Spousal Support Advisory Guidelines: The Revised User's Guide
10 Restructuring (SSAG Chapter 10)
Restructuring is an important part of the Advisory Guidelines structure that is often ignored in practice. The result is the loss of an important element of flexibility that allows awards to be adjusted to meet the circumstances of individual cases while maintaining the benefits of structure and certainty offered by the Guidelines.
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 so long as the award remains within the global ranges generated by the formula (when amount is multiplied by duration). Restructuring asks you to think of the formulas as generating global amounts or values which can be restructured or configured in many different ways—a very useful tool in settlement negotiations.
Restructuring can be used in three ways:
- to front-end load awards by increasing the amount beyond the formulas’ ranges and shortening duration (either to the lower end of the range or below it)
- to extend duration beyond the formulas’ ranges and lower the monthly amount (either to the lower end of the range or below it; and
- to formulate a lump sum payment by combining amount and duration.
Examples of each of these methods of restructuring will be found below.
Apart from lump sums, which are used somewhat more frequently and are given separate treatment below, restructuring remains largely ignored and there are few references to the global ranges when periodic awards are being made. In cases where courts go outside the ranges for amount and duration they often state that they are “not following the SSAG”, whereas the outcomes may well fall within the global ranges and thus be consistent with the SSAG.
Consideration of restructuring a periodic award should be a standard part of an Advisory Guidelines analysis. For two excellent examples of the use of restructuring see Fisher v Fisher, 2008 ONCA 11 (explicit use of global ranges to front-end load a periodic award) and Bennett v. Reeves, 2014 ONCJ 145 (restructuring integrated into analysis of appropriate periodic award, although not used on the facts).
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. This usually means short and medium length marriages where spousal support is being determined under either the without child support formula or the custodial payor formula (which is built around the without child support formula). But restructuring has sometimes been used in cases where the SSAG suggest an indefinite award. The use of the restructuring under the with child support formula raises special issues which will be dealt with in a separate section below.
Restructuring and thinking about periodic awards in terms of global amounts may be helpful not only in the context of initial applications, but also in the context of review and variation (see examples provided below). As well restructuring should also be kept in mind when assessing the fairness of spousal support agreements that seem to depart from the SSAG ranges in the context of a Miglin analysis (as discussed above under “Agreements”); see for example Van Erp v. Van Erp, 2015 BCSC 203 (recognizing that agreement front-end loaded support with amounts significantly higher than SSAG range but global amount still lower than SSAG when duration taken into account; agreement upheld).
The calculations involved in restructuring can be done with varying degrees of sophistication. Computer software programs may assist in some of the calculations required by restructuring. However, even with software programs, there will be a certain amount of judgement involved in restructuring. But this is familiar territory for family law lawyers who even before the advent of the Advisory Guidelines frequently made trade-offs between amount and duration in settlement negotiations and spousal support agreements.
(a) Front-end loading
Front-end loading will often be appropriate in short and short/medium length marriages under the without child support formula where the ranges for amount generated by the formula may be seen as too low if the objective of the award is to provide a transitional period of support that bears some relationship to the marital standard of living. Here restructuring can be used to front-end load the award, increasing the amount and shortening duration. For good examples see Fisher v Fisher, 2008 ONCA 11; R.L. v. L.A.B., 2013 PESC 24; Broadbear v. Prothero, 2011 ONSC 3636; and McCulloch v. Bawtinheimer, 2006 ABQB 232. Of course, in very short marriages it may be more appropriate to simply collapse the periodic order into a lump sum: see Arnold v. Arnold, 2009 BCSC 1384.
In the context of review or variation, where the original order was higher than the SSAG, courts have recognized this as an instance of front-end loading and have adjusted the amount and duration of on-going support downward: see Mercel v. Bouillon, 2012 ONSC 6557; Ball v. Ball, 2013 BCSC 227; and Maber v. Maber, 2012 NBQB 337.
(b) Lowering amount; extending duration
One situation in which this form of restructuring might be appropriate is a medium-length marriage where the recipient has a long-term disability. Here restructuring can be used to reduce the award to a more modest supplement that will extend over a longer duration; see Bockhold v. Bockhold, 2010 BCSC 214 (duration extended to indefinite rather than termination after 17 years because of disability plus wife’s inability to become self-sufficient, amount below low end of SSAG range, but also income over the ceiling.)
Another is in the case of medium/long marriages (eg. marriages between 15 and 20 years in length) where the formula generates a time limit but support for a longer duration is considered appropriate. These may include cases initially involving dependent children which have “crossed over” to the without child support formula after the children have become independent. Here restructuring can be used to extend duration by choosing an amount of support in the lower end of the range or even below the low end of the range; see Bockhold, aboveand Bosanac v Bosanac, 2014 ONSC 7467.
In the context of review or variation, where the original order was lower than the SSAG, this form of restructuring may be used to extend duration beyond the SSAG range: see Bhandhal v. Bhandhal, 2015 ONSC 1152.
(c) Lump sums
One form of restructuring contemplated by the SSAG is the collapse of a periodic order into a lump sum. However, in some provinces, including Ontario, existing case law was often read as precluding lump sum support except in very unusual circumstances. In Ontario that is now no longer the case as a result of the Ontario Court of Appeal’s sweeping ruling in Davis v. Crawford, 2011 ONCA 294 which restated and expanded the scope of a court’s ability to order lump sum spousal support. Davis has become the leading and often-cited decision on lump sum awards.The decision provides a mini-guide to the advantages, disadvantages and proper uses of lump sum support awards, laid out in paragraphs 66 to 76 of the judgement. The Court rejects the idea that that lump sum spousal support awards must, as a matter of principle, be limited to “very unusual circumstances”. Judges are recognized as having a broad discretion to make lump sum orders, after weighing their advantages and disadvantages, even if periodic orders will be the norm for practical reasons. The Court also stated (at para 76) that the Advisory Guidelines should generally be used in calculating the lump sum. In Robinson v. Robinson, 2012 BCCA 497 the British Columbia Court of Appeal subsequently endorsed the principles in Davis v. Crawford.
For good examples of a periodic award being converted into a lump sum see Robinson (BCCA, above); Stannett v. Green, [2014] O.J. 47 (S.C.J.); Soschin v. Tabatchnik, 2013 ONSC 1707, G.G. v. M.A., 2014 BCSC 1023; and Vanos v. Vanos, [2009] O.J. No. 4217 (S.C.J.). Lump sums serve multiple purposes, however, and in many cases calculations are not provided. In Davis v. Crawford the Ontario Court of Appeal upheld the trial decision, despite the absence of a detailed explanation of the calculations, on the basis of the deferential standard of appellate review; see also Racco v. Racco, 2014 ONCA 330 and Ludmer v. Ludmer, 2014 ONCA 827.
Some things to keep in mind when considering restructuring by way of a lump sum:
- To convert periodic payments to a lump sum there will have to be assets or resources available to the payor to make the lump sum payment.
- Lump sums based on the SSAG need time limits for duration so they will most often be used in short and medium length marriages under the without child support formula. However, lump sums are sometimes found to be appropriate even in cases of long marriages where the SSAG duration is indefinite—for example, because of concerns about non-payment of periodic support. In such cases, a fixed duration may be chosen to calculate the lump sum; see Marsh v. Marsh, 2012 BCSC 1597 (lump sum after 24-year marriage, based on duration of 15 years until husband turns 65, no discount for wife’s life expectancy) and Raymond v. Raymond, 2008 O.J. No. 5294 (27-year marriage, lump sum based on duration of 10 years when husband would be close to 65). Alternatively, the calculation can be based on an indefinite award discounted for life expectancy; see Blatherwick v. Blatherwick, 2015 ONSC 2606 and Yorke v. Yorke, 2010 NBQB 230.
- When converting periodic support to a lump sum remember to discount for tax! The lump sum award is neither taxable for the recipient nor deductible for the payor, unlike periodic support payments. The SSAG ranges are based upon the premise that periodic support is deductible by the payor and taxable in the hands of the recipient. When the SSAG ranges for amount and duration are used to calculate the lump sum amount, the global amount must then be reduced to reflect the different tax status of a lump sum award: see Samoilova v. Mahnic, 2014 ABCA 65. Although this point would seem obvious, it is missed often enough to be worth mentioning. The five cases cited above as good examples of converting a periodic award into a lump sum (Robinson, Stannett v. Green, Soschin v. Tabatchnik, G.G. v. M.A., and Vanos) all include the discount for tax. Similar issues can arise with respect to lump sum retroactive awards (see ”Retroactive Spousal Support” below).
- The next question is what tax rate to use in discounting or adjusting the SSAG global amount. The same issue arises with respect to lump sum retroactive awards and much of the case law has arisen in that context. In cases where no evidence is led, some courts will fix, somewhat arbitrarily, a notional discount rate, for example 30%; see Bastarache v. Bastarache, 2012 NBQB 75 and Chalifoux v. Chalifoux 2008 ABCA 70. However, in P. (B.). v. T. (A.), 2014 NBCA 51 the New Brunswick Court of Appeal rejected this practice and required that the tax discount be based on evidence. In cases where there is evidence, and the payor and recipient have different tax rates, there is an issue of what rate to use. Computer software programs may assist in this calculation. DivorceMate, for example, offers a lump sum calculator in its software that provides discounted values for recipient and payor tax rates. A balance between the respective tax positions of the payor and recipient is necessary, most often the mid-point between the two positions (which is the common approach if software calculations are used). In some cases, it may be appropriate to edge more towards the tax position of one or the other spouse, e.g. toward the recipient where little or no tax would be payable on a periodic award or toward the payor where the periodic amounts press up against the limits of ability to pay. For a review of cases dealing with this issue see Robinson (BCCA, above).
- Lump sum calculations may also take into account the time-value of money (i.e. by discounting for present value). Software may assist with some of these calculations. For example, the DivorceMate lump sum calculator, noted above, offers various net present value calculations in addition to discounted values for tax rates. This is generally a justifiable adjustment, but may not be appropriate when the duration is short; see Arnold v. Arnold, 2009 BCSC 1384. For examples of lump sum calculations that include discounts for present value see Vanos v. Vanos, [2009] O.J. No. 4217 (S.C.J.) (court averages DivorceMate lump sum present values for husband and wife); Raymond v. Raymond, [2008] O.J. No. 5294 (S.C.J.) (lump sum based on 10 year periodic order, 6% discount for present value); and Durakovic v. Durakovic, [2008] O.J. No. 3537 (S.C.J.)(lump sum based on 6 year periodic order; 30% discount for tax, 3% for present value).
- Discounting lump sums for future contingencies is more controversial. This appears to be a practice imported by judges from personal injury actions, but it is not obvious why such contingencies should be used in converting a stream of periodic spousal support payments into a lump sum. Further, contingencies are often left unexplained, which makes them even more dubious. For one case where no adjustment was made for contingencies, see Blatherwick, above.
- If there is to be any adjustment for contingencies, those contingencies should be clearly stated and estimated. There is no basis for any “standard” 20% discount for contingencies, as has been proposed by counsel or determined by courts in a few cases: Colafranceschi v. Colafranceshi, 2001 CarswellOnt 646, [2001] O.J. No. 771 (S.C.J.;, Walker v. Brown, 2013 BCSC 204; and Marsh, above (although an alternative calculation there did not discount for contingencies). In some cases, there is no explanation at all for some steep contingency discounts: Raymond, above (50% reduction for contingencies, not explained) or Durakovic, above (25% reduction for contingencies, where the lump sum only reflected two years of support remaining). For a contrasting example of a case providing a clear statement of the rationale for the adjustment for contingencies see Robinson, above,(20% contingency for lump sum based on 9.5 years of periodic support to age 65, where payor had health and heart problems, including quadruple bypass surgery, and thus a real possibility that he would not work until age 65).
(d) Restructuring under the with child support formula
For the most part, restructuring has less relevance for marriages with dependent children. The payor’s ability to pay spousal support will be limited in most cases, thus often precluding any possibility of front-end loading or lump sum. The indefinite nature of awards under the basic with child support formula and the absence of firm time limits make restructuring a more uncertain enterprise. However, the durational ranges under this formula, albeit involving “softer” time limits, do create some room for negotiation over duration, which creates the conditions amenable to restructuring in certain kinds of cases.
- 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, or desires a lump sum to provide for accommodation; see Card v. Card, 2009 BCSC 865 and Karisik v. Chow, 2010 BCCA 548 (7-year marriage, 1 child, lump sum based on 5 years periodic support, allows wife to keep matrimonial home).
- In some cases a lump sum may be desired because of concerns about non-payment of periodic spousal support; see Wielgus v. Adewole, 2014 ONSC 3841; Werner v. Werner, 2013 NSCA 6; Chen v. Tan, 2014 BCSC 2176 (17-year marriage, 1 child, husband not likely to pay, lump sum based on low end of range for amount and mid-range for duration); Stace-Smith v. Lecompte, 2011 BCCA 129 (4-year cohabitation, 1 child, lump sum based on 3 year duration); Venco v. Lie, 2009 BCSC 831 (modest monthly amount of support combined with history of non-payment); Durakovic v. Durakovic, [2008] O.J. No. 3537 (S.C.J.)(7-year marriage, lump sum based on 6 year periodic order). Or to bring about a clean break in a high conflict case; see G.G. v. M.A., 2014 BCSC 1023 (high conflict, 7-year marriage, 2 children, lump sum based on mid-range amount and 6 year duration).
- For front-end loading , the following cases would be the more likely 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
- modest monthly amount of spousal support and short marriage
- The use of lump sum awards in cases of short marriages with children raises some concerns. These cases are often based upon a very short fixed duration of spousal support reflecting only the length of the marriage, an error identified above under “The With Child Support Formula”. under
(e) 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, although ability to pay may restrict the use of front-end loading and lump sums; see Martin v. Martin, [2007] O.J. No. 467 (S.C.J.) (modest periodic order collapsed into lump sum) and Bennett v. Reeves, 2014 ONCJ 145 (nice discussion of restructuring in a custodial payor case, although not used on the facts).
- Date modified: