Value of Education

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The Value of Education upon Divorce

Evaluating a degree or professional development obtained during a marriage is an area of law that is confusing and frustrating for lawyers but seems to generally work out for the people involved.

It’s a frustrating legal issue for a couple of reasons, 1) There is not a lot of cases or commentary from Canada to draw from, and 2) the precedent that we do have is inconsistent, with Courts often overruling themselves, sometimes in the same year. Despite this seeming chaos, the awards granted tend to be fair and sometimes do not even change despite a higher Court has made a different legal ruling.

So, in this article we’re going to try and understand what the legal issues are, why the Courts can’t seem to come up with a consistent answer to the questions, and look at what the options might be for someone facing this issue in Alberta. Finally, we will try to apply the known framework to a hypothetical.

The Legal Issues

There are two main branches of legal issues the Court must address when trying to compensate one spouse for their contributions toward the other spouses education. The first is whether the degree or license qualifies as “property” under the law. The second issue is, if the education is deemed to be property, how should the Court evaluate it. 

Although Divorce and Property law is different in the United States than it is in Canada, the approaches available to dealing with these legal issues are generally the same between the two jurisdictions. The approaches were listed and discussed in a 1983 paper published by the University of Akron Law Review (in Ohio, USA). In the paper, Dr. Moore identified 4 possible solutions to compensate one Spouses contribution to the others education; 1) Treat the degree as property and award the supporting partner part of the educated partners future earnings, 2) Award the supporting partner a restitution award for the amount contributed, directly or indirectly, to the educated partners expenses, 3) Award the supporting partner Alimony/Spousal Support as a way to transfer future income, and 4) Ignore the education earned and distribute whatever real property remains equally between the parties.

Dr. Moore then went through the list and explored the details of each argument. I will summarize his thoughts briefly in this article since they reflect the opinions of other papers and judgements written on the subject, and was used in the often cited Superior Court of Ontario judgement of Caratun v Caratun in 1987.

The first option, classifying the degree as property, is problematic for a few reasons. First, the legal definition of Property can be taken broadly or narrowly. A narrow reading prevents Education from being included because it is non-transferable and does not have any market value. A broad reading defines Property as anything with worth and would clearly include a degree or license. Even in Alberta the Court of Queen’s Bench ruled that a license was property in April and then that it was not in November of the same year (1988).

Second, Courts have been hesitant to calculate the value of a degree of license claiming that it is too speculative to try and predict how much money someone will earn over their lifetime. Other lawyers and Courts disagree with this argument because predicting future earnings is often required in personal injury or corporate law cases. In Canada, the Supreme Court refuted this concern when discussing the distribution of pensions. They said that the task was not impossible, just difficult and that is no reasons to not declare pensions property.

Third, awarding the supporting spouse a proportion of the earned degree requires the Court to predict and essentially dictate what the Educated Spouse will do with that degree. The Courts are hesitant to award the Supporting Spouse income that may never be earned.

Fourth, Courts (at least American Courts in the 1980’s) favour alimony (Spousal Support) over a property award. We will consider the pros and cons of alimony later in this article.

Fifth and finally, Courts take issue with the fact that a property award is essentially dividing the Educated Spouses post-marriage income with an ex spouse. After a divorce the Spouses are no longer deemed to be a partnership and each one’s property is generally deemed to be their own.

The second option, to award a restitution award to the supporting spouse, recognizes the education as a form of property, a debt, and eliminates many of the arguments against treating the education as property. First, there is no speculative issue with evaluating the degree as the award is based on costs already incurred not future income. There is also no issue with forcing the Educated Spouse down a certain career path or with distributing post-marital assets. The debt was incurred during the marriage and is therefore fair game to be distributed upon the dissolution of the marriage.

The third option, alimony, or spousal support tends to award Spouses about the same amount as a restitution response would award. This option again has pros and cons. On the plus side Spousal Support survives a bankruptcy claim. Further, the amount can be recalculated over time to reflect the Educated Spouses actual income. This guarantees the Payee Spouse accurate and secure compensation for their contribution to the Educated Spouses career. On the down side Spouses are not inherently entitled to Support, they have to prove entitlement and even if entitlement is established there are a number of factors that determine the amount. Two major factors are the length of the marriage and the standard of living during the marriage. It is not hard to imagine a brief marriage between a supporting spouse and a student spouse during which they live sparsely to conserve money. In a case like this it would be difficult for the Supporting Spouse to get awarded a large sum of money for an extended period of time. Finally, many support agreements or awards terminate upon remarriage or death thus preventing the Spouse or the Spouses estate from fully realizing their investment in the Educated Spouses career.

The fourth and final option, to distribute the tangible property equally between the Spouses, is generally accepted to be the most unfair. Especially in cases where the couple divorces right after the degree or license is obtained and there is little to no property of value. The supporting spouse will be left with half of nothing while the educated spouse has access to a high paying, secure job.

So those are the legal issues that keep lawyers up at night. The silver lining to this story is that in general, the Courts understand the effort and cost of a degree and do their best to apportion the benefit of it between the two parties as equally as possible.

The most commonly cited Canadian case comes from Ontario, Caratun v Caratun, and is encouraging in that the amount awarded to the Supporting Spouse remained the same despite an overruling of the legal issue. The  Supporting Spouse was awarded $30,000 as her share of the Educated Spouses license to practice medicine. At the trial level this award was granted as a constructive trust and the license was deemed to be property. The appeal to the Ontario High Court of Justice resulted in the $30,000 being awarded as Compensatory Spousal Support, and the license being deemed not property.

Similarly, an Albertan case, Berghofer v Berghofer, considered the university Degree to be “an asset”, included it in the Property Settlement calculations and the Supporting Spouse was awarded a lump sum payment. Later in Drummond v Smith, the same year and the same level of Court ruled that Degrees were not property but nevertheless awarded the supporting spouse a lump sum payment to compensate her for her contributions to the Educated Spouses schooling.

In conclusion, Courts are typically sympathetic to a Supporting Spouse who has invested in the Educated Spouse only to be divorced once the degree or license is obtained. In most cases the Supporting Spouse is awarded some sort of compensation, the legal arguments tend to only focus on what form that compensation should take.

Hypothetical

Riley and Alex meet at University while they are both working on Undergraduate degrees, Riley in Physical Therapy and Alex in Engineering. They get married shortly after graduation and Riley begins working as a physical therapist. Alex continues into a Master’s Degree in Engineering and plans on eventually getting a PhD. It should take about 8 more years to complete.

Over the next 6 years Riley and Alex mostly live off Riley’s income. Occasionally they take out a student loan to pay for Alex’s tuition or cover the household expenses for the semester. Alex works odd jobs in the summers and is never able to save a significant amount for the following years tuition. During the school year Alex works hard and has started to make connections with some large international companies that have shown an interest in hiring. Then, Alex asks Riley for a Divorce.

They don’t have much property since almost all their money has been going toward Alex’s schooling, and they don’t have children because they were waiting until Alex had completed the PhD. Alex’s Statement of Claim for Divorce and Division of Matrimonial Property asks for Non-Compensatory Spousal Support from Riley for the next 2 years to cover living expenses, and that each of them be responsible for half of the student loan they’ve accumulated. Riley Counterclaims for 6 years of Compensatory Spousal Support from Riley and none of the debt since it all went towards Riley’s school.

Loans

The loans will likely be distributed depending on what they were used for. Any student loans taken out for Alex’s school will be put in Alex’s name. Any loans used to cover basic expenses will be put in both Alex and Riley’s name. However, this is easier said than done. It is unlikely that Alex and Riley have saved all of their bank and credit card statements since they got married and if the bank doesn’t have them saved they may have to do some estimating which can very easily turn into conflict. They may need to hire an accountant to look at the information they have and come up with a number for them.

The Court may also follow Smith v Smith, consider Riley’s paying of all Alex’s expenses as a loan, and Order that Alex repay Riley for all of the school fees and perhaps a proportion of the living expenses. If Alex and Riley cannot come up with a method of calculating the school and living expenses the Court may decide for them.  One method the court might use is to look at precedent (already decided cases). For example, in Smith the Court dealt with the same issue and awarded the Wife $1,000 per year she supported her Husband while he was in school. $1,000 in 1990 is work approximately $2,400 in 2018. If we use the $2,400 per year of school ($2,400 x 6 years = $14,400) Alex could owe Riley $14,400. Since the cost of Post-Secondary Education has increased since 1990 this value is probably on the low side. It would also help this argument if Riley could prove that there was a Contractual agreement that Alex would pay Riley back for the education expenses or otherwise award some benefit to Riley. Even daydreaming together about all the things they would like to buy or do once they have money may convince the Court that there is a contractual obligation for Alex to reimburse Riley.

There are probably a number of legal arguments both Riley and Alex could bring up at this point and since it is not a common area of law there is the potential for an intense court battle followed by appeals. For example, Alex could also try and argue that the school expenses paid for by Riley were gifts but there is no precedent in Canada for tuition being gifted to Spouses. Further, the presumption with gifts under the Matrimonial Property Act is that they are distributed fairly and equally. Alex and Riley would have to decide if the issue is worth the time money and effort it would cost to solve.

Spousal Support – Entitlement

Both Riley and Alex may have a claim for different types of Spousal Support.

Let’s first look at Riley. Compensatory entitlement is typically given in cases where one partner has given up career or education opportunities to further the advancement of the other partner or care for the children. In our case Riley had an established career right at the beginning of the relationship and has been able to grow in that career during the marriage. However, if Riley had ever turned down a promotion or a business opportunity because of Alex’s school that may be enough to grant Compensatory entitlement.

Non-Compensatory entitlement is granted when the Spouse needs the money to continue living their lifestyle. In this case Riley has an established career and might actually benefit from the breakdown of the marriage and start retaining more money since Alex’s expenses may no longer be paid by Riley’s income.

A Contractual claim is possible if Alex and Riley ever talked about paying Riley back for the education expenses or if they talked about and made plans for a more glamorous lifestyle they would both start enjoying once they had the benefit of Alex’s income.

In conclusion, for Riley there are potential Compensatory and Contractual claims, but both may require some convincing of the Judge in Court.

Alex is unlikely to have a Compensatory or Contractual claim as there was no educational or career advancement opportunities given up and no agreement for Riley to pay Alex Spousal Support. There is, however, a strong argument for Non-Compensatory Support while Alex finishes school. A 2008 Nova Scotia case, Shurson v Shurson set the duration for Non-Compensatory claims for “short to mid-length marriages” to “when a spouse becomes self-supporting”. If this principle is adopted or followed in Alberta, then Alex’s claim to Spousal Support would end upon becoming self-sufficient.

At this point there would probably be arguments about what self-sufficiency looks like. If Alex can get student loans get more lucrative summer jobs, then perhaps Spousal Support isn’t needed. On the other hand, if Alex doesn’t have a Non-Compensatory claim and Riley is granted a Compensatory or Contractual claim then Riley may argue that the student loans and summer job income could be used to pay Riley Compensatory or Contractual Spousal Support starting immediately. Again, any of these arguments would require a high level of cooperation between Alex and Riley or well thought out arguments to present before the Court.

Spousal Support – Quantum

Without knowing more details about their finances the quantum is difficult to speculate on. Both Alex and Riley’s lawyers will have gotten full financial disclosure and been able to use those numbers and the calculation software to determine how much Spousal Support is appropriate based on both of their incomes.

Spousal Support - Duration

An important issue in this case will be how long Spousal Support should last for. Under the Spousal Support Advisor Guidelines if there are no Children of the Marriage then duration lasts for 0.5 to 1 times the length of the relationship. In this case that could be 3 or 6 years. If Alex is awarded Non-Compensatory Support, it could end as soon as Alex begins earning an income. Since we know there are several corporations interested in Alex this will likely be right after graduation. If the duration is established to be longer than 2 years, and it should be since the lower end of the Guidelines says 3 years, then Riley could be entitled to some Compensatory or Contractual Support from Alex. The answer to this issue will depend on what has been decided on the issues of entitlement and whether Riley’s contribution was classified as a loan.

Conclusion

It is highly unlikely that either Riley or Alex will get everything they asked for in the Statement of Claim or the Counterclaim. In the end the Court will award some middle ground number that balances Riley’s contribution with Alex’s ability to pay. The fact that they will both be self-sufficient, and that the marriage was short will likely make the Court hesitate before awarding long term Spousal Support since neither Alex nor Riley really need it. It is likely that the education expenses will be dealt with as a loan, and Riley may be awarded a payment plan rather than Spousal Support. Either way, the Court will try to be fair but there is always a chance one of them could get an unfavourable verdict. That being said, Judges tend to be creative, intelligent and compassionate and as long as both Riley and Alex have a good understanding of the case and present good arguments the chances of either of them getting screwed is minimal. The moral of this story is hope for the best but plan for the worst. If Riley and Alex had gotten a prenuptual agreement that specified what would happen to their student loans and Riley’s contribution of Alex’s schooling it could save a lot of time and money in legal fees.

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