Spousal Support Advisory Guidelines July 2008
Here we examine the first of the two basic formulas that lie at the core of the Advisory Guidelines — the without child support formula. This formula applies in cases where there are no dependent children and hence no concurrent child support obligations. Assuming entitlement, the formula generates ranges for amount and duration of spousal support.
The without child support formula covers a diverse range of fact situations, the only unifying factor being the absence of a concurrent child support obligation for a child or children of the marriage. It covers marriages of all lengths where the spouses never had children. It also applies to long marriages where there were children, but they are no longer dependent. The support claims in these cases involve a mix of compensatory and non-compensatory rationales.
It might seem impossible to develop one formula that could yield appropriate support outcomes over such a wide array of marital situations. In developing the formula we turned to the concept of merger over time, which incorporates both compensatory and non-compensatory rationales for spousal support. Put simply, the idea is that as a marriage lengthens, spouses more deeply merge their economic and non-economic lives, resulting in greater claims to the marital standard of living. Using that concept, which relates support outcomes to the length of the marriage, we developed a formula that surprisingly generates results consistent with much of current practice, while bringing some much-needed structure.
In what follows we first introduce the basic structure of the without child support formula and provide an example of its operation. We then discuss the concept of merger over time that underlies the formula and its relation to existing rationales for spousal support. This is followed by a more detailed examination of the different parts of the formula and a series of further examples illustrating the formula’s application in a variety of factual contexts.
The without child support formula is set out in the box below in its most basic form. The formula is in fact two formulas — one for amount and one for duration. The formula generates ranges for amount and duration, rather than fixed numbers.
There are two crucial factors under the formula:
- the gross income difference between the spouses, and
- the length of the marriage, or more precisely, as will be explained below, the length of the period of cohabitation.
Both amount and duration increase incrementally with the length of marriage.
The Without Child Support Formula
Amount ranges from 1.5 to 2 percent of the difference between the spouses’ gross incomes (the gross income difference) for each year of marriage (or more precisely, year of cohabitation), up to a maximum of 50 percent. The range remains fixed for marriages 25 years or longer, at 37.5 to 50 percent of income difference. (The upper end of this maximum range is capped at the amount that would result in equalization of the spouses’ net incomes — the net income cap).
Duration ranges from .5 to 1 year for each year of marriage. However support will be indefinite (duration not specified) if the marriage is 20 years or longer in duration or, if the marriage has lasted five years or longer, when years of marriage and age of the support recipient (at separation) added together total 65 or more (the rule of 65).
A simple example illustrating the basic operation of the without child support formula will be helpful at this point before we venture further into its more complex details. The primary purpose of this example is to show the basic calculations required under the formula and to give a sense of the outcomes the formula generates.
- Example 7.1
Arthur and Ellen have separated after a 20-year marriage and one child. During the marriage Arthur, who had just finished his commerce degree when the two met, worked for a bank, rising through the ranks and eventually becoming a branch manager. He was transferred several times during the course of the marriage. His gross annual income is now $90,000. Ellen worked for a few years early in the marriage as a bank teller, then stayed home until their son was in school full time. She worked part time as a store clerk until he finished high school. Their son is now independent. Ellen now works full time as a receptionist earning $30,000 gross per year. Both Arthur and Ellen are in their mid forties.
Assuming entitlement has been established in this case, here is how support would be determined under the without child support formula.
To determine the amount of support:
- Determine the gross income difference between the parties:
$90,000 - $30,000 = $60,000
- Determine the applicable percentage by multiplying the length of the marriage by 1.5-2 percent per year:
1.5 X 20 years = 30 percent
2 X 20 years = 40 percent
- Apply the applicable percentage to the income difference:
30 percent X $60,000 = $18,000/year ($1,500/month)
40 percent X $60,000 = $24,000/year ($2,000/month)
Duration would be indefinite (duration not specified) in this case because the length of the marriage was 20 years.
Thus, assuming entitlement, spousal support under the formula would be in the range of $1,500 to $2,000 per month for an indefinite (not specified) duration. This formula amount assumes the usual tax consequences, i.e. deductible to the payor and taxable to the recipient. It would also be open to the normal process of variation and review.
- Determine the gross income difference between the parties:
An award of $1,500 per month, at the low end of the range, would leave Ellen with a gross annual income of $48,000 and Arthur with one of $72,000. An award of $2,000 per month, at the high end of the range, would leave Ellen with a gross annual income of $54,000 and Arthur with one of $66,000. In Chapter 9 we deal with the factors that determine the setting of a precise amount within that range.
On first glance, this formula no doubt looks like an entirely new approach to spousal support, far removed both from the Divorce Act and its spousal support objectives and factors and from the principles of compensatory and non-compensatory support that the Supreme Court of Canada articulated in Moge and Bracklow. Before we examine the operation and application of this formula in more detail, we explain the concept of "merger over time" that underlies this formula and how it relates to existing theories of spousal support and the current law. We will show that the formula is a "proxy measure" for factors such as economic disadvantage, need, and standard of living that are currently used to determine spousal support outcomes.
The idea that underlies the without child support formula and explains sharing income in proportion to the length of the marriage is merger over time. We use this term to capture the idea that as a marriage lengthens, spouses merge their economic and non-economic lives more deeply, with each spouse making countless decisions to mould his or her skills, behaviour and finances around those of the other spouse. Under the without child support formula, the income difference between the spouses represents their differential loss of the marital standard of living. The formulas for both amount and duration reflect the idea that the longer the marriage, the more the lower-income spouse should be protected against such a differential loss.
Under this formula, short marriages without children will generate very modest awards, both in terms of amount and duration. In cases where there are adequate resources, the support could be paid out in a single lump sum. Medium length marriages will generate transitional awards of varying lengths and in varying amounts, increasing with the length of the relationship. Long marriages will generate generous spousal support awards on an indefinite basis that will provide the spouses with something approaching equivalent standards of living after marriage breakdown. The formula generates the same ranges for long marriages in which the couple have never had children as for long marriages in which there have been children who are now grown.
While the label may be unfamiliar, the concept of merger over time, which relates the extent of the spousal support claim to the length of the marriage, underlies much of our current law. Its clearest endorsement can be found in Justice L’Heureux-Dubé’s much-quoted passage from Moge:
Although the doctrine of spousal support which focuses on equitable sharing does not guarantee to either party the marital standard of living enjoyed during the marriage, this standard is far from irrelevant to support entitlement… 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.
Merger over time offers an effective way of capturing both the compensatory and non-compensatory spousal support objectives that have been recognized by our law since Moge and Bracklow. Under our current law, both kinds of support claims have come to be analyzed in terms of loss of the marital standard of living. Budgets, and more specifically budgetary deficits, now play a central role in quantifying this drop in standard of living. Under the without child support formula, the spousal income difference serves as a convenient and efficient proxy measure for loss of the marital standard of living, replacing the uncertainty and imprecision of budgets. The length of marriage then determines the extent of the claim to be protected against this loss of the marital standard of living.
Merger over time can have a significant compensatory component. One of the common ways in which spouses merge their economic lives is by dividing marital roles to accommodate the responsibilities of child-rearing. Compensatory claims will loom large in one significant segment of marriages covered by the without child support formula — long marriages in which there were children of the marriage who are now independent
Compensatory claims, in theory, focus on the lower income spouse’s loss of earning capacity, career development, pension benefits etc. as a result of having assumed primary responsibility for child care. However in practice, after Moge, courts began to respond to the difficulties of quantifying such losses with any accuracy, particularly in longer marriages, by developing proxy measures of economic loss that focussed on the marital standard of living. When awarding spousal support in cases involving long traditional marriages, courts began to articulate their goal as providing the lower income spouse with a reasonable standard of living as assessed against the marital standard of living. And increasingly the standard for determining spousal support in long marriages has become a rough equivalency of standards of living.
Merger over time also has a significant non-compensatory component. In cases of long traditional marriages where the children are grown, it is now common to see spousal support justified on a dual basis. Non-compensatory support claims based on dependency over a long period of time are commonly relied upon to supplement compensatory claims based on earning-capacity loss. In marriages where the spouses have never had children — the other segment of marriages covered by the without child support formula — spousal support claims are usually non-compensatory in nature, based on need, dependency, and loss of the marital standard of living. Merger over time addresses these non-compensatory claims.
Giving precise content to the concept of non-compensatory or needs-based support has been one of the main challenges in spousal support law since Bracklow. One reading of Bracklow suggests that non-compensatory support is grounded in the economic dependency or, in Justice McLachlin’s words, the "interdependency" of the spouses. It recognizes the difficulties of disentangling lives that have been intertwined in complex ways over lengthy periods of time. On this broad reading of Bracklow, which many courts have accepted, need is not confined to situations of absolute economic necessity, but is a relative concept related to the previous marital standard of living. On this view entitlement to non-compensatory support arises whenever a lower income spouse experiences a significant drop in standard of living after marriage breakdown as a result of loss of access to the other spouse’s income, with amount and duration resolved by an individual judge’s sense of fairness.
Merger over time incorporates this broad view of non-compensatory support and provides some structure for quantifying awards made on this basis. It takes account not just of obvious economic losses occasioned by the marriage, but also of the elements of reliance and expectation that develop in spousal relationships and increase with the length of the relationship.
The without child support formula generates the same ranges for long marriages in which the couple have never had children as for long marriages in which there have been children who are now grown. This result, which flows from the merger over time principle, mirrors what we find in the current law — lengthy marriages involving economic dependency give rise to significant spousal support obligations without regard to the source of the dependency.
We recognize that in some specific situations the without child support formula, based as it is on the concept of merger over time which gives significant weight to the length of the marriage, may not adequately satisfy either compensatory or non-compensatory (needs-based) support objectives. Rather than modifying the formula, which in general works well across a wide-range of fact situations and incomes, we have dealt with these problems through exceptions — the exception for disproportionate compensatory claims in shorter marriages; the illness and disability exception, and the basic needs/undue hardship exception in short marriages. These exceptions are discussed in Chapter 12, below.
We now turn to a more detailed examination of the operation and application of the formula.
The without child support formula relies upon length of marriage for determining both amount and duration of support. While we use the convenient term "length of marriage", the actual measure under the Advisory Guidelines is the period of cohabitation. This includes pre-marital cohabitation and ends with separation. Inclusion of pre-marital cohabitation in determining length of marriage is consistent with what most judges do now in determining spousal support. This way of defining length of marriage also makes the Advisory Guidelines more easily used under provincial spousal support laws, which apply to non-marital relationships.
We have not set precise rules for determining the length of marriage. The simplest approach would be to round up or down to the nearest full year, and this is what we have done in our examples. Another, slightly more complicated, approach would be to allow for half years and round up or down to that. Because the formula generates ranges and not a fixed number, absolute precision in the calculation of the length of the marriage is not required. Addition or subtraction of half a year will likely make little or no difference to the outcome.
Several aspects of the formula for amount should be noted. First, this formula uses gross income (i.e. before tax) figures rather than net (i.e. after tax). (The determination of income is dealt with more fully in Chapter 6.) While net income figures may be marginally more accurate, familiarity and ease of calculation tipped the scales in favour of using gross income figures. As you will see in Chapter 8, net income figures are used under the with child support formula because of the need to deal with the differential tax treatment of spousal and child support.
Second, this formula applies a specified percentage to the income difference between the spouses rather than allocating specified percentages of the pool of combined spousal incomes. In applying income sharing to the spousal income difference this formula once again differs from the with child support formula where the use of net income figures requires a model of income sharing that applies to a combined pool of spousal incomes.
Third, the formula for amount does not use a fixed or flat percentage for sharing the income differential. Instead, drawing on the underlying concept of merger of time, the formula incorporates a durational factor to increase the percentage of income shared as the marriage increases in length. The durational factor is 1.5 to 2 percent of the gross income difference for each year of marriage.
The ranges for amount were developed by first determining the point when maximum sharing would be reached, which we set at 25 years. We also started with the assumption that maximum sharing would involve something close to equalization of incomes, or sharing 50 percent of the gross income difference. We then essentially worked backwards to determine what level of income sharing per year would be required to reach maximum sharing at year 25. The answer was 2 percent per year. In the course of developing the formula, we experimented with different percentage ranges, but the range of 1.5 to 2 percent provided the best fit with outcomes under current practice.
We chose income equalization (50 per cent of the gross income difference) as the maximum level of income sharing, potentially reached after 25 years of marriage and representing the full merger of the spouses" lives. Much time was spent considering the arguments for a somewhat lower maximum to take into account incentive effects and the costs of going out to work in situations where only the payor is employed. However, we also recognized that there would be cases where equalization of income would be appropriate. For example where only pension income is being shared after a very long marriage, where both spouses are low income, or perhaps where both spouses are employed after a long marriage, but with a significant income disparity. We drafted the formula to allow for that possibility.
After the release of the Draft Proposal we sought feedback on the issue of whether the maximum level of sharing should be set lower than 50 percent of the gross income difference. We concluded that income equalization should be retained as the maximum level of sharing, but that it should be expressed as equalization of net incomes rather than of gross incomes. The formula has therefore been adjusted by capping the upper end of the maximum range at equalization of the spouses’ net incomes — the net income cap.
In long marriages where the formula generates the maximum range of 37.5 to 50 percent of the gross income difference the recipient can end up with more than 50 per cent of the spouses’ net income, notably where the payor spouse is still employed and subject to tax and employment deductions, and the recipient has little or no income. This result should never occur.
To avoid this result, shortly after the release of the Draft Proposal we began advising lawyers and judges to look closely at the net incomes of the spouses in these longer marriages when determining an appropriate amount within the range. We have now decided to modify the without child support formula itself by introducing a net income cap. The recipient of spousal support should never receive an amount of spousal support that will leave him or her with more than 50 percent of the couple’s net disposable income or monthly cash flow.
Effectively, the introduction of the net income cap retains income equalization as the maximum level of sharing under the without child support formula. It simply provides for a more accurate calculation of income equalization. As for lowering the high end of the maximum range below equalization of net income, we concluded that the arguments that supported the initial choice of income equalization as the maximum level of sharing continued to be persuasive. As well, there was no obvious consensus around a lower percentage cap.
The software programs can calculate the "50 percent of net income" limit with precision and the formula range presented on the screen will reflect this limit at the upper end of the range. In computing "net income" for purposes of this cap, the permitted deductions would be federal and provincial income taxes, employment insurance premiums, Canada Pension Plan contributions, and any deductions that benefit the recipient spouse (e.g. medical or dental insurance, group life insurance and other benefit plans). Mandatory pension deductions are not permitted, for the same reasons as under the basic with child support formula, explained below in Chapter 8. Union dues and professional fees are already deducted from the spouses’ gross incomes, consistent with the Federal Child Support Guidelines (see Chapter 6).
One of the advantages of the without child support formula is that the calculations can be done without a computer. For those without software, or more precise net income calculations, this net income cap can be calculated crudely by hand, at 48 percent of the gross income difference. This "48 percent" method is a second-best, but adequate, alternative.
In thinking about the maximum level of sharing under this formula it is important to keep in mind that the formula does not require an award that would wb-eqht spousal incomes after 25 years, but rather permits awards in the range of between 37.5 to 50 per cent of the gross income difference (capped at net income equalization). Consistent with current law, the formula does not generate a general rule of income equalization; it simply provides for the possibility of equalization.
The feedback we received after the release of the Draft Proposal, combined with our continued reading of Guidelines cases, has confirmed that the ranges for amount generated by the without child support formula are "about right" and require no major adjustment beyond the net income cap.
We have generally found that the without child support formula works well, generating a reasonable range of outcomes across a wide range of cases from short to long marriages with varying incomes. The formula works extremely well for long marriages, which constitute the majority of the cases in which this formula is applied. For medium length marriages, in some cases the monthly amounts need to be adjusted (i.e. increased) through restructuring (see Chapter 10), but we were well aware of this when we developed the formula. We placed heavy emphasis on restructuring to render the results of the formula consistent with current practice. These are also the cases — medium-length marriages without children — that frequently give rise to exceptions.
During the feedback process we did hear criticisms in some parts of the country that the amounts produced by the formula in shorter marriage cases were "too low".
In some of these cases, there was a failure to consider the compensatory exception — the exception for disproportionate compensatory claims in shorter marriages. In these cases, one spouse may have experienced a significant economic loss as a result of the marriage, by moving or by giving up employment, for example. Or, one spouse may have conferred an economic benefit on the other spouse by funding his or her pursuit of a professional degree or other education and training. This exception is considered in more detail in Chapter 12.
In other, non-compensatory cases, the formula was criticized as not providing enough support for the transition from the marital standard of living back to a lower standard of living based upon the recipient’s earning ability. In these cases, involving marriages of less than 6 or 7 years, there is also little scope for much restructuring. This raised the issue of whether the structure of the formula needed to be fundamentally changed by increasing the percentage level of income-sharing in shorter marriages.
In the end, we concluded against any change to the basic structure of the formula. In the majority of cases across the country the formula works well for short marriages without children, which under current law typically give rise to very limited support obligations, if entitlement is found at all. The modest amounts generated by the formula are typically restructured into a lump sum or into a very short transitional award. In most of these cases, the recipient has a base income, which is supplemented by spousal support. In some parts of the country one does find more generous transitional awards providing the marital standard of living even after short marriages. This is a limited, regional pattern that is difficult to justify under the current principles that govern spousal support.
We do recognize, however, that there is a specific problem for shorter marriages where the recipient has little or no income. In these shorter marriage cases, the formula may generate too little support for the low income recipient even to meet her or his basic needs for a transitional period. The amount required to meet those basic needs will vary from big city to small city to town to rural area. Whether restructuring provides a satisfactory outcome, i.e. more support for a shorter time, will depend upon where the recipient lives. Thus the problem for these short-to-medium-marriage-low-income cases is most acute in big cities.
We did not wish to change the structure of the formula itself for this one sub-set of cases. The best approach to these cases was to create a carefully-tailored exception — the basic needs/undue hardship exception for short marriages — discussed further in Chapter 12 on Exceptions below.
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