Severance Payments and Support Obligations – Planning for Loss

As of September of this year, Calgary continued to have the second highest jobless rate in the country.  Compounding matters is that, while Albertans continue to have the highest average incomes, country wide, we also carry the greatest debt loads.

While the economy has rebounded some since the oil crash of 2014, our petroleum industry has never returned to what it once was; further uncertainty with the Trans Mountain Pipeline does not add to job stability or certainty.  In such uncertainty, lay-offs and their resulting severance payments are still occurring.  While being laid off is difficult enough, if you are mandated to pay spousal and child support, the situation can be even more difficult.  While it might seem fairly simple that if you lose your job, your support obligations should decrease, the Courts do not always see it that way.  Take the recent case of Martinson v Martinson, 2018 ABCA 332, for instance.  In this case, among matters at issue, was the fact that the father had lost his job with NAIT and had reported a loss of income in the amount of close to $40,000 in annual income.  Notwithstanding this, the Court held that they were of the belief that the Father could earn income similar to his previous salary.  Upon appeal, the Father relied upon the very well-known case of Hunt v Smolis-Hunt, 2001 ABCA 229, wherein it was held that there must be evidence that a payor is intentionally underemployed for the purposes of avoiding support obligations.  Nonetheless, the Court mandated that the father continue to pay support on his pre-job-loss income until his taxes were prepared.  As a result, and notwithstanding that there was no disputing that the Father had lost his job, the Court required that the Father continue paying support on a prior year’s income received for a job he no longer had.

Further, most terminated employees receive severance payment from their employers, which also factors in to support obligations and can be treated as income for support purposes, and will be considered as such by the Courts.

In order to ensure that support obligations are properly calculated there are important steps that one can take in the face of termination and receipt of a severance package.

• As severance is finite, consideration should be given to its use and it should not be used to purchase unneeded assets or goods;
• To ensure that there is no confusion with the recipient of support, or the Courts, severance payments should be kept in a separate bank account that is not comingled with any other assets or funds – the account should have nothing but severance in it;
• As most severance payouts include a payout for health and disability insurance, the recipient of the severance should be aware that they may have to secure new insurance;
• Severance is technically income, and will be taxed as such – therefore, it should be treated as income and should be factored into that year’s income for child and spousal support purposes;
• Similarly, any spousal support payments should continue to be reported as deductions on your taxes;
• It is a good practice to only withdraw or use as much from your severance account as that which you pay out to the recipient of the support – only paying out the money slowly will help communicate to the recipient, and to the court, that you are being responsible with the limited amount of money you have received;
• Ensure that you receive and keep all monthly statements relating to your severance account so that you are able to show how it is being used;
• Depending on the size of the severance package, it may be worth using the severance to pay down any high interest loans or credit cards;
• Keep a record of all jobs that you apply for while living off of your severance;
• Be aware that depending on your age, your termination and severance might actually be a forced early retirement in which you cannot find replacement employment – in such a case, both parties may need to be aware that the once the severance is gone, the income and therefore the support may be over;
• Keep in mind that if you were the access parent, as a result of your job, you now have the ability and the time to take on a greater parenting role and spend more time caring for the children as opposed to paying for child care; and
• While the recipient of the support may not like the reality, the circumstances of such a case are that in the event of a job loss, the recipient spouse has a greater obligation to also look to entering the workforce if they already have not.

Losing a job is never easy, but losing a job while having to pay support compounds the difficulty of the situation.  However, the lawyers at Mincher Koeman are able to help you navigate such stressful circumstances.  If you have lost your job and are needing to revise your support and plan for the future, give us a call at (403) 910-3000, or email us at reception@mincherkoeman.com.