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Posts from the ‘Credit Score’ Category

Couple’s Use of Support Set-Off Calculations Costs Husband His $15,000 Tax Credit

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Use of Support Set-Off Calculations Costs Husband His $15,000 Tax Credit

The husband and wife separated in 2011.  Based on their respective yearly incomes, they amicably resolved their issues as to child support by way of an agreement and consent order that was filed with the court.   They reached an agreement on child support by using a software program which, as the court put it, “introduce[d] various offsetting inputs and devise[d] a final unilateral payment from one spouse to the other.”

The outcome of the calculations was that the husband owed a single payment to the wife, who acknowledged that he was not required to pay further support for a specified time-period.   On this income tax return for the year, the husband then went ahead and claimed non-refundable child tax credits of almost $15,000 in respect of their two children.

As the court explained:

All of the usual stressful, difficult and emotional issues for this couple relating to child custody, financial support and raising a family within the constraints of marriage breakdown were resolved in a laudatory, sensible and agreeable fashion. [The husband] testified all issues settled amicably. Lawyers were involved to prepare all documents, undertake court proceedings and ensure all details complied with the parties’ wishes and the law. All seemed to unfold accordingly until the Minister’s reassessment disallowing the 2012 dependent deductions. Understandably, [the husband’s] child support commitment was predicated upon his use of the dependent deductions to reduce his taxable income.

The problem was that the Income Tax Act provision under which the husband had purported to claim that tax credit, namely s. 118(5.1), was an exception to the general rule in another section of the Act that disallows a support-paying person from claiming a tax deduction for dependents in certain stipulated instances.  Under the wording of that latter provision, the loss or non-use of the dependent deduction could be prevented only where both parents factually pay to the other an amount for child support.

In this case, since the spouses had essentially used a set-off procedure to come up with a single payment by the husband to the wife, there was no such payment by each of them separately, as the provision required.

Unfortunately, this meant that the Minister of National Revenue disallowed the $15,000 the husband purported to claim under s. 118(5.1) of the Act.  Because the husband was the only spouse to pay “a support amount”, the Minister concluded, he did not fall within the exception in s. 118(5.1) and was not eligible.

The husband appealed the Minister’s decision, but was unsuccessful.   The court pointed out that the case law precedent was uniform in its interpretation of the Act, and that the fact that the couple had used a set-off mechanism in the course of calculating their child support obligations to each other did not transform the respective and distinct values they used into “a support amount” as that term is used in the Act’s provision.  The Act, as worded, did not accommodate for the “expeditious use of a computer software program, the culmination of which is a unilateral payment of a support amount by only one parent to the other.”

Despite this outcome arguably based on technicalities, the court said it had “no alternative but to dismiss” the husband’s appeal, “however sympathetic it may be.”

For the full text of the decision, see:

Harder v. The Queen

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

 

 

My Spouse Has Bad Credit – What’s My Exposure?

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My Spouse Has Bad Credit – What’s My Exposure?

The decision to get married gives rise to many changes, including various legal obligations and liabilities. I often get questions about what risk each soon-to-be-spouse bears in connection with the other’s bad credit.
Generally speaking, the answer is “not much.”

For one thing, in Ontario the act of getting married to someone with bad credit will not affect the other spouse’s credit score. Rather, each spouse’s credit history remains separate and intact up to the point of marriage, and is not automatically “merged” (nor is there a legal obligation to merge them) afterwards. This means is that one spouse’s pre-marriage indebtedness, defaults, and financial liabilities will not sully the other spouse’s history; nor will prior good credit by one spouse serve to improve the historically bad credit score of the other. Moreover, individual credit scores remain separate after the couple has married.

(As an aside, it should be noted that the decision by a newly-married wife to change her surname to that of her husband will not “erase” any bad credit that she has. Her individual credit score is tied to her Social Insurance Number, not her last name. This means her credit score and credit history – good or bad – will follow her into the marriage).

But individual credit scores may still be negatively affected by what happens after the marriage, as a result of joint decisions made by the new couple. For example, a new spouse may decide after marriage to indirectly assume liability for the other’s existing debts, by jointly taking on a new loan to pay off existing pre-marriage debts. Similarly, any delinquent accounts, overdue credit cards, or other unmet financial obligations that are incurred jointly and expressly shared by spouses after getting married will adversely affect individual credit scores.

And while I mentioned that one spouse’s credit history is not automatically merged, the spouses may deliberately decide to add each other to their existing accounts (for example bank accounts, loans, or credit cards), which means that anything in both spouses’ histories will likely show up together. This is because lenders routinely do credit checks on all joint account holders or debtors; even if only one person uses the account or credit card, the credit histories and scores of both can be obtained. More importantly, as joint debtors each spouse becomes liable for the activities of the other, and each is responsible for making any payments. To put it simply: if the joint account, loan or credit card goes into default, then both spouses will be equally liable.

Finally, the question sometimes arises whether the post-marriage bankruptcy of one spouse will affect the other. Once again, the short answer is “usually not.” Provided that the spouses have kept their individual debts separate post-marriage, one spouse’s decision to declare bankruptcy will usually have no financial effect on the other spouse and his or her credit rating. There are exceptions, however, and it is important to obtain quality legal advice from a lawyer and accountant before deciding to take such a step.

At Russell Alexander, Family Lawyers our focus is exclusively family law, offering pre-marriage legal advice. For more information, visit us at http://www.russellalexander.com/team/russell-alexander/