GSH v KRH, 2017 ABQB 807

Court of Queen’s Bench of Alberta Citation: GSH v KRH, 2017 ABQB 807 Date: 20171222 Docket: 4814 004906 Registry: St. Paul Between: GSH Applicant - and - KRH Respondent _______________________________________________________ Reasons for Judgment of the Honourable Mr. Justice Robert A. Graesser _______________________________________________________ Introduction [ 1 ] This decision arises out of a special chambers application.

Following a significant drop in income, GSH brought this application to reduce his child support obligations and spousal support obligations to his ex-spouse, KRH. [ 2 ] The original obligations arose out of a separation agreement made between the parties in July 2015, which obliged GSH to pay child support based on an agreed upon Guideline income of $150,000.

He agreed to pay KRH spousal support in the amount of $2,300 per month. [ 3 ] On an interim application in July 2017, pending this special application, Feehan J reduced GSH’s child support obligations to reflect the table Guideline amount based on his 2016 income of $104,600. He also reduced GSH’s spousal support obligation from $2,300 per month to $1,400 per month on an interim basis, pending the decision from this special chambers application.

Background [ 4 ] The parties were married and cohabitated for a total of six years. KRH has been on permanent disability since before the marriage. She does not expect to be able to be gainfully employed and believes that her disability income will continue until she is 65 years old. KRH has a child, who is now 17. Both parties agree that GSH stood in loco parentis to KRH’s child and that he must pay child support for the child. GSH has had limited contact with the child since the parties separated. [ 5 ] The parties’ separation agreement detailed that GSH’s salary was estimated at $150,000 and KRH’s was $29,928.

GSH was placed on stress leave around the time of the parties’ separation, which resulted in a significantly reduced income. That amount was accurate for 2015. [ 6 ] The separation agreement resolved all issues relating to matrimonial property. GSH paid KRH an equalization payment so that he could remain in the former matrimonial home. [ 7 ] Shortly after he was placed on stress leave, GSH’s employer advised him that he could no longer satisfy the requirements of his job and suggested he apply for opportunities elsewhere. In September 2015, GSH accepted a new position and earned $104,600 that year.

When this application was brought in early 2017, GSH estimated that his 2017 income would be similar to what he earned in 2016. There is no updated income information before the Court. [ 8 ] KRH’s income has remained fairly constant because of it being disability income, and it stays around $29,900 per annum. [ 9 ] GSH has children from a previous relationship, and he is paying child support for those children.

The eldest child still entitled to child support is approximately the same age as KRH’s daughter, so GSH’s child support obligations may continue for some time if these children pursue post-secondary education. [ 10 ] The result of the application before Feehan J was that GSH’s child support obligation for KRH’s child was reduced to $925 per month. In other proceedings, GSH’s child support obligations for the children from an earlier relationship were reduced to $1,487 per month.

Positions of the parties [ 11 ] In this application, GSH seeks to have his spousal support obligations reduced to zero, or alternatively to the amount shown by the with-children Spousal Support Advisory Guidelines (Department of Justice Canada, Spousal Support Advisory Guidelines , by Carol Rogerson & Rollie Thompson (Ottawa: Department of Justice Canada, 2008) [SSAGs]) based on his income of $104,600, but after deducting the amount of child support paid to the children from his former relationship ($17,844).

GSH says that the proper application of the SSAGs is to deduct child support paid for earlier relationships, and then to calculate spousal support using the reduced amount. That would result in spousal support of $438 at the low end of the range and $957 at the high end. [ 12 ] GSH says that he is unable to afford to continue to pay spousal support in the amount agreed to, and the materials filed with this application show a considerable budget shortfall.

Some of that shortfall has been reduced because of the reduction in child support obligations and the interim reduction in spousal support ordered by Feehan J, but GSH says he is still far from making ends meet. [ 13 ] KRH’s materials show that she too has a budget shortfall arising out of the reduction in spousal support ordered by Feehan J, and fears that if her spousal support is reduced further, she will lose the home she purchased after the parties separated. She has no ability to increase her income, other than by taking in renters.

She has not been successful in doing so as yet. [ 14 ] KRH argues that GSH is living far beyond his means, has funds available from his mother, suggests that if he is unable to make the payments he agreed to, he should take in renters himself, or get a second job.

She notes that he lives in a large house by himself, and suggests that it might be sold so that he can live more economically. [ 15 ] With specific reference to GSH’s argument that spousal support should be based on his income minus the amount of child support paid for his other children, KRH says that when the separation agreement was made in 2014, it was agreed that GSH’s spousal support obligation was to be based on the high end of the range indicated by the SSAGs, on GSH’s full income.

There was to be no reduction on account of his obligations to his other children. [ 16 ] KRH believes that spousal support should be increased to the $2,300 per month as the parties had agreed; alternatively she says that if it has to be reduced because of GSH’s change in income, spousal support should continue to be at the high end of the range and be based on GSH’s full, unreduced income. Analysis [ 17 ] As with many post-separation families, there is not enough income to go around. When GSH was making $150,000 per year, he was apparently able to make ends meet.

Since his income was reduced by nearly one-third, he has fallen into debt and cannot make all of his required payments. [ 18 ] At the outset, I observe that this is an application essentially under section 15(2) of the Divorce Act and not section 11(2) or

section 17 . [ 19 ] The separation agreement was negotiated and completed shortly after separation. Both parties had lawyers, who witnessed their clients’ signatures and provided certificates of independent legal advice. The agreement contains two provisions regarding variation

of spousal support: Spousal Support 6.2 Either party shall have leave to bring an application to review the quantum of support payable by the Husband to the Wife within 4 months of the Wife’s date of retirement and then again within 4 months of the Husband’s date of retirement, or based upon the provisions of s. 17 of the Divorce Act . … Variation of Spousal Support 7.

Either party shall be at liberty to apply to a Court of competent jurisdiction to vary the within amount in the event of a substantial change of circumstances, prior to the expiration of the term set out herein. [ 20 ] Since GSH’s income has fallen so significantly, his application to reduce spousal support falls into both provisions. There is thus no impediment in the agreement itself to this application to vary his obligations because of his changed circumstances.

Nor does GSH need to demonstrate a material change in circumstances not contemplated at the time of the agreement. [ 21 ] What is significant is how the separation agreement is to be treated on this application.

The first court order regarding child and spousal support was the interim order of Feehan J in July 2017, made in contemplation of this application. [ 22 ] Miglin v Miglin , 2003 SCC 24 , holds that an initial application for spousal support inconsistent with a pre-existing agreement requires a two-stage investigation into all the circumstances surrounding that agreement, first at the time of the formation of the agreement, and second, at the time of the application. [ 23 ] At paragraph 4, the majority stated: [4] As we explain below, we believe that a fairly negotiated agreement that represents the intentions and expectations of the parties and that complies substantially with the objectives of the Divorce Act as a whole should receive considerable weight.

In an originating application for spousal support, where the parties have executed a pre-existing agreement, the court should look first to the circumstances of negotiation and execution to determine whether the applicant has established a reason to discount the agreement. The court would inquire whether one party was vulnerable and the other party took advantage of that vulnerability. The court also examines whether the substance of the agreement, at formation, complied substantially with the general objectives of the Act.

As we elaborate later, these general objectives include not only an equitable sharing of the consequences of the marriage breakdown under s. 15.2, but also certainty, finality and autonomy. Second, the court would ask whether, viewed from the time the application is made, the applicant has established that the agreement no longer reflects the original intention of the parties and whether the agreement is still in substantial compliance with the objectives of the Act. [ 24 ] GSH’s position on this application is that this was a short-term marriage.

Spousal support should have been for a specified length of time no longer than six years, and if based on the SSAGs, it should have reflected the range of support after deducting his child support obligations for his other children. He argues that his present circumstances indicate that no spousal support should be paid. [ 25 ] The main difficulty with GSH’s position is that he voluntarily agreed to the obligations in the separation agreement. It is too late for him to negotiate.

He now has to fall within the provisions of the separation agreement for variation, as well as the law as set out in Miglin and cases following it. Miglin remains the guiding authority in this area. [ 26 ] The Supreme Court recognizes that on a section 15(2) application, the Court is not bound by the provisions of a separation agreement negotiated between the parties. The majority stated at paragraph 51: [51] It is settled that Parliament has vested in courts the discretion to review and reject the terms of a pre-existing agreement: Pelech, at p. 827. Nevertheless, this discretion should not be exercised lightly.

A purported inequality in asset distribution is not necessarily a sufficient basis to disregard the parties’ declared intention to be bound by the terms of the agreement they reached. In fact, here there was no such inequality, as properly admitted by counsel for the respondent during the hearing of this appeal. Further, we do not accept that the weight to be afforded a pre-existing agreement should be determined solely by the extent to which that agreement is consistent with the specific objectives of spousal support orders listed in s. 15.2(6) of the Act. Such an

interpretation is not consistent with the language and objectives of the Divorce Act more generally. [ 27 ] The relevant circumstances at the time of the agreement included that KRH was unable to work at the time, she had not worked throughout the marriage, and she was not expected to return to meaningful work in the future. GSH was in a new job, earning (according to KRH) approximately 60 percent of what he had earned previously.

His earnings of $150,000 allowed him to meet the obligations he had to his other children as well as paying child support for her child and spousal support to her at the high end of the SSAG range. [ 28 ] There is no indication that GSH was under any duress or that the agreement was “unconscionable.” GSH might have negotiated a better deal for himself, but he agreed to the terms in the separation agreement with the benefit of experienced counsel. [ 29 ] The nature of the review in Miglin was described at paragraph 63: [63] As we shall discuss more fully, however, changes to the parties’ circumstances after completion of a separation agreement are obviously not wholly irrelevant considerations in assessing the weight to be given to a pre-existing agreement at the time of the application.

In our view, the court should focus not on change as a threshold matter, leading to the total setting aside of an agreement, but rather on the totality of the circumstances, of which a change in the parties’ circumstances will likely be an element. Put another way, it

is not the existence of change per se that matters but whether, at the time of the application, all the circumstances render continued reliance on the pre-existing agreement unacceptable. [ 30 ] The next step in the analysis is to see how the parties’ circumstances have now changed. Looking at KRH, the answer to that is that her circumstances have not changed, and are not expected to change until her daughter becomes self-sufficient. GSH had what appears to be a temporary setback because of stress, but has returned to the workforce and is earning a good but significantly reduced income.

There is no information in the materials suggesting that he will be unable to work to the same level he did at the time of the separation, or for the same duration. [ 31 ] A significant factor in my analysis is that the agreement contains reasonable review provisions. [ 32 ] Subject to those contingencies, the agreement provides a level of finality, certainty and autonomy for each of the parties. On a family law special application, I have significantly less information than I might if this had been a trial with viva voce evidence.

Nevertheless, I am mindful of what the majority stated at paragraph 78 of Miglin : [78] Therefore, in searching for a proper balance between consensus and finality on the one hand, and sensitivity to the unique concerns that arise in the post-divorce context on the other, a court should be guided by the objectives of spousal support listed in the Act. In doing so, however, the court should treat the parties’ reasonable best efforts to meet those objectives as presumptively dispositive of the spousal support issue.

The court should set aside the wishes of the parties as expressed in a pre-existing agreement only where the applicant shows that the agreement fails to be in substantial compliance with the overall objectives of the Act. These include not only those apparent in s. 15.2 but also, as noted above, certainty, finality and autonomy. [ 33 ] As a result, I see no proper basis to interfere with the parties’ agreement, and I make no order concerning termination or duration of the parties’ rights and obligations. GSH has provided no valid reason for me to let him out of the agreement he made.

Either party has the ability to seek a variation pursuant to the terms of the agreement, or the Divorce Act . [ 34 ] That being said, there has been a significant change in GSH’s ability to pay. That cannot be ignored, and unless the amount is adjusted, the agreement would be highly unfair to him. Barring misconduct after the making of an agreement or order, there is no principle of law requiring people with spousal support obligations to sell off their assets or take second jobs to meet payment obligations based on a previous income.

That may occur in some circumstances, but there is nothing in this matter to warrant imposing that sort of obligation. [ 35 ] Spousal support in Alberta is more art than science. The SSAGs are indeed advisory, and are not mandatory. Since the parties based their agreement on the SSAGs it is important to review what the SSAGs say about situations such as the parties face here. [ 36 ] When a spouse is paying child support for a child of the marriage, the with-child support formula applies to calculating spousal support: (SSAGs at 72)

a) Determine the individual net disposable income (INDI) for each spouse;

b) Payor’s INDI = guideline income – child support – taxes and deductions;

c) If a payor is paying support for other children from a previous family, that amount of support should be subtracted as well;

d) Recipient’s INDI = guideline income – notional child support – taxes and deductions + government benefits and credits;

e) Add together INDIs. To then determine the range for spousal support;

f) Multiply the combined INDIs by .4 and subtract the recipient’s INDI to determine the amount of annual spousal support that would be necessary to leave the recipient with 40% of the combined INDIs (at the low end for the recipient); and

g) Multiply the combined INDIs by .46 and subtract the recipient’s INDI to determine the amount of annual spousal support that would be necessary to leave the recipient with 46% of the combined INDIs (at the high end for the recipient). [ 37 ] The SSAGs explain the following principles of the with-child formula for support (SSAGs at xi-x, 76-77):

a) The with child support formula relies on net incomes of the spouses, not gross incomes, because of the tax consequences of spousal support;

b) The with child support formula divides the pool of combined incomes between the spouses, and doesn’t just look at the difference between the incomes of the spouses. [ 38 ] The upper and lower percentage limits for net income division do not change with the length of the marriage. The length of the marriage only affects the duration of spousal support. [ 39 ] In calculating the available pool of income that can be divided between the spouses, the SSAGs remove the spouses’ respective child support obligations (and notional contributions).

This reflects the primacy of child support obligations. [ 40 ] When I analyze the SSAGs using GSH’s 2015 income of $150,000 and KRH’s 2015 income of $29,900 and deduct the amount of child support being paid by GSH based on his income, the $2,300 per month of spousal support would appear to be a rough equalization of the parties’ after-tax incomes. [ 41 ] I do not profess to have any expertise with the SSAGs and generally rely on lawyers to do the necessary calculations, but I do recognize that the formulas and algorithms within the SSAGs are intended to take taxation issues into account, as well as things like the Federal Child Tax Credit.

[ 42 ] The helicopter view of the parties’ agreement was that they divided the matrimonial property equally and arrived at a combination of child support and spousal support that provided each of the parties with a similar amount of after tax income. GSH only had himself to look after on that amount; KRH had herself and her child. There seems nothing inherently unfair about that arrangement. [ 43 ] If that “philosophy” is carried forward, it is reasonable that KRH’s spousal support be reduced to the extent necessary so that the parties’ after-tax incomes remain roughly equal.

At the time of their agreement, that appears to have been achieved by not deducting the child support for GSH’s other children and using the high end of the SSAGs. However, with less available income overall, there must be some recognition of the importance of GSH’s child support obligations. The SSAGs recognize that previous obligations take priority over obligations to new families, and limit the funds available to pay spousal support to KRH. [ 44 ] One of the challenges facing parties with fluctuating incomes is the prospect of an annual recalculation.

Those challenges are greatly reduced when, as is here, the parties are essentially T-4 employees. Child support recalculation is relatively simple, and in uncomplicated situations, it can be accomplished by the parties themselves. Spousal support is different, especially as in Alberta the SSAGs are only advisory, and even within the SSAGs there are a number of variables.

Once the variables have been set (duration and level in the range), recalculation is an easier process, if recalculation is appropriate. [ 45 ] If one considers income tax (as do the SSAGs), Alberta income tax is a flat 10% on incomes up to $126,625.

Federal income tax is graduated, and is calculated at the rate of 15% on the first $45,916 of taxable income, plus 20.5% on the next $45,915 of taxable income (on the portion of taxable income over $45,916 up to $91,831), and 26% on the next $50,522 of taxable income (on the portion of taxable income over $91,831 up to $142,353). [ 46 ] Alberta Treasury Board & Finance has a very helpful website: Alberta Income Tax Calculator found at www.finance.alberta.ca/calc-script/tax_calc.html . Using it (for 2017) suggests that GSH will pay approximately $25,500 in Alberta and Federal income tax.

Before considering spousal support (and recognizing that these figures are not “take home” figures as there are undoubtedly other deductions from income), GSH’s after-tax income, after making his child support payments, is around $50,156. [ 47 ] KRH’s income of $29,900 would attract $550 in income tax, leaving her with an after-tax income of $29,350. In addition to that, she has non-taxable child support of $11,100 giving her a pre-spousal support after-tax income of $40,450. [ 48 ] Equalizing these incomes requires $5,000 to be paid to KRH.

For her to net $5,000, she will need to receive $5,750 (using her notional tax rate of 15% with no Alberta tax). Paying KRH $5,750 will cost GSH approximately $4,025 (using his notional rate of 20.5% Federal and 10% Alberta). Doing so would give KRH $55,000 in after-tax income. GSH would be left with $55,406. [ 49 ] These calculations suggest that using the same approach as the parties did when they entered into the separation agreement, GSH should pay KRH $480 per month on his income of $104,600. That payment achieves rough after-income tax equality for the parties.

While KRH has a child to support out of that income, she also receives the child tax credit (which I estimate to be at least $400 per month) so her income will actually be somewhat higher than GSH’s. [ 50 ] I assume the SSAGs used by the parties when they made the separation agreement included the federal child tax credit as part of KRH’s income.

I do not include it in KRH’s income during this interim period as the reduction in income determined above will likely create some hardship for her. [ 51 ] Equalizing the parties’ after-tax incomes fairly represents what appears to be the parties’ intentions when the separation agreement was drafted, and it also recognizes the economic limitations that GSH’s reduced salary has created. [ 52 ] I indicated above that the parties will benefit from the use of a formula to assist them resolve spousal support issues on a go- forward basis. [ 53 ] The SSAGs are flexible.

The parties used them for the purposes of their agreement, and I see no reason to depart from them on a go-forward basis, at least until there is a change in circumstances warranting review, or a final corollary relief order is in place. [ 54 ] The payment of $480 per month in spousal support to KRH should commence on January 1, 2018, and be payable until and including June 1, 2018. By then, the parties will have exchanged financial information. Effective July 1, 2018, GSH should pay KRH spousal support in an amount that equalizes the parties’ after-tax incomes.

I understand that the SSAGs can be used to perform those calculations and that will likely provide a more precise result than I have achieved here. At that time, the child tax credit should be included in KRH’s income for the purposes of determining equality. [ 55 ] This method is appropriate while both GSH and KRH have children for whom they are paying or receiving child support. When KRH’s child is no longer a child of the marriage, the without children formula should be used. When GSH no longer has children he is supporting other than KRH’s child, the equality of after-tax incomes may no longer be appropriate.

But these issues are for another time. [ 56 ] I repeat that this is an interim order relating to corollary relief. At some stage, a final order will have to deal with the bases for entitlement and duration. Heard on the 8 th day of December, 2017. Dated at the City of Edmonton, Alberta, this 22 nd day of December, 2017.

Robert A. Graesser J.C.Q.B.A. Appearances: James E. Morrow Morrow Tchir LLP for the Applicant KRH, Respondent on her own behalf