If you’re paying spousal support, you may have heard of a concern about avoiding “double dipping”. This typically arises when parties to a Divorce divide their matrimonial property, and income is then subsequently determined for the purposes of paying spousal support. If the payor spouse derives income from the assets they received after division of property, it would be considered double-dipping, or a double recovery for the recipient of spousal support to have their support calculated on the basis of that income.
This rule often arises in the context of post-retirement collection of pension income. When parties divide the payor’s pension in a lump sum distribution, once the payor spouse retires and starts collecting their pension, it is generally viewed that the recipient spouse should not be permitted to collect spousal support on the basis of the pension income of the payor. This is because the recipient spouse has received their share of the payor’s pension and collecting support on the remaining portion of the payor’s pension would result in a double receipt.
While pensions are the most common circumstance in which double dipping arises, the Courts have cautioned against the awarding of support on other forms of income arising from assets as well. For instance, if parties equally divide shares or stock options at the time of divorce, when the payor spouse cashes in their shares or options, the proceeds will be reported as income. For the recipient to claim spousal support on the basis of that income would be for the recipient to obtain a double benefit from the shares or options that they have already received their portion of.
Notwithstanding the logic behind the rule, there are exceptions that have been accepted by the Courts. For instance, if a payor continues to accumulate a pension entitlement post-divorce, this is a portion of the pension that the recipient spouse did not receive a share of. As a result, this portion would likely be included in any calculation of spousal support.
However, the most significant exception to the rule against double-dipping arises in the circumstances where child support is being paid. In these circumstances, the rule against double-dipping simply doesn’t apply in a lot of cases. In a case where a recipient spouse might be barred from obtaining spousal support calculated on income arising from divided matrimonial property, this same spouse would not necessarily be precluded from obtaining child support on the basis of this same income.
Parties who are required to pay child support on the income arising property divided during a divorce will often question why the logic prohibiting double dipping breaks down in child support scenarios. Unfortunately, the case law is not the best at answering this question. In determining that child support is exempt from the rule against double-dipping, the Courts have generally relied on a strict reference to the Federal Child Support Guidelines stating that to uphold the rule against double-dipping would require the Court to deviate from the Guidelines on the basis of the parties’ agreement dividing matrimonial property. Under the Divorce Act, the Court only has the authority to do so if:
- There is a special provision in the agreement;
- The special provision must benefit the child in a specified way; and
- Applying the Guidelines would result in an inequitable amount of support.
These are not requirements that will be met in the majority of cases, and in fact, most parties to a divorce do not turn their minds to meeting these specifications in their agreements.
Further, this reliance on referring to the Divorce Act, while accurate, is a very legalistic justification and does little to explain the “why” in relation to why double-dipping may be permitted in child support cases. Some Courts have accurately referenced the fact that child support is the right of the child and not the parent, and therefore the agreement between the parents, or any order of the court, relating to the division of property was not in respect of the children, but this does not go the full way of explaining the rationale behind ignoring the rule against double-dipping.
To understand why double-dipping is permitted and allowable in the context of child support, it is necessary to look at the foundational theory of child support. The mathematical model underlying the child support calculations is based on what is called an equivalence scale. This equivalence scale is intended to explain how much extra a household will spend for each additional child added to the household. Leaving aside the technical aspects of the equivalence scale, the child support calculations on based on the fact that each child will cost a household an additional percentage of monthly income. Generally speaking the child support calculations state that adding one child to a household will increase that household’s monthly spending by an additional 30%. When a household breaks apart, the income of the household where the child lives typically decreases, but the need for that additional income remains the same. As a result, the non-primary parent must pay support to ensure that the child’s household still maintains that additional amount of spending necessary for the child.
However, as child support views both parents as having a financial obligation to the child, child support does not require the non-primary parent to pay the entire additional to the primary parent. Rather, the non-primary parent only pays a portion of that amount as based on their income. It is assumed that the primary parent is directing a portion of their income to raising the child in their home. This portion that the primary parent takes from their own income to pay for the child is called “notional child support”. Once the concept of notional child support is appreciated, it begins to make sense why the rule against double-dipping does not necessarily apply in a child support context.
Take for example the issue of dividing shares. If, during a divorce, the parties divide 100 shares worth $2,000 each, with each party keeping 50 shares, and two years after the divorce the husband sells his shares for $100,000, it would make little sense for the wife to obtain spousal support on those shares as she already received her portion of those shares and can just as readily redeem those shares and obtain income from that sale. Were she to receive spousal support on the basis of the husband’s share sale, she would effectively be receiving a second division of those shares. This is because each party took shares worth $100,000 at the time of division; when the husband sold his shares, he obtained this $100,000. But by having to pay the wife spousal support on these shares, say $30,000 as an example, he ultimately ends up with a net amount of $70,000, while the Wife receives $130,000 – all from the shares. In this case, the rule against double dipping makes sense.
However, using the same example for child support returns a different result, once we consider the concept of notional child support. If the parties again equally divide 100 shares, with each share worth $2,000, and the husband sells his shares two years later for $100,000, the husband will likely pay child support on this amount. Let’s again say this amounts to $30,000 for the year in additional child support. This does not result in a double dipping because the $30,000 is intended to care for the child, and not to the benefit of the wife. While this might still appear unfair as the husband has had to pay child support from his share of matrimonial property, property that the Wife also received a portion of, it has to also be recognized that when the wife redeems her shares, it is presumed that the amount she receives from the sale of the shares will similarly be diminished as she will be assumed to have increased the amount she spends on the child in the year in which she redeems her shares – that is, her notional child support will increase in the year that she redeems her shares and she too will not personally enjoy the benefit of the full amount of the proceeds from the share sale.
As a result, by recognizing that child support is for the benefit of the child, and that the recipient of child support also spends their own income on the support of the child, it makes sense why the rule against double-dipping does not apply in a child support context.