Gene C. Colman - Family Law Centre - Child Support Changes

This article is published in (1998), 15 Canadian Family Law Quarterly 229. There have been amendments to the Child Support Guidelines since this article was published.

OUTLINE

INTRODUCTION

TO WHOM DOES THE NEW LAW APPLY?

HOW DO WE DETERMINE WHAT CHILD SUPPORT GUIDELINE AMOUNT IS APPLICABLE UNDER THE NEW SYSTEM?

DISCLOSURE REQUIREMENTS

SPOUSAL SUPPORT AND CHILD SUPPORT RELATED

WHAT ARE SOME OF THE PROBLEMS WITH THE NEW SYSTEM?

CONCLUSIONS

INTRODUCTION

Monumental Changes: Assessment of child support in Canadian divorce cases has been revolutionized. The May 1, 1997 amendments to the Divorce Act and the passing of an accompanying Regulation (referred to as the “Guidelines”) constitute the single most dramatic change in family law in many years. While the legislation and the Regulation apply to all Divorce Act matters, not all provinces and territories have adopted their own revised systems. Therefore, child support matters that are adjudicated under provincial law (i.e.: non divorce cases, common law cases, paternity cases) should still, at least in theory, be subject to the existing law where the province has not yet amended its own child support legislation. (A caveat: Many judges appear to be applying the federal amendments to the Divorce Act even in cases that are technically under provincial legislation.)
Standardized Table Approach: Generally, the amount of child support to be paid will be based upon two key factors:
1. the non custodial parent's income; and,
2. the number of children to be supported.
Once these two points are determined, one looks at standardized tables for one's own province or territory. The income of the non custodial parent is matched to the number of children; this determines the amount of monthly support, in first instance.
Custodial parent's income: Note that we do not list the custodial parent's income. That parent's income is relevant only in certain situations that will be discussed below.
No Tax: With respect to all Divorce Act orders that have a commencement date on or after May 1, 1997, child support will no longer attract tax in the hands of the parent who receives it; neither will it be tax deductible to the person who pays it (the payor). These provisions are found in the amendments to the Income Tax Act and do apply to all child support orders - whether under the Divorce Act or under provincial legislation.
Financial Disclosure: The new system mandates very early disclosure of such key documents as income tax returns and company financial statements. In some cases, this disclosure can be compelled even before the commencement of litigation. Failure to comply with one's obligations to disclose certain documents can result in serious consequences.
Does a current order or separation agreement continue?: If one already has a separation agreement or a court child support order, it remains valid and the same tax consequences will continue, provided neither side does anything. However, either side will now be able to apply to the court to have the new system apply and there is nothing that can be done to prevent this. Such a court application will likely necessitate a change in the amount of support being paid and the new tax treatment would then apply.
Terminology in this paper: When I use the term “spouse”, I also mean “former spouse”.
Structure of the new system: The outline of the system is found in the amendments to the federal Divorce Act and other federal statutes. The actual Guidelines themselves are found in a Regulation passed formally by the Governor General in Council. It is the Regulation that is technically known as the Federal Child Support Guidelines. The new income tax treatment is found in amendments to the Income Tax Act.

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TO WHOM DOES THE NEW LAW APPLY?

New orders: The new law will apply to all child support orders made under the Divorce Act from May 1, 1997. There is no possibility to opt out of the system where periodic child support orders are made.

(Note: Some argue that due to the technical structure of the Income Tax Act, that it is still possible to negotiate a separation agreement with tax deductibility where child support payments have been made in 1996 with the contemplation that the written agreement would be finalized in 1997. A 'deeming provision' in the Income Tax Act treats the separation agreement as having been made in 1996. This may be a dangerous loop hole to rely upon. Counsel would be well advised to seek an advance ruling from Revenue Canada.)
Opt in by commencing court proceedings: The mere passing of the new system into law on May 1, 1997, constitutes a material change in circumstances that in itself constitutes sufficient legal basis for a variation application. Therefore, one spouse may unilaterally determine that both shall “opt in” simply by commencing court proceedings. This applies where there is:
1. in the case of Ontario, a separation agreement registered in the Provincial Division Court or Family Court;
2. a separation agreement sitting in files at home and not registered;
3. an existing order.
  
  In other words, if you have a separation agreement or even a fairly recent court order, a spouse can take the case back to court and have child support recalculated under the new system.
Not divorced? What is the legal impact for spouses who are not divorced and have either an order under provincial legislation (such as Ontario's Family Law Act) or have a separation agreement? Either spouse may petition for divorce and have child support determined under the new system. Until that is done, the existing order and its deductibility/inclusion tax treatment continues (provided the order was made prior to May 1, 1997).
Existing orders and agreements: Those with existing child support orders or existing separation agreements may, if neither takes any steps, maintain the current tax deductibility - income inclusion system. In other words, if one does nothing, then nothing changes. On the other hand, if both parties wish the new tax rules to apply to their order or agreement, they can sign Revenue Canada Form T1157 and thus obtain the new tax treatment. Beware. While Form T1157 changes the tax treatment, it does not and cannot change the actual amount of the support. The amount of child support paid pursuant to either an order or a written separation agreement should be legally changed to reflect the new tax treatment. Do this properly. Do not rely upon oral representations of either side where spouses co-operatively decide to opt into the new system.
Provinces: It is open to a province to simply adopt the federal scheme or to implement its own system. Therefore, cases heard under provincial law (i.e.: non divorce cases, common law cases, paternity cases) should still, at least in theory, and until a province adopts its own legislation, be subject to the existing law. As developments here may come quickly, it is advisable to ascertain what the up to date law is in one's own province.
Automatic adjustments to support levels in the future: The legislation provides that the Minister, in agreement with the provinces, can, by regulation, change the guideline monthly support amounts thus obligating everyone at a set income level to pay at the new increased level of support.

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HOW DO WE DETERMINE WHAT CHILD SUPPORT GUIDELINE AMOUNT IS APPLICABLE UNDER THE NEW SYSTEM?

In order to determine how much child support should be paid, we must proceed through a multi step process.

STEP #1: IDENTIFY THE CHILDREN

Determine which children qualify as children within the meaning of the Divorce Act, in the particular family unit. (Do not count children from other relationships living elsewhere.)
1. Is the child under the age of majority [in Ontario = 18 years of age]? OR
2. Is the child 18 years of age or over? If yes, go to the next stage.
If the child is 18 years of age or over:
1. Is the child under the charge of parent but unable by reason of any of the following reasons to withdraw from the charge of that parent OR to obtain the necessaries of life by reasons of:
  1. illness?
  2. disability?
  3. other cause?
2. The words, “pursuit of reasonable education” were included in the Commons bill before it went to the Senate and after some negotiation, the words were removed. It is quite likely that the existing case law with respect to supporting university students will still pertain (and would have applied nonetheless under the previous wording of this section).
What will be the treatment of children under existing separation agreements or orders where a cap was placed such as age 21 or age 22? Given the general tenor of the legislation and the attitude of Canadian courts to those obligated to pay support, I suggest (or speculate?) that it is quite possible that a court may disregard such age limitation under the new system, and order that child support be continued.
Having determined the number of children whom one is obligated to support, we may then move to the next stage which is to determine the income of the payor.

STEP #2: DETERMINE THE PAYOR'S INCOME

Custodial parent's income: Initially, we ignore the custodial parent's income. (See Step #3 for consideration of the custodial parent's income.)
Essential to determine true income: Under the new system, it becomes essential to determine what is truly the payor's income. A figure must be arrived at in order to provide a base from which we can move to the following stages and in order to determine whether child support should be changed in the future. In the past, especially for self employed individuals, we would occasionally just make a settlement without both sides agreeing on what was truly the payor's income. From now on, any such agreement will have to state what the payor's income was agreed to be. The court may accept that agreement “if the Court thinks that the amount is reasonable”. [Guidelines, s. 15 (2)]
Examine the tax return: Look at the various Income Sources as listed under the "Total Income" heading on the payor's tax return. While such income sources must be examined, we cannot ignore any changes that may have taken place since the payor's most recent tax return.
Make adjustments: Adjust those amounts in a certain technical manner as described in Schedule III to the Guidelines so that one's true cash flow is reflected. Some elements of these adjustments are as follows:
1. Dividends and capital gains: We must replace:
  1. the taxable amount of dividends from taxable Canadian corporations received by the spouse by the actual amount of those dividends received by the spouse;
  2. the taxable capital gains realized in a year by the spouse by the actual amount of capital gains realized by the spouse in excess of the spouse's actual capital losses in that year.
2. Non arms length add backs: We must add back into income - salaries, wages or management fees paid to non arms length parties unless the spouse establishes that these payments were necessary to earn the self employment income AND were reasonable in the circumstances.
3. Shareholders: The Guidelines include measures to allow the court to essentially pierce the corporate veil for purposes of determining "income" with respect to corporate structures.
4. Capital Cost Allowance: Add back into income any deduction taken for capital cost allowance with respect to real property. (Note: There is no provision to add back in capital cost allowance or depreciation taken on other assets.)
Look at income patterns: Is the last year's income tax return sufficient evidence? No. Look at the pattern of income generated over the years and in the particular year. Having examined income in first instance as described above, the court on paper then has a great deal of discretion if the amount determined in first instance "would not provide the fairest determination of the annual income from that source” [Guidelines, s. 17 (1)]. The court, in this situation, is permitted to:
1. consider increases or decreases in income sources over the last three years and then determine income based upon the most recent year only;
2. where the income source has not increased or decreased steadily for the last three years, the court may take the average amount from that income source OR in that situation, the court may take any other income figure that the court considers to be "appropriate";
3. consider non-recurring amounts received over the last three years and take any portion of that amount as the court considers appropriate.
Adjusting income: Self employed individuals, as always present a special challenge to the legal advocate, whether acting for the payor or for the payee. The new system, under section 19 of the Guidelines, will allow the court to impute income where appropriate. When acting for the payor, the lawyer should not blindly accept the previous year's tax return as a true reflection of income. Perhaps there were unusual and not be repeated bonuses or other sources of income. By carefully examining the situation, an argument can be made that the previous year's income tax return was not typical and based on performance so far this year, the previous year's income is not likely to be attained. Likewise, when acting for the support recipient, the lawyer should carefully examine the income tax returns and other information to determine whether the payor should be assessed at a higher level.

STEP #3: DETERMINE WHETHER OR NOT THE CUSTODIAL PARENT'S INCOME MAY BE RELEVANT

Four circumstances to consider in first instance: There are four circumstances under which the custodial parent's income could have an effect on the amount of child support to be paid:

If the payor's income is over $150,000.00;

If any child is over the age of majority (18 in Ontario);

If the non custodial parent has the child with him/her at least 40% of the time or where there is a “split custody” situation;

If there are special expenses (described below) that are sought to be added to the base amount.

Is the payor's income over $150,000.00? [Guidelines, s. 4]
1. If the non custodial parent's income is over $150,000.00, one consults the standard tables. The base amount is still found on the tables under $150,000.00. The additional amount, as per the standard tables, in Ontario, for one child may be .67% of the income over $150,000.00. Two children is 1.04% of the income over $150,000.00. Three children is 1.34% of the income over $150,000.00, etc.
  
  OR the court may apply an alternate approach:
2. The court may consider the financial ability of each spouse to contribute to child support. In other words, the incomes of both parents may be relevant and be considered as under the previous system. The custodial parent's income is relevant, however, only with respect to the determination of the amount of support to be paid as it relates to the payor's income over $150,000.00.
Is any child over the age of majority? [Guidelines, s. 3 (2)]
1. Under the Guidelines s. 3 (2), just as in the over $150,000.00 situation where the court is given the discretion to ignore the custodial parent's income, here too the court may calculate the child support as if the child were under the age of majority; OR
2. The court may engage in the same sort of analysis as above (where the payor's income was over $150,000.00). In other words, the court may examine “the condition, means, needs and other circumstances of the child and the financial ability of each spouse to contribute to the support of the child”. What guide posts are there for the court to determine which approach should be employed? Guidelines, s. 3 (2) (b) simply tells the court that it may examine the finances of both parents where the court considers the other “approach to be inappropriate”. What is “inappropriate”? There will likely be litigation to determine just how the court is to deal with such matters.
Shared custody: Does a spouse exercise access or physical custody of the child not less than 40% of the time over the course of a year? [Guidelines, s.9]
1. If the above question is answered in the affirmative, section 9 directs us to calculate the amount of child support by considering three factors:
  1. Take into account the basic amount for each of the spouses using the standard tables;
  2. Take into account the increased costs of the shared custody arrangements; and,
  3. Consider the condition, means, needs and other circumstances of each spouse and of any child for whom support is sought.
2. Note that unlike the `over $150,000.00' and the `over age of majority' situations, when it comes to a shared custody situation, the court does not have a discretion to ignore one parent's financial means. Some may fear that non custodial parents will litigate aggressively to obtain exactly 40% or more of the time with the child not out of concern for the child, but rather in order to achieve a lower child support order.
3. Split Custody: Do some of the children reside with each spouse? [Guidelines, s.8]: If one or more children reside with each parent, then apply all the tests to each parent and one spouse pays to the other the difference between the two figures thereby arrived at.
Special or extraordinary expenses : Consider whether a parent is entitled to receive an allowance on account of the following enumerated special or extraordinary expenses: [Guidelines, s.7]
1. child care expenses incurred as a result of the custodial parent's employment, illness, disability or education or training for employment;
2. that portion of the medical and dental insurance premiums attributable to the child;
3. health-related expenses that exceed insurance reimbursement by at least $100.00 annually per illness or event, including orthodontic treatment, professional counselling provided by a psychologist, social worker, psychiatrist or any other person, physiotherapy, occupational therapy, speech therapy and prescription drugs, hearing aids, glasses and contact lenses;
4. extraordinary expenses for primary or secondary school education or for any educational programs that meet the child's particular needs;
5. expenses for post-secondary education; and
6. extraordinary expenses for extracurricular activities.
What does "extraordinary" mean? Presumably, "extraordinary" means something different than the other categories of expenses. However, note the latter part of subparagraph (d)- “any educational programs that meet the child's particular needs”. Such wording should be sufficient to capture any reasonable program of an educational nature for the particular child. What sort of “extraordinary expenses” would be considered in relation to “extracurricular activities”? The implication here is that some such activities do not constitute an “extraordinary” expense and thus would not be covered. Case law will determine the parameters here.
Discretion not to include special and extraordinary expenses: If any of the above five categories pertain, the court still has a discretion (pursuant to Guidelines s. 7 (1) ) whether or not to include all, a part, or none of such expenses. These are the factors which the court is directed to consider:
1. the necessity of the expense in relation to the best interests of the child; and,
2. the reasonableness of the expense having regard to:
  1. the means of the spouses and those of the child;
  2. and to the family's spending pattern prior to the separation.
Questions that should be asked with respect to special and extraordinary expenses: Therefore, we should ask the following questions with respect to all six categories:
1. Is the expense necessary?
2. Is the expense truly for the benefit of the child?
3. Is the expense one that should be incurred in light of the parties' and the child's financial resources?
4. Is the expense of the type that the family undertook when the parents were together?
How are the special and extraordinary expenses shared between the spouses? If one answers in the affirmative to all of the above questions, then the expense under consideration should be included in its entirety and apportioned according to the approach dictated in Guidelines s. 7 (2). Here the Guidelines stipulate that the special and extraordinary expenses are to be shared in proportion to the respective incomes only after deducting from each expense the contribution, if any, from the child. Perhaps this subsection is a contradiction to the earlier direction in Guidelines s. 7 (1) to consider “the means of the spouses”. “Means” is a somewhat wider term than “incomes”.
A caveat re special and extraordinary expenses: However, before the court can simply add on the payor spouse's proportionate share of the extra expense, the court must first consider a number of factors that could impinge on the final amount. Under Guidelines s. 7 (3), one must consider the following:
1. Associated with the specific expense in each case, are there any of the following or is there an eligibility to claim any of the following?:
  1. subsidies?
  2. benefits?
  3. income tax deductions?
  4. income tax credits?
2. If the answer is "yes", then one must convince the judge as to how such factor should impact on the order made. The words used are somewhat vague: “In determining the amount of the expense referred to in subsection (1), the court must take into account any subsidies” …etc. The questions is: In what manner should the court take such factors into account?
Spousal support calculation: Where these special or extraordinary expenses are to be added on, spousal support must be excluded from the calculation - i.e. before you calculate the Guideline child support amount. This is so because Schedule III 3.2 states that “spousal support paid to the other spouse” must be subtracted from Income (for Guideline purposes) before apportioning Special Expenses.
Court order must be specific: It is essential, where any special or extraordinary expenses are required to be paid, that the court specify in its order just what the expense is and the amount of the expense or the proportion of that expense that the payor is being obligated to cover. Indeed, Schedule III, s. 3 (2) of the Guidelines stipulates this. It is doubly important to specify such things in Separation Agreements in order to avoid confusion on any future variation application.

STEP #4: AFTER HAVING CALCULATED ALL OF THE ABOVE, DETERMINE WHETHER EITHER SPOUSE OR THE CHILD WOULD SUFFER UNDUE HARDSHIP IF AN AUTOMATIC APPLICATION OF THE GUIDELINE AMOUNT WERE APPLIED. [Guidelines, s. 10]

The court may make an order in another amount if undue hardship is established: If one comes to the conclusion that either spouse or the child would suffer "undue hardship", then the court can make a child support order in some other amount. But, this "undue hardship" is not a simple conclusion to arrive at. The test is a complicated, convoluted one.
Some factors to determine undue hardship: Ideally, one or more of the following factors (Guidelines, s. 10(2)) should be present, in the eyes of the judge, before we can even go to the second stage. However, this list is not exhaustive and the parties may put forward other factors.
1. Was there a pre separation assumption of unusually high level of debts to support the other family members or to earn a living?
2. Are there unusually high expenses to exercise access to a child? (What does “unusually high” actually mean? Compared to whom? What if the expenses are “high” but foreseeable? There is ample room here for litigation.)
3. Does the spouse have a legal duty under a court order or separation agreement to support any person?
4. Does the spouse have a legal duty to support another child who is under the age of majority or is over that age but unable, by reason of illness, disability or other cause to obtain the necessaries of life?
5. Does the spouse have a legal duty to support any person who is unable to obtain the necessaries of life due to an illness or disability?
Household Standards of Living Test: Having caught the attention of the judge - the judge may now believe that perhaps a person is suffering undue hardship because of one or more of the above factors, or other factors. However, one must conclusively establish that the standard of living in one's household, after determining the amount of child support, would be lower than in the other spouse's household.

STEP #5: CALCULATE THE STANDARD OF LIVING TEST

Computer Software is required: To calculate this test, one requires a computer programme like that produced by Divorcemate Software Inc. or some other comparable software. Without the software, I do not see how someone representing him or herself can accurately calculate these figures. What this test does is look at the incomes of all persons in each household, in first instance. It will no longer be possible, once we are applying this test, to maintain a position that the income of one's second spouse is not relevant. It is relevant.
The test in brief: The test makes a number of adjustments to income levels in both households, including looking at “net” incomes as opposed to “gross” incomes. The test considers all adults and children living in the household from whom the spouse receives an “economic advantage” as a result of living with that person and then compares the household income of each household (keeping in mind the number of people in that household and how many are adults and how many are children) to a certain base “Low Income Measure”. If your ratio is lower than the other household's, then presto, you have passed the test! In other words, if the other household has a higher standard of living than yours', then you have passed the test.
Other tests? The test in Schedule II of the Guidelines is not a subjective analysis of the holidays enjoyed, luxuriousness of ones' home, or model of one's automobile. It is an allegedly objective crunching of numbers. However, while the court is directed to the test as set out in Schedule II of the Guidelines, the court is also permitted to use any other test. The circumstances under which the court could depart from the test in Schedule II will likely be determined through litigation.
Recorded reasons required: Under Guidelines s. 10 (6), if the court does decide to depart from the standard chart amounts because of undue hardship and household standards of living, then the court is obliged to record its reasons for doing so. Furthermore, such orders can, under Guidelines s. 10 (5), be time limited.
The test cuts both ways: The “undue hardship” - “household standards of living” test cuts both ways. While it can be invoked by the payor of child support, there is no reason why one cannot argue, on the “right” set of facts, that a custodial parent should be able to obtain a child support order higher than the guideline amount. Perhaps the custodial parent has assumed great debt to support the family during the marriage; perhaps the custodial parent has a legal duty under a judgment or separation agreement to support another person. Under such circumstances, and where the non custodial parent's household standard of living is higher than the custodial parent's, then the argument for increased support could be made.

STEP #6: CONSIDER THE POSITION OF STEP PARENTS [Guidelines, s. 5]

Step parent respondent: Step parents are liable to pay child support. However, the amount determined pursuant to the Guidelines can be modified where the respondent is a step parent. The court is directed to award “such amount as the court considers appropriate, having regard to the Guidelines and any other parent's legal duty to support the child.” The intention here was to enable the court to consider the natural parent's legal duty to support the child, whether or not a court has already made an order against that natural parent. Existing case law will likely still be quite relevant.

STEP #7: CONSIDER WHETHER THE COURT CAN AWARD AN AMOUNT IN A DIFFERENT AMOUNT THAN THAT WHICH THE GUIDELINES MIGHT OTHERWISE INDICATE [ Amended Divorce Act, s. 15.1 (5) and 17 (6.2) ]

Consider prior judgments and agreements: Was there a prior court judgment or separation agreement that contained special provisions that benefited a child, either directly or indirectly? Was there a division or transfer of property that directly or indirectly benefited a child? Have special provisions otherwise been made for the benefit of a child?
The litmus test: If the answer to any of the above questions is “yes”, then to order some amount that is otherwise than in accordance with the Guidelines, the court must nonetheless find “that the application of the applicable guidelines would result in an amount of child support that is inequitable given those special provisions”.
Example: Prior to the coming into force of the new law, the husband was not required to make a property settlement. Nonetheless, he transferred to the wife the matrimonial home so as to provide her and the children with secure shelter. In exchange, he was required to pay less child support than might otherwise have been the case. In this scenario, one might be able to convince a court that when the wife applies for increased support based upon the Guidelines, the guideline amount for child support should not be applied, but some lesser amount would be appropriate.
Specificity required in Separation Agreements: In my opinion, it will not be enough to simply state in new separation agreements that the parties feel that in light of the “special provisions” agreed to for child support, the presumptive guideline amount would therefore be “inequitable given those special provisions”. The agreement should include a full explanation as to exactly why the presumptive guideline amount would not be appropriate in the circumstances. The agreement should also stipulate exactly what benefit the child receives in light of these “special provisions”.
Consent Orders: There is another test to apply that might permit the court to make an order that is not strictly in accordance with the guideline amount. Under the amended Divorce Act, s. 15.1 (7), if both sides consent, the court may approve of the consent where “reasonable arrangements have been made for the support of a child”. Again, the same caution that I expressed above, would apply here.

This completes the multi-step process to determine child support under the new regime. Let us consider some other points that merit our consideration.

DISCLOSURE REQUIREMENTS [Guidelines, ss. 21 - 26]

There is an obligation to provide extensive documentary information upon demand:
1. Under Guidelines s. 25, there is a continuing obligation upon the payor to make yearly financial disclosure upon demand, with such disclosure covering the previous three years for which such information has not already been provided.
2. It would therefore appear that once a child support order has been made under the new regime, further disclosure can be obtained without court order.
3. There is even an argument to be made that the obligation to make financial disclosure without court order exists now for cases where child support orders were made prior to May 1, 1997.
The custodial parent has an obligation to provide disclosure: Similar obligations to disclose financial information prior to commencement of court action are placed upon recipients of child support where a child support order has provided for special or extraordinary expenses, where undue hardship was invoked, where unusual debt loads were considered, where special custodial arrangements were in place, or where incomes are over $150,000.00. In other words, in all situations where the court is permitted to consider the custodial parent's income, the non custodial parent can obtain the same financial disclosure from the custodial parent, without the necessity of obtaining a court order to require that disclosure.
There are serious sanctions for failing to provide information: There are serious consequences for failing to provide the financial disclosure including contempt of court and providing the moving party with full costs for her/his trouble. The earlier draft of the Guidelines permitted such motions to be made without notice. This is no longer the case.
No contracting out of disclosure requirements permitted: Contracting out of the disclosure requirements is forbidden and entirely unenforceable.
Basic nature of financial disclosure in context of a child support application: In the context of a child support action that has been commenced, the Guidelines sensibly mandate extensive financial disclosure. Each party for whom income information is necessary to determine the amount of the child support obligation must provide certain information either with the presentation of the application or with the responding materials. This includes the following items:
1. the last three years' income tax returns;
2. Revenue Canada assessment notices for the last three years;
3. earnings statements from employers;
4. where self employed, financial statements from the payor's business or practice;
5. where the spouse is a partner, confirmation of income, draw and capital figures for the last three taxation years.
Non compliance penalties: It is essential that litigants provide the requisite financial disclosure immediately. Failure to do so can have significant consequences:
1. Time limits are placed upon the requirement to provide the mandated information and documentation.
2. When the information is not received within the limits, the innocent party may elect to simply set the action down for a hearing or he/she may apply for an order requiring the other spouse to provide the court with the required documents.
3. In either situation, a fully compensatory costs order should be made.
4. If the court proceeds in the absence of the financial information, then the court is entitled to “draw an adverse inference against the spouse who failed to comply” and the court may further “impute income to that spouse in such amount as it considers appropriate”.
5. If the innocent spouse applies to the court for a compliance/production order and still the recalcitrant spouse fails to comply, then the court has four available remedies:
  1. strike out pleadings;
  2. make a contempt order;
  3. proceed to a hearing and draw an adverse inference and impute income to that spouse;
  4. award full costs to the innocent spouse.

SPOUSAL SUPPORT AND CHILD SUPPORT RELATED

Priority to Child Support: Under amendments to the Divorce Act, spousal support now and in the future takes on new dimensions not previously emphasized in Canadian law. In many cases, we are required to consider both spousal and child support. The legislation gives explicit priority to the child support obligation. However, once the children are no longer eligible to receive child support, an ex spouse may want to apply to vary in order to increase or even obtain, for the first time, spousal support. This is specifically contemplated for in the amended Divorce Act. (See s. 15.3.) Because of this statutory priority given to child support, where spousal support is not ordered or is ordered in a lower amount than it might otherwise have been ordered, the court is required to record its reasons in that regard.
Implication for Drafting Separation Agreements: Separation agreements should directly address the issue of the proper quantum of spousal support given all the facts of the case. Is spousal support lower because of the child support obligation? The assumptions should be spelled out in order to avoid confusion later.

WHAT ARE SOME OF THE PROBLEMS WITH THE NEW SYSTEM?

(Note: The following discussion does not, in all cases, represent the author's personal views. Rather, it represents a compilation of opinions from various sources.)

Problems with section 7 of the Guidelines: The new system was supposed to adopt a model that would bring a greater degree of certainty to child support law resulting in a decrease in litigation. Perhaps the most glaring departure from that model exists in both the concept and actual drafting of the so-called “Add - ons” in section 7 of the Guidelines. The wording of section 7 (1) of the Guidelines invites a detailed examination of what the family expended prior to separation and what the interests of the children are post separation in relation to these extra expenses. Compounding this conundrum is the choice of words in section 7. Rather than referring consistently to the “incomes” of the spouses, the drafters have `mixed and matched' so to speak by referring first to “the means of the spouses” and later, in s. 7 (2) to the “respective incomes” of the spouses. This simply invites litigation. I predict that there will be extensive litigation over all aspects of section 7.
The multi family parent: Consider this situation. An Ontario resident has two children with one spouse and then three with the next spouse. He is not assessed as having five children under the standard tables. Rather, he is considered to have two children for one case and three children for the other. Let us assume that both former spouses of our Ontario resdient have not remarried and have no significant income. Let us assume that he earns $50,000.00 per year. If he had five children with one spouse, he would, in first instance be required to pay monthly child support of $1,242.00; however, since he has divided his children into two families he will be required to pay to the first spouse the sum of $700.00 per month and to the second spouse he will pay $917.00 monthly. The total is $1,617.00 per month or $19,404.00 per year. Remember, he still has to pay tax on his $50,000.00 of income and the child support is not tax deductible. And here we are dealing with a situation with no “add-ons”. Since both former spouses have minimal income, it is unlikely if not impossible for the fellow in our example to qualify for “undue hardship” since he will not be able to qualify under the household standard of living test. Therefore, his legal liability to support more than one family will not come into play. If one adds a spousal support obligation into the equation, as a court would likely do, we can easily foresee a situation where someone will be ordered to pay more support than the net income received.
Software often needed: The household standard of living test is practically impossible to calculate without the software. How will people be able to represent themselves adequately in court?
Disclosure against other persons: While there are extensive mandatory disclosure provisions with respect to the parties to the litigation, there are none with respect to the parties' new partners. Recall that new partner's income must be included in calculations when applying the “undue hardship” - household standard of living test. There should be specific measures in the new scheme for expeditiously obtaining this information.

Ignoring the custodial parent's income: There is a perception that ignoring the custodial parent's income can work an injustice in many cases. When the bill was before the Senate, s. 26.1 (2) was added to the Divorce Act:

The guidelines shall be based upon on the principle that spouses have a joint financial obligation to maintain the children of the marriage in accordance with their relative abilities to contribute to the performance of that obligation.

This amendment to the Divorce Act resulted in absolutely no changes to the Guidelines themselves. The philosophical basis of the Guidelines is that both parents, and the custodial parent in particular, do contribute financial resources to child care. Undoubtedly, the Department of Justice drafters felt that the Guidelines did reflect the new statutory principle and that it was therefore not necessary to adjust the thrust of those Guidelines as previously published.

Fixed formulas might create entrenched attitudes: One could argue that given the statutory inability to find flexibility that the positions of the parties will harden and thus exacerbate litigation and not shorten it. Some have argued that the fixed formula system will force many payors into poverty or into unemployment out of desperation.
Reluctance on part of payors to be generous: There might very well be a natural reluctance on the part of the financially more able spouse to make capital settlements (eg. transfer the matrimonial home to the spouse) in return for favourable child support treatment. There is no guarantee that a court on a subsequent variation application will pay proper attention to the concessions made earlier.
Complexity: Some say that the legislation and accompanying federal Guidelines are both far too complex for most lay people. In a time of Legal Aid cutbacks and ever more cases with parties not represented by legal counsel, an extra burden is placed upon the judiciary and court administration.
Two tax systems: Revenue Canada will have to administer two parallel tax systems for some years to come. How much tax revenue will be lost in the ensuing confusion?
Federal Government Tax Grab?: There are those who argue that this entire new system is nothing but a federal government tax grab that will benefit neither those who receive nor those who pay child support and certainly not benefit children. In a speech to family law lawyers in Toronto on November 11, 1996 (and on other occasions), former Justice Minister Allan Rock had taken pains to emphasize that all tax revenues gained from the new system would be plowed back into the hands of those parents who need it most. To this end, the Working Income Supplement is to be doubled in a two year gradual phase-in so that low-income working families will receive $1,000.00 instead of $500.00. In reply, there are those who would say that this is insufficient to make up for the loss of net family income in many child support cases.
Spousal support is never dead and gone: Once the child support obligation is completed, the ex spouse can apply for spousal support even if such a claim was never made in the past. The new system seems to encourage this. What legal tests will be applied years down the line? How are payors to be advised now? This problem is connected with the one above concerning the reluctance of payors to be generous with respect to capital settlements. Payors who are generous now may end up paying twice by being faced with spousal support obligations down the line that they did not expect. Even the best drafted Separation Agreement with the best drafted spousal support releases can be over turned by a court years later.
Child support disguised as spousal support: In some situations, one might argue that the Guidelines really amount to spousal support disguised as child support. Is the legislative reaction to the impoverishment of women and children upon divorce going to result in the impoverishment of men? Are enough dollars going to magically appear to support two households after divorce when for many people, it was a financial struggle to maintain but one household prior to divorce?

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CONCLUSIONS

Separation Agreements: Special care must be taken with the drafting of separation agreements.
Complex system: The determination of child support under the new system can, in many cases, be a complex and time consuming matter that requires reference to much documentation and some familiarity with the Income Tax Act. Without expensive software, except in the most straight forward of cases, the calculation can be quite difficult.
Pitfalls: There can be many pitfalls for the unrepresented litigant and for the lawyer unfamiliar with the new system.
Seek a change?: Many support recipients will be further ahead by seeking new tax treatment and new orders. The figures must be run through the appropriate software with the correct assumptions inputted in order to determine whether or not there should be an opting into the new system. The new regime could result in more tax being paid over all. Or, the new regime could greatly benefit one side or the other. It all depends on the facts of each case.
Unique Challenges: The difficulties inherent in this new approach to child support (and to spousal support) present unique challenges to lawyers, judges and to those who unfortunately have to access the legal system to assist with the resolution of support issues arising from marital breakdown.

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THE SMALL PRINT

This article does not constitute legal advice. Every situation is unique. One cannot predict solely from this article how the law may apply to any given situation. Facts have a bearing on the outcome. Judicial interpretation of this new legislation will also have a most significant effect on the result of any particular case. To assess how the new legislation may apply to your own situation, consult your own family law legal advisor.

* The Guideline Calculator, Varymate Variation Optimizer and SOLmate Standards of Living Test software are available to the legal and accounting professions from Divorcemate Software Inc. (Mark Harris, President) Telephone (416) 718-3461 or 1-800-653-0925.

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