This article was originally published by The Lawyer’s Daily (www.thelawyersdaily.ca), part of LexisNexis Canada Inc.
Our economy has changed during and as a result of the pandemic, with some sectors being severely impacted while others surpassed expectations. We will continue to experience periods of instability with inflation rates surging and the war in Ukraine affecting production and distribution. Interestingly, some housing markets continue to be high and the economy is showing signs of resilience based on a recent report by Statistics Canada that highlights a recent decline in the unemployment rate.
Uncertain economic periods add difficulty to an already complex family law system.
How to determine child and spousal support
To assess an obligation or an entitlement to child or spousal support, we must first determine both parties’ income. The Federal Child Support Guidelines (the Guidelines) require the use of the most recent income information, but there are many exceptions if the current income is not determinative of a person’s means or ability to pay.
It is easy to determine the income for someone who is employed full-time by a third party, and whose income is captured in a T4 slip and reported on their income tax return. It is more complex if someone has a business.
Determining someone’s income gets more complicated if there have been significant changes in the industry in which they operate, such that current income is not representative of someone’s earning potential.
For example, someone’s current income in the retail business may be unusually low due to business interruptions during the pandemic. With production and distribution being impacted by a number of factors, including the war in Ukraine, it is currently not possible to predict if that person will be able to have full-time, uninterrupted work hours in the near future.
According to Forbes Media, sectors that did really well during the pandemic include cleaning services, delivery services, liquor stores, gaming, fitness equipment companies and telehealth services, to name a few. Separating spouses working in these sectors may have a healthy current income, but it is uncertain if recent economic gains can be maintained or if sectors will require laying off of surplus employees.
The shifting job market and new economies have made it complicated to predict someone’s income and earning potential. Sectors that were previously thought to be secure or predictable have been severely impacted by the pandemic, and it is impossible to predict how sectors will perform in the long run.
People’s incomes can fluctuate considerably from year to year and from season to season.
Other challenges that add to the complexity of determining someone’s income for support purposes are the rise of “gig work.” How do we decide on an appropriate number of “gigs” someone should take, particularly when there are children involved? Gig work often means varying hours, a constantly shifting schedule and, if stitching together several jobs, travelling to different locations. It’s not as simple as declaring that a person should get as many gigs as are required to fill 40 hours a week.
If the couple shares responsibility for the children, the gig worker can’t work as much when they
have the kids, and when they don’t have the kids, they are exhausted from scrambling to make up the hours to earn an income, with little personal time to de-stress. Yet at the same time, the person who is working in a traditional employment setting and has to give up a percentage of their income to the other is exhausted too.
Standards for predicting income are no longer applicable, given the volatility.
Can we provide long-term support arrangements in these uncertain times?
The Guidelines permit spouses to revisit child support arrangements every time there is a change in someone’s income. While the usual practice is to revisit the support arrangements at the time of the filing of income tax returns when their income for a year is known, there can be changes mid-year if someone’s financial situation changes.
Some families prefer, when possible, to agree on support terms for a few years, maybe until an
obvious milestone such as when a child graduates from high school, or a retirement, than to revisit support yearly. This gives people time to reorganize their lives and heal from the difficult legal process, and avoids costly yearly entanglement in legal processes to recalculate income and support.
With the current state of the economy, industries may no longer be predictable. When people’s
income sources are not stable, it makes it difficult to provide families with legal agreements that
have any degree of permanence.
A possible solution, if families prefer a more stable arrangement for a certain number of years, is to calculate support based on current and expected near-future employment circumstances and revisit the support arrangements only if there are significant differences between the predictions and the reality. Clear guidelines for when the arrangement can be revisited need to be specified.
Lawyers and mediators frequently work with certified business valuators, accountants and financial advisers, who can help calculate income for more complex cases and shed light on people’s financial needs.