Family Law – Beneficiary Designations

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 Sugiyama, Christopher Murphy or Nathan Seaward, please contact Heath Law LLP at 250-753-2202 or TOLL FREE: 1-866-753-2202.

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Is a Gift from a Parent Subject to Division Between Separating Spouses?

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.

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Dividends and Determining Child & Spousal Support: Part 2

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.

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Dividends and Determining Child & Spousal Support – Part 1

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.

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Family Law – Interim Spousal Support

Family Law – Am I Entitled to Interim Spousal Support?

If you are separating or divorcing, you may be entitled to an order for interim spousal support – an order for spousal support before a final order settling divorce, property, support, childcare and other matters.

In Zhang v. He, 2018 BCSC 1622, the court detailed the principles that the Court must consider and applied those principles to find that the claimant was entitled to interim spousal support.

The Court began the spousal support analysis by stating the objectives in determining spousal support from both the Family Law Act (BC) and the federal Divorce Act:

(a) to recognize any economic advantages or disadvantages to the spouses arising from the relationship between the spouses or the breakdown of that relationship;
(b) to apportion between the spouses any financial consequences arising from the care of their child, beyond the duty to provide support for the child;
(c) to relieve any economic hardship of the spouses arising from the breakdown of the relationship between the spouses;
(d) as far as practicable, to promote the economic self-sufficiency of each spouse within a reasonable period of time (at para 19).

The Court then noted that the principles applicable on an application for interim spousal support are:

  1. The applicant’s needs and the respondent’s ability to pay assume greater significance;
  2. An interim support order should be sufficient to allow the applicant to continue living at the same standard of living enjoyed prior to separation if the payor’s ability to pay warrants it;
  3. On interim support applications the court does not embark on an in depth analysis of the parties’ circumstances which is best left for trial;
  4.  The courts should not unduly emphasise any one of the statutory considerations set out above;
  5. On interim orders the need to achieve self-sufficiency is often of less significance; and
  6.  Interim support should be ordered within the range suggested by the Spousal Support Advisory Guidelines unless exceptional circumstances indicate otherwise (at para 23).

In applying the above principles, the Court awarded the Claimant interim spousal support on the grounds that:

  • the claimant left a well-paying job in China to move to Canada, and the decision to move was a joint decision after the parties married;
  • the claimant’s English was lacking and she intended to upgrade her education to acquire employment skills and improve her English;
  • neither party would be able to continue living to the same standard as when they were still together; and
  • the respondent was well educated and the parties’ child was in daycare, so the respondent would be able to work while the claimant attended school (at paras. 24 – 30).

In all the circumstances, the claimant was found to have income of $18,000.00 and the respondent was found to have income of $118,968.00 (at para 31). The court found that the respondent must pay the claimant interim spousal support in the “low range” and awarded the claimant $1,105.00 per month until agreement of the parties or further order of the Court.

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.

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Separation/Divorce: Who gets the family pet?

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A separation can be difficult for all members of the family; the family pet is no exception. Many people may be surprised when they go to court seeking to find a fair way to share the family dog, cat, or other pet, that it is treated like property, not family. The courts have set out several factors that will determine how pets are treated (Oh v City of Coquitlam, 2018 BCSC 986):

  1. pets will not be treated in a manner such as children;
  2. courts are unlikely to consider interim applications for pet ownership;
  3. Canadian Courts are unlikely to find that joint sharing or some form of constructive trust remedy is appropriate; and
  4. that pets are a variant of personal property.

While pets are personal property, they are treated differently than a car or a piece of furniture. There is a requirement that animals, especially cats and dogs, be treated humanely. A court will not award ownership of a pet to a person if it would result in abuse or neglect. Apart from that, the courts will only consider who has legal ownership, not who has the most affection for the pet or treats it better. Courts will not create visitation or joint custody arrangements for pets.

Legal ownership will usually be determined by who owns the pet or who brought it into the relationship. This usually is done by looking at who is the registered owner on the pet’s certificate or who paid for the pet. A person can also show legal ownership if they prove that the pet was gifted to them.

This cut and dry approach might make people think that all judges are heartless, but there are dog lovers on the bench too. In 2018, Justice Lois Hoegg of the Newfoundland and Labrador Court of Appeal dissented when the majority of the court relied on the above approach for determining who got the family dog (Baker v Hamina, 2018 NLCA 15). She thought that when two people contest the ownership of a pet, the court should consider additional factors, including:

  1. who bore the burden of the care and comfort of the animal;
  2. who paid for the expenses of the animal’s upkeep; and
  3. what happened to the animal after the relationship between the contestants changed.

The best way to ensure that your pet is treated like family and not property is to resolve that issue before it goes to court. If you would like to book an appointment with any of our family law lawyers, please contact Heath Law LLP at 250-753-2202.

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Family Law: Challenging Property Division in a Cohabitation, Marriage or Separation Agreementin British Columbia?

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Is the Agreement Procedurally Unfair?

Before a Court will set aside an agreement, it will first consider the circumstances surrounding the agreement and whether the parties entered into the agreement in a fair manner.

The Court will consider several factors, such as whether:

  1. one party unfairly pressured the other into signing the agreement;
  2. one party had substantial power over a more vulnerable party;
  3. one party failed to disclose important information to the other party that would have affected the distribution under the agreement;
  4. there was an error in calculation or other mistake;
  5. one party lied to the other party about something that would have affected the agreement; and
  6. each party obtained legal advice about the agreement from his or her own lawyer.

After considering the above, the Court may stilldecide to not set aside all or part of the agreement if it finds that it would not have made a substantially different order for property division.

Is the Agreement, in Substance, Significantly Unfair?

Under a second step, even if the Court finds that the agreement was obtained in a fair manner, the Court may still set aside the agreement if the Court determines that the agreement is significantly unfair.

In determining whether the agreement was significantly unfair, the Court will consider:

  1. the length of time that has passed since the parties made the agreement;
  2. the parties’ intention in achieving certainty in making the agreement; and
  3. the degree to which the parties relied on the terms of the agreement.

If you need legal advice regarding a property agreement, please contact Heath Law LLP.

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Separation, Spousal Support and the Rule of 65

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Upon the separation of two spouses, whether married or common law, spousal support is a critical issue that needs to be discussed. This is especially important for those who are leaving long-term relationships because the effects of separation can be particularly severe for them. Spouses should be aware of a couple of rules that may determine how long spousal support will paid.

The Spousal Support Advisory Guidelines must be considered by the courts when considering the amount and duration of spousal support. Generally, support will be payable for 0.5 to 1 year for each year of cohabitation or marriage. So if two people were in a 14 year relationship, spousal support would be payable for 7 to 14 years. However, if the relationship lasted for 20 years or longer, the duration of support will be indefinite. Spousal support can also be indefinite under the Rule of 65. This rule calls for indefinite support when the age of the recipient spouse plus the length of the relationship equals or exceeds 65. The Rule of 65 does not apply to relationships that last for less than 5 years. For example, if two people ended a 10 year relationship when they were both 60 years old, support would be indefinite.

Indefinite support does not necessarily mean permanent support. It only means that no time limit can be set at the time of the order or agreement. Indefinite support orders are open to variation or review as circumstances change over time. Changes in circumstances may include a change of income, retirement, re-partnering, or if the recipient spouse has become self-sufficient.

Recipients of indefinite spousal support are under an obligation to make reasonable efforts toward their own self-sufficiency. There is no duty to achieve self-sufficiency, but efforts must be made. If a recipient fails to make reasonable efforts, the courts may impute income and reduce spousal support on a later review or variation.

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

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Family Law – What happens if I do not register my Family Law Agreement with the Court?

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While it is important to register any family law agreement with the Court to ensure that the agreement has the force of a Court Order, failing to file the agreement will not necessarily be detrimental to having the Court enforce the terms of the agreement as if the agreement was an Order of the Court.

In Smith v. Smith, 2018 BCSC 641, lawyers for the claimant and respondent were close to coming to an agreement between their clients.  Court proceedings were adjourned generally while the lawyers worked out the terms of the agreement, and both the claimant and respondent signed the draft copy of the Order several months later.  Unfortunately for the parties, the registry refused to file the agreement since it was “not in the proper form and it failed to address all of the property claims in the notice of family claim” (para. 13).

The claimant later attempted to have the written agreement declared a final Order by the Court.  The respondent sought to have the Order declared an interim Order, which would have given the Court the ability to vary the Order without a material change in the circumstances of the respondent, on the basis that the respondent thought the Order was an interim Order and that the respondent claimed she did not know the Order limited spousal support to a period of seven years.

The Honourable Madam Justice Murray wrote the following:

[20]        The order is entitled “Consent Order”. It is drafted in order form with the Supreme Court style of cause. It states clearly that it is before a Judge of the Court and that it is by consent. There is a line for signature by the Court. The respondent had counsel at the time of the settlement discussions and for approximately six weeks following during which terms were finalised. She does not dispute being involved via phone in the settlement discussions at the courthouse. She was clearly part of the negotiations after that session as she asked for and received material concessions from the claimant. After she released her counsel, she personally delivered to the claimant’s lawyer the order signed by her. She was undoubtedly aware that it was going to be filed with the Court.

[21]        The order is clear and easy to read.  The only reasonable inference to draw from the fact that she sought changes and eventually signed it, is that she read it.  The spousal support clause clearly specifies that support was to be for a period of seven years.

[22]        The order dealt with all outstanding matters between the parties, not just the matters that were to be reviewed by the Master that day.  That is inconsistent with it being an interim order.  There is nothing in the document that indicates that it is interim.

[23]        The respondent points to the passage that the parties must exchange their income tax information annually as an indication that this agreement was intended to be interim.  I disagree.  That is a standard clause in family orders.  The fact that an order is final does not preclude a party from bringing an application to vary if there is a material change in circumstance.

[24]        The respondent further argues that this is an agreement as opposed to an order.  Again it is entitled “Consent Order”, is drafted in order form with a line for a Judge’s signature and was intended to be filed in court.  The only rational conclusion is that the parties intended it to be an order of the court in full and final resolution of all matters in issue between them.

[25]        Accordingly, I find that the document in issue is a final order.

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.

 

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Family Law – Obtaining Interim Spousal Support

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When parties separate, one party may seek spousal support between when the issue of spousal support is first heard and the point at which the court makes its final decision (for example, when the Court makes a divorce order or makes final orders with respect to property division and support). This is known as “interim spousal support.”

The recent case of Piva v. Piva, 2018 BCSC 670 [“Piva”], illustrates the factors a Court will consider when deciding whether to award interim spousal support.

In Piva, the claimant was 50 years old and the respondent was 55 years old. The parties were married for 28 years.

The claimant applied for interim spousal support.

Master R. W. McDiarmid began the analysis using the legal test under section 15.2(4) of the Divorce Act:

Factors

(4) In making an order under subsection (1) or an interim order under subsection (2), the court shall take into consideration the condition, means, needs and other circumstances of each spouse, including

(a) the length of time the spouses cohabited;

(b) the functions performed by each spouse during cohabitation; and

(c) any order, agreement or arrangement relating to support of either spouse.

Master McDiarmid further stated that the Court must also consider the following factors:

  1. the applicant’s needs and the respondent’s ability to pay assume greater significance;
  2. An interim support order should be sufficient to allow the applicant to continue living at the same standard of living enjoyed prior to separation if the payor’s ability to pay warrants it;
  3. On interim support applications the court does not embark on an in-depth analysis of the parties’ circumstances which is better left to trial. The court achieves rough justice at best;
  4. The courts should not unduly emphasize any one of the statutory considerations above others;
  5. On interim applications the need to achieve economic self-sufficiency is often of less significance;
  6. Interim support should be ordered within the range suggested by the Spousal Support Advisory Guidelines unless exceptional circumstances indicate otherwise;
  7. Interim support should only be ordered where it can be said a prima faciecase for entitlement has been made out;
  8. Where there is a need to resolve contested issues of fact, especially those connected with a threshold issue, such as entitlement, it becomes less advisable to order interim support.

In Piva, the Respondent disclosed $183,688.45 in income for 2017 and the Master imputed income of $40,000.00 to the Claimant. The Master calculated the range of spousal support which could be paid by the Respondent to the Claimant based on the parties’ respective incomes and awarded the Claimant interim spousal support after considering the following fact:

  • the Claimant had exclusive occupancy of the former matrimonial home, and once the appropriate spousal support order was made, the Claimant would be responsible for making all of the payments associated with the house;
  • the Respondent’s Financial Statement set out expenditures of approximately $6,350.00 toward savings and debt payments. As well, $4,460.00 monthly was allocated toward income taxes which would be reduced substantially by a spousal support order [because spousal support is tax deductible to the payor and is taxable income to the recipient]; and
  • the Claimant remained in the family home with no mortgage payments to be made.

The Master awarded interim spousal support payable by the respondent to the claimant in the amount of $5,000.00 per month.

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.

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