Lump-Sum Spousal Support
No one wants to deal with an ex any longer than they need to. Monthly spousal support payments can be a constant aggravation. It is a reminder that you owe them something, even if you don’t really agree with the court order. If the relationship was over 10 years you could be looking at ongoing support payments for 10 more years. Before blindly signing off on an agreement or consent order regarding spousal support you should ask a ClearWay Law lawyer about the pros and cons of a lump sum spousal support payment.
You should think about asking for lump sum spousal support.
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Most people don’t think of dealing with spousal support in a lump sum payment because it can be costly upfront. Also, there are no taxable credits that you can claim against the payment. While this is true, you can work out the terms of the payment to account for what tax credits would have been involved if the payments were being made monthly to lower the lump sum amount.
Also, with a one-time payment, you will no longer have to deal with your former spouse. You will effectively have a clean break. This assumes all of your other family law issues have been resolved.
Lump-Sum Spousal Support
When proposing a lump sum payment you can also attempt to avoid what might be your full spousal support amount. Often when dealing with settlement discussions, if you can guarantee a quicker payment, even if it is less than what the other party might get from you over a long period of time, they will agree to the lower payment. This is because they are also likely to not want to drag out proceedings.
They don’t want to hound you for ongoing monthly payments or turn to collection agencies. This happens if your payments begin showing up late or you choose to stop making the payments. You should discuss all of your support obligations and payment options with a ClearWay Law lawyer before signing off on any sort of agreement or consent order to make sure that your best interests are being served. You should consider lump sum spousal support.
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Paying spousal support after retirement
Spousal support obligations can be eternal. That’s because, as an Ontario pensioner discovered in the Ontario Superior Court of Justice (ONSC), marriage contracts are serious business.
Lump Sum Spousal Support- Marriage’s eternal ties
“Richard” and “Margot” separated in 2003, after 22 years of marriage. They had each gone their separate ways. Richard had a successful career with the Ontario government and by 2016, when he took early retirement at 62, he was making $82,000 annually. He had remarried and lived with his new wife, “Debra”, in a Greater Toronto condominium she owned. Debra had also retired early, in 2017 at 43. As the court heard, Debra had no income or pension and, despite being sole owner, contributed nothing to the condo expenses.
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Disability has consequences
Margot had a less fortunate experience.
Four years younger than her ex-husband, Margot has a disability. As her doctor testified in 2008 when her and Richard’s spousal support agreement was finalized, she was capable of working two to three hours a day at most, two to three days a week. The court estimated her potential annual income from employment at $3,429 per year. Using that calculation, she was awarded spousal support of $2.700 monthly or $32,400 annually. She also received a lump sum settlement of $78,250, her share of the government pension her ex-spouse had earned by 2008.
Lump Sum Spousal Support- When you have debts but few assets
As 2011 arrived, Margot was unable to work at all. Her only other income, $851 monthly, was from CPP (Canada Pension Plan) disability benefits. Thanks to compounding interest, her savings and investments from the lump sum settlement had grown. Although they now totaled about $117,000, they were in registered investments. That meant she would pay an interest penalty when she took them out. Margot had no other significant assets. What she did have was debts of just over $11,000 and a $16,600 car loan.
The retirement income gap
Retirement brought new challenges for Richard too, including a government pension that amounted to less than half his previous earnings. Although generous by some standards, his new income equaled $3,234 monthly or $38,808 annually. The pension included a bridge benefit, payable until he reached 65 and was eligible for federal pension benefits.
With his 65th birthday fast approaching, Richard petitioned ONSC to end his spousal support. Richard had savings of $9,800 and debts of $5,000. His RRSP had been liquidated to fund the spousal support payments. At 65, when the bridge benefit disappeared, his annual income would be $30,642 from his government pension and $7,848 from CPP. This, he said, was a material change and sufficient to vary his spousal support order. Richard argued the $2,700 monthly he owed Margot was too high in his soon-to-be reduced financial circumstances.
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Varying a spousal support order
A change in income can be a valid reason for a court to vary a spousal support order. ONSC recognizes four conditions when considering a change:
- Any economic advantages or disadvantages arising from the marriage or its breakdown.
- Financial outlays for caring for the ex-couple’s children, over and above any child support obligations.
- The need to relieve any economic hardship arising from the breakdown.
- The desire to promote the economic self-sufficiency of each former spouse, within a reasonable time.
Since most pensioners’ income changes at retirement, Richard’s case fits the criteria.
When spousal support is a burden
Richard’s point was that he could not afford to pay Margot $2,700 monthly once he reached 65. The spousal award would amount to 84 percent of his post-retirement gross income. Margot had already received a share of his government pension, the lump sum settlement from 2008. Using his entire post-retirement pension to calculate spousal support would be “double-dipping” or going to the same pot of money twice.
Should your ex-spouse use their own savings?
While Margot pleaded she simply could not manage without Richard’s contribution, he suggested she should liquidate her $117,000 in savings and investments. He argued she could live on those funds until she reached 65 and received CPP and Old Age Security (OAS).
Early retirement can lead to a reduced pension. Luckily, even though he had retired early, which reduced his income, Richard had continued to pay Margot her full support. The court can decline to change spousal support if the payor retires unreasonably early, without health or other understandable reasons. Had Richard applied to end or reduce his spousal support before his 65th birthday, the court would likely have denied his request.
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Desire to retire is not unreasonable
The judge was sympathetic to Richard’s desire to retire.
“This cannot be described as an “early” retirement case. It is not unreasonable for a career government employee with 35 years of service to retire at age 65 despite the apparent financial need of his former spouse,” he ruled.
The ONSC agreed the 2008 lump sum settlement was fair. While double-dipping is generally avoided, hardship or need can be exceptions. Although Margot had invested the lump sum settlement, it was all she had for savings. The judge called her financial situation “bleak” and her resources very lean:
“There is no evidence to suggest that she has been anything other than frugal and efficient in terms of the use of her assets post-separation.”
Equalizing ex-spouses’ income
In fact, Margot’s savings and investments money would likely run out in three to four years, before she reached 65, leaving her with her $851 in disability benefits alone. In comparison, Richard’s income would approach $40,000 annually.
Citing the Divorce Act, ONSC denied Richard’s request to totally end her spousal support. Their 2008 spousal support order was based on equalizing the couple’s post-divorce income. The court honored that principle. Agreeing $2,700 was hefty, the judge varied Margot’s spousal support to $1,200 monthly. With one caveat: if Richard’s income increased in the future, the former couple would return to court to reconsider his support payments.
Although the new amount would reduce Margot’s income, it respected Richard’s changed financial circumstances.
Lump Sum Spousal Support
If your income has changed due to retirement or any other reason, ask our family law lawyers for advice. Call our law firm 1-844-466-6529 or email info (at) clearwaylaw.com.