Hardship due to COVID-19 may be cause to have spousal support payments reduced

The impact of COVID-19 is unquestionably far-reaching. For many individuals, the financial implications are particularly acute. Nearly one million Canadians applied for unemployment benefits in the latter half of March. Untold others have experienced a dramatic decline in the value of their savings and business interests.

Changes in an individual’s financial circumstances will be magnified in the context of the breakdown of a relationship. That is particularly the case with respect to an individual’s support obligation (or entitlement to support) and the division of property.

The loss of employment or reduction of income will likely trigger a support payor’s immediate need to change an existing support regime. Market forces, such as the COVID-19 pandemic, should create a solid underpinning for a claim to reduce support. Of course, we are in the nascent stages of the economic downturn and it remains to be seen how judges will account for the current market circumstances in adjusting support.

Under the Federal Divorce Act, an existing child support obligation may be varied in the event of a “change of circumstances” since the making of the child support order. Similarly, a spousal support order may be changed in the event a “change in the condition, means, needs or other circumstances of either former spouse has occurred since the making of the spousal support order.” A loss of employment due to the COVID-19 pandemic ought to be a sufficient change in circumstances that will give rise to variation of an existing support obligation.

For many separated spouses, their support obligations are set out in a separation agreement, rather than a court order. Many such agreements contain a material change clause which permit the former spouses to review the support arrangements in the event of a material change in circumstances. Those agreements often contain a prescribed protocol for the review of child support and/or spousal support. A support payor, and recipient for that matter, would be wise to review their separation agreement to understand the review thresholds and protocols contained therein.

In any event, support payors ought to address the issue of support as soon as a change in their income is known. In so doing, support payors will need to show that their loss of income is unintentional and beyond their control. Further, support payors ought to take steps to mitigate their loss of income by seeking alternate employment and taking advantage of the various benefits that may be available to them, including, for example, the Canada Emergency Response Benefit and Employment Insurance. Documentation of all steps taken will likely be an important evidentiary tool in the event of a dispute over the change to support.

Perhaps the more vexing family law issue arising from COVID-19 is the impact of a sharp decline in the value of assets following separation. In most Canadian provinces and territories, married spouses share the increase in their net worth from the date of marriage to the date of separation. Broadly stated, and with some exceptions, the spouse who accumulated more during the marriage owes the other spouse one-half of the difference between them. The amount owed, or equalization payment, crystallizes on the date of separation.

But what happens if an equalized asset declines in value after separation, but before the property issues are resolved between the separated spouses? For a jointly owned asset, the answer is simple: both parties participate in the decline. For a solely owned asset, however, the answer is not as straightforward. In order for the non-owner spouse to have exposure to post-separation fluctuations in market conditions, recourse must be had to legislative provisions which permit an unequal division of property. For example, section 5(6) of Ontario’s Family Law Act permits unequal division of property in exceptional circumstances.

The threshold for unequal division of property is, however, very high. According to the Court of Appeal for Ontario, to “cross the threshold, an equal division of net family properties in the circumstances must shock the conscience of the court.”

In the economic downturn of 2008, this provision was successfully applied to ensure one spouse was not left shouldering the entirety of the post-separation decline in value of the asset. In the leading case on this issue, due to the post-separation decline in the husband’s textile business, an equal division of property would have required the husband to pay the wife an amount that exceeded his entire net worth at the time of trial.

Individuals experiencing a decline in their financial circumstances in the COVID-19 pandemic would be wise to quickly understand and address the impact of such a change on their family law matters. Former spouses should, at a minimum, keep the following in mind: 1) taking steps quickly to address support issues is key, and 2) caution must be exercised in structuring a property settlement at this time given the uncertain market conditions and the extent to which those conditions may cause the value of an asset to decline even further.

This article originally appeared in the National Post.