For family lawyers, the burgeoning gig economy & remote work have presented new challenges & complexities – particularly regarding how we determine support.
As family law lawyers, we’ve witnessed many different scenarios among our clients as we shepherd them through the divorce process. The COVID-19 pandemic has presented particular challenges over the past two years – from developing parenting plans to valuing assets. But it has also accelerated a new way of work that is adding complexity to how we determine support.
Whether recently unemployed, reevaluating their current job and lifestyle, or simply looking to supplement income with a side hustle, many people have been turning to the burgeoning gig economy for work. At the same time, businesses are increasingly leveraging the economic benefits of hiring more freelance and contract workers. But for separating couples – and their advisors – the gig economy and remote work present new challenges and complexities.
Determining Child and Spousal Support in a Gig Economy
To assess an obligation or an entitlement to child or spousal support (“alimony”), we must first determine both parties’ income. For someone who is employed by a Canadian company full-time, this is captured in a T4 slip (a W-2 in the USA) and reported on their income tax return, which makes for a straightforward exercise. But almost every other type of income will require some degree of analysis.
For example, if someone works in an industry where cash payments are common, the law permits an analysis of the lifestyle and an income determination that is commensurate with the family’s lifestyle.
When analyzing an individual’s income, we usually collect financial information from the last three years, such as income tax returns and business financial statements, which helps to reveal any trends. Typically, however, the most recent income is used to determine support. It gets complicated if there have been significant changes to the industry in which the person is employed such that current income is not representative of their earning potential. For example, someone working in the retail or hospitality industry may have an unusually low income due to business interruptions during the pandemic.
Challenges of the Gig Economy
Sectors that were previously thought to be secure or predictable have been severely impacted by pandemic restrictions. But the shifting job market and new economies have also made it complicated to predict someone’s income and earning potential.
For someone in the gig economy, with inconsistent hours or work, their income can fluctuate considerably year-to-year and also from season to season.
Adding to this complexity when it comes to determining spousal or child support is how to evaluate an appropriate number of “gigs” someone should take. Gig work often means varying hours, a constantly shifting schedule and, if stitching together several jobs, traveling to different locations. It’s not as simple as declaring that a person should get as many as are required to fill a 40 hour week. And, if the couple shares responsibility for the children, the gig worker can’t take as many shifts when they have the kids, and when they don’t, they are exhausted from scrambling to make up the hours to earn an income. Yet at the same time, the person who is working in a traditional employment setting while paying a percentage of their income to their ex-spouse is exhausted too.
Standards for predicting income are no longer applicable, given the volatility.
Can we provide long-term child support arrangements in these uncertain times?
The Child Support Guidelines permit spouses to revisit child support arrangements every time there is a substantial change in a co-parent’s income. Many families prefer to set support terms for several years, whenever possible, setting the end date to coincide with an obvious milestone: when a child graduates from high school, for example. This gives divorced parents time to re-organize their lives, heal from the difficult legal process, and avoid costly annual reviews.
However, with the current state of the economy, industries are in turmoil and nothing seems predictable. Every new wave of coronavirus, or announcement of inflation, can turn markets upside down and affect the incomes of countless workers. When people’s earnings are not stable, it makes it very difficult to provide legal agreements that have any degree of permanence.
To help families that would like to try a stable arrangement for a certain number of years, we can establish a “financial zone”: a fair range that can absorb an individual’s income variations over time. While it requires playing with hypotheses and formulas and evaluating/re-evaluating them in real-life circumstances, it could eliminate an annual review of the support arrangement.
For example, say the recipient spouse recently found a contract gig where they were able to earn approximately $40,000 per year. The support that this spouse receives is calculated based on that salary, but it may be desirable to indicate that there will be no review of the support amount so long as this person earns between $35,000 and $45,000 per year.
It’s also important to perform simulations of what support would look like if the person earned close to the edges of the zone. So at $44,000 per annum, is it still fair for the payor to pay the same amount that was calculated when the recipient earned $40,000? Test several scenarios to evaluate whether the zone is so broad as to render the initial support calculation unfair. An unfair zone in this example may be a range of $20,000 to $60,000, which is much too wide. The support recipient would certainly suffer hardship if they were only able to earn $20,000 yet had spousal support calculated on $40,000 in earnings. Similarly, it would be unfair for the support payor to pay the same amount if the recipient suddenly earned $60,000.
Lawyers and mediators frequently work with certified business valuators, accountants, and financial advisors, who can help calculate income for more complex cases and shed light on people’s financial needs.
Separating spouses are encouraged to use collaborative negotiation or mediation to find creative solutions that meet their needs and the needs of their families.
Originally published in Family Lawyer Magazine.