Pre-Tax Income and Undue Hardship in Child Support Case

Mark Feigenbaum

A recent Nova Scotia Court of Appeal decision considered a father’s pre-tax income and claim of undue hardship in a child support case. 

What Happened?

The parents were living together in Ontario when their daughter was born in November 2013. In January of 2014, the mother and the child moved to Nova Scotia.  

Following their separation, the parents were able to agree to parenting arrangements that included the child spending substantial time with her father in both Nova Scotia and Ontario. 

However, the parents could not agree on an appropriate quantum of child support. The source of the difficulty was the nature of the father’s income. He is the sole shareholder and director of two companies which operate as a snow removal and landscaping business. 

In January 2014, the mother filed a Notice of Application in which she sought relief, both custodial and financial. A 2014 interim order provided that the child was in the primary care of the mother, with regular parenting time with the father. It further provided that the father would pay child support of $594 per month plus $270 towards child care expenses.

However, the mother argued that the father’s income for the purpose of determining his child support obligation should include the pre-tax income of his corporations, while the father disagreed. 

In addition, the father argued that his high access costs due to travel between Nova Scotia and Ontario were such that it would create an undue hardship if he paid the guideline table amount of child support. He claimed that his after-tax costs for exercising his access rights were between $15-20,000 per year. 

Lower Court Decision

The application judge concluded that the father’s income for the purpose of calculating child support was $85,000, which would provide for a guideline table payment of $762 per month, stating:

“[The father’s] retained earnings in 2012 were $370,918 and in October 2015, $398,032. Because of the nature of the business and the necessity to keep equipment operational to do the work these earnings are required to maintain the vehicles and does not represent income for child support. However, as the sole owner he has complete control and access to funds at his discretion.

He showed cash at the end of October 2012 as $77,198 and October 31, 2015 [as] $81,498.

For the purpose of setting a table amount I find his income to be in the vicinity of $85,000 per year.”

However, she also concluded that the father had made out a claim of undue hardship due to the $15-20,000 per year costs associated with travelling to exercise his access rights. The application judge stated:

“The [father] is responsible for an unusually high [cost] of exercising access. When he comes to Nova Scotia to visit he has airfare, ground transportation, hotel and food expenses. When he picks up [the daughter] to take her back to Ontario for parenting time, he has the expenses of air travel which involves four plane tickets for him and two for his daughter. He has tried to maintain the relationship with his daughter through travelling to Nova Scotia approximately monthly, to either be with her here in Nova Scotia or taking her back to Ontario. Furthermore, the parties have agreed on a parenting schedule which I conclude to be in the child’s best interest. Such a schedule results in significant access costs of approximately $18-20,000 per year.”

As a result of a finding of undue hardship, the application judge ordered the father to pay support of $500 per month plus 51% of child care expenses.

The mother appealed.

Issues

The issues on appeal were

• Did the application judge err in concluding that the father’s annual income was $85,000 for the purpose of calculating child support?

• Did the application judge err in granting the father’s undue hardship claim?

Court of Appeal Decision

The Court of Appeal found that the application judge erred in her approach to calculating the father’s annual income. It found that she failed to consider the father’s “line 150” income (from his income tax returns). It found that she also failed to look at the last year’s income (as per s. 16 of the Child Maintenance Guidelines (the “Guidelines”) ) nor did she consider income patterns over the past three years (as per s. 17(1) of the Guidelines). In addition, s. 18(1)(a) of the Guidelines specifically contemplates that a court should consider “all or part of the pre-tax income of the corporation … for the most recent taxation year”.  

As a result, the court allowed this ground of appeal and set aside the application judge’s finding that the father’s income was $85,000 for child support purposes.

The court then turned to the issue of undue hardship, which is governed by s. 10 of the Guidelines. The court explained that applying s. 10 engages a two-step process. First, a payor seeking to rely on the provision must establish that the payment of support as otherwise directed by the Guidelines (ss. 3 to 5, 8 or 9) would create an undue hardship as a result of one of the non-exhaustive factors in s. 10(2). Only if the court is satisfied that an undue hardship exists, does it proceed to the second step, namely, a consideration of whether the payor’s household standard of living is lower than the recipient’s (s. 10(3)).

The court found that the application judge did not properly apply this two-step process. It found that her reasons suggested that she collapsed the two inquiries into one because she did not make an initial finding of undue hardship before proceeding to consider the parties’ respective household living standards.  

In addition, the court found that the application judge did not explain how the payment of the table amount (an additional $262 in support each month) would have resulted in the father suffering “excessively hard living conditions”. Although the application judge found that the father had “unusually high” and “significant” access costs, she did not explain how the high threshold for finding an undue hardship had been met. The court stated:

“Simply having unusually high access costs, coupled with a purported lower standard of living, does not establish an undue hardship as required by s. 10. It would appear the application judge erroneously concluded that it did.”

Finally, the court found that the application judge did not properly compare the parties’ respective standards of living.  

As a result, the appeal was allowed, the application judge’s determinations were set aside and a new hearing was ordered. 

Get Advice

At Feigenbaum Law, our goal is to help you move forward following the breakdown of a relationship while retaining as much financial stability as possible and ensuring your children are provided for. Mark Feigenbaum is able to counsel his clients on all potential risks that may result from a family law dispute, not just those related strictly to the breakdown of a marriage. Contact Mark online or call him at (416) 777-8433 or toll-free at (877) 275-4792 to book a consultation.