When may a judge award lump sum spousal support?
Lump sum spousal support is spousal support up front rather than an award for periodic or monthly payments. Section 15.2 of the Divorce Act and section 34 of the Family Law Act provide courts the power to award a lump sum payment of spousal support. Further investigation into the case law is necessary to determine when a judge may make this award.
In Davis v Crawford, 2011 ONCA 294, the court outlined several instances where lump sum could be appropriate. The first and most obvious consideration is the ability of the payor to pay a lump sum amount. Naturally, not everyone has thousands of dollars lying around to give to their ex. If the payor can afford to pay a lump sum, courts are then directed to weigh the perceived advantages of making a lump sum award against any presenting disadvantages:
The advantages of making such an award will be highly variable and case-specific. They can include but are not limited to: terminating ongoing contact or ties between the spouses for any number of reasons (for example: short-term marriage; domestic violence; second marriage with no children, etc.); providing capital to meet an immediate need on the part of a dependant spouse; ensuring adequate support will be paid in circumstances where there is a real risk of non-payment of periodic support, a lack of proper financial disclosure or where the payor has the ability to pay lump sum but not periodic support; and satisfying immediately an award of retroactive spousal support.
Similarly, the disadvantages of such an award can include: the real possibility that the means and needs of the parties will change over time, leading to the need for a variation; the fact that the parties will be effectively deprived of the right to apply for a variation of the lump sum award; and the difficulties inherent in calculating an appropriate award of lump sum spousal support where lump sum support is awarded in place of ongoing indefinite periodic support.
The presiding judge is directed to use their discretion in balancing these advantages and disadvantages. However, lump sum awards are generally considered to be the exception to the rule that spousal support is paid periodically (i.e. monthly support). And finally, the presiding judge is still directed to use the Spousal Support Advisory Guidelines when coming up with a lump sum amount.
In the current case, a lump sum was awarded and upheld by the Court of Appeal because there was a real concern that the appellant would not pay periodic support and to effect a clean break between the parties. In other words, the payor could not be relied upon to make monthly payments to the recipient.
Shortly thereafter, the decision of Zenteno v Ticknor, 2011 ONCA 722, went to the Court of Appeal:
In this case, there was sufficient evidence, limited as it was given the circumstances, upon which the application judge could order the lump sum payment he did. In particular, his review of the evidence of the appellant's abusive behaviour, intention not to pay spousal support and probable non-compliance with a court order were all supported by the evidence before him.
Davis was followed again in Racco v Racco, 2014 ONCA 330, a more recent decision:
This was an appropriate case for a lump sum payment. The appellant has an ability to pay. There was a high level of animosity between the parties, a history of non-payment by the appellant, the possibility that the appellant's financial situation would continue to be precarious, the desirability of terminating personal contact, the need to effect a retroactive award of support and the need to provide capital to the respondent. These factors support a lump sum award. It was for the trial judge to consider all of them and exercise discretion in addressing the individual circumstances of the parties.
Mathers v Crowley, 2021 ONSC 8149, is a very recent case where lump sum support was also awarded. The court set out the prevailing advantages, including the fact that the Applicant could afford it and that the parties would benefit greatly from a clean break. The judge reasoned this was an appropriate case for a clean break because the parties had no children together, were of retirement age, and the Respondent seemed to have a propensity to re-litigate matters continuously and unnecessarily. For instance, before the judge even decided the issue of support, the Respondent was already indicating that he had intention to vary the award. And further, he also had the intention to appeal the order that was not yet rendered (although the judge indicated this was not relevant to the decision):
I note that Mr. C has advised me that he is appealing my decision(s). He made that statement within the context of his argument that there will be ongoing litigation between the parties, whatever form of support I award.
Point being the judge wanted to try and limit unnecessary litigation moving forward, noting the costly expense for the Applicant to continue going back to court:
I fear that a periodic support award will unnecessarily leave the door open to constant litigation between the parties in their retirement years.
And to that end, the judge feared that the Applicant would be on the hook for the Respondent’s post-separation financial decisions. For instance, the Respondent might get themselves in a precarious financial position, as demonstrated in the past, and go back to court to try and get more assistance from his ex. The Respondent also testified that he had no assets and the judge reasoned that a lump sum award would provide him with assets. As cases like these suggest, Davis v Crawford leaves the door open for new arguments when it comes to weighing the advantages and disadvantages of a lump sum award of spousal support. Only time will tell if this decision gets appealed and overturned.
Other SSAG considerations
The Guidelines offer other considerations, such as tax and the time-value of money:
The lump sum award is neither taxable for the recipient nor deductible for the payor, unlike periodic support payments. The SSAG ranges are based upon the premise that periodic support is deductible by the payor and taxable in the hands of the recipient. When the SSAG ranges for amount and duration are used to calculate the lump sum amount, the global amount must then be reduced to reflect the different tax status of a lump sum award.
In other words, monthly spousal support payments are tax-deductible for the payor and are included in the income tax of the recipient. This is not the case for a lump sum award. So, an amount must be deducted off of the lump sum award, to account for the tax advantage the payor would have enjoyed had there been monthly payments.
The next question is what tax rate to use in discounting or adjusting the SSAG global amount. The same issue arises with respect to lump sum retroactive awards and much of the case law has arisen in that context. In cases where no evidence is led, some courts will fix, somewhat arbitrarily, a notional discount rate, for example 30%.
Lump sum calculations may also take into account the time-value of money (i.e. by discounting for present value). The time-value of money recognizes that money that is available now is worth more than the same amount of money available in the future. Some case law examples show a discount of between 3%-6%.
Thus, after reaching a lump sum amount based off of the Guidelines, it is necessary to deduct around 30% for tax and 3%-6% for the time-value of money before paying the recipient. Of course, these amounts can vary depending on the evidence presented.
Obvious takeaways? The recipient of spousal support must make a convincing case that a lump sum award is more advantageous than periodic payments. While the door is left open for the reasons why this may be the case, the lump sum awards normally show that there is a benefit to a clean break between the parties and there is a concern that the payor will not make the monthly payments going forward.