10 years following a divorce, my ex who is still paying spousal support has earned a large sum of money by exercising stock options. Am I entitled to some of this money?
Asked about 1 month ago in Haliburton, Ontario
Categories: Family Law
As you may have surmised, your question about spousal support and stock options does not have a simple answer. But, it does highlight many aspects of spousal support that are frequently misunderstood.
To determine whether you are entitled to spousal support based on your spouse’s stock options, it is necessary to go over the basics of the law of spousal support.
Spousal Support is not like child support. While there are Spousal Support Advisory Guidelines, they are very different from the Child Support Guidelines in many ways. A couple of those differences are that:
1. Spouses are not automatically entitled to spousal support the way that children, through their parents are automatically entitled to child support. Entitlement to spousal support, can be complicated issue, which is discussed in this podcast episode. Even if a person meets the definition of “spouse” under the Divorce Act or Family Law Act, that person may still not be entitled to support.
2. Spousal support is not just based on income. The factors that decide whether a spouse is entitled to support also influence how much spousal support to which a spouse may be entitled and for how long. It is not just a question of looking at table and seeing the amount of support payable for the spouse’s income, which is how child support works. The Spousal Support Advisory Guidelines produce a range of figures for support and range of time for how long support should be paid. How much and how long are determined by looking at the factors influencing entitlement. And, if a spouse does not meet the legal tests for entitlement, the calculated figures mean nothing as the proper amount of support is $0.
3. Unless required by a court order or separation agreement, spousal support does not automatically change, even when the spouses financial situations’ change.
The factors that determine entitlement to spousal support are set out in section 15.2(6) of the Divorce Act (for married spouses) and section 33(9) of the Family Law Act (for common law spouses). These are set out in some detail the podcast. But, to summarize, While the wording is quite different, spousal support under either piece of legislation can be based on one or more of three bases for spousal support (sometimes called types of support):
1. Compensatory Support – support that is designed to compensate a spouse for the services provided during the marriage/relationship and the income or other wealth that a spouse gave up for the marriage/relationship (e.g. leaving a job to look after the kids and the spouse).
2. Non-Compensatory Support – support that is designed to give a “soft-landing” when a spouse will not be able to maintain the same lifestyle after a short marriage/relationship, or try to maintain the lifestyle after a long marriage or relationship.
3. Contractual Support – where the parties agree that a certain amount of spousal support ought to be paid for a period of time. This is usually set out in a marriage contract or cohabitation agreement. However, spouses who do not fully understand entitlement do may obligation themselves to pay spousal support in a separation agreement that they would not otherwise have to pay because their spouse does not meet the test for entitlement.
All of this matters because, as noted above, spousal support does not automatically change with a support payer’s income. In some cases, changes to support will not be permitted by the support order or separation agreement.
Even where a support order or agreement does permit a change in support, the support recipient must establish that he or she is entitled to an increase in spousal support. Such an increase is based on two sets of factors:
1. There is link between the increase in the support payer’s income and the marriage or relationship, and
2. There is an entitlement to increased support based on the three bases set out above.
The issue of stock options highlights the first factor.
Stock options are performance incentives that are tied to the performance of the employee’s company. Instead of being paid entirely by salary, the employee “earns” the right to buy shares in the company at a certain price. If the company does well, then the employee can later buy the shares at a price that is less than they are worth and sell that at some point for a profit. The income that an employee earns through stock options appears on that employee’s tax return at the time he or she sells the stocks, not at the time he or she earns the options. In addition, it usually appears as a taxable capital gain rather than a salary. (True stock options will always show up as a capital gain).
When calculating support, good family lawyers, know that stock options income should be included in income for calculating support at the time the support payer earns the options and not when the support payer sells the stock and pays the tax. The support payer may never sell the stock and may pass it onto heirs. Calculating what income should be used when stock options are an issue is unbelievably complicated and anyone who has a stock option issue in his or her divorce or separation needs to speak to a lawyer who knows about them.
If the stock option income was included in the calculation of your spousal support, then the cashing in of the stock options should not affect your spousal support because it was already factored in to the amount you receive.
If the stock option income was not included in the calculation of your spousal support, then when your ex earned those options is very important:
· If your ex earned the options during your relationship, then they will be linked to your relationship and that gives you a basis to ask to share in the increased income.
· If your ex earned the options after your relationship for work he did after your relationship that was not linked to your relationship, then you probably have not claim to additional spousal support.
· If your ex earned the options after your relationship for work he did after your relationship, but that work is related to the relationship (e.g. your spouse was promoted to the job while you were still together, your spouse was able to do the work because you looked after him or her during the relationship) then you may be able to claim additional support.
But, even if the options are linked to your relationship, to get increased support, you will still have to establish that there are compensatory grounds (you have not been fully compensated for your sacrifices during the marriage), non-compensatory grounds (you are struggling financially) or contractual grounds (you and your ex agreed to the additional support).
Clearly, the situation of stock options and support is complicated and even more complicated when discussing post-separation increased in income. It is similar for most deferred compensation employee incentive plans. So, it really is important that you get legal advice specific to your situation to make sure your support arrangements are right.
You can get a lot more information about Ontario Family Law issues, including a comprehensive explanation of child support, spousal support, property division, and most other common family law issues by downloading this $9.99 Kindle eBook, Kobo eBook, or iBook for your iPad or iPhone or ordering it from Amazon as a paperback.
Posted about 1 month ago
John Schuman is a Certified Specialist in Family Law. He is the partner managing the Family Law Group at Devry Smith Frank LLP, a full service law firm located near Eglinton and the Don Valley Parkway in Toronto. Learn more about John! Call him at 416-446-5080 or 416-446-5847 or email firstname.lastname@example.org Listen to the Ontario Family Law Podcast!
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