Under the law in Ontario, child support payments are always periodic (except for amounts owed in arrears), while spousal support payments may be made periodically or by lump sum, or both. Today’s blog discusses when lump-sum spousal support might be appropriate.
There is a fundamental difference between spousal support paid periodically and spousal support paid by lump sum, from the point of view of taxes.
Periodical or recurring spousal support payments are tax-deductible for the payor and tax-payable by the recipient because the payments are treated as taxable income. Lump-sum support payments, however, are seen as capital in nature and are not taxable. That may mean the recipient doesn’t need to pay tax on lump-sum support paid, but it also means that the payor cannot deduct the amount.
The relevant case history of lump-sum spousal support has until recently indicated that lump sum payments should be made only in very unusual circumstances.
In recent years, however, there has been a shift in jurisprudence. In the recent case of David v. Crawford, the Ontario Court of Appeal undertook to re-examine the principles of spousal support and could not find supporting legislative provisions to justify the restrictions imposed on lump-sum support payments in earlier cases.* The Court of Appeal explicitly rejected the notion of limiting lump-sum spousal support to “very unusual circumstances,” as had previously been done.
According the Court of Appeal, a lump-sum support order should not be made to redistribute the assets owned by the parties because the governing legislation does not recognize redistribution of assets as one of the purposes of a spousal support award. At the same time, a lump-sum support order may be made to relieve financial hardship.
In determining whether a lump-sum support is appropriate in any given case, in addition to considering the payor’s ability to make such a payment, the court must weigh the advantages against any presenting disadvantages.
On the plus side, lump-sum payments can afford the parties a clean break, can facilitate the delivery of capital to meet an immediate need of the recipient, and can preclude any possible future non-payment of periodic support. On the negative side, lump-sum spousal payments may not address a future material change in circumstances, are ineligible for future review, and may present special challenges when it comes to calculating the appropriate amount.
After weighing the pros and cons of making a lump-sum support order, the trial judge should provide a clear explanation of the basis and the rationale of his/her decision in the particular case. What’s more, judges awarding lump-sum spousal support should consider how the amount awarded compares with the periodic payments that would otherwise have been made.
*2011 ONCA 294 (CanLII)
This blog is provided for educational purposes and for your reference. It is not intended as legal advice and should not be regarded as such. The law may have changed since the publication of this article.