Law Times

Page 12 March 12, 2018 • Law TiMes www.lawtimesnews.com Annuity declared income for child support BY DALE SMITH For Law Times A recent Ontario court decision ruled that a structured settlement annuity could be con- sidered as income for child sup- port purposes, despite the fact that most settlements on the ba- sis of pain and suffering and fu- ture care are generally excluded from such considerations. Lawyers say this could affect the use of structures going for- ward. In Ridley v. DeRose, 2017 ONCJ 877, it was ruled that the annuity was not only consid- ered income but it was also sub- ject to the same rules as other non-taxable income under sup- port guidelines. "Justice [Barry] Tobin ruled that the structured settlement in this case is a stream of income, and once it's income, you could look at it for the purposes of support," says Richard Gordner of Gordner Law Firm in Wind- sor, Ont., who was Stefano De- Rose's lawyer in the case. In Ridley, the respondent, DeRose, had received an an- nuity from a structured settle- ment, dating back to an inci- dent when he was eight years old and suffered burns to more than 60 per cent of his body in an explosion. The explosion required De- Rose to have dozens of surgeries over his lifetime. After six years of living with his common-law partner, Sherry Ridley, and having two children together, the two sepa- rated. A separation agreement was signed between the two in 2000, at a time when the annuity paid to DeRose was $12,407 per month tax-free. Under the agreement, De- Rose agreed to pay $2,500 per month in child support, which would increase as the annu- ity did, plus $700 per month in spousal support. In 2011, Ridley started proceedings to enforce the amount owing under the agreement, which resulted in the December 2017 ruling. The judge relied on two recent decisions — Hunks v. Hunks, 2017 ONCA 247, where a structured settlement annuity was declared to be income for the purposes of an equalization payment, and Phelps v. Childs, 2017 ONSC 1443, which fol- lowed on Hunks to say that the annuity replaced an income stream. Gordner says there are many prior rulings in Ontario that have stated that structured set- tlements awarded for pain and suffering, as well as future care, are not income. "As a matter of law, Hunks held that payments received from a structured settlement annuity are income and not property under the [Family Law Act]," says Tanya Davies of Da- vies Law Firm in Ottawa. "Thus, the monthly pay- ments to the father were consid- ered to be income for support purposes." Gordner notes that in Hunks and Phelps, the majority source of the structured settlement was for loss of future income, which could be counted as income, whereas in DeRose's case, it was for pain and suffering and fu- ture care, which is excluded un- der the Family Law Act. As well, the question in Hunks was around equalization and not support. There were complications with the evidence, however, as the lawyer who had originally settled DeRose's injury claims had died and it made it difficult to ascertain how much of the settlement was for pain and suf- fering and future care, though Gordner said it amounted to close to 90 per cent of the claim. "Central to this case . . . was the fact that the structured set- tlement was vague," says Davies. "It did not specify whether there was a payment toward income [or] another payment toward pain and suffering — which there clearly was." Davies says there was no breakdown of the payments, which made it easier for the court to find the payment to be considered income and then gross it up for child support purposes. The Ontario Court of Justice recalculated child support going back to 2011 in accordance with the Child Support Guidelines, meaning that DeRose's income was set at roughly $350,000 in 2011, increasing annually from that time on. Spousal support was to continue as per the agree- ment. Gordner objected to the judge grossing up the annuity payments for the purposes of support because it was tax-free. He said the annuity could be compared to capital, and in those circumstances, it shouldn't have been grossed Richard Gordner says there are many prior rulings in Ontario that have said classifying structured settlements awarded for pain and suffering are not income. STRUCTURED SETTLEMENTS Hunks held that payments received from a structured settlement annuity are income and not property under the [Family Law Act]. Thus, the monthly payments to the father were considered to be income for support purposes. Tanya Davies What do your clients need? The means to move on. Guaranteed. ™ Baxter Structures customizes personal injury settlements into tax-free annuities that can help your clients be secure for life. » Pre- and post- settlement consultation and support » Caring professionalism for over 30 years » No fee to you or your clients Need more information? Contact us at 1 800 387 1686 or baxterstructures.com Kyla A. Baxter, CSSC PRESIDENT, BAXTER STRUCTURES Untitled-3 1 2018-02-08 2:41 PM See The, page 13

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