Common-law support

Support for common-law spouses, including same sex relationships, in Manitoba, is subject to the provisions of The Family Maintenance Act. The pre=condition under which support is available for a party to a common-law relationship are:

• that the couple has been living together in a "conjugal" relationship in excess of three years; 

• or have lived together for one year in a conjugal relationship and there is a child of their union.

Once the criterion is established, generally, the law of entitlement and quantum is the same as for other separating couples.

Tax on Spousal Support

Spousal support, provided it meets the criteria under the Income Tax Act,  is deductible from income by the payor and included by the recipient as income for tax purposes.  The purpose of this provision is to increase the amount of money available for the payment of support.  

Usually the payor is in a higher tax bracket than the payee, so the payment by being deductible increases the payor's ability to pay and the recipient 

Here's an example of how it works:

The payor is in, say, a 50% bracket and the payee is in a 20 % tax bracket.  

Payment of a support amount of say $500 costs the payor ($500 x 50%) $250.00 and the payee gets the $500 and pays tax of $100 so that person has the benefit of $400 in disposable income.  

Courts will consider these tax effects in making its orders to determine what the payor can afford and what the recipient needs.  The parties can agree, or the court can order, that the payments be tax-free.  

Child Support Orders made prior to May 1, 1997 were dealt with in the same way and those few remaining effective may carry forward with the old income tax rules applying.  After passage of the Child Support Guidelines, all child support is paid on an after-tax basis and the recipient pays no tax on child support.   See the Child Support Primer for a discussion of the taxation of child support.

The Basic Rules of taxation of Spousal Support

The basic rules to ensure that spousal support payments are taxable are that they must be:

• subject to use at the recipient's sole discretion;

• payable on a periodic basis (usually weekly, bi-weekly, monthly or semi-monthly);

• paid for the support of the recipient; and

• paid pursuant to a written agreement or court order.

Payments to Third Parties

Payments to third parties may be eligible for the deduction/inclusion treatment, but only if they meet strict criteria, that they must be:

• paid pursuant to a written agreement or court order;

• the agreement or order specifically refers to ss. 56.1(2) and 60.1(2) of the Income Tax Act or contains sufficiently clear language confirming the parties understanding that the payments will deductible/taxable;

• paid for support of the recipient or a child in that person's custody;

• if for the purchase of property, and subject to financial limitations, they must be for medical or educational purposes, for a home occupied by the former spouse or to finance the purchase or improvement of that home; and

• incurred in the year or preceding year.

The cases dealing with these criteria are inconsistent and often difficult to reconcile.  Caution must be taken in making arrangements that are unusual.

Lump Sum Payments

Lump sum payments are not deductible by the payor or included as income by the payee.  It is sometimes difficult to know how a payment will be characterized, that is, whether it is "periodic" or a "lump sum". 

For example, an agreement to pay say $10,000 payable at the rate of $1,000 per month for 10 months is probably a lump sum payment.  A sum paid to catch up on otherwise taxable/deductible arrears will be deductible, but if the amount payable is a settlement of a larger amount owing then that lesser amount won't be taxable/deductible.  Generally, the payment of arrears is taxable/deductible in the year of payment, although in certain situations Canada Revenue Agency ("CRA") will allow an application to have the moneys taxed in the year they were due (See CRA Form T1198 - Statement of Qualifying Retroactive Lump-Sum Payment).

These provisions also apply to common-law and same sex relationships if they fall under the appropriate provincial legislation.

Payments made before the Order or Agreement

To encourage the parties to negotiate their differences, rather than rush to litigation,  the Income tax Act allows them to include/deduct certain payments made in contemplation of a court order or agreement, provided those payments:

• otherwise meet the requirements for deduction/inclusion discussed above;

• were made in the year or immediately preceding year; for example, payments to be deductible pursuant to an order or agreement made in 2009 must have been paid no earlier than January 1, 2008; and

• the order or agreement which provides for those payments to be considered paid pursuant to it, should refer to  sections 56.1(3) and 60.1(3) of the Income Tax Act.

Eligible Dependent Credit/Equivalent to Spouse Credit

A single, widowed, separated or divorced person may claim a credit for a person related to them who they support.  In a relationship breakdown, this credit is available for a dependent child who has lived with the person at some time during the year.  The amount of the credit is the same as the amount allowed for a dependent spouse. It is not, however, available to a person making child support payments for that particular child, although that same person might make a claim for another child for whom no child support is being paid.

In a "shared custody" situation, where the support is based on an offset, that is, the higher earning parent paying the difference in the table amounts each would pay the other, it may be that neither can claim the credit. The wording of the order or agreement might be critical here.

CRA also restricts the use of the credit to only one of the parents in a year for the same child, nor will it allow a sharing of the credit.  It cannot be claimed if the person also claims a spousal credit.

Tax Deductibility of Legal Fees

In certain circumstances legal fees associated with marriage/relationship breakdown are deductible, namely, where the fees are incurred:

• To establish a right to child or spousal support under the divorce act or provincial legislation;

• To increase the amount payable;

• To enforce an existing court order or agreement to collect arrears;

• To resist an attempt to  reduce spousal or child support; or

• To make child support non-taxable.

Legal fees incurred for custody litigation, to obtain a divorce, relating to the division of property or to establish, enforce or collect payment of a lump sum amount instead of periodic support are not deductible.

Spousal Support Advisory Guidelines - Our Summary

Click on the link for the complete text of the The Support Support Advisory Guidelines (2009) prepared by Professor Carol Rogerson and Professor Rollie Thompson.

Introduction

As you will have gathered from various comments on this site and in particular Terry Beley’s article on spousal support, the law of spousal support is one of the most controversial, and least predictable, areas in family law. It is highly judicial discretion driven and the results all over the map. It is particularly difficult to forecast the quantum of the award.

The Federal Child Support Guidelines came into effect in April of 1997. Manitoba, as with many other provinces, has since enacted its own Child Support Guidelines with variants. To a great extent these provide for a ready means of settling most cases of child support by reference to the payor’s income, the number of children and the child support tables for each province. See the Family Law Primer section on child support for more on child support guidelines.

There is no spousal support equivalent to the Child Support Guidelines, but there is a reasonable degree of predictability on the issue of entitlement. In the last decade the Supreme Court of Canada has looked at the issue of entitlement and seems to have brought some intellectual rigour to the subject of quantum in Moge, Bracklow and Miglin

While issues of entitlement seem to have been clarified, the question of quantum, the amount to be paid, and the duration or any conditions in connection with that payment, continues to be a hotly contested issue in most cases with little in the way of predictability from court to court, or judge to judge.

The federal government released a draft paper in January 2005 called Spousal Support Advisory Guidelines: A Draft Proposal, prepared by Professors Carol Rogerson and Rollie Thompson , both respected academics in the field. Their intention to bring more certainty and predictability to the determination of spousal support is reflected in this draft report following three years of committee work. The authors invited discussion and feedback and after further study and consultation released their final report in 2009.

Spousal Support Advisory Guidelines

It is important to remember that these Advisory Guidelines, unlike the Child Support Guidelines, which are mandatory and relatively without a discretionary component, are in fact true guidelines and have no legislative authority. They are not compulsory.  That does not mean that they are not, or will not be, persuasive.  The courts have mandated that they must at least be considered.

They do not deal with issues of entitlement, only providing a range of amounts and parameters to assess the duration of the award once entitlement has been established. Whether these Advisory Guidelines will find judicial support and/or whether they will become mandated, remains to be seen. The Advisory Guidelines do lean heavily for their philosophical underpinnings on the Supreme Court of Canada Cases in Moge v. Moge and Bracklow v. Bracklow.

What follows is only a general description of their proposals. The report is lengthy and discloses the theoretical underpinnings of the concepts which have been employed. As well, examples of the implementation of the Advisory Guidelines are given.

The Two Formulas – “Without Children” and “With Children”

There are two basic formulas, the “Without Child” support formula” and the “With Child ” support formula. The process of determining support is based on an examination of income sharing as opposed to comparison of budgets. This is a departure from current practice and law that mandates an examination of the
”condition, means and other circumstances” of the spouses under the Divorce Act.

A range of values is posited for any given situation, so that there is still room for judicial discretion. The proposal sets out some of the factors to guide the exercise of that discretion. The end result, however, is a spousal support amount that is subject to the current tax treatment of those awards, deductibility by the payor and inclusion by the payee.

One of the basic philosophical underpinnings of the Advisory Guidelines is the theory of “merger over time”, that is, that over time a couple more deeply merge their lives, making countless decisions in the day-to-day year-to-year unfolding of their lives, reflecting their skills, behaviours and economic choices around those of the other spouse. At the end of the marriage the differential loss of the marital standard is what is protected by spousal support, the theory being that at the end of a lengthy marriage the lower income spouse should be protected against this loss. Equality of economic outcomes is the highest expression of that merger.

Determination of Income

The first step is the determination of income, which follows the parameters set out in the Federal Child Support Guidelines, including the adjustments provided in Schedule III. If appropriate, income may have to be imputed.

I. THE “WITHOUT CHILDREN” FORMULA

The childless (or where the children have grown and are independent) couple’s formula is relatively straightforward mathematically. It uses the parties’ gross incomes. Where there are no children, the formula suggests that the appropriate amount is 1.5% to 2% of the difference in incomes for each year of marriage to a maximum of 50%, the range for marriages of 25 years or more being 37.5% – 50% of the differential in gross incomes.

Fixing an Amount within the Range

Determination as to where in the range the award should fall would be determined bearing in mind some or all of the following factors, as examples:

- The nature of the claim for entitlement. A strong compensatory claim favours an award at the higher end and a non-compensatory claim might be at the lower end.
- Needs may push an award, where the recipient has limited income or earning capacity because of age or other circumstances, to a higher end of the range, where absence of need might push the award to the lower end
- Property division, depending on the amount, may push to one end or the other.
- Need and limited ability to pay by the payor may affect the range. Where, for example, the payor’s income is at the lower levels, the cost of working or the management of debt or where debt may exceed assets, or the payor is shouldering a disproportionate share of the debt, may push the award to the lower end of the range
- Self-sufficiency incentives may be at play. A higher award might mean the recipient can re-train or educate towards more remunerative employment

Restructuring and Exceptions

Given the individuality of cases, the proposal attempts to deal with the discretion inherent in the ranges of outcomes in two direct ways, the first being the potential for trading off of “amount” against “duration”, the second being the departure from the formula in exceptional cases.

Trading off amount against duration will have three basic forms:

- Increasing the front-end load, that is making the award higher but for a shorter duration
Lowering the amount, but increasing the length it endures
Providing for a lump sum

- Exceptions will be for those unusual cases that do not fit in the wide range that constitutes the majority, or typical, cases. Examples of an exceptional case might be one:

- where the compensation due is disproportionate to the length of the marriage, which might occur in cases of moves or job transfers forcing the dependent spouse to leave a job, or where the dependent spouse puts the supporting spouse through a training or educational program but they separate before the fruits of that enhanced earning capacity mature.
where illness or disability compromise the ability to achieve financial independence.
where there is disproportionate responsibility for marital debts
support obligations relative to prior relationships may be compensated for by adjustment to the payor’s gross income to account for the prior family obligations
where the payment of support is a form of double-dipping, say, where it comes from a pension which has been shared in some proportion.

The Floor and the Ceiling

The Advisory Guidelines call for a “floor” for the payor’s income of $20,000, below which spousal support is not payable, and a “ceiling” of $350,000, above which the guidelines give way to judicial discretion.

Duration of the Award

In the “without children” scenario, the writers suggest that the award should last from .5 to 1 year of support for each year of marriage (or cohabitation, which is the actual measure), with marriages over 20 years, or those lasting longer than 5 years when years of marriage and age total more than 65, calling for an indefinite duration of support. This “Rule of 65” is intended to recognize that age affects the ability to become self-supporting.

The Advisory Guidelines would set duration at a minimum of half the length of the marriage and a maximum equal to the length of the marriage.

II. “WITH CHILDREN” FORMULA

The provision for the family with children is significantly more complex, introduces new concepts and requires complicated interwoven calculations. The starting premise is that child support is a priority over spousal support. Where there are children who are, and during the marriage were, in the primary care of the recipient spouse, the rationale for spousal support will almost always be compensatory. The theory is driven by the “parental responsibility” rationale more so than the length of the marriage or “merger over time” theory.

Differences in the tax treatment of child support, which is non-taxable or deductible, and spousal support, which is taxable to the recipient and deductible to the payor, requires that at least two separate calculations be undertaken.

The Advisory Guidelines relies on net income, a much more difficult but perhaps more precise determination, in its calculations. It is expected that the currently widely used child support calculation computer software will be re-jigged to meet this need.

Individual Net Disposable Income - INDI

Where there is a child support order in place, or to be in place, the formula uses the Individual Net Disposable Income (INDI) of each spouse is determined, as follows:

a) For the payor: The amount of income determined under the Child Support Guidelines, less the child support payable (table and extra-ordinary expenses), less taxes and deductions.

b) For the recipient: The amount of income determined under the Child Support Guidelines, less the notional child support reflected by that person’s income, less taxes and deductions, plus government benefits and credits.

Deductions

The deductions will be those allowed by Schedule III of the Federal Child Support guidelines, CPP and E.I and some others such as medical, dental or health insurance and other benefit plans, especially those that provide benefits, immediately or contingently to the former spouse or children of the marriage. Deductions for mandatory pensions, however, would not be allowed in this formula.

Government Benefits

The government benefits referred to are the Child Tax Benefit, the National Child Benefit, the GST credit, the refundable medical credit and various provincial benefit and credit schemes.

Net Family Disposable Income

The two INDI’s are then combined and the range of support is that which leaves the recipient with 40 to 46% of the combined INDI. To determine which range of support is appropriate requires an iteration of hypothetical amounts. It is expected that software will fill this need in due course. The use of the minimum of 40% will ensure that a recipient spouse with at least two children will have at least 50% of the family net disposable income.

Unfortunately, the use of the “with children” formula requires such complex calculations that computer software is almost a requirement, which for the self-represented may create an unfairness of the kind that “guidelines” should eliminate.

Fixing an Amount within the Range

The fixing of the amount within the range in the “with children” formula will be determined by an examination of factors, some of which might be, and probably in combination:

Compensatory principles – given that children are a part of this formula it is likely that some compensatory factors will be at play, the strength of which will move the amount up and down the scale.

- The age, number and needs of children
- The needs and ability to pay of the payor spouse – this is of greater importance at lower income levels, and may require consideration of otherwise not included deductions such as a mandatory pension or the high cost of spending time with their children
- The needs and standard of living of the recipient spouse and children
- The length of the marriage
- Self-sufficiency incentives

Duration of the Award

The fixing of duration of the award in a “with children” scenario will involve a combination of the “length of marriage” and the lengthy of remaining child-rearing.

Longer Marriages - For longer marriages, that is, longer than 10 years, the proposal calls for the order to go for one year for each year of marriage, and where that figure exceeds the number of years for the last child to finish high school, the length of the marriage would be the outside limit (subject to the proviso for indefinite support where the marriage is longer than 20 years). Where the marriage is shorter, the outside limit is when the youngest or last child finished high school.
Shorter Marriages – For shorter marriages, typically under 10 years, where the period of time for the last child to finish high school exceeds the length of the marriage, the outside limit would be the time when that child finishes high school.