The Treatment of Unrealized Income in Child Support Calculations

Much of the work involved in a divorce, whether the parties are working together in mediation or collaborative family law, or are engaged in litigation, involves the determination of each person’s rights and responsibilities regarding spousal and child support. When it comes to determining the amount and duration of support, one of the key factors a court will consider is the income and earning potential of the spouse being asked to pay. However, getting a clear picture of a person’s income is not always a matter of referencing the reported salary on the person’s annual tax return. Some employees have other means of income besides their basic annual salary in the form of bonuses, pensions, employee stock options, shares, or subsidized savings plans.

These additional benefits provided by some workplaces can complicate the assessment and calculation of support because they may have already been factored into the calculation of assets when equalizing the net family property between the spouses. If the payor spouse later collects additional income from one of these assets, such as by cashing in shares, including this additional income as a basis for recalculating spousal support would be unfair. However, the concept of double recovery, or double dipping, is treated differently when it comes to the calculation of child support.

When it comes to child support, double dipping is not as significant a consideration. However, the question remains whether unrealized income should be included as income when calculating support payments. This was a question before an Alberta court recently, and the answer may depend on who has control over the realization of income.

What is ‘Double Dipping’ in the Context of Family Law?

Double dipping occurs when the equalization of net family property factors in the value of an asset belonging to one spouse, and at the same time that asset is being counted again in the calculation for spousal support. In effect, the recipient spouse will benefit twice from the value of a single asset. Double dipping is most common with respect to pensions, but it can also relate to other assets, including stock options or shares.

The concept of double dipping is given much stronger consideration when it comes to calculating spousal support compared to child support. The reasons for this are generally attributed to the wording of the Federal Child Support Guidelines and the federal Divorce Act, although the justification ultimately appears to rely on the fact that while spousal support is for the benefit of the spouse, child support is for the benefit of the child. As such, the division of property with future value, such as shares or pension, will benefit the spouse at the time of equalization, but the same cannot be said for the child. Once the value of the property is realized, by cashing in shares or collecting pension, this should be counted as income and factored into child support calculations. For more about the exception to double dipping in child support cases, see our previous blog on the topic.

Court: Father Cannot Exclude Unrealized Income from Support Calculation if He Has Control Over the Asset

In a recent Alberta case called Doyle v. Canning, a father argued that his child support obligations should be varied to exclude the value of stock options and an employee savings plan from his annual income. He claimed that these amounts functioned like a retirement plan and therefore he was not currently benefitting from their value. Further, he argued that they were partially comprised of funds matched by his employer and therefore should not count as income for child support purposes.

With respect to the stock options, the Court made a distinction between exercised and unexercised options, noting that ‘stock options’ refers only to the right to purchase shares at a specific price. The options themselves have no inherent value. Given this, the Court determined that any unexercised stock options would not be included as income for the purposes of calculating child support.

With respect to exercised options, for which the father had exercised his right to purchase shares for value, the Court concluded that these should be included in the calculation of his income for child support purposes. The value of the exercised options, as well as the value of his employee savings plan, were included as income on his T4 slip provided by his employer. With respect to his argument that he treated these amounts as retirement income, this was not justification to exclude them. There were no restrictions on the father’s ability to access these funds at any time, and no requirement that he reach a certain age, or retire from his role, before converting the assets to cash. The option to do so was at his sole discretion. As a result, both amounts were included as income under the Federal Child Support Guidelines calculation.

Neither party had submitted a complete categorization of the father’s various income sources, the judge ordered counsel to work with the father’s accountant to determine an exact calculation of his income for child support purposes.

For Practical and Knowledgeable Guidance with Child Support Matters, contact the Family Lawyers at Mincher Koeman in Calgary

At Mincher Koeman, our family law lawyers are exceedingly experienced in matters relating to the determination of child support. We will always guide a client towards the most efficient and cost-effective method of resolving the matter, whether that means going to trial to seek a court order, or simply providing candid advice through amicable negotiations between the parties. We will take a big-picture view of the family’s circumstances in order to assess the most appropriate way forward for our client while prioritizing the best interests of the child or children involved. For assistance with any child support matter, contact our office for a consultation by calling us at 403-910-3000 or by contacting us online.