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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.

Can a Wife’s Contribution to the Welfare of the Family be Worth $1 billion dollars?

Can a Wife’s Contribution to the Welfare of the Family be Worth $1 billion dollars?

This could be one of Britain’s biggest divorce cases exceeding $1 billion Canadian dollars.

The Guardian reports that Tatiana Akhmedova is seeking a claim against her former husband, a Russian billionaire.

The paper reported that she has not received “a penny” and the case is under appeal. The Guardian also reported on the trial decision.

Akhmedov argues “she was due almost half of their £1bn fortune due to her “equal contributions to the welfare of the family” during their marriage”.

The case has similar overtones to the British case Antonio v. Rokos, [2016] EWHC 520 (Fam); Case No. ZCI5P04051, February 15, 2016, High Court of Justice Family Division that considered a mother’s child care budget that included £10,555 a year for wine.

So, what do you think? Does Akhmedov’s argument that her contributions to welfare of the family is worth up to $500 million dollars?

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Should Support Be Extended When the Recipient Spouse Loses Their Job?

In a recent case called Lawder v. Windsor, the court grappled with the issue of whether a support-paying spouse should have to pay for a longer period if the other spouse unexpectedly loses his or her job.

The couple had divorced in 1998 after 16 years of marriage. In 2000, the husband had been ordered by the court to pay $800 in monthly spousal support to the wife. He continued to make those payments until 2012, when he applied to the court for an order terminating his support obligations.

The husband claimed that in the circumstances, 12 years of paying support had been enough: he was now 56 years old and retired (he took an early retirement option as part of his termination due from a long-held job due to downsizing), and was two part-time jobs earning about $10 an hour. He also received a pension.

On the other hand the wife, now aged 51, was also employed and had enjoyed a steady increase to her income in the past five years. Unbeknownst to the husband, her income during that period rose from $38,000 to over $62,000 in 2012.

The glitch, however, was that the wife had recently lost her job due to corporate restructuring. She had received a termination package, but on the grounds that she was now unemployed she wanted the husband to continue paying support. (The court pointed out that she had provided no proof that she was actively looking for work, however).

The court considered the circumstances, and declined to extend support; it terminated the husband’s support obligations effective one month hence.

The court reasoned that spousal support was designed in part to compensate the wife for any economic disadvantage that she had suffered as a result of the marriage or its breakdown. That goal had been achieved through the husband paying support since 2007; the job loss now had nothing to do with the marriage or its breakdown.

Further, it was clear that the wife had achieved economic self-sufficiency: she had gotten a good job with a high degree of responsibility, and her income had increased steadily in the past five years alone. She had also never asked for a review of the support order and had never taken advantage of its built-in indexing of support amount.

In short: The wife’s recent job loss was not a good reason for extending support now; there was nothing to suggest that her temporary unemployment would affect her self-sufficiency in the bigger picture, and any short-term financial setback was something she could address through her own efforts and diligence.

For the full text of the decision, see:

Lawder v. Windsor, 2013 ONSC 5948  http://canlii.ca/t/g0qb3

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 – Video

 

 

Wednesday’s Video Clip: 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.

In this video we review some key points to keep in mind.

The Ins and Outs of “Income”

 income

The Ins and Outs of “Income”

If you are the person obliged to pay child support, you likely know that one of the basic principles of Family Law is that the amount you are required to pay under the Canadian federal Child Support Guidelines is directly related to your income. It sounds simple enough; however there are some important points to know:

• For these purposes, your “income” means annual “total income” which is usually the amount found on the T1 General form as issued by the Canada Revenue Agency.1

• However – as discussed below – in some circumstances this amount may be adjusted by a court, or a different year’s tax return may be used.

• Also, the law recognizes that the amount disclosed on the tax return is not necessarily the same as the income that is calculated using the various listed “sources of income,” as those various categories are set out on the T1 tax return.2 (Usually they are the same, but not always – e.g. if you have not yet filed a return, or if the one you filed is not proper). So it is the latter amount that governs for Guidelines purposes.

There are some additional exceptions and qualifiers to this general rule:

• The Guidelines do not require that “income” is the figure on the last income tax return in every single case. Perhaps you have had an unusual year – your income may be higher or lower for that year due to some unique circumstances. In such cases, the court had the discretion to “consider more than a single number on a tax return”.3

• You and your spouse can also agree to some slight modifications to the general rule. For example:

o You may agree by way of separation agreement to use a prior year’s line 150, rather than the current one; the court may uphold this kind of adjustment if appropriate.4

o With some restrictions you may agree to use a different date from the one otherwise used for the taxation year. 5

• Finally, a court can itself make adjustments to the “income” amount in the right circumstances:

o For example, it can use an average of the past few years, if that is more representative determination of the amount.6

o Similarly, in unusual situations a court may add to your “income” – for example by adding back the amount of voluntary charitable donations you make in a year.7

Note that if for some reason you feel that the line 150 income amount is not the fairest determination of your income, then you have the burden of showing that this is the case.

For the full text of the decisions, see:

1. Bak v. Dobell, 2007 ONCA 304

2. Henry v. Henry (1997), 1997 CarswellOnt 4399 (Ont. Gen. Div.)

3. Clark v. Clark, 2012 ONSC 1026; additional reasons 2012 ONSC 1965

4. Hodge v. Jones, 2011 CarswellOnt 2582, 2011 ONSC 2363 (S.C.J.)

5. Crabtree v. Crabtree, 70 R.F.L. (6th) 371, 2009 CarswellOnt 1918 (S.C.J.)

6. Toon v. Toon, 2011 CarswellSask 511, 2011 SKQB 281 (Q.B.)

7. Zubek v. Nizol, 2011 CarswellBC 1481, 2011 BCSC 776 (S.C.)

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.

Top 5 Tips for Dealing with the Family Responsibility Office

tips

Top 5 Tips for Dealing with the Family Responsibility Office

A while ago I wrote about the role of the provincial Family Responsibility Office (FRO) More About The Family Responsibility Office, Some Common Problems Addressed.  (For those who aren’t aware: In Ontario, all child support orders are automatically filed with the FRO, which operates under legislation giving it an arsenal of mechanisms by which to encourage and enforce timely payment of support on the part of the paying parent.)

If you are such a payor pursuant to a court-issued Support Order, here are five tips for dealing with the FRO:

1. Always keep the FRO updated on address changes.

Otherwise, you may miss out on receiving the various noticed that the FRO is required by law to give you. These may include a warning that the enforcement mechanisms that can be levied against you are about to be stepped up – for example a notice that your driver’s license is about to be suspended.

2. Keep the FRO apprised of your employment situation.

If you have lost your job, have been laid off work, or have had your income reduced due to disability or a reduction of overtime, then the FRO should be made aware. In such situations your next step may be to obtain a variation of the filed child support order that triggers the FRO’s involvement in the first place, which will in turn affect the FRO’s role and mandate in the enforcement process.

3. Don’t ignore anything you have received from the FRO.

Many of the processes involving the FRO allow for only a few days for you to respond; the FRO may quickly escalate the remedies available to assist with collection and you don’t want to be surprised by any of them. The FRO’s available avenues for encouraging your compliance and payment can include: suspending your driver’s license or passport, a garnishee of your wages (via a “Support Deduction Order” sent to your employer), filing writs or liens against your property, seizing your income tax refunds and HST rebates, seizing your bank accounts and – last but not least – imposing jail time of up to 180 days.

4. Document everything.

This includes not only your correspondence with the FRO, but also the paper trail of any support payments that you have made. Payments to the FRO can be made by way of internet banking or telephone banking and may be the easiest to document; payments by cheque or money order are more cumbersome to track. But regardless of the method, make sure to designate the FRO case number on any payment that you make.

5. Always make the mandated support payments if you can.

As mentioned, the FRO has a wide arsenal of options to deal with delays or non-payment, including jail time if necessary. Naturally, these shorter-term consequences should be avoided if at all possible. But there can be longer-term drawbacks as well: arrears in child support payments will show up negatively on your credit bureau report, which can affect you for years to come.

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 http://www.russellalexander.com/practice/family-responsibility-office-fro-and-default-hearings/

So what do you think?  Do you have any tips or comments for dealing with FRO?

Ontario Child Support: Wednesday’s Video Clip

 

 

Ontario Child Support: Wednesday’s Video Clip

 Shelley, a senior family law clerk at Russell Alexander Family Lawyers, talks about custody and answers questions many people have about child support.

To learn more about child support or our other videos visit us at http://www.russellalexander.com/videos/  or join us on Facebook at http://www.facebook.com/RussellAlexanderFamilyLawyers