# Spousal Support Advisory Guidelines July 2008

## 3. AN OVERVIEW OF THE ADVISORY GUIDELINES

Spousal support guidelines can be structured in many different ways. For those who are interested, the Background Paper reviews in detail other models of spousal support guidelines. This chapter presents a structural overview of this scheme of Advisory Guidelines. Some of what you will find here has already been touched on, in a less systematic way, in Chapter 2. As well, many of the individual components of the Advisory Guidelines will be discussed more extensively in subsequent chapters. However, we thought it would be helpful for readers to have a sense of the big picture at the beginning.

We begin with a discussion of the basic concept of income sharing on which the Advisory Guidelines are constructed and then move into an organized, step-by-step review of the specific components of the Advisory Guidelines. We have divided this review into three main sections. First, we deal with the preliminary issues that arise before any consideration of the formulas — what might be called issues of application. Then we deal with the basic structure of the income-sharing formulas for determination of amount and duration of support that are at the heart of the proposed approach. The outcomes generated by the formulas are not necessarily determinative, however. The final section deals with the steps that can be taken after the formula calculations: locating a specific amount or duration within the ranges, restructuring the formula outcomes (by trading off amount against duration), and departing from the amounts and durations generated by the formulas, through exceptions.

### 3.1 Income Sharing

The core concept on which the Spousal Support Advisory Guidelines are built is income sharing. Under the Advisory Guidelines, budgets play a diminished role in determining spousal support outcomes. Instead the Advisory Guidelines look primarily to the incomes of the parties and rely on a mathematical formula to determine the portion of spousal incomes to be shared. Contrary to common perception, income sharing does not mean equal sharing. There are many ways of sharing income; it all depends on the formula that is adopted.

You will see below that other factors are also relevant in determining support outcomes under the Advisory Guidelines, such as the presence of dependent children or the length of the marriage. But the income levels of the parties and, and more specifically the income disparity between them, become the primary determinants of support outcomes. Under the Spousal Support Advisory Guidelines, as under the Child Support Guidelines, the precise determination of income, including the imputing of income, becomes a much more significant issue than it has been in the past.

Income sharing here is a method, and not a new theory of spousal support. As we have noted earlier, the Advisory Guidelines project has not been driven by a desire to theoretically reorder the law of spousal support. Rather it has been driven by the practical needs of family law practitioners and judges who deal with the daily dilemmas of advising, negotiating, litigating and deciding spousal support.

It is therefore important to emphasize that the use of income sharing as a method for determining the amount of spousal support does not necessarily imply adoption of the income-sharing theories of spousal support identified in the Background Paper. Some of these theories, which are admittedly contentious, rest upon a view of marriage as a relationship of trust and community, which justifies treating marital incomes as joint incomes.

The method of income sharing can be used, however, as a practical and efficient way of implementing many support objectives such as compensation for the economic advantages and disadvantages of the marriage or the recognition of need and economic dependency. Such use of proxy measures already exists in spousal support law — think of the prevalent use of standard of living and a "needs and means" analysis to quantify compensatory support.

The Guidelines do not commit to any particular theory of spousal support. As will become clear in the discussion of the different formulas under these Advisory Guidelines, they aim to accommodate the multiple theories that now inform our law and, to generate results that are in broad conformity with existing patterns in the law.

We now move on to an overview of the basic framework of the specific scheme of income sharing found in the Advisory Guidelines.

### 3.2 Preliminary Issues — The Applicability of the Advisory Guidelines

#### 3.2.1 Form and force

Unlike the Federal Child Support Guidelines, the Spousal Support Advisory Guidelines have not been legislated. Following the practice in some American jurisdictions, these are informal guidelines. They are not legally binding. Their use is completely voluntary. They have been and will be adopted by lawyers and judges to the extent they find them useful, and will operate as a practical tool within the existing legal framework. As non-legislated, informal guidelines, these Guidelines are advisory only. They are intended as a starting point for negotiation and adjudication.

#### 3.2.2 Entitlement

The Advisory Guidelines do not deal with entitlement. The informal status of the Guidelines means that they must remain subject to the entitlement provisions of the Divorce Act, notably ss. 15.2(4) and (6) as interpreted by the courts. Entitlement therefore remains a threshold issue to be determined before the guidelines will be applicable.

On its own, a mere disparity of income that would generate an amount under the Advisory Guidelines formulas, does not automatically lead to entitlement. There must be a finding (or an agreement) on entitlement, on a compensatory or non-compensatory or contractual basis, before the formulas and the rest of the Guidelines are applied.

The Advisory Guidelines were drafted on the assumption that the current law of spousal support, post-Bracklow, continues to offer a very expansive basis for entitlement to spousal support. Effectively any significant income disparity generates an entitlement to some support, leaving amount and duration as the main issues to be determined in spousal support cases. However, the Guidelines leave the issue of when an income disparity is significant, in the sense of signalling entitlement, to the courts. It is open to a court to find no entitlement on a particular set of facts, despite income disparity, and the Advisory Guidelines do not speak to that issue.

The basis of entitlement is important, not only as a threshold issue, but also to determine location within the formula ranges or to justify departure from the ranges as an exception. Entitlement issues also arise frequently on review and variation, especially applications to terminate support.

Entitlement is dealt with in Chapter 4.

#### 3.2.3 Application to provincial/territorial law

The Advisory Guidelines have specifically been developed under the federal Divorce Act and are intended for use under that legislation. Provincial/territorial support law is governed by distinct statutory regimes. However, in practice there is much overlap between federal and provincial/territorial support laws.

The broad conceptual framework for spousal support articulated by the Supreme Court of Canada in Moge and Bracklow has been relied upon under both provincial and federal legislation. Indeed Bracklow, which combined claims under the Divorce Act and provincial legislation, made no real distinction between the two. Given this overlap, the Advisory Guidelines have been used under provincial/territorial support legislation.

There are some distinctive features of provincial/territorial spousal support laws that need to be taken into account when using the Advisory Guidelines. Many provincial/territorial laws have specific provisions governing entitlement, for example provisions determining which non-marital relationships give rise to a spousal support obligation. Like other issues of entitlement discussed above, this must be a threshold determination before the Advisory Guidelines are applied to determine amount and duration of support. We also note that the list of specific factors to be considered in determining spousal support does vary from statute to statute, with some provincial/territorial legislation making explicit reference, for example, to factors such as property and conduct, although the impact of these differences in wording on spousal support outcomes is unclear.

Provincial laws differ from the Divorce Act in their application to unmarried couples but this should not cause any difficulties with respect to the operation of the Advisory Guidelines. Although we conveniently refer to "length of marriage" as a relevant factor in the operation of the formulas, the formulas actually rely upon the period of spousal cohabitation (including any periods of pre-marital cohabitation), thus easily meshing with provincial/territorial legislation.

The application of the Advisory Guidelines under provincial/territorial legislation is dealt with in Chapter 5.

#### 3.2.4 Application to agreements

The Advisory Guidelines do not confer any power to re-open or override final agreements on spousal support. This issue, like entitlement, is outside the scope of the Advisory Guidelines and will continue to be dealt with under the common law doctrine of unconscionability, provincial/territorial statutes and the evolving interpretation of the Supreme Court of Canada’s recent decision in Miglin.[33] Agreements limiting or waiving spousal support may therefore preclude the application of the Guidelines.

If a final agreement is set aside or overridden under existing law, the Advisory Guidelines may be of assistance in determining the amount and duration of support, although the intentions of the parties as reflected in the agreement may also continue to influence the outcome.

As well, the Advisory Guidelines may be applicable if a spousal support agreement provides for review or variation.

Further discussion of the application of the Advisory Guidelines in the cases where there are spousal support agreements can be found in Chapters 5 and 14.

#### 3.2.5 Interim orders

The Advisory Guidelines are intended to apply to interim orders as well as final orders. We anticipate, in fact, that they will be particularly valuable at the interim stage, which is now dominated by a needs-and-means analysis — budgets, expenses and deficits that require individualized decision making.

Any periods of interim support clearly have to be included within the durational limits set by the Advisory Guidelines. Otherwise, if duration were only to be fixed in final orders, there would be incentives in both directions — for some to drag out proceedings and for others to speed them up — and general inequity. Interim support is discussed in Chapter 5.

The Advisory Guidelines do recognize that the amount may need to be set differently during the interim period while parties are sorting out their financial situation immediately after separation. To accommodate these short-term concerns, the Guidelines recognize an exception for compelling financial circumstances in the interim period, considered in Chapter 12.

#### 3.2.6 Review and variation

The primary application of the Advisory Guidelines is to initial determinations of spousal support at the point of separation or divorce, whether through negotiated agreements or court orders. Ideally a truly comprehensive set of guidelines would apply not only to the initial determination of support but also to subsequent reviews and variations over time. However, these issues have proven the most difficult to reduce to a formula given the uncertainty in the current law concerning the effect of post-separation income changes, remarriage and repartnering, and subsequent children.

In the end, we chose a more modest course, identifying certain situations where the Advisory Guidelines can apply on reviews and variations, including increases in the recipient’s income and decreases in the payor’s income. We have left others, such as post-separation increases in the payor’s income, re-partnering, remarriage and second families, to more discretionary determinations under the evolving framework of current law.

The application of the Advisory Guidelines in the context of review and variation is dealt with more extensively in Chapter 14.

### 3.3 The Formulas

#### 3.3.1 Two basic formulas

The Advisory Guidelines are constructed around two basic formulas, rather than just one formula: the without child support formula and the with child support formula. The dividing line between the two is the absence or presence of a dependent child or children of the marriage, and a concurrent child support obligation, at the time spousal support is determined.

#### 3.3.2 Determining income

Both formulas use income sharing as the method for determining the amount of spousal support, not budgets. Income-sharing formulas work directly from income, as income levels essentially determine the amount of support to be paid. Under the Advisory Guidelines, the accurate determination of income becomes a much more significant issue in spousal support cases than it has in the past, and there may be more incentives to dispute income. However, because the Advisory Guidelines generate ranges and not specific amounts, absolute precision in the determination of income may not be as crucial as under the Federal Child Support Guidelines. Many cases will involve combined claims for child and spousal support, where a precise determination of income is already required for child support purposes.

The starting point for the determination of income under both formulas is the definition of income under the Federal Child Support Guidelines, including the Schedule III adjustments. More details on the determination of income are found in Chapter 6.

The Advisory Guidelines do not solve the complex issues of income determination that arise in cases involving self-employment income and other forms of non-employment income. In determining income it may be necessary, as under the Federal Child Support Guidelines, to impute income in situations where a spouse’s actual income does not appropriately reflect his or her earning capacity. In some cases the issue will be imputing income to the payor spouse. On variation and review the issue may be imputing income to the recipient spouse if it is established that the he or she has failed to make appropriate efforts towards self-sufficiency.

#### 3.3.3 the without child support formula

In cases where there are no dependent children, the without child support formula applies. This formula relies heavily upon length of marriage — or more precisely, the length of relationship, including periods of pre-marital cohabitation — to determine both the amount and duration of support. Both amount and duration increase with the length of the relationship. This formula is constructed around the concept of merger over time which offers a useful tool for implementing both compensatory and non-compensatory support objectives in cases where there are no dependent children in a way that reflects general patterns in the current law.

Under the basic without child support formula:

• The amount of spousal support is 1.5 to 2 percent of the difference between the spouses’ gross incomes for each year of marriage, to a maximum range of 37.5 to 50 per cent of the gross income difference for marriages of 25 years or more (The upper end of this maximum range is capped at the amount that would result in equalization of the spouses’ net incomes — the net income cap.)
• Duration is .5 to 1 year of support for each year of marriage, with duration becoming indefinite (duration not specified) after 20 years or, if the marriage has lasted 5 years or longer, when the years of marriage and age of the support recipient (at separation) added together total 65 or more (the "rule of 65").

The without child support formula is discussed in detail in Chapter 7.

#### 3.3.4 The with child support formula

In cases where there are dependent children, the with child support formula applies. The distinctive treatment of marriages with dependent children and concurrent child support obligations is justified by both theoretical and practical considerations and is reflected in current case law.

On the theoretical front, marriages with dependent children raise strong compensatory claims based on the economic disadvantages flowing from assumption of primary responsibility for child care, not only during the marriage, but also after separation. We have identified this aspect of the compensatory principle as it operates in cases involving dependent children as the parental partnership principle, and have drawn on this concept in structuring the with child support formula. For marriages with dependent children, length of marriage is not the most important determinant of support outcomes as compared to post-separation child-care responsibilities.

On the practical front, child support must be calculated first and given priority over spousal support. As well, the differential tax treatment of child and spousal support must be taken into account, complicating the calculations. The with child support formula thus works with computer software calculations of net disposable incomes

Under the basic with child support formula:

• Spousal support is an amount that will leave the recipient spouse with between 40 and 46 percent of the spouses’ net incomes after child support has been taken out. (We refer to the spouses’ net income after child support has been taken out as Individual Net Disposable Income or INDI).
• The approach to duration under this formula is more complex and flexible than under the without child support formula; orders are initially indefinite in form (duration not specified) but the formula also establishes durational ranges which are intended to structure the process of review and variation and which limit the cumulative duration of awards under this formula. These durational limits rely upon both length of marriage and the ages of the children.

The with child support formula is really a cluster of formulas dealing with different custodial arrangements. Shared and split custody situations require slight variations in the computation of individual net disposable income, as the backing out of child support obligations is a bit more complicated. There is also a different, hybrid formula for cases where spousal support is paid by the custodial parent. Under this formula, the spouses’ Guidelines incomes are reduced by the grossed-up amount of child support (actual or notional) and then the without child support formula is applied to determine amount and duration. Finally, there is one more hybrid formula for those spousal support cases where the child support for adult children is determined under section 3(2)(b) of the Child Support Guidelines.

The with child support formula is discussed in detail in Chapter 8.

#### 3.3.5 Length of marriage

Under the Advisory Guidelines length of marriage is a primary determinant of support outcomes in cases without dependent children. Under the without child support formula the percentage of income sharing increases with length of the marriage; the same is true for duration of support.

Length of marriage is much less relevant under the with child support formula, although it still plays a significant role in determining duration under that formula.

Given the relevance of length of marriage under the Advisory Guidelines, it is important to clarify its meaning. While we use the convenient term length of marriage, the more accurate description is the length of the cohabitation, which includes periods of pre-marital cohabitation, and ends with separation.

#### 3.3.6 Ranges

The Advisory Guidelines do not generate a fixed figure for either amount or duration, but instead produce a range of outcomes that provide a starting point for negotiation or adjudication.

Ranges create scope for more individualized decision-making, allowing for argument about where a particular case should fall within the range in light of the Divorce Act’s multiple support objectives and factors. Ranges can also accommodate some of the variations in current practice, including local variations in spousal support cultures.

#### 3.3.7 Ceilings and floors

As with the Federal Child Support Guidelines, the Spousal Support Advisory Guidelines establish ceilings and floors in terms of the income levels to which they are applicable. Both the ceiling and the floor have been set by reference to the annual gross income of the payor. The ceiling has been set at a gross annual income for the payor of \$350,000 and the floor at a gross annual income of \$20,000. Ceiling and floors are dealt with more extensively in Chapter 11.

### 3.4 After the Formulas Have Been Applied

Under the Advisory Guidelines there is still much room for flexibility to respond to the facts of particular cases. First, there is considerable room for discretion in the fixing of precise amounts and durations within the ranges generated by the formulas. Second, there is the ability to restructure the formula outcomes by trading off amount against duration. Third the other is the possibility of departing from the formula outcomes by relying upon exceptions.

#### 3.4.1 Using the ranges

The location of a precise amount or duration within those ranges will be driven by the factors detailed in Chapter 9: the strength of any compensatory claim, the recipient’s needs, the age, number, needs and standard of living of any children, the needs and ability to pay of the payor, work incentives for the payor, property division and debts, and self-sufficiency incentives.

#### 3.4.2 Restructuring

Although the formulas generate separate figures for amount and duration, the Advisory Guidelines explicitly recognize that these awards can be restructured by trading off amount against duration.

In Bracklow the Supreme Court of Canada explicitly recognized that the amount and duration of awards can be configured in different ways to yield awards of similar value (what the Court called quantum). Thus the Court noted that an order for a smaller amount paid out over a long period of time can be equivalent to an order for a higher amount paid out over a shorter period of time.

Restructuring can be used in three ways:

• to front-end load awards by increasing the amount beyond the formulas’ ranges and shortening duration;
• to extend duration beyond the formulas' ranges by lowering the monthly amount; and
• to formulate a lump sum payment by combining amount and duration.

When restructuring is relied upon to resolve issues of inappropriate formula outcomes, awards remain consistent with the overall or global amounts generated by the Advisory Guidelines. Restructuring thus does not involve an exception or departure from the formulas.

Restructuring works best when duration is clearly defined, and will thus have its primary application under the without child support formula.

Restructuring is dealt with in more detail in Chapter 10.

#### 3.4.3 Exceptions

The formulas are intended to generate appropriate outcomes in the majority of cases. We recognize, however, that there will be cases where the formula outcomes, even after consideration of restructuring, will not generate results consistent with the support objectives and factors under the Divorce Act. The informal, advisory nature of the Guidelines means that the formula outcomes are never binding and departures are always possible on a case-by-case basis where the formula outcomes are found to be inappropriate. The Advisory Guidelines do, however, itemize a series of exceptions which, although clearly not exhaustive, are intended to assist lawyers and judges in framing and assessing departures from the formulas. The exceptions create room both for the operation of competing theories of spousal support and for consideration of the particular factual circumstances in individual cases where these may not be sufficiently accommodated by restructuring.

The exceptions are listed and explained in Chapter 12:

• compelling financial circumstances in the interim period;
• debt payments;
• prior support obligations;
• illness or disability of a recipient spouse;
• a compensatory exception for shorter marriages under the with child support formula;
• reapportionment of property (British Columbia);
• basic needs/hardship under the without child support and custodial payor formulas;
• non-taxable payor income;
• non-primary parent to fulfil a parenting role under the custodial payor formula;
• special needs of a child; and
• section 15.3 for small amounts and inadequate compensation under the with child support formula.