Child support is governed by the Federal Child Support Guidelines (the “FCSG”). Sections 15(1) to 20 of the FCSG deal with the determination of a party’s annual income for support purposes. The recent Alberta case of Bradley v. Bradley, 2023, ABKB 128, (“Bradley”), provides further guidance on how to determine a party’s income based on section 17 of the FCSG, which reads as follows:
Pattern of income
- 17(1) If the court is of the opinion that the determination of a spouse’s annual income under section 16 would not be the fairest determination of that income, the court may have regard to the spouse’s income over the last three years and determine an amount that is fair and reasonable in light of any pattern of income, fluctuation in income or receipt of a non-recurring amount during those years.
In Bradley, the court utilized section 17 of the FCSG to determine whether including the payor father’s capital gain from the sale of his business should be included in his income. The payor father sought to lower his income for child support purposes, as he claimed that the capital gain received from the sale of his physiotherapy practice should not be included as part of his income as it was a non-recurring gain.
Pursuant to Ewing v. Ewing, 2009 ABCA 227, (“Ewing”) a non-recurring capital gain would not always be included in a party’s income, and several factors would be considered before its inclusion. In particular, the non-exhaustive factors set out in Ewing are:
Is the non-recurring gain or fluctuation actually in the nature of a bonus or other incentive payment akin to income for work done for that year?
Is the non-recurring gain a sale of assets that formed the basis of the payor’s income?
Will the capital generated from a sale provide a source of income for the future?
Are the non-recurring gains received at an age when they constitute the payor’s retirement fund, or partial retirement fund, such that it may not be fair to consider the whole amount, or any of it, as income for child support purposes?
Is the payor in the business of buying and selling capital assets year after year such that those amounts, while the sale of capital, are in actuality more in the nature of income?
Is inclusion of the amount necessary to provide proper child support in all the circumstances?
Is the increase in income due to the sale of assets which have already been divided between the spouses, so that including them as income might be akin to redistributing what has already been shared?
Did the non-recurring gain even generate cash, or was it merely the result of a restructuring of capital for tax or other legitimate business reasons?
Does the inclusion of the amount result in wealth distribution as opposed to proper support for the children?
In Bradley, the Court focused more on what would be “fair and reasonable” in the circumstances, while applying the Ewing factors.
The total value of the shares in the physiotherapy practice that the payor father sold was approximately $1.266 million, which was primarily received in cash. Although the payor father was selling the majority of his practice, he was still planning on working in the clinic for the foreseeable future earning a monthly management fee of $2,857.14 as well as receiving dividends. However, this income would be substantially less than he was earning prior to the sale of his practice.
Thus, the court in Bradley determined that it would be fair and reasonable in the circumstances for part of the capital gain to be considered a future income stream for child support purposes. It was determined that this would be necessary for the children to receive support in line with their lifestyle experienced prior to the party’s separation. Therefore, half of the capital gain, approximately $600,000 was included in the payor father’s income.
In summary, non-recurring sources of income are relevant in the determination of child support and may or may not be included as income for child support purposes, depending on the circumstances.
Note: This article provides general commentary and is in no way intended to replace the need to consult with a legal professional concerning the specific circumstances of your situation. This article should not be construed or relied upon as legal advice.