In Ontario, the treatment of bonuses, stock options, and restricted stock units in the context of child and spousal support can be confusing and uncertain. It is first important to understand what each of these is and how they work to best understand their treatment in support and property division calculations.
What are Bonuses, Stock Options, and RSUs?
Each is distinct from the others but possesses certain elements in common. These are common forms of incentives provided by employers to their employees. Stock options are the exception as, they may also be acquired independently.
Bonuses largely come in the form of cash but can also be provided as shares of the company that you work for, commonly referred to as equity bonuses. Bonuses can vary a great deal in their predictability. They may be well defined in your employment contract or entirely at the discretion of your employer. The regularity and consistency of your bonuses can have an impact on how they may be factored into your income for the purposes of support calculations.
Stock options are a form of contract that provide a right, not an obligation, for the holder to buy or sell stock at a future time for a specified price. They can take the form of a Call Option, which entitles you to buy the stock at a prearranged price, or a Put Option that entitles you to sell the stock at a set price. However, put options are generally not offered by employers to employees.
The difference between the set price and the current price of the underlying stock dictates the value of your stock option. As a result, their value can fluctuate significantly. Furthermore, stock options have an expiration date, after which they become worthless if unexercised. Therefore, it is important to note when you are entitled to exercise your contractual rights under the terms of the contract.
Restricted Stock Units (RSUs), like stock options, are a form of securities-related contract. An employer will make a promise to give an employee company stock at a determined future date once certain conditions are met. If the specified prerequisites are fulfilled when the specified vesting date arrives, the employee will either receive company shares or cash of an equal value, depending upon the terms of the agreement.
Are These Considered Part of My Income?
The Federal Child Support Guidelines (CSG) provide for the determination of annual income and serve as a reference to what is considered income when calculating a child support obligation. Section 16 of the CSG defines a spouse’s annual income as the sum of the sources of income that would fall under the heading of “Total income” as set out in the CRA’s T1 General form. Sections 15-20 provide the framework for income determination. This framework has been adopted to determine spousal support since 2005 and is acknowledged in subsection 6.1 of the Spousal Support Advisory Guidelines.
In Ontario, both cash and equity bonuses are considered income in the year in which they are received by the employee. Stock options are counted as income in the year in which they are exercised, as described in Schedule III, section 13 of the CSG. Finally, RSUs are also considered part of your annual income at the time that they vest, regardless of whether your RSUs take the form of shares of the company or cash. Once a bonus or RSU has vested, or a stock option has been exercised, the resulting amount is included in income for that year.
What If I Have Not Received Them Yet?
In cases where you have bonuses, stock options, or RSUs that have not met the described thresholds to be considered income yet, it becomes more complicated to determine how they will be treated. The court largely takes a contextual approach.
Bonuses that have not yet been received will typically not be included in your annual income until they are paid by the employer, even if a bonus is declared in a previous year than when it is received (Murray v. Murray). However, if bonuses occur regularly and are relatively predictable in nature, the court can calculate support inclusive of that individual’s anticipated compensation from bonuses (Easton v. Coxhead).
Stock options and RSUs that have been granted but have passed the threshold to become income are treated as contingent property falling under the broad definition of “property” in Ontario’s Family Law Act (FLA), subsection 4(1). This is because you possess a future contingent interest in the shares or equivalent cash provided for in the contract that you entered. Property is not captured by the definition of income under the support guidelines. This means that unexercised stock options and unvested RSUs will not be directly factored into spousal or child support calculations; however, there are some exceptions to this, and the assets will still be factored into equalization in the case of a divorce.
In some circumstances, when the stock option is later exercised, or the RSUs finally vest, the court may award support compensation based on the income derived from what was formerly considered property, but this creates a potential double recovery, or what is commonly referred to as the “Double Dipping” issue. Courts are typically reluctant to grant spousal support from income-bearing assets that were included in equalization at the time of a divorce. This was generally viewed as unfair by the Supreme Court of Canada in Boston v. Boston; however, it can still occur when the objectives of the FLA and Divorce Act support further compensation. The courts are less concerned with double dipping in the context of calculating child support. This was demonstrated in Brennan v. Lander, where formerly unvested RSUs that had been subject to equalization at the time of separation, based on their net tax value at the date of separation, were later excluded as income for spousal support but included in the calculation of child support.
Conclusion
The treatment of bonuses, stock options, and RSUs for calculating child and spousal support is largely fact dependent. The courts possess a great deal of discretion to adjust and impute income based on the facts available to ensure the amount reached is representative of an individual’s true income.
If you have any questions about child and spousal support, property division, or any other family law matter, please contact Jessica Santucci at 416-446-3323 or jessica.santucci@devrylaw.ca.
This blog was co-authored by articling student Michael Goodman.
“This article is intended to inform. Its content does not constitute legal advice and should not be relied upon by readers as such. If you require legal assistance, please see a lawyer. Each case is unique, and a lawyer with good training and sound judgment can provide you with advice tailored to your specific situations and needs.”
