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Legal test for imputation of income modified by the Alberta Court of Appeal

When discussing what income forms the basis of a party’s child or spousal support payments,  clients often raise concerns that their partner isn’t earning to their full potential. Sometimes, this is a result of decisions made during the relationship that one party is reluctant to change. Other times, one party may feel that the other person is earning less on purpose, especially if there is a decrease in their income after separation. So, what power does the court have to set a different income for a party – known as ‘imputing’ income?

What is imputing income?

Income is imputed to a person when a Court deems that party to have an income that is greater than what is reflected by their actual earnings. That person’s support obligations are then based on the imputed income. Imputing income is permitted under section 19 of the Federal Child Support Guidelines for a variety of specified reasons. One such reason is where a person is intentionally under-employed or unemployed (and the reduced employment is not because of certain specified reasons such as child-care needs or health or education needs of the party).   

Recently, the Alberta Court of Appeal has issued a long-awaited decision, Peters v. Atchooay (“Peters”) modifying the legal test for the imputation of income for parties who are intentionally under-employed or unemployed. Although this particular decision relates solely to the imputation of income for child support, it may well apply in cases where income is determined for spousal support purposes as well.

The old law with respect to the imputation of income

Prior to the decision of Peters v. Atchooay, this issue of imputing income was governed in Alberta by the decision of Hunt v. Smolis-Hunt (“Hunt”). Under Hunt, courts in Alberta were restricted to imputing income in circumstances where it could be shown that a parent was deliberately evading child support obligations through their choice of employment (or unemployment). This meant that, even in circumstances where a payor parent may have deliberately and dramatically reduced their income or made a significant shift in occupation to a less lucrative one, the court could only impute an income if there was evidence that the choice to do so was motivated by an intention to reduce their support obligations.

This was problematic for two reasons. First, it set a high legal bar for meeting the test to have a court impute an income for the payor parent. Second, this high legal threshold was borne by the recipient parent, who would not often have access to the information (ie. the intentions of the opposite party) necessary to satisfy the court that income should be imputed to the other parent.

The new law with respect to the imputation of income.

With Peters, the Alberta Court of Appeal has brought the law in Alberta in line with the rest of the country and modified the legal test parties must meet in order to have income imputed to the payor spouse.

Under Peters,a Court must apply a three-part test when determine whether to impute income to a party:  

1. Is the parent in question intentionally under-employed or unemployed?

This will be a factual determination aimed at determining whether a parent’s unemployment or under-employment is intentional or whether it arises from factors that are truly out of that party’s control, such as lay-offs, reduced hours, termination without cause etc.

Of note, the Court in Petersspecifically stated that a voluntary decision that results in a parent earning less income will not necessarily lead to the finding that they are under-employed.  Factors such as age or health may mean that present earning capacity is being met, even if it reflects a reduction from past earnings.

2. Do the exceptions listed in section 19(1)(a) of the Federal Child Support Guidelines apply?

If the Court concludes that a parent’s unemployment or under-employment is voluntary, the next question is whether the exceptions set out in section 19(1)(a) apply. The exceptions involve situations where reduced employment is required by any of the following:

  • The needs of a child of the marriage;
  • The needs of any minor child; or
  • The reasonable educational or health needs of the spouse [emphasis added].

If a Court determines that one (or more) of the exceptions apply, then the parent in question will not be considered under-employed or unemployed and income will not be imputed to that parent.

Each of the above exceptions will involve a fact specific determination. It is not simply a matter of showing that you have a minor child who has some “needs” since every minor child has needs. It would require showing to a Court that the needs of a minor child in the specific case are such that a parent cannot reasonably work at all or at a greater capacity than they are.

3. Should judicial discretion to impute income be exercised?

Where a court has determined that a spouse is intentionally under-employed or unemployed AND where the court has determined that none of the exceptions apply, they must still decide whether the circumstances are such that income should be imputed pursuant to section 19(1)(a). This determination will be based on whether the voluntary under-employment or unemployment is reasonable, having regard to all the circumstances.

Who has the onus of establishing that income should be imputed?

The Court in Petershas addressed one of the main concerns with the old Hunt test on imputation of income, namely that it placed the burden of demonstrating that the other parent was under-employed or unemployed for the purpose of avoiding their child support obligations on the recipient.

The Court in Peters determined the following with respect to which party bears the onus:

  • On an initial application for support, and assuming financial disclosure is complete, the party seeking an imputation of income will bear the initial burden of demonstrating that there is an evidentiary basis for the imputation sought. Where they do so, however, the onus then shifts to the party opposing imputation to defend the actual income claimed. This threshold will be a relatively low threshold to meet and may require no more than demonstrating that a payor parent has a dramatically reduced income from prior years.
  • On a variation application, the applicant will bear the onus of establishing the threshold requirement of a material change in circumstance. Once this hurdle is met, the onus is on the party opposing imputation of income to prove, on a balance of probabilities, that: (a) the underemployment or unemployment is not voluntary; or (b) if it is, that the circumstances fall within one of the three exceptions; or (c) if the under-employment or unemployment is voluntary and none of the exceptions apply, that the under-employment or unemployment is reasonable in the circumstances.

What are some of the principles or factors that will guide the Court in deciding whether to impute income to a party?  

The Court in Petersattempted to provide some additional guidance on the relevant factors to consider when determining imputation of income cases, some of which are below:  

  • A comparison between earning capacity and a party’s actual employment and income will be the starting point. Earning capacity will be determined based on a number of factors including: the parent’s qualifications (age, education, experience, skills and health) and other criteria including availability of work, choice to relocate and other obligations.
  • Determining whether a parent’s employment choices are reasonable does not mean that a parent will have income imputed to them whenever they fail to maximize their earning potential. Not every voluntary choice that results in a reduced income is unreasonable.
  • The Court will consider both the extent of the discrepancy between a parent’s earning capacity and their actual income, as well as how that discrepancy impacts the specific amount of child support in issue. A small reduction to an already modest child support obligation may be unreasonable but a larger reduction on an already significant support obligation that still ensures the child’s needs are met may be reasonable.
  • The effect on the child of the parent’s decision to change jobs will be considered – ie. is the income reduction done to achieve a longer term benefit for the family, both financial and otherwise.
  • A decision to change careers may be unreasonable if the likely financial benefits remain too far in the future.
  • A consideration of the post-separation parenting arrangement may mean that pre-separation income will not dictate the determination of reasonableness with respect to post-separation income decision.
  • If income is to be imputed, the amount of income selected must be grounded in some

objective evidence.

With Peters, the Court has adopted a legal test that prioritizes the paramountcy of a child’s right to support over the freedom of parents to choose one’s own career path, whatever the financial consequences may be. Ultimately, however, the decision to impute income to a party will remain a very fact specific analysis and much will depend on the careful consideration of all the circumstances.  If you would like to discuss how these factors apply to your specific situation, please contact us for a consultation.