Both the Family Law Act and the Divorce Act give the court the ability to make a onetime lump sum spousal support payment. Sometimes especially in high conflict cases, the court or the parties will agree that a lump sum payment rather than periodic monthly payments are the best alternative.
Examples of when this is called for is with a self-employed individual in whom proving their income and collecting support from them can be highly problematic.
However, lump sum support payments do not enjoy the tax treatment that periodic ones do. Periodic spousal support paid either pursuant to a court order or a written agreement is entitled to be deducted from the income of the payor and included in the taxable income of the recipient. Lump sum spousal support enjoys no such treatment. There is also the issue of present value. Present value is an actuarial term, which refers to the discount that should be applied to a lump sum payment. Simply put, it is the difference in the value of $10,000.00 paid to you all at once as opposed to receiving it gradually over a 10 year period.
In the recent Ontario Court of Appeal decision in Perri, the court rather mercilessly shot down almost all of the appellant’s requests to change a decision rendered at trial. However, the Ontario Court of Appeal did admonish the trial judge for not determining what tax rate should be applied as a deduction for the quantum of lump sum spousal support that was ordered. The Ontario Court of Appeal decided that the appropriate rate was the half way point between the two marginal rates of both the payor and recipient. Simply put, for every extra dollar the payor earned, he had to give the government 42% in tax. For every extra dollar the wife earned, she would have had to give the government 30% in tax. The court simply choose the half way point of 36% and as such that was the deduction from the lump sum payment ordered.
