Does Shared Custody Mean No Child Support?

In Canada, child support obligations are usually dictated by the federal child support guidelines.  The guidelines work on the principle that both parents should share the same portion of their income with their children as if they lived together.  The guidelines set out monthly child support amounts in a table that uses the paying parent’s level of income and the number of children eligible for child support.

In almost all cases, judges are required to follow the guidelines when determining the amount of child support.  There are however exceptions one of which is when the parents have split or shared custody of the children.

Split custody refers to a child custody arrangement in which one parent has sole custody of one or more children while the other parent has sole custody of the remaining siblings.

In split custody situations the child support is guided by s.8 of the guidelines which states:

Where each spouse has custody of one or more children, the amount of a child support order is the difference between the amount that each spouse would otherwise pay if a child support order were sought against each of the spouses.

In other words, if parent A’s obligation to parent B for the children in B’s care is $1,000 per month, and that parent B’s obligation to parent A for the children in A’s care is $250 per month, A would pay $750 per month in child support, the difference between A’s obligation and B’s obligation, and B would pay nothing.

Shared custody refers to a child custody arrangement where a child spends about an equal amount of time in the care and home of each of the two separated parents, and the parents share the legal rights in regards to the child.

In shared custody situations the child support is guided by s.9 of the guidelines which states:

Child support must be determined by taking into account the amounts set out in the applicable tables for each of the spouses, the increased costs of shared custody arrangements and the conditions, means, needs and other circumstances of each spouse and of any child for whom support is sought.

The analysis starts by determining each parent’s income, finding each parent’s support obligation amount under the applicable Guidelines tables then offsetting the two numbers to come up with a figure that the higher earning parent owes the other. If parent A would pay $940 per month under the guidelines, and parent B would pay $1,040 per month under the guidelines, then the set-off amount is $100.

Shared or split custody does not mean no child support but a different formula is used to determine what the child support obligation should be.

 

Does a Child Get To Choose Which Parent They Will Live With?

When parents separate an obvious and perhaps most important decision is where the children of the relationship are going to live.  Any decisions about the time the child will spend with their parents have to be made in the best interests of the child.

What choice does the actual child have in the matter?  It depends.

Either the parents themselves or the courts will have to make the decision as to the time the children will spend with each of the parents.

The separating parents can come to an agreement with regard to parenting arrangements.  Parents when making such agreements may hear the opinions of their children and come to the agreement accordingly.

If the parents cannot come to an agreement then the courts will have to get involved.  The court will decide where the child should live and how much time the child will spend with each of the parents.

The BC Family Law Act says that the court must think only about the child’s best interests which includes a consideration of the following:

  • the child’s health and emotional well-being;
  • what the child thinks or wants, unless it’s inappropriate to consider this;
  • the love and affection between the child and important people in the child’s life;
  • need for stability, which can depend on the child’s age and stage of development;
  • who looked after the child in the past and how well they looked after the child;
  • how well the parents or any other person who wants guardianship, parenting time, or contact will be able to look after the child;
  • if there was any family violence, its effect on the child’s safety, security, and well-being; and
  • whether arrangements that need the child’s parents to cooperate with each other are appropriate.

When considering the opinion of the child a major factor is the age and maturity of the child.  An older more mature child’s opinion will be given much more weight than a younger more immature child.

It is very helpful to get legal advice when children are involved in a separation.  Meeting with a lawyer does not mean you have to go to court.  Seeing a lawyer can in fact often help avoiding going to court and will ensure a fair deal for all parties involved.  Please call Heath Law LLP at 250-753-2202 for family law related inquiries.

 

The Family Maintenance Enforcement Program (FMEP) and Cost Awards

The purpose of this blog will be to provide a brief overview of the purpose behind the FMEP as well as discuss the type of cost awards the FMEP will enforce.

The FMEP is a free service provided by the BC government. The FMEP enforces support orders and agreements on behalf of the person who is owed support (“Creditor”).  Once someone is enrolled in the FMEP, all support payments must be sent to the FMEP. The FMEP processes the payments and sends them on to the Creditor.

To enforce a support order or agreement, the FMEP can take all legal steps the Creditor could take on their own. The FMEP can also take other steps the Creditor cannot, like restricting the driver’s licence of the person who owes support (the “Debtor”) or taking away their passport.

If support payments are missed and arrears are owed, the enforcement steps the FMEP takes depend on how much arrears are owed, the current situation of the Debtor, and the actions the FMEP thinks have the best chance of success in the circumstances.

The FMEP can garnish wages, redirect money from government institutions, file liens on the Debtor’s property, place restrictions on the Debtor’s licence or passport and even put the Debtor in jail.

As can be seen from the above the FMEP can be a very forceful tool in enforcing payments under maintenance orders.  However, what type of court costs will the FMEP enforce?

First, what are court costs?  There are costs associated with going to court.  They can include court filing fees, legal bills, attendance at court, “disbursements” (i.e., photocopy charges, printing etc.) and other related matters.  The general rule of costs is that absent any special circumstances or considerations, a successful litigant can obtain an order for his or her costs.  This means that if you win your case, the other party may have to pick up a significant portion of your court costs.

The FMEP will enforce maintenance payments and included in the definition of maintenance under the Family Maintenance Enforcement Act is fixed costs awarded under the regulations in favour of the director or a creditor.  Section 15 of the Family Maintenance Enforcement Regulations (the “Regulations”) say that the court can award costs if the court believes the default under the maintenance order could have been avoided.  This would lead to the conclusion that the FMEP will only enforce court costs that stem from s.15 of the Regulations.

Spousal support is included in many separation agreements and Court Orders.  While the issue of whether a spouse is entitled to spousal support is addressed in a different blog, this blog, Spousal Support: Lump Sum vs Period Payments, discusses what form the support will take. Spousal support traditionally comes in two forms: lump sum or periodic (generally monthly) payments.

In a lump sum situation, the spouse paying spousal support (the “Payor”) transfers assets or money to the receiving spouse (the “Payee”) when the agreement is signed or when the Court Order is made.  Once that transfer is made, there will be no more spousal support payments.  For periodic payments, the Payor pays a certain amount of money to the Payee on a predetermined schedule, usually monthly.  The default option is periodic payments.

If the matter goes to a trial, the Court is more likely to award lump sum support (versus periodic payments) if any of the following circumstances exist:

  • There is a real risk that the Payor will not make the periodic payments;
  • The Payor is able to make a lump sum award payment;
  • The Payor has not made proper financial disclosure;
  • The Payor has the ability to pay lump sum but not periodic support; and
  • Lump sum support can immediately satisfy an award of retroactive spousal support.

The advantages and disadvantages of lump sum support will depend on the facts in each individual case.  Some advantages may be terminating ongoing contact between the spouses, providing money or assets to meet an immediate need of the Payee, ensuring spousal support will be paid where there is a real risk of non-payment of periodic support, and making it easier for a spouse to enforce lump sum support if the Payor does not pay.  Some of the disadvantages may be that the spouses are locked into the lump sum amount and are effectively deprived of the right to apply for a variation if the Payor’s income goes up or their income goes down.

Periodic payments are taxable income to the Payee and tax deductible for the Payor so are often preferred by Payor’s for that reason.  Lump sum amounts are not taxable or tax deductible.

If you would like to book an appointment with any of our family law lawyers, please contact Heath Law LLP at 250-753-2202 or toll free: 1-866-753-2202.

When dealing with a divorce or separation from a spouse, determining the date of separation could be crucial.  For example, if the value of an asset is being divided as of the date of separation (a bank account, for example), then the date of separation could be crucial if the balance goes up or down significantly.  However, the date of separation may not be agreed upon by the spouses, and it can significantly affect property division, child and spousal support, and even the ability to bring a family law claim.

If the spouses disagree on the date of separation, the Court may look at several factors to determine which separation date is accurate:

  • Whether the spouses lived in the same house or slept in the same bedroom;
  • Whether the spouses vacationed together;
  • How the spouses participated in joint social activities and the manner in which the spouses presented themselves to others;
  • Plans for the future, including estate planning;
  • The absence of sexual relations;
  • The absence of communication between the spouses;
  • Attempts to reconcile the relationship;
  • The performance of household tasks and changes to routines;
  • Economic support and dependency between the spouses;
  • How the spouses conducted their financial affairs, including how they filed their taxes; and
  • How the spouses engaged with their children.

The Court may consider factors beyond those in this list, and the presence or absence of any particular factor is not determinative.  For instance, spouses may be separated but remain in the same house because of financial circumstances.  It only requires one spouse’s intention to terminate the relationship.  Both spouses do not need to agree that the relationship is over.  The Court will objectively assess all of the evidence and determine if or when one spouse intended to separate and communicated that intention through words or conduct to the other spouse.

If you would like to book an appointment with any of our family law lawyers, please contact Heath Law LLP at 250-753-2202 or toll free: 1-866-753-2202.

Collaborative family law is a form of dispute resolution where each spouse is separately represented by a lawyer, and the spouses and their lawyers sign a participation agreement which provides for the following:

  • If either party starts contested court proceedings, all of the collaborative professionals (including the lawyers) are disqualified from acting for the parties;
  • both parties agree to full and timely disclosure of all relevant information and documents, and agree to good faith negotiations;
  • the negotiations are confidential and without prejudice; and
  • the negotiations are concluded when the parties come to an agreement, which is put into writing (a separation agreement) by the lawyers and then signed by the parties and witnessed by the lawyers.

All collaborative professionals must be certified in the collaborative process. The process often includes the following professionals:

  • Coach, who is a licenced mental health professional whose primary function is to provide emotional support, communication, and conflict resolution between the spouses.  This provides for long-term improved communications, with the outcome that the parties are able to resolve their matters on their own in future rather than requiring further legal assistance and litigation.  There can be one Coach for both parties or each party may be separately supported by a Coach;
  • Child Specialist, who is a licenced mental health professional whose primary function is to provide a voice for the children and ensure that their thoughts, concerns, and needs are heard in the separation process.  This is one Child Specialist for all children and this person is referred to as a “neutral”, meaning that he or she has no allegiance or bias for one party over the other.  He or she has the primary goal of speaking for the children;
  • Financial Specialist, who is a certified financial professional whose primary function is to help the spouses analyze their financial, business, and tax situation and plans for the future.  The intention is to help the parties make the most out of their settlement and settle on financial terms that are the most advantageous to both spouses.  The Financial Specialist is a neutral;
  • Collaborative Lawyer, who is a member in good standing of the Law Society of BC and assists their client by providing legal advice, supporting and facilitating negotiation and communication, and ensuring that their client’s legal interests are protected.

There is a myth that Collaborative Family Law is more expensive than negotiation and litigation because of the involvement of all of the experts.  The process is designed so that the action taken by each of the experts is not duplicated by the others, but rather each of the experts address a particular issue in their respective areas of expertise.  In addition, it is often possible to submit the expenses from the Coach and/or Child Specialist to one’s extended health benefits as it is an invoice from a registered clinical counsellor, psychologist or social worker.  Furthermore, the hourly rates charged by the non-lawyer specialists are often less than the rates charged by the lawyers.

Collaborative Family Law encourages and facilitates negotiations that are respectful and constructive.  This process is often more supportive of everyone involved, including the children.

If you would like to book an appointment with our Collaborative Family Law lawyer, Kathleen Sugiyama, please contact Heath Law LLP at 250-753-2202 or TOLL FREE: 1-866-753-2202.

In the recent case of Moore v. Sweet, 2018 SCC 52 [“Moore”], the Supreme Court of Canada considered whether a new common law spouse became unjustly enriched as a result of her beneficiary designation under her husband’s life insurance plan.

In Moore, the deceased’s ex-wife was designated as revocable beneficiary of her ex-husband’s life insurance policy. After separation, the ex-wife agreed to continue to pay policy premiums with a view to maintaining the beneficiary designation.  The ex-husband subsequently designated his new common law spouse as irrevocable beneficiary without the ex-wife’s knowledge.  When the ex-husband passed away, the insurance proceeds became payable to the new common law spouse.

The ex-wife sued the common law spouse, claiming that the common law spouse had been unjustly enriched and held the amounts paid from the life-insurance policy pursuant to a constructive trust for the ex-wife.

In its analysis, the Court found that the common law spouse had received a “tangible benefit” and became enriched by becoming beneficiary of the insurance policy (paras. 41 and 42). The Court also found that the ex-wife had been deprived of a benefit under the insurance policy (para. 52).  The Court continued on to find that there was no legal reason for the common law spouse’s enrichment at the expense of the ex-wife (para. 88).

The Court found that the monies from the insurance policy were held in trust by the common law spouse for the ex-wife and ordered that the funds be paid to the ex-wife (para 96).

If you would like to book an appointment with any of our family law lawyers, namely Kathleen SugiyamaChristopher Murphy or Nathan Seaward, please contact Heath Law LLP at 250-753-2202 or TOLL FREE: 1-866-753-2202.

Family Law – A Gift of Money from a Parent may still be Subject to Division between Separating Spouses

Under section 85 of the Family Law Act (the “Act”), gifts to a spouse from a third party are excluded property – meaning that they are not divided between the spouses at separation.  However, if a gift from a third party was intended to be made to both spouses, then the gift will qualify as family property and is subject to division at separation.

In Delaurier v. Massicotte, 2018 BCSC 1857, the Respondent sought to assert that a significant portion of the former family home was excluded property, including $100,000.00 which was a gift from the Respondent’s father. The Claimant took the position that the $100,000.00 was a gift to both the Respondent and the Claimant, and was therefore not excluded property.

In every case where a party is claiming that a gift or property is excluded property, the party asserting that position must prove, on a balance of probabilities, that the gift was only intended for them (para 124).

In Delaurier, the Respondent could have called his father to testify, however, he refused to do so on the grounds that his father did not speak English and was blind in one eye (para 132).

Madam Justice Fleming wrote that where a party to litigation fails to call a witness who would have knowledge of the facts and would be assumed to be willing to assist that party, the Court can draw an adverse inference that the failure to call that person amounts to an implied admission that the evidence of the absent witness would be contrary to the parties’ case or at least would not support it (para 130).

In the circumstances, Justice Fleming chose to draw an adverse inference against the Respondent, and found that the gift of $100,000.00 was intended to be given to both the Claimant and the Respondent, and therefore constituted family property.

If you would like to book an appointment with any of our family law lawyers, namely Kathleen Sugiyama, Christopher Murphy or Nathan Seaward, please contact Heath Law LLP at 250-753-2202 or TOLL FREE: 1-866-753-2202.

Part 1 of our article “Dividends and Determining Child & Spousal Support” explained what dividends and grossing up are. Part 2 explains how these lines on the income tax form affect child and spousal support payments.

For child support, the primary concern is estimating the means which the paying parent has available for child support. The more income a paying parent has, the more they will likely be required to pay. For spousal support, the court may award support to a spouse to provide for their needs or to relieve economic disadvantage or hardship resulting from the relationship. The difference in incomes of the spouses will be a critical factor in this determination.

The rules for child and spousal support come from the Federal Child Support Guidelines (the “Guidelines”). While there are many factors and formulas, the court will always want to know the spouses’ gross incomes. For dividends, section 5 of Schedule III requires that the actual amount, rather than the taxable amount, be used to determine a spouse’s annual income. This is a critical difference since the taxable amount is significantly greater than the actual amount. However, section 19(1)(h) of the Guidelines states that the court may add to a spouse’s income when the spouse derives a significant portion of income from dividends. This is to ensure consistency between a spouse earning a salaried income and a spouse who receives dividends instead of a salary.

When a spouse receives a significant part of their income from dividends, the court will determine if that accurately reflects their ability to pay for support. In many cases, people restructure their income by using solely owned corporations, trading their salary for dividends. After this transition, the spouse’s gross income is much lower because the corporation paid the tax, but their net income will be relatively similar to their previous net income.

For example, Widgets Ltd. has an annual profit of $41,000. Last year the sole shareholder, Kim, took home a salary of $40,000 and a dividend of $724.64. Her net income was $33,217. This year she decides to replace all of her salary with dividends. After the corporate tax, she is left with a dividend of $29,710.14. Due to dividend tax credits, her net income is also $29,710.14.

Where a spouse is the sole shareholder of a company and elects to receive dividends from the company in lieu of salary, courts will usually use the taxable dividend amount for the spouse’s gross income when calculating child support. If the spouse does not control any dividends paid to them, then the courts are more likely to use the actual dividend amount.

Things change when the courts consider spousal support. Courts have repeatedly stated that the purpose of adding income in this way is to enhance the resources available for the benefit of the children. While not ruling out the possibility of imputing income to dividends when determining spousal support, court have been extremely hesitant to do so.

Altogether, corporations and dividends can be useful tools in structuring your income and taxes. For spouses that try and use dividends to reduce their child support payments, courts have the tools and are willing to add income in order to provide greater resources for the children. When determining spousal support, courts are more likely to use the actual dividend amount.

If you have questions about incorporation, child or spousal support, or any other legal matter, please call Toll Free:1-866-753-2202 or 250-753-2202 to contact Heath Law LLP Barristers & Solicitors for your consultation.

For anyone who may be paying or receiving child or spousal support, if the spouse paying support receives part or all of their income as dividends, it is important to understand how support payments are calculated. This can be a complicated process, so this blog will be divided into two parts. Part 1 will deal with dividends, grossing up dividends, and dividend tax credits. Part two will explain how much of those dividends will be paid as child or spousal support.

This blog is a simplification and does not represent a complete overview of dividends and income tax. If you want to know more, please seek professional accounting and legal advice.

Salaries are paid by a company to employees before tax is calculated. Dividends are paid out to shareholders from a company’s after-tax profits. So when dividend income is placed on a tax return, the company has already paid tax on that money. However, the Canada Revenue Agency (the “CRA”) wants to estimate how much money an individual would have received as a salary, so the dividend will be grossed up by 38% to reflect the amount of the company’s pre-tax profit was needed to provide a shareholder with the dividend.

For example, Widgets Ltd. has a pre-tax profit of $1,000, and Kim is the sole shareholder. Widget Ltd. could pay Kim a salary of $1,000 and have no profits to pay tax on. Kim would then have to pay income tax on the $1,000. However, Widget Ltd. instead decides to pay corporate tax on the profits and is left with $724.64. The company then pays Kim a dividend of $724.64. When Kim files her income tax, she will have to gross up her dividend by 38% ($724.64 x 1.38 = $1,000).

Now at first look, it may appear that this is unfair to Kim. She now has to pay income tax on more money that she received, but this is where the dividend tax credit (the “DTC”) comes in. The DTC is designed to prevent the CRA from double dipping. It gives the recipient credit for the tax already paid by the company. For 2017, the federal DTC was 15.0198% and the British Columbia DTC was 10%, for a combined DTC of 25.0198%. The DTC drastically lowers the tax rate on dividends.

Kim’s taxable dividend is $1,000. She will get a DTC of ($1,000 x 25.0198%) = $250.20. Kim has $40,000 in employment income, so the marginal tax rate is 22.7%. The income tax she will pay on her dividend the taxable dividend multiplied by the marginal tax rate, less her DTC.

($1,000 x 22.7%) – $250.20 = -$23.20

Kim’s income tax on her dividend is negative (-$23.20 ÷ $724.64 = -3.2%), and while she will not receive a cheque for the DTC (it is non-refundable), it can be used to offset other taxes.

The theory behind grossing up dividends and providing the DTC that an individual should pay the same amount of tax, regardless of whether the money was earned directly (salary) or indirectly (dividend). However, the way in which money is earned and how dividends are paid can significantly affect child or spousal support (see Part 2).

If you have questions about incorporation, child or spousal support, or any other legal matter, please contact Heath Law LLP at 250-753-2202.