Most people involved in a family law case in Canada know that the amount of spousal support or child support that must be paid is based on income. However, income for family law purposes is not the same as income for income tax purposes.
The question that often arises is what is income for family law purposes. Often people receive income in a year that they don’t normally receive – this is known as non-recurring income. Should this be considered as income for purposes of calculating child support or spousal support?
The answer is, as always, it depends on the facts of your case. The Child Support Guidelines give judges a discretion to decide whether to include or exclude one-off payments in income. However, over time, certain patterns emerge in judges’ decisions. While they are not “rules” they can provide guidance as to your particular case.
There is a bias in the courts towards including non-recurring income in income for child support and spousal support purposes. The philosophy behind this is that if you can pay more support, you should be required to do so, as this is what’s best for the children. There’s also another guiding principle in the courts, which is that a child’s standard of living should be about the same at each parent’s household.
Some of the most common types of non-recurring income that courts deal with are:
1. RRSP Redemption. Even though RRSP redemptions are included in your income for tax purposes, a one-off RRSP redemption normally would not be considered part of your income for child support or spousal support purposes. However, if you had a pattern of cashing in a certain amount of RRSPs each year, the results might be different.
2. Stock Options. The law about including stock options in income is less clear. If you exercise stock options on a regular basis, the chances are that they will be included in your income. However, if you exercise stock options only once, and this is not part of your normal pattern of income, there are leading cases that say this should be included in income and also that say this should not be included in income. If you have a significant amount of one-off income from stock options, get a good family law lawyer and be prepared to roll the dice.
3. Severance Packages. These are normally included in income for support purposes, even if you find a job right away and so have an unusually high income in the year the severance package was paid.
4. Personal Injury Awards. Generally, if the damages you receive in a personal injury award are for pain and suffering, this does not need to be included in your income for purposes of calculating support. If the damages you receive are for loss of income, these generally do get included in income for support purposes. If you’re negotiating an out of court settlement of your personal injury suit, you can guess how you want the settlement to read.
5. Capital Gains. The treatment of this type of income is all over the map, but generally one-off capital gains are considered income for purposes of calculating support. On the other hand, generally one-off capital losses are not used to reduce income for purposes of calculating support. The most usual case where capital gains will not be included in income is where the gains are immediately re-invested. For instance, if you sell a business, and re-invest the proceeds into a new business, then generally the capital gains from the sale of your business won’t be considered as part of your income for purposes of calculating child support and spousal support.