Skip to content

Posts tagged ‘ILA’

Is 15-Minute Meeting With Real Estate Lawyer Enough for Family Law ILA?

Legal Advice Button In Blue Showing Attorney Guidance

Is 15-Minute Meeting With Real Estate Lawyer Enough for Family Law ILA?
Legally speaking, domestic contracts are no different from other types of contracts, and require certain elements and prerequisites before they are considered valid. The question in a recent case was whether a separation agreement between a couple could be valid even if one of them had not taken the steps to truly understand its terms.

There, the spouses entered into a cohabitation agreement that provided they would receive back the equity they each invested in a home they purchased as an “impulse buy” back in 2002 while they were still dating. The home had been put in the husband’s name, and it was agreed he would get 70 percent of any increase in that equity. They also agreed that there would be no claims for spousal support or equalization of property.

Later, when the couple split up, they disagreed on whether the cohabitation agreement was effective. The stakes were high – if the wife succeeded in getting the agreement set aside, then the husband would owe her an additional $250,000 as part of the equalization process.

In assessing whether the agreement was valid, the court looked at the overall picture at the time it was signed. It was true that the wife had received independent legal advice, but the circumstances in which it was given had not been ideal: She had brief meeting with the real estate lawyer that was doing their house deal. He did not have her sign a separate retainer in connection with the family law part, did not open a separate file for her, and did not give her a reporting letter afterwards. Moreover, he warned that he did not practice family law and encouraged her to retain a family law colleague who had an office in the same building.

Still, the lawyer testified he and the wife chatted for (at most) about 15 minutes without the husband present, and they did discuss the agreement and he told her about the family law provisions that governed the situation, and he provided a certificate of independent legal advice (“ILA”) as required.

In reviewing this evidence, the court said:

I do not find credible his assertion that he performed all the described ILA functions within the 15 minutes in which he met with [the wife]. His testimony at trial of his advice to her took the better part of an hour. … In short, there was little if any service provided to [the wife] in the 30 minutes [the lawyer] met with her … 15 minutes of which was most likely with [the husband] present to sign the documents.

The court added that a lawyer’s role in giving ILA is to be satisfied that the person understands the nature and contents of the agreement, and consents to its terms.

Despite these shortcomings with the ILA, the court nonetheless found that this was not a case for the court to use its discretion to set aside the agreement. This was not the usual situation where one party had preyed upon the other; this was merely a case where the wife had failed to “self-protect.” Nor was this a scenario where the wording was unclear or that she did not understand its nature and consequences; the wife admitted that she had not really read it at all until after she and the husband had separated.

In short, the wife had no excuse for failing to get proper independent legal advice or read the agreement before she signed it. The agreement was therefore valid.

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 www.RussellAlexander.com.

Two Necessary Evils – Know Your Obligations re: Income Tax and Spousal / Child Support

Two Necessary Evils – Know Your Obligations re: Income Tax and Spousal / Child Support

Income tax:  Not a popular concept even at the best of times.   But add in the obligations which arise in the context of paying child or spousal support, and it’s enough to cause heart palpitations in most Canadians.

This is because the Canada Revenue Agency rules relating to how support payments are to be treated are quite complex.   To make things more confusing, the federal Income Tax Act has separate rules for spousal support as opposed to child support.   Here are the key points:

Spousal Support

Spousal support is generally deductible for the person who is paying, and is taxable as income for the recipient.  In contrast, child support is neither deductible nor taxable.

This means that a spouse who is receiving regular spousal support must report the payments as income, and the spouse who is paying it can deduct it off the top of his or her income in the same way that RRSP contributions may be deducted.   Lump-sum spousal support does not qualify for this, however, nor does spousal support paid indirectly (for example with one separated spouse agreeing to pay the mortgage payments of the other).

Note that this taxability/deductibility of spousal support payments only applies to payments being made pursuant to a written agreement or court order – informal arrangements made between the separating couple are not eligible for a tax deduction by the paying spouse.  Any written agreement of this type must state the date of separation, the terms and exact dollar-amount of the support payments that are to be made, and the date the support payments will commence.

Child Support

Child support payments are usually neither deductible by the parent who is paying them, nor taxable in the hands of the parent who is receiving them.   Once again, the payments must be made as a result of a written agreement or court order, which sets out the nature of the support being paid, the amount, and other details.  A lump-sum payment which does not specify that it is made in respect of child support , or that does not delineate between the spousal and child support portions, will not qualify for the deduction.  It is therefore important to ensure that any separation agreement or court order makes the terms and amount of the child support payments eminently clear.

Legal Fees and Expenses

The CRA also allows a deduction to the recipient spouse or parent for the costs of obtaining or enforcing a spousal or child support order, which includes legal fees and certain enforcement-related expenses.   The cost of defending a claim for support, or for the payment of arrears of support, is not deductible, however.

Get Advice Beforehand

Needless to say, this is just the tip of the iceberg in connection with how spousal and child support payments are treated for tax purposes in Canada.  Legal advice is a must.  But what most partners on the verge of separation or divorce often overlook, is that it’s best to obtain competent legal advice before coming to any agreement as to support.   Otherwise, you may fail to foresee the tax ramifications of an informal spousal and child support arrangement, which can result in unpleasant surprises at tax time. Expert, early advice from a lawyer is essential.

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  www.RussellAlexander.com.