Spousal Support Advisory Guidelines July 2008

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10. RESTRUCTURING

10.1 The General Concept: Trading Off Amount Against Duration

Under the Advisory Guidelines there are several mechanisms that allow outcomes to be adjusted in response to the facts of particular cases. As discussed in Chapter 9, above, there is considerable flexibility in the fixing of precise amounts and durations within the ranges generated by the formulas. Here we discuss a second mechanism for flexibility — the ability to "restructure" the formula outcomes by trading off amount against duration. In Chapter 12, which follows, we discuss the third method — that of departing from the formula outcomes by relying upon exceptions.

Although the formulas generate separate figures for amount and duration, the Advisory Guidelines explicitly recognize that these awards can be "restructured" by trading off amount against duration. The only limit is that the overall value of the restructured award should remain within the global — or total — amounts generated by the formula when amount is multiplied by duration.

While the terminology of restructuring is new, the concept of trading off amount against duration is an established feature of current spousal support practice. Such tradeoffs are commonly made in separation agreements and consent orders. In Bracklow the Supreme Court of Canada acknowledged that such an adjustment can also be made by judges, explicitly recognizing that the amount and duration of awards can be configured in different ways to yield awards of similar value (or quantum). Thus the Court noted that an order for a smaller amount paid out over a long period of time can be equivalent to an order for a higher amount paid out over a shorter period of time.

Under the Advisory Guidelines a certain degree of adjustment of amount against duration will occur when precise amounts and duration are being fixed within the ranges (see Chapter 9). However, in particular cases an appropriate award will require an adjustment beyond the limits of the formula’s ranges. Restructuring allows the formula to continue to act as a tool to guide such deviations from the ranges because the overall value of the award remains within the global amounts set by the formula. In this way restructuring differs from exceptions, discussed below in Chapter 12, which involve an actual departure from the global range of outcomes suggested by the formula.

When restructuring is relied upon to resolve issues of inappropriate formula outcomes for amount or duration, awards remain consistent with the overall or global amounts generated by the Advisory Guidelines.

Restructuring can be used in three ways:

• first, to front-end load awards by increasing the amount beyond the formulas’ ranges and shortening duration^[91]
• second, to extend duration beyond the formulas’ ranges by lowering the monthly amount; and
• third, to formulate a lump sum payment by combining amount and duration^[92]

Restructuring was a crucial component in the development of the Advisory Guidelines, particularly the development of the without child support formula. It was the only way in which some of the results generated by the formula could be rendered consistent with current practice. Restructuring is thus an important aspect of a SSAG analysis after the formulas have been applied to generate ranges for amount and duration.^[93]

In practice, restructuring has often been ignored. In many cases, particularly short marriages under the without child support formula, courts have found the amounts generated by the formula too low and have then simply concluded that the Advisory Guidelines do not yield an appropriate outcome and are of no further use.^[94] The failure to consider restructuring is unfortunate because it means that an important element of flexibility is not being utilized. The structure and guidance provided by the Guidelines are thus being lost in a number of cases where these benefits would otherwise be available.

10.2 How Does Restructuring Work? Some Examples

We now provide some examples of the different ways restructuring might be used and set out the basic calculation of the "global ranges" generated by the formulas. Note that the calculations provided in these examples are very simplified and do not take into account the time-value of money or the various future contingencies that could affect the value of awards over time. In practice, more sophisticated calculations may take such factors into account.^[95] Computer software programs may assist in some of the calculations required by restructuring.^[96] If periodic payments are converted into a lump sum, the different tax consequences must be taken into account in arriving at a comparable lump sum.

Despite such software programs, however, there will also be a certain amount of guess-work involved in restructuring. But this is already familiar to family law lawyers who frequently make trade-offs between amount and duration in settlement negotiations and spousal support agreements. Restructuring by means of a lump sum payment or an increase in amount above the formula amounts will also require a finding of ability to pay on the payor’s part.

Our examples focus on the first and second uses of restructuring. We have assumed that the third use of restructuring — converting a periodic order to a lump sum in a short marriage — is familiar and straightforward, and so we have not provided a specific example.

As will be discussed further below, the primary use of restructuring will be under the without child support formula which generates fixed time limits. Our examples reflect this. Following these examples we will discuss in more detail the use of restructuring under each of the Guideline formulas.

10.2.1 Example 1: restructuring by front-end loading

Our first example involves front-end loading to increase the amount outside the formula’s range by reducing duration. This involves choosing a durational limit at the low end of the formula’s range or below it. Front-end loading may be appropriate in shorter marriages under the without child support formula where the monthly formula amounts are relatively modest. Restructuring will provide a generous but relatively short transitional award. Under current practice, spousal support awards in such cases will be shaped by the goal of cutting the ties between the parties fairly quickly and allowing them to go their separate ways. Front-end loading may also be desirable in cases where the recipient spouse needs significant support for a short period to undertake a program of retraining or education, or where the recipient spouse has a low base income.

Restructuring requires the calculation of the global or total amounts generated by the formula when amount is multiplied by duration. On the facts of this example, the simplified calculation of the minimum and maximum global awards under the without child support formula would be as follows:

Although this example uses a fixed monthly amount for the duration of the restructured award, it would also be possible to restructure using step-down awards, as long as the total amount of the award falls within the range set by the formula. In the example above, restructuring would allow an award of $1,500 per month for the first year, 1,000 per month for the second year, and $750 per month for the third year. The total value of the award — $39,000 — falls within the global amounts generated by the formula.

10.2.2 Example 2: restructuring by extending duration and reducing amount

Our second example shows the use of restructuring to extend duration by cutting back on amount. Depending on how much of an extension of duration is required, this can be accomplished either by choosing an amount at the lower end of the formula’s range for amount or by setting an amount below the formula’s range. This use of restructuring might be desirable in medium-length marriages where the recipient spouse will have long-term need and would be better off with modest supplements to income over a longer period of time than with more generous payments over the time period suggested by the formula.

On the facts of this example, the simplified calculation of the minimum and maximum global awards under the without child support formula would be as follows:

Although this example extends duration for a defined period, it might also be possible to use restructuring to extend duration indefinitely, recognizing, however, that the total value of an indefinite (duration not specified) award cannot be calculated with precision. A certain amount of guesswork would inevitably be involved in determining how low the amount of the indefinite award should be set to achieve some rough equivalence with the formula amounts.

10.3 When Should You Think About Restructuring?

In practice, restructuring has often been ignored. Here we try to flag the different kinds of fact situations, under each formula, where restructuring should be considered as an option.

10.3.1 Restructuring under the without child support formula

The primary use of restructuring will be under the without child support formula. To trade off amount against duration ideally requires a fixed duration for the award. As a result, restructuring will generally only be advisable in cases where the formula generates time limits rather than indefinite (duration not specified) support. It will thus have limited application under the with child support formula where duration is often uncertain.

More specifically, restructuring should be kept in mind in three particular kinds of cases under the without child support formula where it may often be appropriate:

• shorter marriages without children
  
  In some very short marriages cases where the support entitlement is limited and there is available property, a lump sum award that allows for a clean break may be appropriate. Restructuring allows for this.
  
  In other short marriage cases without children the purpose of the award is to provide a period of transition to allow the recipient an opportunity to adjust to a lower standard of living. Such awards, under current practice, often provide fairly generous levels of support during this transitional period. The amounts generated under the formula in the case of shorter marriages are often lower than current practice. Restructuring should be considered as a way to increase the amount of the award beyond the high end of the formula’s range by reducing duration.
  
  The possibility of this use of restructuring to generate amounts consistent with current practice was a crucial factor in the development of the without child support formula. We knew that the amounts generated by the formula in some medium-length marriages, assessed on their own, would often be lower than current practice. But we also recognized that current awards were consistent with the total value of the awards generated by the formula when amount and duration were combined to yield global ranges.
  
  Example 10.1 illustrates this use.^[97]
  
  
• long-term disability after a medium-length marriage
  
  The use of restructuring to extend duration should be considered in medium-length marriages where the recipient spouse will have long-term need because of illness or disability. The recipient may prefer more modest supplements to income over a longer period of time than more generous payments over the maximum time period permitted by the formula.
  
  Example 10.2 illustrates this use.
  
  We do recognize, as discussed in Chapter 12 on exceptions, that current law is uncertain in its treatment of illness and disability cases. In some cases, therefore, courts may find restructuring inadequate and then treat these cases as exceptions warranting a departure from the global ranges generated by the formula.
  
  
• longer marriages where the formula generates a time limit but current practice dictates indefinite support
  
  Under the without child support formula, support becomes indefinite (duration not specified) after 20 years of marriage. For marriages under that length, the formula generates time limits. Current practice, however, may preclude time limits in marriages shorter than 20 years, for example after 15 or 18 years.
  
  What often happens in practice is that these longer durational limits of the Advisory Guidelines are simply ignored and only the ranges for amount are considered. In Chapter 7 we recognize that some courts may not be willing to implement the longer time limits under the without child support formula in initial orders and we suggest a "softer" use of the time limits to structure the on-going process of variation and review. But if it is contemplated that the support will likely not terminate at the end of maximum duration, even on this "softer" use of time-limits, restructuring should be applied. The extension of duration beyond the maximum end of the formula’s range will require some trade-off of amount, at least a reduction to the low end of the range, if not below.
  
  By way of example, this use of restructuring may arise in cases where there were dependent children at the time of separation who have since become independent and there has been a cross-over from the with child support formula. The age of the recipient may be such that the maximum duration based on length of marriage will not run to age 60 or 65 for the recipient, whenever pension income kicks in. Restructuring may be used to extend duration to that age by adjusting amount downward.

10.3.2 Restructuring under the with child support formula

For the most part, restructuring has less relevance for marriages with dependent children, for a number of reasons. After explaining these limitations, we will identify the circumstances in which restructuring is a practical option under this formula.

First, under the basic with child support formula, all orders are indefinite in form, within the framework of the two tests for determining the durational range that will structure the process of review and variation. The "softer" nature of the time limits under this formula make restructuring a more uncertain enterprise.

Second, restructuring to extend duration is unlikely to turn up under this formula. By the time the spouses reach the end of this formula’s maximum duration, they will most likely have "crossed over" to the without child support formula, as explained above.

The third important limit on restructuring under this formula is the payor’s ability to pay, applicable to the options of front-end loading or a lump sum. Where there are three children or more (or sometimes two children plus large section 7 expenses), there is little or no room to increase spousal support above the ranges, except for very high payor incomes.

The most likely circumstances for the use of front-end loading or a lump sum under the basic with child support formula will be cases where the recipient wants spousal support above the upper end of the range for a shorter period, e.g. to pursue a more expensive educational program. Many of these will be shorter marriage cases. To convert periodic payments to a lump sum, obviously there will have to be assets or resources available to the payor to make the lump sum payment. For front-end loading to occur, the following cases would be prime candidates, as there will be some additional ability to pay available:

• only one child;
• shared custody
• two children, no s. 7 expenses and higher incomes
• higher incomes generally.

The addition of a lower end to the durational range under this formula in this final version does create more room for negotiation over duration, which creates the conditions amenable to restructuring in these cases and perhaps some others.

10.3.3 Restructuring under the custodial payor formula

The custodial payor formula, applicable in cases where there are dependent children but the recipient spouse is not the custodial parent, is a modified version of the without child formula. Its adoption of the without child support formula’s durational ranges means that restructuring may be used the same way under this formula as under the without child support formula, discussed above.^[98]

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