Parenting

Alberta Court of Appeal Modernizes Principles of Imputing Income in Child Support Cases

December 6, 2022

Children in window representing child support in a divorce

One of the most complicated issues surrounding child support is imputing income. When a court “imputes” income to a payor parent, the judge attributes a certain income to that parent, even if that parent doesn’t actually earn that amount. A judge’s ability to impute income is enshrined in section 19(1)(a) of the Federal Child Support Guidelines, which state that income may be imputed to a parent who is “intentionally under-employed or unemployed”.

The fairness of imputing income to a parent who deliberately reduces their earning capacity to avoid or lessen their child support obligations is straightforward. However, the case law has been less certain when it comes to parents who may not have a settled intention to evade child support but, through their own decisions and conduct, fail to maximize their earning capacity.

This issue arose in the recent decision of the Alberta Court of Appeal in Peters v. Atchooay, in which the Court settled the question of the application of section 19(1)(a) to a parent whose actions have decreased their ability to pay child support as ordered.

Review of imputation principles arose from case involving $122,000 in unpaid child support

The common-law couple in Peters v. Atchooay had their first child together when the mother was 16 years old and the father was 21. They would go on to have a second child before separating in 2013. In 2014, the father was ordered to begin paying monthly child support. The rate was calculated using the income listed in his 2012 tax return, as it was the only financial documentation available.

Between 2014 and 2020, the father accumulated $122,000 in unpaid child support. In 2021, he applied to the Court to have the original child support order re-evaluated and retroactively reduced. In support of his application, the father provided his tax returns from 2014 to 2018 and argued that his actual income was significantly less than in 2012, the year used to set the original amount of child support.

Father’s child support arrears substantially reduced retroactively by special chambers judge

In the initial application, the special chambers judge used the father’s reported income and income imputed to him from 2015 to 2020 to recalculate the amount of child support owing by the father. The judge found that the father had demonstrated that he had suffered a material change in circumstances warranting this reduction, namely that he had had several financial setbacks over the previous years. As a result, the special chambers judge retroactively reduced the amount of child support owing back to 2015, lowering the total amount of arrears to $43,111.

The mother appealed the decision to the Court of Appeal for Alberta.

Court of Appeal acknowledged leading Alberta case on imputation of income was outdated

A central issue before the Court of Appeal was the imputation of income under section 19(1)(a) of the Federal Child Support Guidelines. The leading case in Alberta, Hunt v. Smolis-Hunt, states that the application of section 19(1)(a) must be limited to situations where a parent intentionally tries to evade their child support obligations by choosing to live a particular lifestyle or be under-employed or unemployed. As noted by the Court of Appeal in the Peters decision, all other provinces in Canada use a test of reasonableness: i.e., in the circumstances, what amount of child support is it reasonable to expect the payor parent to have the capacity to pay? Then, courts consider whether that amount is below what the payor parent is paying. If so, it may point to the payor parent being under-employed, regardless of whether they had a deliberate intention to evade their child support obligations.

The Court acknowledged that family law in Alberta has changed significantly since the Smolis-Hunt decision was released in 2001. The approach used to impute income in Smolis-Hunt has been rejected by other Canadian appellate courts and, the Court found, flies in the face of a modern understanding of the best interests of the child.

Historical decrease in income not enough to justify reduction of child support

The Court of Appeal explained that to reduce his child support obligations, the father was required to demonstrate that there had been a material change in his circumstances over the years that impacted his income. However, the Court cautioned, a “historical decrease” in income alone does not constitute a material change in circumstances.

The Court further stated that the drop in income must be due to circumstances beyond the payor parent’s control. In this case, the father’s reasons only “inferentially explained” his six-year period of underemployment. For example, the father asserted he suffered from addiction and mental health issues that reduced his earning capacity but provided no medical evidence supporting this argument.

Parents cannot use “eventual, late disclosure” of finances to prove change in circumstances

Further on the topic of establishing a material change in circumstances, the Court noted the special chambers judge’s finding that the father had failed to provide ongoing financial disclosure regarding his “changing financial situation” to the mother over the years. Given the critical role of timely financial disclosure in child support matters, the Court of Appeal held that a payor parent could not use “eventual, late disclosure” of their finances to establish a material change in circumstances. As a result, the Court found that the special chambers judge should have dismissed the father’s application for its failure to demonstrate a material change in circumstances warranting a revision of the child support order.

The Court of Appeal also touched on the issue of retroactively reducing a child support order. Even if the father had demonstrated a material change in circumstances warranting a reduction, the Court found that support should only be reduced to the date of “effective and formal notice” of the change. In this case, that would have been 2021 at the earliest and not 2015.

Peters v. Atchooay settles conflicting application of imputation laws

The Peters v. Atchooay case marks an essential change to the laws of Alberta regarding the imputation of income to payor parents under section 19(1)(a) of the Federal Child Support Guidelines. It effectively overturns the Smolis-Hunt decision, which required “evidence of an intention to evade or undermine child support obligations through under-employment or unemployment”.

Under Peters, income can be imputed simply where the payor parent has failed to maximize their earning capacity through their own intentional decisions or conduct. As noted by the Court of Appeal, this standard adds an element of reasonableness that is in line with the overarching priority of the best interests of the child, as served by child support.

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