RRSP withdrawals included in spouse’s presumptive income for interim support purposes in recent decision.
By: Philip Epstein
Interim Child and Spousal Support - Gifts Imputed as Income - RRSP Withdrawals Included in Income - Increase in Capital from Trading Securities not Included in Income
Horowitz v. Nightingale, 2015 CarswellOnt 204 (Ont. S.C.J.):
This was a motion for interim child and spousal support and was heard by Justice Douglas of the Ontario Superior Court of Justice. This was a 16-year marriage with three children all with special needs. There was a serious dispute about the husband’s income. In particular, the wife raised the issue of gifts from the husband’s family, significant withdrawals from his RRSP and significant increases in his capital as a result of the husband’s day trading in marketable securities.
The wife argued that the husband had considerable income from these various sources, and the husband argued that the family had lived on consuming capital, incurring debt and occasional gifts from his family. Justice Douglas reminds us that the significance of the various factors raised by the parties will all vary from case to case. He does, however, repeat the principals governing interim support set out in Driscoll v. Driscoll, 2009 CarswellOnt 7393 (Ont. S.C.J.), a decision of Justice Gordon Lemon. Those principals are worth repeating and are as follows:
1. On applications for interim support the Applicant’s needs and the Respondent’s ability to pay assume greater significance;
2. An interim support order should be sufficient to allow the Applicant to continue living at the same standard of living enjoyed prior to separation if the payor’s ability to pay warrants it;
3. On interim support applications the court does not embark on an in depth analysis of the parties’ circumstances which is better left to trial. The court achieves rough justice at best;
4. The courts should not unduly emphasize any one of the statutory considerations above others;
5. On interim applications the need to achieve economic self-sufficiency is often of less significance;
6. Interim support should be ordered within the range suggested by the spousal support advisory guidelines unless exceptional circumstances indicate otherwise;
7. Interim support should only be ordered where it can be said a prima facie case for entitlement has been made out; and
8. Where there is a need to resolve contested issues of fact, especially those connected with a threshold issue, such as entitlement, it becomes less advisable to order interim support.
The husband received significant gifts from his parents, who were wealthy. The husband’s evidence was that he received gifts, but they were not regular and they were not as much as the wife suggested. Justice Douglas was alive to the fact that, for child support purposes, gifts are not included in a spouse’s presumptive income under section 16 of the Guidelines. However, section 19(1) of the Guidelines gives the court the discretion to impute income as the court considers appropriate. This led, of course, to a brief review of Bak v. Dobell, 38 R.F.L. (6th) 7 (Ont. C.A.), where the Court of Appeal noted:
Since the legislature did not include gifts within the ambit of imputed income, it can be presumed, in the normal course, that the legislature did not intend the receipt of gifts to be “appropriate circumstances” in which to impute income. For this reason, usual gifts such as those given to mark a special occasion are not included as income . . .
Although it seems the legislature intentionally did not include the receipt of gifts given in the normal course in presumptive income, or as an example of an appropriate circumstances under s. 19(1), a court will consider whether the circumstances surrounding the particular gift are so unusual that they constitute an “appropriate circumstance” in which to impute income.
Having reviewed the factors in Bak v. Dovell and, in particular, the fact that the gifts were regular, Justice Douglas found that the sum of $50,000 per year grossed up ought to be imputed because the husband has received at least that amount regularly for the last eight years and used every dollar received from the family for family purposes. There was evidence that the gifts were likely to continue and there were sufficient factors that arise from the principles in Bak that it was safe to impute income at this stage.
The husband was actively trading in his RRSP account and took regular withdrawals from that account over the past six years. In particular, he drew $1.7 million from his RRSP account in 2014.
This leads Justice Douglas to a review of cases about whether RRSP withdrawals should constitute income. Readers may remember that I took some issue with the Court of Appeal’s comments in Fraser v. Fraser, 40 R.F.L. (7th) 311 (Ont. C.A.), that RRSP income was presumptively part of a spouse’s income for child and support purposes. While I noted that the issue was raised in Fraser, I am advised that it was not argued by counsel and I questioned the correctness of that decision.
Subsequently, the Court of Appeal for Ontario revisited this issue again in Ludmer v. Ludmer, 52 R.F.L. (7th) 17 (Ont. C.A.), where they adjusted their decision in Fraser and made it clear that the inclusion of RRSP proceeds in income is not mandatory, but rather the court has the discretion in the appropriate circumstances to do otherwise. As Justice Douglas notes, where RRSP income was received on a one-time basis for a specific purpose, it should not be included in the spouse’s income for the purposes of child support. See Foley v. Weaver, 2010 CarswellOnt 4560 (Ont. S.C.J.).
Having reviewed the additional cases such as Stevens v. Boulerice, 49 R.F.L. (4th) 425 (Ont. S.C.J.), Justice Douglas concluded that additional income of $93,744 ought to be included in the husband’s income for child support purposes because:
(a) the RRSP income was presumptively part of the calculation under 17(1) of the Guidelines;
(b) the sum of $93,744 represents the average of RRSP withdrawals in the last three years;
(c) the substantial withdrawal in 2014 was a one time withdrawal for a specific purpose and including it in the husband’s income would unfairly distort his actual income and his support obligations and that this situation is distinguishable from Fraser; and,
(d) arguing that the RRSP withdrawals is double dipping is premature and that issue can be dealt with by the trial judge.
The wife was not done yet and now argued that an increase in value in the husband’s investments should be included as income. That is, his investment portfolio has increased substantially and the wife says that that increase should be added to his income. The wife relied on R. (C.M.M.) v. R. (R.W.A.), 15 R.F.L. (7th) 72 (N.B. Q.B.) [R.C.M.M.]. That case is, however, clearly distinguishable. However, in R.C.M.M., the Court did impute five per cent of the value of the husband’s investment portfolio as income and that is not an uncommon practice. See LeVan v. LeVan, 51 R.F.L. (6th) 237 (Ont. C.A.).
Justice Douglas did not impute additional income from increases in the husband’s investments at this stage because there was insufficient evidence to make that assessment at this point. There was no presumption that such increases in value ought to be included in income under the Guidelines. The husband’s investments represent capital and capital is expected to yield a return in a reasonable amount, but the evidence, at this stage, was unclear as to that amount. However, Justice Douglas did find that, while the increases in the value of the husband’s investments should not be used in determining his income at this time, the fact that he had vastly superior resources ought to be considered in determining who is in the better position to maintain payments regarding the matrimonial home, mortgage and taxes.
Justice Douglas then carefully examined the husband’s law practice income and then applied the mid-range of the Guidelines for both child and spousal support and required the husband to maintain mortgage and real property tax payments on the home.
It is now abundantly clear that RRSP withdrawals are potentially going to factor into income, notwithstanding the fact that they are also treated as property. Clients need to be advised of the potential impact of a withdrawal of an RRSP, not only on their income tax position, but now on their obligations for child and spousal support. The law is not as harsh as it seemed when Fraser was decided, but now, depending on how many withdrawals there are and what the RRSP funds are used for, these withdrawals may have significant spousal and child support implications.