Spousal Support Options: Lump Sum Or Regular Periodic Payments?

30 Jan

Read Time: 7 Min.

Spousal Support Options Or Regular Periodic Payments - Stephen Durbin And Associates

What is Spousal Support?

Spousal support (known as “alimony” in the United States of America) is financial support paid by one partner to the other following separation. In Ontario, a spouse can receive spousal support having either been married or in a common law relationship.

What Qualifies Someone for Spousal Support?

Spousal support can be agreed to in a separation agreement or be court ordered. We have A Guide to Spousal Support in Ontario for more information on how your lawyer or the courts determine entitlement and calculate spousal support based on the consideration of many different factors unique to your situation.

How is Spousal Support Paid?

The Divorce Act and the Family Law Act allow for spousal support to be payments in the form of periodic payments or as a lump sum. In making a lump sum award, the court is ordering a former spouse to make a single payment or to satisfy the obligation to pay spousal support, instead of regular monthly spousal support payments.

Ultimately, how spousal support is paid is determined by the court presiding over the request for spousal support. The Court of Appeal for Ontario confirmed in Davis v. Crawford, 2011 ONCA 294 (Ont. C.A.) (“Davis”) that there is no need for “very unusual circumstances” before a court orders lump sum spousal support, albeit most judges prefer to award periodic spousal support for “practical reasons.” These “practical reasons” including a lack of available capital to fund a lump sum award, the usual existence of a property division that will render a lump sum unnecessary, the fact that a lump sum cannot be adjusted in the future to cater to unforeseen circumstances, and an overall lack of advantage to either party. These often militate against a lump sum.

Benefits of a Lump Sum Payment

No Need for Ongoing Communication

As the spousal support obligation is fulfilled immediately with a single payment, any further contact between the spouses on that point can end once the payment is made; because there is no monthly obligation, there will be no need for regular communication between the former spouses on that issue. However, spousal support is one of many issues, and a lump sum simply removes one item of contention, leaving a number of thorny issues still open to further negotiation and/or adjudication. Lump sum payment is most effective for a marriage in which there are no children, since there is a full and clean break, and certainly where domestic violence or emotional trauma need to be negated through a clean break.

No Risk of Variation

This potentially benefits both former spouses. The paying spouse has certainty because a lump sum payment largely precludes changes to the spousal support order in the future. For the recipient spouse, a lump sum payment eliminates the prospect of having spousal support decreased or terminated in the future due to the retirement, ill-health, or loss of employment of the payor spouse.

Expeditious Income

A lump sum gives a recipient access to a large amount of capital at once, which may allow them to immediately acquire a home or promptly pay off a mortgage or debts that would otherwise have needed to be paid of over time. They may also be able to invest a portion of the lump sum. This sort of situation can be found in Tauber v. Tauber, 2000 CanLII 5747 (ON CA), where the Court of Appeal for Ontario upheld the decision to grant a lump sum payment of $500,000 spousal support to enable the former wife to enhance her self-sufficiency, purchase a permanent home for herself and the parties’ child, and provide a lifestyle comparable to the one the child had enjoyed when living with both parents. The court factored into account that the former husband was readily able to pay this amount, as he had assets in the many millions.

No Collection Problems

Where the recipient spouse does not trust the paying spouse to make reliable monthly spousal support payments, the prospect of delayed or non-payment is always present. This creates the potential for the added hassle of a court battle to try to get the paying spouse to meet their monthly obligations. This factor may be particularly relevant where there is a history of non-payment or the paying spouse will not be based in Ontario, for in both cases, the risk of an inability to collect spousal support may be quite real. A lump sum alleviates that risk.

End to Financial Disclosure

With a lump sum, there is no need for ongoing financial disclosure by a former spouse or continuously vetting of that disclosure. This is because the lump sum is quantified once and for all, and so does not need to be re-quantified in the future, despite any change in circumstances. Thus, the mutually acceptable agreement of a single payment could be ideal where a payor spouse has shown evasiveness on financial issues in the past or does not wish to further disclose. This was a factor considered in Vanos v. Vanos, 2010 CarswellOnt 9680, 2010 ONCA 876 (Ont. C.A.), where Ontario’s Court of Appeal upheld the decision to award a lump sum to the former wife on the basis that, besides failing to accurately disclose his income, the former husband tended to put his own financial interest above that of the wife and children and resented paying spousal support, a situation that would surely have continued in the future.

No Stress in the Maintenance of Payments

The paying spouse may have an immediate ability to pay a lump sum, but not necessarily regular periodic spousal support. This may be the case where the payor spouse is facing the prospect of bankruptcy or is involved in litigation that may result in large financial liability, which will compete with the obligation to pay spousal support. Simply, situations such as retirement, incapacity, and other income-limiting events may make the ability to pay regular periodic spousal support difficult in the future, especially when the paying spouse has spent all their reserves without planning for such a contingency. Therefore, where there is a possibility that the paying spouse’s “livelihood is or will become precarious” (Sharpe v. Sharpe, 1997 CanLII 12236 (ON SC)), lump sum support would probably be appropriate.

Resolve Financial Demands

Where the spousal support is meant to cover the needs and expenses of the recipient spouse, the immediate payment of a lump sum is particularly appropriate. It allows the recipient spouse to immediately be made whole and meet the demands of creditors whom they did not otherwise have the means to immediately repay.

Benefits of Periodic Payments

Variation to Meet Circumstances

The finality of a lump sum award can create an unforeseen disadvantage to one of the former spouses. The paying spouse cannot get any of the money back after paying the lump sum, even if they suffer a sudden loss of income. Similarly, while the payor spouse may have a reason to terminate regular periodic spousal support, in the case of a lump sum, the payor spouse has no recourse. Thus, the payor spouse will need to carefully consider the possibility of contingencies that may render a lump sum amount being much higher than the amount they would have paid in periodic spousal support. The courts are sensitive to this factor, from both the perspective of the recipient and payor spouse. This can be seen in McCombe v. McCombe, 2014 ONSC 2399 (Ont. S.C.J.), wherein denying the former wife a lump sum, the court noted a lump sum award would suggest change in the parties’ respective financial positions was unlikely. In this case, there was a hope and expectation that after the children finished high school, the wife might be able to further her education and significantly increase her income, rendering a lump sum inappropriate. The courts could potentially overcome the problem with non-variation of periodic payments. Alternatively, by making a blended award, the paying spouse will pay a lump sum or several large payments, and thereafter reduced periodic payments, such that the latter can be varied in the future. However, while this may be an advantage to the recipient spouse, it may defeat the advantages of a lump sum, which would otherwise accrue to the payor.

Accommodation of Contingencies

The calculation of the appropriate amount of lump sum spousal support is difficult where the need for spousal support is indefinite (factoring in “contingencies” is often intractable). By way of example, if a court determines that the appropriate monthly spousal support payment is $1000 a month for 10 years, normally the court will calculate an equivalent lump sum as $1000 x 12 x 10 = $120,000 (subject to netting down for tax consequences). However, what happens if the recipient spouse receives a significant inheritance two months after the lump sum is paid? Alternatively, what happens if the recipient spouse passes away a month after the lump sum is paid? In the case of periodic spousal support, there is the possibility of a court terminating monthly obligations to pay spousal support immediately, while there is no comparative option available in the case of lump sum support. As a result, the courts may apply a somewhat arbitrary “contingency” reduction, such as in Durakovic v. Durakovic, 2008 CarswellOnt 5329 (Ont. S.C.J.), where the court reduced the lump sum by 30% for income tax, 3% for present value, and 25% for other negative contingencies.

Reduction of Immediate Financial Strain

The paying spouse may have to liquidate assets to pay a lump sum, dip into savings. This option may be a significant sacrifice on the part of the paying spouse. The decision in Dick v. Sapusak, 2015 ONSC 7458 (Ont. S.C.J.) confirmed the paying spouse may be required to draw on their capital to pay a lump sum. Thus, the mere fact that assets will need to be liquidated is not determinative.

Ongoing Financial Support

The recipient spouse may face a practical problem if they are not good at managing and investing a large sum of money. For instance, the money could be spent too quickly, leaving little or nothing to satisfy future needs, especially unforeseen needs, which could otherwise be satisfied by the possibility of having periodic spousal support increased.

Tax Considerations

Lump sum and periodic spousal support payments are treated differently when calculating taxes. As such, the following factors may influence this decision.

Periodic Support is Tax Deductible

Normally, lump sum spousal support is not tax deductible, nor taxable to the recipient. This is different from periodic spousal support, which is normally deductible by the payor spouse and taxable in the hands of the recipient spouse.

Courts Balance Lump Sum Payments

Courts normally attempt to adjust the undue tax disadvantage (or advantage) by reducing the face value of the lump sum by a specific percentage, to account for the tax consequences that would otherwise ensue, as do the Spousal Support Advisory Guidelines (SSAGs).

Lump Sum as Retroactive Pay is Tax Deductible

The Tax Court of Canada confirmed in James v. Canada, 2013 TCC 164 that a lump sum retroactive payment of spousal support arrears accrued on a periodic basis is tax deductible in the hands of the paying spouse and taxable in the hands of the paying spouse. The Canada Revenue Agency has now updated Income Tax Folio S1-F3-C3, and adopted the same position.

How Can a Lawyer Help?

Payment of periodic versus lump sum spousal support will depend on the circumstances, as each matter has its own unique aspects. To evaluate whether you should consider requesting or consenting to lump sum spousal support you must obtain proper legal advice.

Stephen Durbin & Associates’ experience in resolving high value and complex financial situations makes us proactive in navigating your case with transparency and clarity, so you can be confident in receiving your full entitlement, or minimizing the entitlement of the other party. Protect your rights. Start the process with knowledge. Consult with us today.

Please be advised that all articles written on this website are for informational purposes only and do not constitute legal advice on any subject matter. The information contained within these articles is subject to change at any time and should not be acted upon without previous consultation with legal counsel. 


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