreement, then to review the draft agreement with the party and attend to its formal execution.
In some situations, both spouses retain one lawyer to act for both of them in the preparation of a domestic agreement. In such a case, the lawyer provides general advice to both spouses concerning business, tax and family law in general; assists them to come to an agreement with respect to matters relevant to their own situation, including how they can end the relationship; and documents the understanding of the spouses in a formal domestic agreement.In such a case, the lawyer cannot provide independent legal representation to either spouse, and what each of them says to the lawyer is not confidential but must be treated as shared with the other spouse. Both spouses would first have to acknowledge, in writing, that they have been advised of this conflict and of their right to obtain independent legal representation, but that they nevertheless wish the one lawyer to act for both spouses.
Varying a Separation AgreementAlthough finality is a goal of any system of law, no order or agreement in a family law matter is ever final. As a matter of law, any agreement or order can be varied, even one that purports to be final and binding and not subject to variation for any cause, however material or even catastrophic the consequences for a party.
The Family Law Act provides that an agreement can be set aside if the circumstances surrounding the making of the agreement were unconscionable or if there was material misrepresentation or non-disclosure when the agreement was made, or if the consequences of the agreement are unconscionable.
In addition, a court can vary the quantum of spousal support or make an initial award of support, notwithstanding the provisions of an earlier agreement, without setting aside or varying the agreement, if, as a consequence of a material change in circumstances, the result is unconscionable or if the consequence of the award or waiver of support is that a party is receiving social assistance.What this effectively means is that it is practically impossible for spouses to settle their affairs after separation by trading the right to future spousal support for a greater share of the family property now, because their agreement can later be ignored and spousal support awarded notwithstanding the terms of the property settlement. As stated above (“Spousal Support”), if one spouse becomes unable to support himself or herself, even long after the separation, and due to causes unrelated to the marriage or its breakdown, the court still can order support to be paid by the “innocent” spouse.
ConclusionThis memorandum is designed to advise our clients, in general terms, as to the laws of Ontario which affect marriage and marriage breakdown. It is not intended as a complete guide to family law. It is for information only and we disclaim any liability for any damage or injury caused by reliance on this memorandum. You can rely only upon the opinion of a lawyer rendered after a review of the facts of your own situation. Our clients are advised in the strongest possible terms to discuss the circumstances of their own situation with a lawyer experienced in family law.
DISCLAIMER: The foregoing is not intended to be a comprehensive guide to the applicable law. General Client Memoranda and mailings from James D.L. Kerr ● Lawyer are intended to inform clients and acquaintances with respect to current issues that may be of interest to them. Memos are current to the date shown on the Memo. The law is constantly changing, however, and for that reason a Memo may not be completely accurate after it's stated date. Where circumstances warrant, the advice of a lawyer or other qualified professional should be obtained.
© 2006 Frank P. Oster & James D.L. Kerr