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Spousal Support Guidelines - General Damages

August 28, 2021

Ontario

,

Canada

Issue

Are non-pecuniary damages paid by an employer to a spouse counted as income for the purpose of determining support?

Conclusion

Only one case, Pruden v. Pruden, was identified where the Court considered whether general damages paid by an employer should be included as income for the purposes of determining support. However, guidance may be gleaned from how courts have considered awards of general damages arising from a personal injury settlement.

Damages received from an employer under the heading "injury to dignity, feeling and self-respect" are not income for the purposes of the Spousal Support Guidelines. (Pruden v. Pruden)

Identifiable and reasonable general damages for loss of enjoyment of life and/or damages for future care costs should not be included for the purpose of spousal or child support calculations. (Fequet v. Fequet)

For the purposes of support calculation, the portion of the non-structured settlement funds relating to income/wage loss, (as distinct from the remaining portions of the non-structured settlement funds relating to general damages and future care costs), should be included in the income of the applicant if, when and as that portion is drawn upon by the applicant after the parties’ separation (Lukovnjak v Weir)

In Pruden v. Pruden, the payor of spousal support received a letter from his employer advising that effective January 10, 2014, the respondent’s employment would come to an end. The payor commenced proceedings under the Human Rights Code and received a settlement agreement. The settlement amount included $20,000 with respect to general damages. Cole J. found that the amount attributable to general damages was not income for the purposes of spousal support. (Pruden v. Pruden)

In Mobin v. Stephens, the payor of support was a talented musician. The father received a settlement agreement for the sum of $175,000 in U.S. funds paid on account of his claim against the production companies for copyright infringement. The recipient, after discovering the settlement agreement, sought an increase in child support to reflect the additional monies received by the father. The Court found that the damages paid in compensation for royalties or profits are analogous to the royalties or profits themselves and thus were income for the purposes of child support.

In Tookenay v Laframboise, the payor received a structured settlement annuity from a personal injury claim. The court imputed only 1/2 the monthly annuity payments being received as income on the grounds that at least 1/2 of the settlement would have been allocated to non-pecuniary general damages.

Law

In Pruden v. Pruden, 2014 BCSC 1440 (CanLII), the payor of spousal support received a letter from his employer advising that effective January 10, 2014, the respondent’s employment would come to an end. The payor commenced proceedings under the Human Rights Code and received a settlement agreement. The settlement amount included $20,000 with respect to general damages. Cole J. found that the amount attributable to general damages was not income for the purposes of spousal support:

[6] On July 12, 2013, the respondent received a letter from his employer advising that effective January 10, 2014, the respondent’s employment would come to an end. As a result, the respondent commenced proceedings under the Human Rights Code, R.S.B.C. 1996, c. 210, claiming discrimination for being terminated purely because of his age, contrary to s. 13 of the Human Rights Code.

[7] A settlement agreement was reached in November of 2013. The breakdown of allocation was based on a gross settlement proceeds, six months plus 19 days regular pay in the amount of $34,393.93, less legal fees of $2,750, leaving a balance of $31,643.93. Of that amount, $20,000 was in respect to general damages payable without deduction for income tax purposes, $6,645 went directly into his RRSP and there was a 10% withholding tax of $499.89 and a cheque made payable to the respondent for the balance of $4,499.04.

[...]

[20] In M.K. v. R.A.S., 2004 BCSC 1798, an appeal from a Provincial Court order varying child support. The issue was what portions of a significant personal injury award constitutes “income” within the meaning of the Child Support Guidelines. Madam Justice Wedge at para. 32 said:

Our tort system is based on the premise that the only means, however imperfect, of compensating an injured plaintiff for loss of amenities of life or the enjoyment of life is monetary damages. We recognize that money can never fully compensate for loss of enjoyment of life, but our legal system does its best to find an equivalent in monetary terms. An award for non-pecuniary loss is thus intensely personal. It is not made in order to provide an income. It is designed to compensate for non-monetary losses.

[21] As with Wedge J.’s finding that non-pecuniary damages in a personal injury award do not constitute income for the purpose of the Child Support Guidelines, I am satisfied that the $20,000 received for the respondent’s “injury to dignity, feeling and self-respect” is not income for the purposes of Spousal Support Guidelines. Legal fees paid by the respondent in the amount of $2,750 should also not be included as income.

In Hunks v. Hunks, 2017 ONCA 247 (CanLII), Gillese, J.A. found that the wife’s structured settlement annuity, received as part of a settlement for an injury suffered by her in a supermarket, is income and not property. The Court of Appeal found that the annuity payments should be considered as income for the purposes of spousal support:

[57] The fact that the SS Annuity payments arise from a structured settlement does not, however, fully answer the question of whether the SS Annuity payments should be treated as property or income for the purposes of the Act. In my view, payments received from a structured settlement annuity are analogous to disability benefits and, therefore, should be treated as income.

[58] At para. 17 of Lowe, Sharpe J.A. said the following about disability benefits:

I agree with Aitken J. [at para. 113 of Hamilton] that “the purpose of the disability payments is to replace in whole or in part the income that the person would have earned had he or she been able to work in the normal course.” This makes disability benefits “more comparable to a future income stream based on personal service” than to either a retirement pension plan (explicitly included in family property by s. 4(1)), or to a future stream of payments from a trust (held to constitute property in Brinkos). … disability benefits replace income during the working life of the employee and therefore are appropriately treated as income for purposes of equalization and spousal support. As Aitken J. put it at para. 115, “a disability pension is simply the flip side of employment or self-employment income.”

[59] Like the disability benefits in Lowe, the SS Annuity payments replace, in whole or in part, the employment income that Ms. Hunks would have earned had she been able to work. The SS Annuity payments give her financial support because she cannot work. They are, therefore, of the same nature as the income that she would have earned had she not been injured. Just as disability benefits are more comparable to a future income stream based on personal service than a retirement pension, so too are the SS Annuity payments. Annuities are usually purchased with savings. Not so the structured settlement annuity. As we have seen, an individual cannot purchase a structured settlement annuity. Furthermore, structured settlements can only arise from a settlement for a damages claim based on personal injury or death. Clearly, the SS Annuity was not purchased from personal savings nor is it a form of savings. The SS Annuity, as a structured settlement, is designed to provide income to Ms. Hunks that she would have been able to earn, had she not been injured.

[60] Equally clearly, the SS Annuity is not like an employment pension plan, where entitlement accrues with service.

[61] While I have concluded that structured settlement payments received after separation to replace future wages are not shareable as property, I leave for another day whether this analysis would apply in a case where it is found that a significant portion of the funds used to create the structured settlement is attributable to damages for a third party’s claim. In the present case, that consideration does not arise. The amount of the settlement attributable to Mr. Hunks’ claim was a very small percentage of the total settlement ($8,000 out of a total settlement of $571,383 or approximately 1.4%). Furthermore and in any event, Mr. Hunks has received the benefit of far more than the amount attributable to the damages awarded for his claim. Ms. Hunks used the $200,000 lump sum she received from the settlement for the benefit of the family, including Mr. Hunks. She also used the structured settlement payments that she received for approximately 12 years of the time that she was married to Mr. Hunks for the benefit of the family, including Mr. Hunks.

[62] Finally, I reject the notion that the SS Annuity payments should be treated as property because Ms. Hunks has a fixed entitlement to them. This idea was addressed and rejected at para. 24 of Lowe. Sharpe J.A. said the following:

It might be argued that the husband’s permanent disability pension, payable for life, should be included as property as it is a fixed entitlement, apparently not contingent on the husband establishing disability on an ongoing basis. I would reject this argument. It seems to me preferable from the perspective of clarity and predictability to treat all disability benefits the same whether they are calculated strictly in terms of lost income or as compensation for impairment to earning capacity.

[63] For all of these reasons, the SS Annuity payments should be treated as income and not property for the purposes of the Act.

In Mobin v. Stephens, 2013 ONCJ 53 (CanLII), the payor of support was a talented musician. The father received a settlement agreement for the sum of $175,000 in U.S. funds paid on account of his claim against the production companies for copyright infringement. The recipient, after discovering the settlement agreement, sought an increase in child support to reflect the additional monies received by the father. The Court found that the damages paid in compensation for royalties or profits are analogous to the royalties or profits themselves and thus were income for the purposes of child support:

[56] For the determination of the issue before this court, it is not necessary to make a finding as to whether the damages received by the father represent income to him for tax purposes. That decision is better left to another forum. What is relevant to this court is whether the damages recovered by the father represent “income” to him for the purposes of the Child Support Guidelines.

[57] There have been a number of cases that have taken the view that the receipt of certain types of funds, although not characterized as “income” to the recipient for tax purposes, should nevertheless be included in the income of the recipient for the purposes of the Guidelines. The inclusion of these funds in the income of the support payor has been made pursuant to s. 19 of the Guidelines.

[...]

[64] Accordingly, this court is of the view that, even if the damages settlement received by the father for copyright infringement is not taxable, these funds would nevertheless be “income” of the father for Guidelines purposes. The payment resembles royalties or profits that would have been paid for the performance or publication of the father’s original musical work or the licencing to another performer of the right to perform or publish the work. As previously noted, royalties or profits represent the yield or the income from the copyright. When determining income for child support purposes, damages paid in compensation for these royalties or profits are analogous to the royalties or profits themselves.

[65] Thus, even if the damages paid to the father for copyright infringement are not taxable to the father, the court would impute income to the father for the year 2010 in a sum equivalent to the damages received by him.

In Fequet v. Fequet, 2008 CanLII 30284 (ON SC), the Court noted:

[39] [...] identifiable and reasonable general damages for loss of enjoyment of life and/or damages for future care costs should not be included for the purpose of spousal or child support calculations.

In Lukovnjak v Weir, 2016 ONSC 6893 (CanLII), the Court set out the following principles of support calculation where the payor had received personal injury damages:

[51] First, for the purposes of support calculation, the portion of the non-structured settlement funds relating to income/wage loss, (as distinct from the remaining portions of the non-structured settlement funds relating to general damages and future care costs), should be included in the income of the applicant if, when and as that portion is drawn upon by the applicant after the parties’ separation. In that regard:

• Practical implementation of that direction requires the applicant to provide the respondent with ongoing disclosure to confirm whether there have been such draws, and if so, their timing and quantification.

• Practical implementation of that direction also requires effective quantification and ongoing segregation of that portion of the remaining non-structured settlement funds relating to income/wage loss; i.e., to make it clear to all concerned whether, when and how the applicant is drawing upon that particular portion of the remaining non-structured settlement funds. As noted above, (in footnote 4), the parties’ statement of agreed facts did not expressly extend to any confirmed apportionment of the remaining non-structured settlement funds between general damages, lost wages and future care costs. Nor was I presented with any evidence that would facilitate such a determination. However, it seems that may reflect a further unstated agreement between the parties, as the written submissions of both parties seemed premised on a joint assumption that the percentage apportionments applicable to the $571,400 in non-structured settlement funds originally received by the applicant should be extended and applied to the $309,109.42 in non-structured settlement funds remaining as of the date of the parties’ separation, (and perhaps thereafter). Rather than risk interfering with what may be a sensible agreement by the parties in that regard, I will instead direct that the necessary apportionment and segregation of the remaining non-structured settlement funds may be submitted to the court for determination, with appropriate evidence, if and as necessary.

[52] Second, for the purpose of support calculation, the portion of monthly payments received by the applicant from the structured settlement funds relating to income replacement benefits, (as distinct from the remaining portion of such monthly payments relating to care, treatment and rehabilitation of the applicant), also should be included in the income of the applicant.[53] In that regard:

• Practical implementation of that direction similarly requires the applicant to provide the respondent with ongoing disclosure to confirm the existence, timing and quantum of such receipts.

• Practical implementation of that direction also requires effective apportionment of structured settlement payments to differentiate between receipts relating to income replacement and receipts relating to care, treatment and rehabilitation of the applicant, (i.e., future care costs). However, I similarly was presented with no agreement and little evidence in that regard. As noted above, in the absence of such allocation evidence, some courts have resolved such questions by treating the entire amount of such receipts as income replacement. However, I think that would be an arbitrary and unjust result in this case, as it seems quite clear, based on the evidence I do have, that most and perhaps all of the structured settlement was intended to provide payments in lieu of accident benefits relating to the cost of future care.[54] Moreover, counsel indicated at trial that such evidence likely could be obtained from the applicant’s personal injury lawyer if necessary. In the circumstances, I therefore will direct that the necessary apportionment of the structured settlement receipts, (i.e., between those representing income replacement benefits and those representing benefits relating to the applicant’s future care), also may be submitted to the court for determination, with appropriate evidence, if and as necessary.

In Tookenay v Laframboise, 2015 ONSC 2898 (CanLII), the payor received a structured settlement annuity from a personal injury claim. The court imputed only 1/2 the monthly annuity payments being received as income on the grounds that at least one half of the settlement would have been allocated to non-pecuniary general damages:

[55] Mr. Laframboise submits that he should pay child support based on his employment insurance earnings.

[56] He submits that none of the structured settlement annuity should be imputed as income. He argues that the settlement used to fund the structured settlement relates entirely to the general damages for pain and suffering and that there was no pecuniary component to the settlement. Further, he argues that those funds were not used to fund family expenses when he and Ms. Tookenay lived together.

[57] Ms. Tookenay argues that, based on Mr. Laframboise's own admissions, Mr. Laframboise will secure, at least, seasonal employment. She argues that a fair measure of Mr. Laframboise's earning potential is his average earnings.

[58] With respect to the structured settlement, Ms. Tookenay does not seek that any of the lump sums that Mr. Laframboise has received or is to receive in the future should be imputed as income. However, she seeks that all, or some, of the monthly annuity benefits that are received be imputed as income. She argues that a portion of the settlement funds would be an award for pecuniary general damages and that, since the funds were used by the family for basic needs, the funds should still be available for child support.

[59] Following Zoldy v. Zoldy, 2007 ONCJ 24 (CanLII), [2007] O. J. No. 171 she asserts that the onus is on Mr. Laframboise to prove all aspects of the settlement including the allocation of the settlement funds to various heads of damages. Ms. Tookenay also relies upon Rivard v. Hankiewicz, 2007 ONCJ 180 and Fequet v. Fequet, [2008] O. J. No. 2455 as authority that the Court may impute income from a structured settlement.

[...]

[64] I agree with this statement from Rivard v. Hamkiewicz:

In my view, the respondent had an obligation to provide the court with the evidence about this annuity that may be required to allow a reasonable determination of whether the payments are income of the guidelines in whole or in part.

[65] There was no evidence from Mr. Laframboise suggesting that there was any significant ongoing care expense or medical expense, other than an unquantified dental expense, as a result of the car accident.

[66] As summarized in Rivard, income has been imputed from structured settlements when a portion of the settlement funds has been allocated to future economic loss. In those cases, only the component for future economic loss has been imputed as income. In other cases, where there has been no allocation between various heads of damages, courts have imputed income without reference to amounts paid in settlements.

[67] Since the Motor Vehicle Accident Claims Fund limits of $200,000 were paid to fund the settlement it was unnecessary to apportion the settlement funds between pecuniary and non-pecuniary general damages. It is clear from the documentation provided that a claim for future loss of income or loss of earning potential was being advanced and I conclude that the settlement would have included a component to compensate for loss of earning potential. I accept that there is some disfigurement caused by the right-sided facial paralysis and his problems with his right eye. Fortunately, any cognitive impairment appears limited. Notwithstanding, Mr. Laframboise limited education he represented himself very effectively. He was articulate and appropriate in his presentation of his evidence and argument.

[68] The other argument advanced by Ms. Tookenay for imputing the structured settlement annuity as income is based on the use of those funds. Both the Fequet and Rivard cases conclude that it is appropriate to determine the use of the annuity funds in determining whether the annuity should be imputed as income. When the funds are not used for rehabilitation purposes or other medical expenses relating to the accident but rather for ordinary living expenses then it is appropriate to impute those funds as income.

[69] I conclude that Mr. Laframboise was at least naïve with respect to the use made of the structured settlement annuity funds that are deposited into his father's bank account. Mr. Laframboise testified that his father would know more about the use of those funds and I draw an adverse inference from the failure of Mr. Laframboise to call his father to testify about the use of those funds.

[70] I conclude, on both the evidence of Ms. Tookenay and Mr. Laframboise, that the funds were used for ordinary family expenses to be drawn upon when their income was insufficient for their needs. Indeed, that is the only explanation for the living expenses set out in Mr. Laframboise's financial statement. Given the level of those expenses and his current income then the only explanation is that the annuity payments are used to pay his usual living expenses. That is especially so since the bank statement for that account indicates that the monthly deposits are offset by the truck payments and many email transfers. The only conclusion I can come to is that these email transfers are to pay Mr. Laframboise's ongoing living expenses.

[71] Given that the lump sums that Mr. Laframboise receives under the structured settlement annuity are to be excluded I conclude that it is appropriate to impute one half of the monthly annuity payments being received as income. I conclude that at least one half of the settlement would have been allocated to non-pecuniary general damages (pain and suffering). Since the lump sum payments totalling $145,000 are excluded and, further, since the funds were used from time to time for living expenses, I conclude that one half of the annuity is the appropriate amount to input as income.

[72] The current monthly payment under the annuity is $2,221.03 or $26,652.36 annually. 50% of that amount is $13,326.18. Since the annuity is received tax-free this sum must be grossed up for determination of the correct child support guideline amount.

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