A CAVEAT FOR GENEROUS PARENTS
There are cases when adult children could pay a price, Laurie H. Pawlitza writes.
Parents do what they can to help their children. It is now common for children of parents with means to be gifted a down payment for a house or to receive regular cash gifts to supplement their family income.
But if parents consistently support a child and his or her family and improve the family’s lifestyle, what happens when the adult child separates from her spouse?
The Ontario Court of Appeal has twice considered the effect of a parent’s largesse on the adult child’s own child and spousal support obligations — and came to two different conclusions.
In 2015, Bak vs. Dobell considered the case of a 41-year-old husband with serious mental health issues, who was unable to become self-sufficient. The husband had a 13-year-old daughter for whom he paid nominal support. Over a number of years, the husband had received generous gifts from his own father for career training and a home. The value of the gifts exceeded $300,000. The husband also received a monthly allowance from his father of $1,700, which made up the vast majority of his monthly income.
The child’s mother asked the court to impute an income based on the husband’s average lifestyle, so that he would be required to pay more child support. Alternatively, she asked that the husband’s gifts be valued and imputed as part of his income for support purposes.
The Court of Appeal reviewed the Child Support Guidelines, which govern child support arrangements throughout Canada. They have as their objective the establishment of a fair standard of support to allow children to benefit from the means of both spouses after separation. The guidelines also aim to reduce conflict, improve efficiency and ensure consistent treatment of spouses and children in similar circumstances by making the calculation of child support more objective. The guidelines begin with the presumption that all payor parents with the same income will pay the same amount of child support.
In deciding whether the husband’s gifts should form part of his income for child support purposes, the court recognized that under the guidelines, a payor’s presumptive income is on the “total income” line item on his tax return. That line item only reflects income that is subject to tax. “It follows that gifts and lifestyle are not included in a payor’s presumptive income because neither is subject to taxation,” the court observed.
The court went on, however, to review Section 19 of the guidelines, which allows income to be imputed to the payor over and above his presumptive income. The circumstances include if a spouse can earn income but refuses to do so, if he or she fails to provide the proper financial disclosure or if there is income received by the payor that is subject to anomalous tax treatment.
The court did not, however, rule out a circumstance where gifts could form part of income on which support is calculated, saying instead that this was “fact specific.”
The court went on to list a number of facts that could be taken into consideration, including the regularity of the gifts, the duration of their receipt, whether they were received during cohabitation and entrenched a particular lifestyle for the family, and whether the gifts did more than provide a basic standard of living. The court also suggested taking into account whether the gifts were intended to support an adult child through a crisis or disability, whether they continued after separation and appeared likely to continue and how they fit in the context of the payor’s entire income.
Ultimately, in Bak, the Court of Appeal decided that the husband did not have to include his father’s gifts in income, as the husband was unable to support himself without the assistance from his father.
Just a month after Bak vs. Dobell was released, the Court was again faced with a similar issue in Korman vs. Korman. In deciding whether the husband should be imputed with the $50,000 that had been given to him annually and used by him to enhance the family’s lifestyle, the court applied the Bak factors.
In Korman, the court recognized that there had been a settled pattern of monetary gifts to the husband over many years, which maintained the family’s lifestyle and financed specific family expenditures, including the husband’s various business ventures and the children’s private school and camp. In total, over the 10 years preceding separation, the gifts totalled about $1,000,000. They also continued after separation.
While the court recognized that the husband’s parents had no obligation to continue to make these gifts in the future, the court upheld the trial judge’s decision that the gifts reflected the husband’s actual past revenues and likely, his future financial position. Appropriately, the court also acknowledged that if these gifts ended, the husband could always move to vary the amount of support payable.
Generous parents should take note.