Lump-sum spousal support payment in the context of settlement structure, bankruptcy and variation discussed in recent case
By: Philip Epstein
Equalization Payment Disguised as Support Enforcement Issues
Korn v. Korn, 2016 CarswellOnt 437 (Ont. S.C.J.) - W. Matheson J. The parties, in mediation, signed minutes of settlement providing that the husband would pay $3.6 million to the wife in four instalments. The minutes of settlement describe the $3.6 million as settlement of all claims, but also described them as support payments and enforceable as spousal support.
In the separation agreement, there was not an immediate release of spousal support rights but the agreement provided that spousal support would be released upon the $3.6 million being paid.
The ultimate support order also provided that the support payments referred to, i.e. the $3.6 million, were to be secured by a second mortgage.
The husband made the first two instalment payments but defaulted on the balance of $1.67 million. The husband’s business had failed and he had been unable to make the balance of the payments.
Thus, the parties entered into an amending agreement thereby reducing the amount, but the amending agreement still contained the clause that all of the payment terms would be enforceable as lump-sum spousal support.
The amending agreement was in 2011. In 2014, the husband filed for personal bankruptcy.
The FRO moved in and sought to suspend the husband’s driver’s license for nonpayment of the “support”.
The wife had taken the position with the husband’s bankruptcy trustee that the outstanding monies owing to her were support and, therefore, survived bankruptcy.
The trustee agreed and the Family Responsibility Office [FRO] continued to attempt to enforce.
The husband moved to vary the “support” based on his significant change in circumstances, but the wife took the position that section 17 of the Divorce Act was not available to the husband to seek a change in support because it was a combined property and support order.
Justice Matheson noted that the agreed amount of $3.6 million was a settlement of all claims, but was not broken down and there was no way to determine how much was property and how much was support. This fact alone, says the wife, makes section 17 unavailable to the husband.
As Justice Matheson notes: “a consent order arising from a separation agreement is open to variation in the event of a material change.” See Pustai v. Pustai, 47 R.F.L. (7th) 56 (Ont. C.A.).
The parties characterized the lump sum of $3.6 million as spousal support and the wife had argued with the trustee that, therefore, the claim survived the bankruptcy. Further, she submitted her claim to the FRO for the entire amount and sought enforcement.
Justice Matheson makes the clear finding that the wife treated this claim as support and took steps to enforce it as support and tried to keep it exempt from the bankruptcy. Having done that, it is not open to her to argue that the amount cannot be varied under section 17 of the Divorce Act.
It will now be the task of the trial judge on the variation application to determine how much of the outstanding amount owing relates to support and how much relates to property since, obviously, only the support part can be varied.
This is an important case to remind us that it is important to show how the settlement is structured. I can understand why counsel would want to designate the lump-sum payment as spousal support in order that it survive a bankruptcy, but the consequence of that is that the amount can then be varied pursuant to section 17 of the Divorce Act. If the parties intend that the lump sum is not to be variable, they will have to make considerable efforts in the agreement to try to insulate the agreement from a court review. Given recent case law, it is likely never possible to oust the jurisdiction of the court with respect to the right to vary, if indeed there is a support component to the settlement.