There has been much contention regarding how bonuses, shares, and stock options should be dealt with for the purposes of equalization and support. Justice McLaren tackled this issue in the case Patterson v. Patterson 2006 CarswellOnt 8904. In Patterson v. Patterson the parties married in 1990 and separated in September 2000. The father was vice president of a large bank and had been receiving a bonus for 15 years. The husband also received shares from his employment. The bank placed shares in trust and one third vested each year so that, in three years, all shares vested. The husband received stock options every year since 1996 to allow him to buy bank common shares. Shares vested at a rate of 25 percent each year and options expired after ten years.
The Bonus: Should a bonus be considered in one’s income the year it is available or the year it is received?
Justice McLaren held that a bonus is to be included in ones income in the year that it is available. In this matter, 4/12ths of the bonus was available in 2000 and therefore it was this portion that was to be included in the father’s income for that year. Justice McLaren considered several factors when making his decision. Firstly, he determined that there was no income tax advantage in deferring the bonus, the decision to defer it was entirely in the father’s control. Furthermore, s.19(1)(d) of the guidelines was met in the sense that the bonus was being put off, however, there was no real benefit to anyone and there had been no advantage.
The Shares: Should the shares be considered in one’s income the year they vested or the year in which they were exercised?
In this matter the father could ask for shares once they vested and hang on to them, or sell them, or he could defer taking them for three years. When shares vested and the father accepted them, they were considered income. Justice McLaren held in this case that shares should be included in father’s income for child support purposes when they vested and were available to father. McLaren J. focused largely on the fact that it was in the father’s control to take the shares when they vested and if shares were only to be included in income when they appeared in the father’s income tax return, then they would not be available for child support for several years which would be problematic once the children were no longer entitled.
The Stock Options: Should they be considered in one’s income when they vested or when they were exercised?
Here Justice McLaren noted that stock options were a regular component in the father’s salary for child support purposes. Stock options were to be included in the income when they vested and were available to the father. Stock options that are a regular component cannot be considered as non-recurring or just property. Justice McLaren reasoned that if options were only available for child support once exercised, there would be vast amounts of income in high salary earners that were unavailable for child support once various terminations for child support arose.
In conclusion, the husband’s argument that it is easier to wait until all sources of income appear on his tax return was not persuasive. Justice McLaren recognized that to impute income for restricted share awards, bonuses or stock options would require assistance from financial experts on an annual basis, however, he felt that this should be affordable and worthwhile given the amount of money involved.