Spousal Support and Income Tax

May 7, 2010 – 2:04 pm

An issue arises from time to time where one spouse has an obligation to pay spousal support to the other spouse, after a relationship has failed. The issue is income tax. Spousal support payments are one area of family law where tax savings may be possible.

If spousal support is being paid, the payor may be able to deduct the payments made, from their taxable income. At the same time, as always, what is a tax savings to one person is a tax burden to the other. The recipient of the support payments, has to declare, and pay income tax on, those payments.

Care should be taken however. The deduction will only be allowed if the payments are periodic and pursuant to an written agreement or Court Order. For example a ”one-time” lump sum payment, of spousal support, is not going to be tax deductible to the payor.

As well, any agreement to pay periodic spousal support, needs to be in writing, an oral agreement to pay will not be sufficient. If periodic payments have been made (usually monthly), prior to a written agreement, it may still be possible to have those earlier payments, made tax deductible in the agreement, if the correct wording is used.

Deductibility of spousal support payments offers a rare example of a possible win/win for parties from a income tax point of view. If a payor earns more than the recipient the amount of tax saved by the payor may be more than the amount of additional tax paid by the recipient on the spousal support payments. Depending on each person’s income, the payor could also agree to protect the recipient from any additional income tax incurred. In those circumstances, each side would either end up either paying less tax or in the case of the recipient, having more money to spend, with no increased taxes to pay.

Should We Have an Agreement?

October 16, 2009 – 3:33 pm

It is not unusual for couples to consider entering into a written agreement, prior to commencing co-habitation or marriage. This is particularly true where one or both of the parties have been involved in an earlier relationship or where there are significant assets.

There is no question that while negotiating such agreements may not be terribly romantic, they can certainly prevent disputes, if the relationship subsequently breaks down. When considering such agreements what needs to be discussed in particular is what happens should the relationship survive for several years. An agreement that may be fair at the start of a relationship, may become very unfair after a couple has been together for many years.

One way to address such a concern, is to build in a gradual equalization of any asset division, as the years go by. For example, a spouse who enters a relationship with very little might receive an increasing share of the various assets, every few years.

If you and your partner are considering any sort of formal agreement, we can help. Contact us at the office most convenient for you.

The Adult Child

September 18, 2009 – 12:27 pm

From time to time clients will need child support for a child who is 19 years of age or older. Usually the amount of child support to be paid is fairly straight forward. You simply consult the Child Support Guidelines. The amount shown in the Guidelines will tell you the base amount of child support. For an adult child however the appropriate amount of child support can be more difficult to determine.

Depending on the circumstances, the ability of an adult child to support themselves may mean that the Guidelines do not apply. For example, if a child qualifies for student loans, or earns income during the summer months, there may be a reduction in the amount otherwise payable under the Guidelines.

Simply because a child is 19 years of age, or older, does not mean they have no entitlement to child support. The amount of child support for an adult child however, usually needs to be examined in greater detail than support for children under 19.

But We Have Joint Custody

November 4, 2008 – 9:34 am

When couples separate they often struggle with the issue of custody. Often each party will want to continue to parent their children, despite the separation. The concept of parenting however really covers two different issues. Parenting can mean who makes decisions, such as educational, health and well-being decisions, for the children. Also parenting can mean where the children reside. A joint custody arrangement deals with the first issue, not the second.

With a joint custody arrangement, parenting decisions are to be made jointly after discussion as to what is in the children’s best interest. Where the children actually reside remains a separate issue to be settled between the couple, despite any agreement for joint custody. The children may reside, for example, most of the time, with one parent, even though there is a joint custody arrangement in place. It is the residence arrangement that is used to determine who pays child support. Consequently when working out any custody arrangement it is important to discuss not just custody but also where the children are going to reside and for what length of time.

I Don’t Need a Lawyer.

May 16, 2008 – 3:45 pm

One of the problems the legal system is wrestling with these days are parties who represent themselves in Court. This is particularly common in family law situations. One or both parties may not be able to afford a lawyer. They may have no choice but to act on their own behalf.

Often family law trials are difficult emotional experiences for parties, even when represented by lawyers. Acting on their own behalf forces people to also deal with unfamiliar rules in surroundings that can be intimidating at the best of times.

Judges and court staff do the best they can to help people who represent themselves. Also constant efforts are being made to simplify legal rules, to make the judicial system easier to work with, for people who are not legally trained.

More recognition is being given as well to “unbundling” legal services. This means hiring a lawyer to assist in only certain aspects of a family law matter. For example, asking a lawyer for their input at only certain stages of the proceedings, rather than having that lawyer involved from start to finish.

The advantage of “unbundling” is that it can keep the costs down, yet also provide guidance to a party trying to represent themselves.

Who Gets the Pay Raise?

October 18, 2007 – 9:15 am

An issue that has troubled the law for many years is retroactive child support. The problem arises when a parent paying child support gets an increase in their pay. You would think if income goes up, child support would automatically go up as well. For many years however trying to get child support increased retroactively was not easy.

For example, if a pay raise was kept secret by the paying parent, the application to increase child support might occur years after the increase actually happened. Not surprisingly Courts were concerned about awarding a large lump sum for retroactive support, years after the fact, particularly if the child was an adult by the time the application was made.

The winds of change are starting to blow however. Our Courts are beginning to place a greater emphasis on the paying parent having to disclose increases in income, when such increases occur. It is certainly not an absolute requirement, yet, but the trend seems clear. If you are required to pay child support, and you receive an increase in your income, it makes sense to disclose that increase and adjust the amount you are paying under the Child Support Guidelines. A failure to do so, could risk a large lump sum award, years later.

The Angry Spouse

August 2, 2007 – 3:08 pm

Unfortunately family law can and often does involve emotions. One of those emotions can be anger. At times one, or both, of the parties involved in family law proceedings may be highly emotional. They may be very angry.

It is important to recognize this fact. The lawyer and their client need to deal with it. Many lawyers can and will recommend counseling, or other assistance for their client. Sometimes however the angry party may not be that lawyer’s client.

In such a case, because of the anger, settlement, through mediation, or otherwise, may be very difficult or impossible. Such a situation needs to be recognized and discussed. Not every party to a family law proceeding is reasonable.

You may be involved in such a situation, and yet want to move on with your life. Talk with your lawyer about what has developed but in such circumstances the best option may simply be to proceed to Court. No matter how many fair settlement proposals are made, if one person is angry and unreasonable, it may be impossible to settle.

Going to Court, in such circumstances, is not a failure to communicate. Instead, it is a recognition that a reasonable, fair settlement, cannot be obtained through negotiation. The time may have come to move forward in the only way possible, through a Court Order.

To Sue or Not to Sue

May 31, 2007 – 10:55 am

Often a family law client will ask if they should go to court. Sometimes you should and sometimes you should not. In some cases going to court is the worst possible step to take. In others it is the only step to take.

The real key to making this type of decision is whether each party is being reasonable as matters proceed. For example, is information about assets and income being disclosed promptly and completely? Are arrangements for such things as access to the children being accomplished with a minimum of fuss? Is financial help being provided in a reasonable amount, without the need for constant requests? Does there seem to be a will, by both spouses, to try and reach a settlement? All of these practical issues will help to determine whether there is a need for court proceedings.

Sometimes only one court application is needed to determine, for example, interim support. Sometimes every step has to be litigated. Sometimes there is no need to go to court at all. There is no one answer that fits every situation. The most important factor however, is usually whether there is a reasonable level of cooperation between parties. If so, court proceedings, and the accompanying costs, can often be avoided.

If you have questions call or email our office – (250) 656-3961 – reception@mclott.com

Why Everything Takes So Long

May 22, 2007 – 9:00 am

One of the greatest frustrations for clients in family law situations can be the length of time things seem to take. What may seem like a simple procedure to a client, for example, the drafting of a separation agreement, can stretch on for months. On occasion, family law litigation can take several years to complete.

Often a client has no control over many of the causes of the delay. Busy courts, overworked lawyers, and delay by the “other side” can all have a negative impact on getting the job done. Nevertheless there are some things a client can do to avoid unnecessary delay.

If a request is made, typically for financial information, it is important to get the requested information promptly. Be organized as well. It will only delay matters if a client gives their lawyer a mass of disorganized invoices, pay slips and income tax returns. Certainly the lawyer or their staff will eventually get everything organized but much time delay (and expense) can be avoided if a client takes responsibility for putting together the financial information in the form requested.

Finally, don’t be afraid to ask for time estimates from your lawyer. If things are not being done within the time estimated, then find out why. Often delay can be reduced or eliminated if there is regular communication between the lawyer and their client so that both know what needs to be done and when.

If you have questions call or email our office – (250) 656-3961 – reception@mclott.com

How Long Do We Have to Live Together?

May 15, 2007 – 3:03 pm

There can be confusion over how long a couple needs to live together before “rights” arise. Couples sometimes assume if they do not marry and live together for less than two years, there can be no legal claims. Although there is a two year requirement under the Family Relations Act, before a claim for spousal maintenance can be made, that is not the end of the matter.

For example, if a couple starts living together, each may bring assets into the relationship. One spouse however, may own much more than the other. One spouse might own a house. The couple might start living together in that house. At the same time, the non-owning spouse might, for several months, do a lot of work on that house.

Should the relationship fail, even though lasting only a few months, the non-owning spouse has a potential trust claim, for an interest in that house. There is a solution to this problem, known as a cohabitation agreement, the subject of another post.

If you have questions call or email our office – (250) 656-3961 – reception@mclott.com