COVID-19: Implications for Family Law Matters – Income for Support

This is the sixth blog in Davis Martindale’s “Covid-19 Mini Series”.

In our previous Covid-19 blogs, we discussed:

• the timeline of the build up to the current social distancing measures;
• use of hindsight in valuation – whether knowledge of the economic impact of Covid-19 can be incorporated into a value determination;
• potential Covid-19 disclosures, and reporting options that you may see in valuation reports;
• impact of forecasting the recovery on valuations; and
• valuation techniques.

In this blog, we discuss support obligations in the context of Covid-19

As local communities respond to the COVID-19 pandemic, there has been increasing demand from Federal and Provincial Governments to provide financial relief for Canadian citizens, businesses, and non-profits. On March 18, 2020 and subsequently, the Government of Canada has announced a series of measures designed to support these stakeholder groups – including temporary wage subsidies, small business financing, special GST credits, and deferral of tax payments, among others.

Despite the efforts by the Federal and Provincial Governments, over one million Canadians lost their jobs in March, a trend that is forecasted to worsen in April[1]. Moreover, changes to an individual or household’s financial circumstance may be magnified within the context of a relationship breakdown. This is particularly the case with respect to child and spousal support obligations.

Support Obligations and COVID-19

Individuals with a court order to pay child and/or spousal support may be expected to continue payments, regardless of whether COVID-19 has affected their ability to earn income[2].  Under normal circumstances, individuals who are unable to afford child or spousal support obligations may request relief from the Courts through a motion to change – referred to as a “change of circumstance”[3].

Unfortunately, on March 17, 2020, the Superior Court of Justice suspended all regular operations; including all non-urgent criminal, family, and civil matters – and a motion to change may not be deemed an urgent matter. Therefore, support payors may need to wait for the Court to resume their normal operations before they are able to file for a change of circumstance.

Impact on Employees

Employees across all sectors and professions are facing job losses, temporary layoffs, and reduced shifts in response to the COVID-19 pandemic. Understandably, this presents a challenge for individuals and households required to make support payments.

In such circumstances, support payors have a few options available to them – they may be able to contact their ex-spouse and explain the situation, they may be able to pay a portion of the support from their savings, or offer to pay the balance once they return to work[4]. In addition, support payors may be able to mitigate their loss of income by seeking alternative employment, and/or taking advantage of various benefits available to them – including the Canada Emergency Response Benefit, and Employment Insurance.

Impact on Entrepreneurs

Self-employed individuals may experience different challenges altogether. Declining sales may lead to reduced profits and cash flow concerns. Even if a business remains profitable during the pandemic, cash flow concerns may persist. For example, a business owner may have trouble collecting accounts receivables. In this case, even though the business is profitable, the owner may not have the funds available to draw from the business.

Additionally, Income for Support Reports prepared by Chartered Business Valuators (“CBVs”), on a prospective basis, may need to be re-considered to determine if Covid-19 has impacted the income available from a corporation.

Similar to employees, self-employed individuals may be required to take similar measures to mitigate their loss of income. Fortunately, the Federal and Provincial Governments have rolled out a series of measures to help businesses during these difficult times.

A summary of Covid-19 financial relief available for Canadian individuals, businesses, charities and non-profits can be found on our website here.

Final Thoughts

Individuals and households facing a decline in their financial circumstances amidst the COVID-19 pandemic would be wise to respond to the impact quickly, and diligently. In the interim, support payors may be required to take steps to mitigate their loss of income by seeking alternative employment, and/or taking advantage of the various government programs available to them. In doing so, they may demonstrate they were acting prudently, and in good faith. Documentation of all steps taken will likely be an important evidentiary tool in the event of a dispute over the change of circumstance.

If you would like a further discussion on any of the topics covered in our mini series, please do not hesitate to call our team. 

Information Sources:

[1] https://nationalpost.com/pmn/news-pmn/canada-news-pmn/newsalert-canada-lost-1011000-jobs-in-march-unemployment-rate-rises-to-7-8

[2] https://stepstojustice.ca/questions/family-law/place-where-i-work-closed-because-covid-19-and-i-have-no-work-i-don%E2%80%99t-have

[3] https://business.financialpost.com/personal-finance/hardship-due-to-covid-19-may-be-cause-to-have-spousal-support-payments-reduced

[4] Ibid.