Divorce can result in battles over spousal agreements

A battle between Rudy Giuliani and one of his ex-wives has cast a spotlight on an issue affecting a growing number of Canadians.

The former New York City mayor’s efforts to cut spousal support to one of his ex-wives because his income shrunk this year has sparked some interest among older divorcees facing similar battles, says a Toronto family lawyer.

“I think this is becoming a pervasive issue as we see things like grey divorces,” says Diana Isaac of the Shulman Law Firm.

Read: For seniors, divorce can mean emotional but not financial freedom

Celebrities, athletes and well-paid professionals who end longstanding marriages often face obligations to pay significant sums to their former spouses. Spousal support—distinct from child support—is most likely to be paid when there is a large discrepancy between the spouses’ incomes after they separate and if one spouse is the primary caregiver of young children.

As incomes change, pressure can mount to alter those agreements.

Read: Divorce negotiation strategies to protect your clients’ wealth

However, changing spousal support isn’t just done on a whim. Courts only entertain alterations if the change in income—either higher or lower—is so significant and unforeseen that would make the original order unfair or unreasonable, Isaac said.

Particulars about the relationship are considered: Did one spouse not work because they stayed home to care for the children or household? How long was the marriage? Was that spouse’s earning power affected because they were out of the job market for many years?

The main reasons for seeking a change in spousal support include a large increase in an ex-spouse’s income; one of the parties being forced into early retirement; bankruptcy; and when one enters into a new relationship with support obligations to a new partner and/or children.

Some agreements have terms while others only end at death.

A couple married for 30 years where one person is highly dependent on the breadwinner likely wouldn’t see spousal support terminated because the prospect of them becoming economically self-sufficient in their 50s is remote, she said.

With more people marrying at an older age after accumulating their own assets, prenuptial agreements or marriage contracts are often entered into regardless of gender, Isaac said.

One Canadian woman who spent years battling with her ex-husband over spousal and child support said in hindsight that a marriage contract would have saved heartache and huge legal bills.

“It was the worst waste of money ever,” said “Arlene” in an interview, on condition she not be identified because she fears for her safety for talking publicly about her situation.

Arlene estimates she spent more than $500,000 over the past six years in legal fees and the spousal and child support she was required to pay her ex-husband even though their three children lived with her full-time.

Both spouses went through years of hearings, family psychological testing and evaluation trying to get orders changed.

Arlene said she tried to get the court’s order changed by arguing her ex-husband’s stated income was underreported, while he sought to be absolved of final payments he was required to make, before they recently came to a final agreement.

“I thought I was a smart businesswoman but I did not see it coming and I was definitely not prepared,” she said.

The cost of changing a spousal agreement varies widely depending on the complexity of finances, how much work is required to prove income and the combativeness of the ex-spouses.

“Trials can end up being six figures,” Isaac says, adding in some cases seeking a change in support costs more than the original divorce.

Cases involving very high-income earners or high-profile people can be contentious, but often the parties don’t want to go to court to air out their private business. The alternative can be mediation or arbitration.

In Canada, where spousal support rules are set out in the federal Divorce Act, payers of spousal support can claim a tax-deduction if it is paid monthly but not if paid in a lump sum, while payments are taxable for recipients. More than 2.5 million Canadians were classified as divorced or separated according to the 2016 census.

Common-law partners may be entitled to spousal support across Canada except in Quebec. With Canada’s no-fault divorce law, the reasons behind the marriage’s collapse doesn’t affect a spouse’s financial obligations to the other spouse.

Also read:

How spousal rights can affect your client’s estate