In recent months, inflation has been a prevalent topic of conversation. Inflation comes with increased expenses resulting in a higher cost of living for many. When a person is the recipient of spousal support payments, inflation may amount to a financial loss as the purchasing power of such payments is reduced, which can strain one’s personal finances.
For this reason, courts may index spousal support payment awards so that the payment amount may be increased annually to account for inflation and a higher cost of living. However, in the absence of an indexation clause in a final order, can the impact of inflation constitute a material change in circumstances allowing a party to pursue a variation in support terms?
Section 34 of the Family Law Act provides for the indexing of support payments, stating that a court may allow the amount payable to be increased annually in accordance with the percentage change in the Consumer Price Index as published by Statistics Canada.
Indexing falls within a judge’s discretion, though courts have found that it is appropriate that spousal support be indexed annually to the cost of living, such as in the case of Mieklejohn v. Miekeljohn. In Linton v. Linton, the Ontario Court of Appeal considered whether the trial judge was entitled to index the support order. The Court found that indexation linked to inflation “resulted in no profit to the wife; it simply avoided a loss caused directly by inflation.” The Court also identified two objectives of indexation. First, it insulates the payee from the erosion of the support entitlement through inflation, resulting in a continuation of support in constant dollars. It also avoids additional variation proceedings.
The impact of inflation on a recipient’s cost of living, in the absence of a cost of living allowance, was considered in Hickey v. Hickey. Justice L’Heureux-Dube explained that the absence of a cost of living allowance clause in the original order was not a sufficient reason to find that the effect of inflation was not a material change in circumstances. Her Honour wrote that “if it were, it would never be possible for inflation to form the basis for a variation of a spousal support order.”
Even if inflation might be foreseeable, it does not mean that the parties necessarily contemplated it. In this case, the decreased purchasing power of the support payments, which occurred due to the rising cost of living after the support order, resulted in a material change that affected the value of the payments received by the support recipient.
Nault v. Nault dealt with a motion brought by the respondent under section 37 of the Family Law Act to amend a final spousal support order. The applicant opposed any change in the terms of the existing order, arguing that there had been no material change in circumstances which would warrant a retroactive or a prospective adjustment of the spousal support provisions. However, the respondent pointed to two grounds where a material change was alleged to have occurred: an increase in the respondent’s annual income and an increase in the cost of her day-to-day expenses.
The existing spousal support order was not subject to indexing. This left the Court to consider whether the cumulative effect of inflation on the respondent’s living expenses could constitute a material change which would justify a variation in support.
In Winsor v. Winsor, the Ontario Court of Appeal found that inflation had seriously eroded the amount of support the wife was receiving and that cumulatively it amounted to a significant change in circumstances. Both Winsor v. Winsor and Hickey v. Hickey were decided prior to the introduction of the Spousal Support Advisory Guidelines (the “Guidelines”). While both cases accepted that inflation by itself could constitute a material change in circumstances, Justice Bale noted that the Court could compare the spousal support provisions made in 2013 against the ranges recommended today by the Guidelines. This consideration led the Court to determine that the 2013 spousal support award was insufficient to meet the respondent’s needs in the current financial climate.
After assessing the Consumer Price Index against the Guidelines, Justice Bale explained that the quantum of support payable without indexing at the time of the final order was presumptively correct and met the objectives of spousal support. However, the amount of spousal support which was being paid fell below the range of support that is recommended by the Guidelines.
The Court acknowledged that Canada had been experiencing inflation at a level that has not been seen in decades. Further, the respondent’s Ontario Disability Support Payments had not kept pace with those changes. However, the applicant’s employment income had increased in accordance with such.
The impact of inflation since 2013 was “neither a major change, nor a trivial matter.” Yet, in the context of the respondent’s limited budget it was material. Consequently, the respondent’s financial challenges and the effect of inflation constituted a material change in circumstances that impacted her need for spousal support. Here, it was appropriate to vary the terms of the final order to reflect an increase in the respondent’s cost of living, with the order being varied to include an indexing clause requiring support to be increased annually according to the Consumer Price Index.
At NULaw, our trusted family law lawyers understand that divorce and separation can be contentious and emotional times in both party’s lives. Our family law team provides support to clients throughout the whole process. We provide clients with honest advice to ensure that they are equipped with sufficient information to help them make the best decisions for their future, particularly regarding support payments. To speak with a lawyer regarding your support claim, or if you have questions regarding a variation of an existing support order, contact us online or by telephone at 416-481-5604.