Spousal Support Advisory Guidelines July 2008
Any guidelines must address the question of "ceilings" and "floors". The ceiling is the income level for the paying spouse above which any income-sharing formula gives way to discretion. The floor is the income level for the payor below which no support would generally be payable.
In the case of the Federal Child Support Guidelines, to take a familiar example, once the payor’s income is over $150,000, section 4 provides that the amount of child support is the table amount for the first $150,000 plus any additional discretionary amount on the balance of the payor’s income above $150,000. In practice courts have been prepared to follow the table formula for child support up to much higher income levels. At the other end, the floor for child support under the table formula is an income of about $8,000, based upon the personal tax exemption for a single person. This is a true floor in that the paying parent is deemed unable to pay any child support below that income level.
Ceilings and floors are trickier to establish for any spousal support formula. In practical terms, ceilings and floors attempt to define the upper and lower bounds of the typical case, for which guideline formulas can generate acceptable results. The benefits of consistency and predictability should be extended as far upwards and downwards as possible, while we recognise the important practical issues at each end of the income spectrum.
First we will explain the reasons for the ceiling and the floor: the ceiling of $350,000 of gross payor income, and the floor of $20,000 of gross payor income.
Above the ceiling and below the floor, the formulas do not operate, leaving these very high and very low income cases to be dealt with like "exceptions", which we discuss next in this Chapter. But these situations are not really "exceptions", as they lie outside the typical income levels for which the formulas were constructed.
The shorthand term "ceiling" may be misleading. Under the Federal Child Support Guidelines, there is no absolute ceiling, just an income level above which the standard fixed-percentage-of-income formula can be varied, to generate a lesser percentage of income above that level. We propose a similar approach here.
Under the Spousal Support Advisory Guidelines, a ceiling could be based on the payor’s income, or the monthly amount of support paid, or the recipient’s income, or some form of standard of living test. Our preference is to use the payor’s gross income as the basis for the ceiling.
The ceiling is a gross annual payor income of $350,000. After the payor’s gross income reaches the ceiling of $350,000, the formulas should no longer be automatically applied to divide income beyond that threshold. But the $350,000 is not a "cap" either, as spousal support can and often will increase for income above that ceiling, on a case-by-case basis. Below, we discuss possible approaches for cases above the ceiling.
In the feedback on the Draft Proposal, we heard very few suggestions for a lower or higher income level for the ceiling. In large urban areas, an income of $350,000 was seen as a reasonable upper boundary for the use of formulas. By contrast, in rural areas and in other lower-income areas, some judges and lawyers began to feel uneasy with the higher-income ranges under the formulas somewhere between $150,000 and $250,000, leading to the development of informal "ceilings" at lower levels in these first few years under the Advisory Guidelines. Based on this experience, we have not revised the ceiling, leaving the law to develop further in this small number of high income cases.
A floor for the Advisory Guidelines is more significant, if it sets the amount of support at zero below that floor. In our view, that should generally be the effect of the floor. The Federal Child Support Guidelines use a very low floor, about $8,000 gross per year. The floor for spousal support has to be higher than that.
There should generally not be any amount of spousal support payable until the payor’s gross income exceeds $20,000 per year. A minimum wage or poverty line income would be too low for a floor, providing too little incentive for the payor to continue working, given prevailing tax rates. A review of the case law suggests that judges almost never order spousal support where payors make less than $20,000, or even slightly more. According to child support database information, where dependent children are involved, if the payor’s income is below $20,000 gross annually, spousal support is only ordered or agreed upon in less than 2 percent of cases and the percentages for incomes of $20,000 to $29,000 are only about 2.5 percent.
Below this floor, there will be occasional cases where there will be entitlement to spousal support. There is also a need for flexibility for incomes just above the floor, to avoid any "cliff effect" and to accommodate ability to pay concerns. These are discussed below.
To repeat, the ceiling is not a "cap" on spousal support, nor does it bar the continued use of the formulas as one method of arriving at an amount in a particular case. The examples below illustrate the operation of the ceiling and some of the issues that arise in cases above the ceiling.
In a long-marriage case, assume one spouse earns $350,000 gross per year and the other has no income, after 25 years of marriage. Under the without child support formula, a 25-year marriage would call for sharing between 37.5 to 50 percent of the gross income difference, i.e., annual spousal support in the range of $131,250 to $175,000 (capped at $173,232), or $10,937 to $14,583 (capped at $14,436) monthly.
If the payor earned more, say $500,000, a court could leave spousal support in that same range or, in its discretion, a court might go higher, but no formula would push the court or the parties to do so and it would be an individualized decision. If the formula were to be applied for an income of $500,000, the support would rise to $15,625 to $20,833 (capped at $20,688) monthly. Or the court or the parties might settle upon an amount somewhere in between these two ranges. These are large numbers for support in this case, but keep in mind that this is the very top end of the formula, with a long marriage, a high payor income and no income for the recipient
Take the same facts as Example 11.1 above, with the payor earning $350,000 gross per year and the recipient having no income, but add two teenage children living with the recipient. Assume that child support would follow the table formula, with child support of $4,312 per month (using the Ontario tables).
Spousal support under the with child support formula, would produce a range from $7,585 to $9,160 per month.
If the payor earns more than $350,000, e.g. $500,000, a court can decide to go higher or not. Under the with child support formula the operation of the ceiling is complicated by the fact that child support increases as incomes rise above the ceiling. We can suggest two possible approaches for these very high income cases using the with child support formula.
The first approach uses the formula to determine a minimum amount for spousal support, an approach we can call "minimum plus". A notional calculation would be required to calculate spousal support at the $350,000 ceiling, using the child support payable at the ceiling. This would determine the "minimum" spousal support range. In Example 11.2, that range would be $7,585 to $9,160. There would be discretion to add to that minimum for incomes over $350,000, after taking into account the actual amount of child support being paid by the payor at that higher income level, which would be $6,052 per month at $500,000. This approach might make more sense where the payor’s income is closer to the ceiling.
The second approach would be one of pure discretion. Once the payor’s income exceeded the ceiling, then there would be no "minimum" for spousal support, just a dollar figure that would take into account the actual amount of child support paid, an amount which can be very large for high income cases. At some point, the large amounts of child support include a component that compensates the recipient spouse for the indirect costs of child-care responsibilities, leaving less need for spousal support to do so. This approach will become more important where the payor’s income is well above the ceiling.
What is clear is that the larger stakes at these income levels and the complexities of the individual cases mean that the Advisory Guidelines will have less significance to the outcomes above the ceiling, whether negotiated or litigated.
The "floor" for the use of the formulas is a gross payor income of $20,000 per year. Below that floor, spousal support orders are rare and thus exceptional. For payor incomes between $20,000 and $30,000, there is no presumption against support, but it may be necessary to depart from the lower end of the formula ranges, in light of ability to pay considerations.
First is the situation involving payor incomes below the floor of $20,000. In general, the formulas for amount and duration will not operate where the payor spouse’s gross income is less than $20,000 per year, as it will be rare that there will be sufficient ability to pay. There may, however, be exceptional cases where spousal support might be paid, e.g. where the payor spouse is living with parents or otherwise has significantly reduced living expenses, or where both spouses are retired and on low incomes after a long marriage. Formulas may be less helpful in determining amounts in such cases.
There is another good reason for allowing for spousal support in exceptional situations below the income floor. The Advisory Guidelines address amount and duration, not entitlement. An absolute income floor for amount would effectively create an entitlement rule, something that these guidelines should not do, in light of their informal and advisory nature. The issue of entitlement must always remain open, as a threshold issue, to be defined by the legislation and judicial interpretation of that legislation.
The examples below illustrate the operation of this $20,000 floor.
To take an example at the lower extreme, assume the higher income spouse earns $18,000 gross per year as employment income, after a 25-year marriage, but the other spouse has no income at all.
With a floor of $20,000, there would usually be zero spousal support payable at $18,000, despite the income difference. The range for spousal support generated by the without child support formula would have been $562 to $750 (capped at $706) per month. At the top end of this range, using Ontario figures, each spouse would have 50 per cent of the net income, but only $737 per month each, below social assistance rates in most jurisdictions. Even at the low end of this range, the payor would only have monthly net income of $880 compared to the recipient’s $596 monthly.
Assume the payor earns $20,000 gross per year, the other spouse has no income and they have one child, which would mean a table amount of child support of $172 per month in Ontario.
If we applied the with child support formula here, spousal support would range from $319 to $436 per month. At these levels, the custodial parent and one child would be left at around 80 per cent of the already-too-low low-income measure used in Schedule II of the Federal Child Support Guidelines to compare household standards of living, while leaving the paying spouse a net monthly income of about $925 per month.
These numbers only improve slightly, even in the one-child case, for those earning $25,000 per year. The table amount of child support would be $211 per month. After payment of spousal support in the range of $436 to $569 per month the payor’s net disposable income inches up just below $1,100 per month.
For spouses with low incomes, we must be particularly concerned about work incentives, welfare rates and net disposable incomes. There may be compelling arguments for low-income payors to pay child support at very low income levels, but the same arguments cannot be made for support for adult spouses.
There is a second related concern for those payors whose incomes are more than $20,000 but less than $30,000. For these payors, assuming entitlement, consideration should be given to the percentages sought under the applicable formula, the net disposable income left to the payor spouse, and the impact of a spousal support payment upon the work incentives and marginal gains of the payor. For example, under the without child support formula, a shorter marriage would mean a smaller percentage and hence a smaller bite of the payor’s income, in contrast to our 25-year marriage examples above. Or, to take another example, for a payor with an income in this $20,000 to $30,000 region and whose shifts, overtime hours or seasonal work are changeable, there are realistic concerns about disincentives to work. This flexibility will also avoid a "cliff effect" for payors just above the $20,000 floor, where a payor would suddenly go from zero spousal support to a formula amount simply because of making a few dollars more per year.
As these cases are just above the income floor, these are situations that could be treated as "exceptions" to the operation of the formulas, unlike those cases where the payor’s income is below the floor. But the concerns in these two situations both arise from the operation of the floor, so we have dealt with them here together.
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