Corporate Income: How is Spousal Support Calculated?

How is spousal support calculated when one spouse earns income through a corporation? Once the threshold issue of entitlement to spousal support has been determined, the amount of support must be assessed. The framework for determining income in such circumstances requires an analysis of corporate profits, losses, taxes, and other considerations to arrive at a number that fairly reflects all the money available to the spouse for the payment of spousal support.

Income issues: How is spousal support calculated?

For the most part, the income issues are the same as those for child support purposes. In fact, the starting point for the determination of income under the Spousal Support Advisory Guidelines (“SSAGs”) is the definition of income under the Federal Child Support Guidelines, and thus will require interpretation of the provisions of sections 15 to 20 of the Child Support Guidelines and Schedule III.

I have previously discussed corporate income in relation to the calculation of child support. Where the payor spouse is a shareholder, director, or officer of a corporation and the amount of the spouse’s annual T1 income does not fairly reflect all the money available to the spouse for the payment of child support, some or all of the pre‑tax corporate income may be added to the payor spouse’s income for the purposes of calculating child support. Other issues that may arise when calculating the amount of income available for the payment of support include how to deal with income from deemed dividends and proving business expenses.

How is spousal support calculated where income is in dispute?

The main issue on appeal in Mason v. Mason, 2016 ONCA 725 was whether any portion of the profits of a corporation now wholly owned by the husband as a result of the marriage breakdown should be added to his income for spousal support purposes. During their almost 20 years of marriage, the parties had two children and worked together to build a highly successful recreational equipment business. Following the parties’ separation in November 2011, the wife continued to work full-time in the business until August 2012, when she began working part-time. The wife stopped working in the business in January 2013. For the 2013 fiscal year, the business sustained an after-tax loss of $235,067. However, during the preceding eight-year period, the business had generated after-tax profits, over and above the parties’ salaries and bonuses, averaging almost $355,000 per year.

At trial in 2014, the judge put the husband’s income and the business’ profits at $400,000 per year going forward for spousal support purposes, which produced a range for spousal support of $8,215 to $10,233 per month under the SSAGs. Holding that there was no reason to depart from the mid-range, the trial judge ordered the husband to pay to the wife $9,584 per month in spousal support. On appeal, spousal support was drastically reduced to $1,500 per month. The Court of Appeal noted while the SSAGs are advisory in nature, not mandatory, they must be applied properly and not in a piecemeal fashion. The problem with the trial decision is that the judge used the SSAGs to determine the range for support, but arrived at the $400,000 income figure without applying the SSAGs or explaining why they were inapplicable. Where a party’s income is in dispute, it makes little sense to determine the amount of spousal support payable solely by applying the SSAGs ranges without considering the SSAGs provisions for determining income.

How is spousal support calculated when applying the SSAGs?

The appellate decision in Mason v. Mason cautioned against defaulting to the mid-range amount of spousal support and emphasized that the SSAGs are not to be used as a software tool or a formula that calculates a specific amount of support for a set period of time. The SSAGs must be considered in context and require careful attention to the actual incomes, or the income earning capacities, of both spouses:

 [199]   The Spousal Support Advisory Guidelines: The Revised User’s Guide[21] provides that courts should avoid the tendency to “default” to the mid-range amount of spousal support. Section 9 of the 2016 Revised User’s Guide explicitly states, “[t]he mid-point of the SSAG ranges for amount should NOT be treated as the default outcome.” In determining the appropriate quantum of support within the range, a court is required to consider the support factors and objectives found in the Divorce Act and the Family Law Act. The SSAGs also provide a number of factors to consider while choosing a location within the range, including the strength of the recipient’s compensatory claim, the recipient’s need, property division and debts, and the payor’s needs and ability to pay.

The bottom line on calculation of income for spousal support purposes

The Mason v. Mason decision underscores the complexities involved in answering “How is spousal support calculated?” where one (or both) of the spouses has corporate income. What is clear is that regardless of the source of income, the SSAGs are not to be used as a software tool or formula whereby one merely plugs in the income figures, obtains a range, and defaults to the midpoint. Family law litigants require experienced legal counsel to determine the appropriate amount of support. If you have questions about how spousal support is calculated, contact Onyx Law Group’s team of experienced family lawyers in Vancouver at (604) 900-2538.