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Posts from the ‘Costs’ Category

On Income Tax, Support Arrears, and Retroactive Support

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On Income Tax, Support Arrears, and Retroactive Support

Income tax time will be upon us soon enough.  If you are receiving spousal support from your former spouse, you may wonder how those support payments should be treated when it comes time to file your income tax return with the Canada Revenue Agency.

The answer is straightforward:  If you are receiving spousal support from your former spouse or common-law partner, under a court order or written agreement that specifies the amount, frequency and duration of the payments, then those amounts are fully taxable in your hands.  In other words, all those amounts must be reported as “income” on your tax return, and will be taxed accordingly. (This is unlike the situation with child support, which from the recipient’s vantage point is generally considered non-taxable).

Normally, that obligation to declare your spousal support as income on your tax return triggers a corresponding entitlement by your former spouse or partner to claim an equivalent deduction on his or her tax return for those same payments, with some exceptions.

So the short answer, is that spousal support is considered “income.”  But what if the payments you receive now cover support payments that your former spouse should have made in the past?

A pair of recent decisions tackled a narrow – but important – issue relating to how: 1) retroactive support, and 2) support arrears, are to be handled for personal income tax purposes.

In a case from last year called Gonsalves v. Scrymgeour, the court reviewed the law on the tax treatment of retroactive spousal support awards (being those where the support paying spouse is newly-ordered to pay an amount that covers a past period of time during which the other spouse was eligible to receive it). The court confirmed that an award of retroactive spousal support should be reduced, to take into account the benefit of the income tax deduction that the paying spouse would have been able to claim, using the mid-point of the spouse’s respective marginal tax rates.

The more recent decision in Negin v. Fryers addresses support arrears (which are unlike retroactive support because they consist of unpaid amounts that were due under an order made previously).  There, the separated parents had agreed in 2004 that the father would pay child support to the mother in line with Guidelines amounts, together with a set amount of spousal support.   Apparently for some of the years since then, the father overpaid child support by over $52,000, and underpaid spousal support by more than $155,000.  After offsetting these amounts, the mother claimed the father owed just under $103,000 in arrears.

The father claimed – unsuccessfully – that the lump-sum gross amount he now owed the mother in arrears should be “netted down” to account for the different tax treatment of lump sum spousal support, as compared to an order for periodic support.  The wife pointed out – and the court agreed – that it was the policy of the Canada Revenue Agency to allow non-retroactive lump-sum spousal support payments to be deducted by father in the role of the support payor.  The court directed the parents to calculate the amount of child and spousal support owed or overpaid accordingly (as the case may be), in keeping with its specific directions and ruling.

Nobody loves tax time (except perhaps the Income Tax Preparers and Accountants!)  If you have questions about the spousal support you receive, feel free to give our office a call.

For the full text of the decisions, see:

Negin v. Fryers, 2018

Gonsalves v. Scrymgeour, 2017

At Russell Alexander, Family Lawyers our focus is exclusively family law, offering pre-separation legal advice and assisting clients with family related issues including: custody and access, separation agreements, child and spousal support, division of family property, paternity disputes, and enforcement of court orders.  For more information, visit us at RussellAlexander.com

 

 

GM Oshawa Assembly Plant Closing & Divorce

The Ghosts of GM: Past, Present and Future

On November 26, 2018, the General Motors Company (GM) announced that it will cease allocating new product to its Oshawa assembly plant beyond the end of 2019. This came as a shock to the 2,500 employees who work at the Oshawa plant and the many more who depend on their income. While the jury is still out on whether GM will be laying off or re-training its 2,500 employees, one thing is certain—a large cohort of GM’s employees stand to lose their livelihood.

Whether laid off or re-trained, employees who have a potential, current or settled family law matter will need to govern themselves wisely to weather the impact that closure will have on their day-to-day lives. Accordingly, this post explores the likely, and, not so likely, family law implications of GM’s closure of its once thriving Oshawa assembly plant.

The Ghost of GM Past: Settled Family Law Matters

If your family law matter was previously settled by way of a Separation Agreement or Final Order, the loss of employment income may trigger a review of child support or spousal support, or parenting.

Support obligations

It is likely that the loss of employment income will mean that you cannot afford to pay child support and/or spousal support as set out in a Separation Agreement or Final Order. In the case of a Separation Agreement, you may be able to rely on a built-in review clause to revisit the issue of support. Most Separation Agreements contain a dispute resolution clause which may be the first place to start in this endeavor. In the case of a Final Order, you will likely want to bring a Motion to Change a Final Order if you and your ex-spouse cannot agree on the appropriate adjustment out of court. A qualified lawyer can assist with making this process as seamless as possible.

Parenting

It is not likely that your loss of income will impact settled parenting arrangements. However, you may find yourself needing to reduce your parenting time with the children in order to focus on finding a new job. In this scenario, you may likely need to rely on the dispute resolution clause in your Separation Agreement or bring a Motion to Change a Final Order altering an access schedule in order to achieve the desired relief.

The Ghost of GM Present: Current Family Law Matters

If you are currently going through a legal separation from your spouse, the loss of employment income may affect a number of aspects in your separation, including but not limited to, support, assets and liabilities and alternative career planning.

Child support and spousal support

You may have credible grounds by which to vary a temporary Order for support in your legal proceeding. As an Order for support would have been based on your GM income at the time, the Order may be varied by the new circumstances. You may seek such relief at a pre-trial conference or by bringing a motion. It is not likely, however, that your loss of income resulting from being laid off will extinguish your entire obligation to pay support. Rather, you may still be required to pay support on the basis of employment insurance income or imputed income. However, the extent of any such continuing obligation depends on the particular facts of your case.

Assets and liabilities

The loss of employment income may result in a budgetary deficit, impacting your ability to keep the matrimonial home. If you are no longer able to maintain your share of the mortgage and bills associated with the matrimonial home, it may have to be listed for sale—which may be the most poignant of all of your post-closure concerns. Worry not. There may be options available to you for preventing this outcome such as, a buy-out, borrowing or disposition of investments, RRSPs, RRIFs or your GM pension. However, the viability of these options to save the matrimonial home will need to be assessed against the surrounding issues in your proceeding such as support, equalization and other issues relevant to your case.

Alternative career planning

You may wish to delay your re-entry into the workforce to obtain credentials in a more stable industry. While this will yield economic benefits in the long run, your current financial obligations of support and solvency will be deciding factors. Delayed income generation caused by alternative career training may likely be manageable provided that the financial obligations of your ongoing separation are minimal. However, your freedom and ability to pursue such an undertaking may require a corresponding compromise and will depend on the unique facts of your case.

The Ghost of GM Future: Potential Family Law Matters

If you have been planning to separate from your spouse, the loss of employment income can have significant family law implications on a number of obligations arising in separation, including but not limited to, support, parenting and family property.

Child support and spousal support

It is not likely that being laid off will defer support obligations. You may be obligated to pay support if you receive employment insurance income sufficient enough to meet legislative minimums. If you do not qualify for employment insurance, your spouse may still seek support by imputing an income on you commensurate with your work experience, whereby you will be required to pay support. In either scenario, the obligation to pay child support and spousal support may survive the loss of income depending on the facts of your particular situation.

Parenting

It is likely that being laid off will mean expanded parenting time. While increased parenting time may yield social benefits, it may also impinge on your economic rehabilitation. Your spouse may expect you to dedicate your new found time to caring for young children who are not in school. These, and other significant changes to parenting time after initiating your separation, may likely hinder your re-entry into the workforce. A properly drafted parenting agreement can help by moderating unrealistic expectations.

Family property

You will have a legal duty upon separating from your spouse to avoid the reckless depletion of family property. While you may wish to list personal or real property for sale to help make ends meet, it is not likely that you will be able to freely dispose of family property after your date of separation without your spouse’s prior consent or proper accounting. You will have to be mindful of how you manage family property as mismanagement may prejudice the equalization of net family property and may result in a Court order.

Bottom line

The closure of GM’s Oshawa assembly plant in 2019 will disrupt the lives of many families, the impact of which might be felt most by those dealing with a potential, current or settled family law matter. Contacting a lawyer for legal advice tailored to the particular facts of your case is a proven way to mitigate the effects of an imminent disruption to income. While it may seem impossible to afford a lawyer at this time, there may be options available to finance the cost of much-needed legal representation.

At Russell Alexander Collaborative Family Lawyers our focus is exclusively family law, offering pre-separation legal advice and assisting clients with family related issues including: custody and access, separation agreements, child and spousal support, division of family property, paternity disputes, and enforcement of court orders.

Court Curbs Father’s Social Media Activity

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Court Curbs Father’s Social Media Activity

The decision a case called Cooper v. Primeau serves as good illustration of the level of detail that a court must address, in disputes between parents and former spouses.   In this ruling, the court took specific aim at the father’s habit of posting derogatory comments about the mother on social media such as Facebook.

The factual underpinnings were rather routine, involving normal matters such as custody, access and child support of the separated parents’ two children.  After several prior rulings, the court was left with two issues:

  • Whether the parents were required to provide each other with their updated phone number; and
  • Whether the parents may post photos and information about the children on social media such as Facebook.

Issue around providing a phone number turned out to be easy:  The father indicated before the court that he was prepared to agree to providing the phone number as long as the calls from the mother were limited to emergencies regarding the children.  The court made an order accordingly.

But the social media aspect was a little more contentious.  The mother made several accusations around the father’s use of the internet, including that he had:

  • Blocked her on social media;
  • Used social media to broadcast and discuss his ongoing dispute with the wife regarding access to the children; and
  • Used “crowdfunding” through social media to raise funds to assist him with his legal costs. In doing so, he was very critical of the mother in his plea for funds.

In his defense, the father contended that he wanted to continue to use Facebook as a means for his family to get to know the children.

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Nonetheless, the court concluded that while it may be reasonable to allow him to publish photos and comments about his children generally, these types of posts could justifiably include any mention of the legal dispute between the parents, or any derogatory comments about the mother. The court noted that “associating the children to such a legal battle [between the parents] in a public forum is not in their best interests.”

Ultimately the court made an order about the social media aspect on specific terms:   Posting photos on Facebook was okay, but posting comments on his dispute with the mother, making derogatory comments about her, or posting anything about his access issues to the children, was not.

For the full text of the decision, see:

Cooper. v. Primeau, 2018 

At Russell Alexander, Family Lawyers our focus is exclusively family law, offering pre-separation legal advice and assisting clients with family related issues including: custody and access, separation agreements, child and spousal support, division of family property, paternity disputes, and enforcement of court orders.  For more information, visit us at RussellAlexander.com

 

Judge Hopes “Sting” of Paying Full Legal Bill Brings Warring Couple to Their Senses

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Judge Hopes “Sting” of Paying Full Legal Bill Brings Warring Couple to Their Senses

In a brief ruling on costs in an acrimonious family dispute the court tried to restore focus to the separated parents, who had each incurred $15,000 in legal costs for a set of motions and cross-motions that should never have been brought in the first place.

The parents’ motions related to various issues around spousal support, child support, and payments for extraordinary expenses about which they could not agree.  Even considering that the father came out slightly ahead on the motions overall, the court said his “victory is pyrrhic”.

More importantly, the court said that both parents’ behavior “is in dire need of correction,” given their lack of timely disclosure of income information, lack of true attempts at compromise, last-minute demands of each other, and mutual fixation on items that did not advance the resolution of their issues.  (In illustration, the court pointed out that the parents’ discussion about buying a new $99 hockey stick continued over two months).

In explaining the decision to let the parents each bear their own legal costs on the motions, the court began by observing that the dollar-values being fought over were small:

Relative to the value of the file, it is clear that the parties have lost all sight of proportionality. This motion ought never to have been brought. The value of the issues the parties are fighting over is relatively small. The spread between positions of the parties is $20,658. The net judgment is $4,291.07, in Father’s favour.

The court also noted the avalanche of paperwork that needed to be filed in support of these motions:

In comparison to the value of the matter at issue, the record on this Motion to Change is 5 inches thick, setting aside the material filed for the Refraining Order. For this motion alone the parties filed 5 Affidavits appending 50 multi-paged exhibits. In addition, Father filed a case book and memo of argument.

Nor did the potential toll on public resources go unnoticed:

I have no doubt that each parties’ solicitor and client bill will not be less than $15,000.00. I have not attempted to calculate the cost to the public purse, or the effect that this motion had on the availability of court time for other litigants.

The court concluded:

I hope that the sting of each litigant paying his or her full legal bill without recovery from the other will encourage both parties to attempt to resolve their minor issues without the expenditure of large amounts of their and the public’s resources.

For the full text of the decision, see:

Bolland v. Bolland

At Russell Alexander, Family Lawyers our focus is exclusively family law, offering pre-separation legal advice and assisting clients with family related issues including: custody and access, separation agreements, child and spousal support, division of family property, paternity disputes, and enforcement of court orders.  For more information, visit us at RussellAlexander.com

Should Real Estate Downtown Be Factored into Realtor’s Income for Support Purposes?

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Should Real Estate Downtown Be Factored into Realtor’s Income for Support Purposes?

Many of you will know that for child and spousal support purposes, the amount of annual income that a support-payor earns is tied to the amount of support that he or she must pay (although this is subject to other considerations as well).  In a recent Family Law case from B.C. the husband, a prominent and highly- successful  real estate agent, argued that the volatility and uncertainty in the real estate market should be factored into assessing his income for use in his divorce proceedings.

As background:  Under federal divorce and child support law, courts extrapolate a support-payor’s income using the past three years of his or her earnings.  In this case, that amount averaged about $2 million per year. The husband’s realty company – of which he was the sole shareholder – had done extremely well, with 7-year earnings of over $13 million.

Nonetheless, the husband claimed that his past earnings were not necessarily reflective of his future earnings, because of the uncertainty in the West Vancouver real estate market in which he worked.   He predicted an imminent downturn sparked by government’s Foreign Buyer’s Tax (among other things), which in turn would impact his ability to pay support for his former wife of 17 years and for their two children.  Although they had lived a lavish lifestyle in the past, he asked the court to take note of a pending market downturn, and adjust his support obligations in a commensurate manner.

As the court explained his argument:

The [agent husband] argues that it would be devastating to him if his income for support purposes is based on an average of the realty company’s past three years’ net income. He says that the real estate market slowed down from 2016 to 2017 and is likely to slow further down in 2018. He argues that the slow down has been caused by the foreign buyer’s tax, the tightening of residential mortgage insurance rules, and the increases to the Bank of Canada interest rate. The [husband] says these have resulted in a general tightening in the mortgage financing marketplace. Further, he says there is a hesitancy in the real estate market due to uncertainty over what steps the NDP government might take, some of which have been announced since the [husband] swore his affidavit.

The court essentially accepted some – but not all – of the husband’s argument.  It agreed that the upward trajectory of Vancouver-area real estate prices has likely ended, and accepted that the husband had “reason to be pessimistic about the real estate market and hence his income.”

However, the court found it reasonable to conclude that any negative impact has already been felt by now. The court accordingly looked at the husband’s 2017 income figures, together with his income for 2018 thus far, and set the child and spousal support figures accordingly.

For the full text of the decision, see:

Thiessen v Soprovich

At Russell Alexander, Family Lawyers our focus is exclusively family law, offering pre-separation legal advice and assisting clients with family related issues including: custody and access, separation agreements, child and spousal support, division of family property, paternity disputes, and enforcement of court orders.  For more information, visit us at RussellAlexander.com

Father Says Kid’s Karate is OK, but MMA is Not; Court Rules on Special Expenses

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Father Says Kid’s Karate is OK, but MMA is Not; Court Rules on Special Expenses

As readers of my Blog will know, under the rules relating to child support in Ontario, parents are obliged to financially support their children, and this duty comes to the forefront when the parents are separated or divorced.

However, there are actually two distinct aspects of that mandatory child support:  1) The one for basic support that is set out in the Child Support Guidelines (CSGs); and 2) the “special or extraordinary expenses” that are allowed for in s. 7 of those same Guidelines.

“Special or extraordinary expenses” are defined to include items such as:

  • Child care expenses incurred as a result of the custodial parent’s employment, illness, disability or education or training for employment
  • The portion of the medical and dental insurance premiums attributable to the child
  • Certain health-related expenses
  • Extraordinary expenses for primary or secondary school education or for any other educational programs that meet the child’s particular needs
  • Expenses for post-secondary education
  • Extraordinary expenses for extracurricular activities

If one parent refuses to agree to pay for a particular special expense, the other parent may have to apply to the court to have a judge make a determination, the legal test being whether it is both “reasonable” and “necessary” in the circumstances.

This was the situation in the very recent case of Newstead v. Hachey, where the court considered whether the child’s Mixed Martial Arts (MMA) training – which the mother had unilaterally enrolled him in – was justifiably a section 7 special expense.   Although the child was also enrolled in Karate, the father thought the MMA training was inappropriate because of its violent focus.  He continued to help pay for it under protest, but asked the court to decide.  The court explained:

While the husband is not happy with certain expenses being incurred by the wife for the children without his consultation or approval, he has not balked at paying.  … He did not agree with the wife’s decision to put [the son] into Mixed Martial Arts.  His view is that while Karate provided a benefit to the child, MMA is different as the only objective of the sport is to hurt or subdue the opponent.  He is afraid that sends the wrong message to [the son], who has had behavioral issues which times included aggression.  Still, despite his protests, the husband is not refusing to contribute to these expenses.

The court pointed out that section 7 of the Guidelines does require the parents to consult or agree to the MMA lessons, but it was a factor the court could take into account in assessing reasonableness:

Section 7 does not specifically require prior consultation for allowable expenses; the test rather is that the expense must be reasonable and necessary.  Section 7(1) of the CSGs says “the court may … provide for an amount”.  The relief, as such, is discretionary.  It follows that a failure or refusal by a claiming parent to discuss the expense with the other parent in advance could bear on the court’s exercise of its discretion in determining whether the expense is reasonable or, for that matter, whether it is necessary.

In the end, the court essentially allowed for the MMA expense to be shared in the overall support calculations, but admonished the wife that she could have those kinds of costs denied in the future simply because she failed to consult with the father beforehand.  The court said:

I encourage the parties and in particular the wife to have these discussions in advance, and simply caution both parties that how they approach future expenditures could impact whether they would be allowed by the court if contested.

For the full text of the decision, see:

Newstead v. Hachey

At Russell Alexander, Family Lawyers our focus is exclusively family law, offering pre-separation legal advice and assisting clients with family related issues including: custody and access, separation agreements, child and spousal support, division of family property, paternity disputes, and enforcement of court orders.  For more information, visit us at RussellAlexander.com

Changes to Divorce Act Recommended

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Changes to Divorce Act Recommended

The Canadian Bar Association (CBA), which is the largest professional, nation-wide association for lawyers in Canada, has recently recommended updates to the federal Divorce Act. Put forward by the CBA’s Family Law Section, these suggested changes are aimed at reflecting new realities related to modern-day parenting.
The proposed changes relate to three topics:

• Relocation – Although the test for a court ordering a child to be relocated hinges on the “best interests” of that child, courts are given little guidance on how to apply that test in specific cases. The proposed legislative changes would improve clarity and consistency.

• Child Support in shared parenting situations – The suggested amendments call for the legislation to include a formula for determining child support in shared parenting situations. Currently, the proper approach for courts to apply is complex.

• Updating Divorce Act terminology – The CBA’s proposed changes would see both the Federal Child Support Guidelines and the Divorce Act get updated so that terms such as “custody”, “access” and “best interests of the child” are modernized and replaced with more progressive terms. In particular, the clarity and meaning of the latter term would benefit from incorporating specified factors such as the impact of the child’s cultural, linguistic or spiritual upbringing, as well as the question of whether there is domestic violence in his or her home life.
If for no other reason, from a sheer temporal standpoint this kind of “freshening up” of the Divorce Act is long overdue, since it’s provisions have not been significantly amended for 30 years.

At Russell Alexander, Family Lawyers our focus is exclusively family law, offering pre-separation legal advice and assisting clients with family related issues including: custody and access, separation agreements, child and spousal support, division of family property, paternity disputes, and enforcement of court orders. For more information, visit us at RussellAlexander.com

Can Bankrupt Wife Still Claim for Equalization of NFP?

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Can Bankrupt Wife Still Claim for Equalization of NFP?

If a spouse declares bankruptcy, is he or she then prevented from claiming for equalization of Net Family Property (NFP?) under Ontario Family law?

That was the question in Kinsella v. Mills, which involved a couple who had separated after 7 years of marriage. At that point, they signed Minutes of Settlement that finalized the splitting of their financial affairs, which was intended to deal with all issues including spousal support, equalization of NFP and constructive trust claims.  The Settlement reflected the couple’s agreement that the husband would take sole ownership of the matrimonial home and assume all debts and costs, and in return would pay the wife an agreed lump sum, together with a monthly amount.

Less than a year later, the wife declared bankruptcy.  She was automatically discharged nine months later.  The couple’s divorce was formalized a few months after that.

The wife then applied to the court to set aside that Settlement, claiming that it was unfair, signed under duress, and in a situation where she had no independent legal advice and did not know what she was signing. If she was successful, the wife planned to re-launch her claim for equalization of NFP, and wanted it divided unequally in her favour.

The husband resisted, pointing out that after the marriage breakdown he was left with a large amount of debt.  Because of the wife’s bankruptcy, she was released from having to pay it, but he was still saddled with debt that they had rung up together.  Nothing about the Settlement was unfair, in his view.

The court was asked to make a ruling.  It observed that nothing in the Family Law Act or the federal Bankruptcy and Insolvency Act  specifically prevents a spouse from making a claim for equalization of NFP after declaring bankruptcy. However, after examining the interplay between the two, the court concluded that the legislation operated to effectively do so.  The court noted the following:

  • The wife’s claim to any equalization payment from husband fell within the very broad definition of “property” under the bankruptcy legislation.
  • The moment she declared bankruptcy, she was no longer entitled to dispose of or otherwise deal with her property. Instead, it immediately vested in the bankruptcy trustee.
  • Once any equalization claim vested with the trustee – and unless the trustee actually joined the wife in the Family Law proceeding – the wife’s hands were tied.

The court added that this impasse be remedied by the wife being discharged as a bankrupt, but getting the trustee’s consent to go forward, or by firing the trustee.  The Family Court also had no authority to undo the wife’s bankruptcy.

Having found the wife to lack the capacity to bring the equalization claim, the court added that the Settlement itself was not subject to being undone, since there was no evidence of duress.  The wife had also failed to obtain legal advice before signing it, despite being encouraged to do so.

For the full text of the decision, see:

Kinsella v. Mills

At Russell Alexander, Family Lawyers our focus is exclusively family law, offering pre-separation legal advice and assisting clients with family related issues including: custody and access, separation agreements, child and spousal support, division of family property, paternity disputes, and enforcement of court orders.  For more information, visit us at RussellAlexander.com