Love is sometimes blind… Marriage and immigration

Jack’s brother, Romeo, called him last night in a crisis.  His new wife Julia, whom he met in Cuba two years ago and whom he married the week after she arrived in Canada two months ago, stormed out of their home last night wanting a separation.  Romeo explained that their marriage was rocky from day one.  It would appear that, after the marriage, Julia became a completely different person than the sweet, kind and amusing woman he had dated long distance for the past two years.  Romeo believed that, with time, they would be able to work things out.  However, he has since found out that Julia never loved him and manipulated him into marriage solely to immigrate to Canada. Having sponsored Julia to become a Canadian resident, Romeo now faces years of financial responsibility towards her even after a divorce.

Romeo’s story is unfortunately similar to that of many other Canadians, and the options available in those situations (until recently) were non-existent.  At the moment, when someone sponsors a non-Canadian to become a Canadian resident, that person must give financial support to their immigrating spouse for three years, even if the marriage or relationship fails. If the immigrating spouse uses social assistance to meet his or her basic needs, the Canadian spouse will have to repay the money to the government, as sponsorship is a legal contract with the Government of Canada. You must meet its terms. It does not matter whether or not a judge would deny the immigrating spouse financial assistance pursuant to Canadian family law principles or whether the parties had signed a marriage contract confirming that no spousal support would be payable in case of separation or divorce.  If the immigrating spouse requires financial assistance to meet his or her needs, the Canadian spouse is 100% responsible, not Canadian taxpayers. Until very recently, there was nothing a “manipulated” spouse could do in this unfortunate situation.

However, in October 2012, the Canadian immigration laws have changed.  In an ongoing effort to deter people from using marriages of convenience to enter into Canada, the Canadian immigration authorities introduced a new regulation that requires certain sponsored spouses to live in a legitimate relationship with their sponsor for at least two years from the day on which they receive their permanent resident status in Canada.  If the sponsored spouse leaves prior to the two year requirement, its status may be revoked.  Canadian authorities can also lay criminal charges against the sponsored spouse.

Based on this new regulation, Romeo will not have to prove that Julia manipulated and married him for the sole purpose of immigrating to Canada, given that she left prior to the two year requirement.  Her status as a permanent resident will be revoked and Romeo’s obligation to financially support her will end since she will have to return to Cuba.  If you are a Canadian citizen or permanent resident and have met someone from another country on the Internet or while travelling, think carefully before marrying them and sponsoring them to come to Canada. Otherwise, blind love could completely turn your world around…

I work for my-self and don’t earn much income!

Jack is self-employed as a human resource consultant for various companies and organizations in the Ottawa area, a business he started to operate when he was laid off from his long-time position with the federal government. As a self-employed business owner, Jack is able to enjoy freedom and many tax benefits that are not available to “regular” employees.  However,  being self-employed also means that he must bear the risks associated with the ups and downs of market demands and fluctuating annual income that “regular” employees do not have to assume. That is what he responded to Jill when her lawyer had the nerves to suggest that his income was actually higher than the amount he declared in his annual income tax return.

Jill’s lawyer had no intention to insult Jack, or to insinuate that he was defrauding Canada Revenue Agency.   For the purpose of determining the annual income required to calculate both child and spousal support, the court is not limited to the revenue declared by  a tax payor in his or her income tax return.   In fact, the tax and other financial benefits flowing from being self-employed, being the sole owner of your own company or living in a country with much lower tax rates (to name only a few) can and will be taken into consideration and will often result in the court attributing a higher income than what is reported on line 150 of the income tax return.  This is because the child and spousal support guidelines (those tables, charts and software that determine how much support is payable) are based on income earned by “regular” employees who are subject to source deductions and less flexible taxation rules, and who must pay for personal expenses with after-tax money.  This is not the case for self-employed people who usually also  enjoy the following (non-exhaustive) benefits;

• paying for personal expenses (such as car expenses, cell phones, meals and entertainment, travel, etc.) through their businesses, thus allowing them to pay with “before-tax money”;
• leaving important sums of money in their company, for reinvestment or future use; 
• investing through their company with “before-tax money”; and
• receiving income as dividends, which brings about a lower taxation rate.

As a result, when assessing a self-employed payor’s income judges and lawyers must look beyond the income tax return to avoid comparing  apples (“regular” employee payors’ income) with oranges (self-employed payors’ income). 

Why should I stress with work and let you relax at the spa!

Jack’s work environment has changed considerably lately and he feels lots of pressure to work excessive hours with short timelines.  He is currently experiencing health issues and his doctor has asked him to explore the possibility of taking an early retirement.  His employer has made it clear that hiring temporary help is out of the question.  Jack is seriously considering his doctor’s suggestion but wonders if, by taking an early retirement, his monthly support payments to Jill would be reduced or terminated.  After all, why should he stress with work while Jill spends his money relaxing at the spa!

 

If Jack is retiring for the sole purpose of reducing his support obligations, a court may impute him a higher salary than his retirement income, and calculate his support obligations based on what he used to earn before he retired.  This same principle applies to a payor who intentionally reduces his/her income to avoid paying support.   However, if Jack’s decision to retire is deemed reasonable (because it was prompted by medical reasons or some other « reasonable » cause), then his support payments may be reduced or even terminated.  In that case, the courts would look at many factors, including the following two important principles:

1. The nature of spousal support - Spousal support is an important and necessary means to share the financial impacts of separation which sometimes go well beyond the payor’s retirement.  In deciding whether or not the support obligation should be modified once the payor retires, the court will consider the nature of the support received by the recipient: (i) was the support ordered to compensate a spouse who stayed home throughout the marriage and who, as a result, did not have the opportunity to advance his/her career and earn a reasonable income? or (ii) was the support meant to alleviate a financial need, where a spouse  is unable to meet his/her personal monthly needs?  When support is based on compensation, the courts have often concluded that a spouse is considered to have been fully compensated by the time the payor retires.  However, when the support is based on needs, the courts have at times extended the obligation to pay beyond retirement. 

2. The “double dipping” principle -  The court will consider whether or not the payor’s pension was divided at separation through an “equalization payment” (the payment made between married spouses after a separation ensuring that each spouse ends up with assets of equal value for the period of the marriage).  If the pension was already divided as part of the property settlement agreed to by the spouses at separation, the court will try to avoid « double dipping ».   In other words, the court will avoid dipping again in the same source of funds (i.e. the pension) when granting support, unless the recipient has a significant need that cannot be addressed otherwise. 

 

Spousal support is a very complex area in family law and the payor’s retirement can add to the  complexity.  If retirement is a factor to be considered in your situation,  you  must consult a lawyer to ascertain your options and the impact your retirement may have on your financial situation.   Prior to meeting with your family law professional, take the time to understand the basic concepts of spousal support to use your time with your lawyer more efficiently (Knowledge is power and time is money!).  Visit our website at www.familylawinabox.com and listen to our program on Spousal Support (click here).

Ask your lawyer for tax receipt and save money!

It is now tax season and Jill has made an appointment with her accountant to finalize her yearly income tax return.  Since Jill needed every penny she received in spousal support to make ends meet, she did not listen to her lawyer’s recommendation to set aside in her savings account 25% of the total income paid by Jack.    She is now extremely stressed and wonders how much money she will need to return to the taxman.  After speaking with her friend Susan, who has gone through a divorce a few years ago, Jill may have found a silver lining that may help her reduce the amount of income tax she owes.  As explained by Susan, all Jill needs to do is ask her lawyer for a tax receipt indicating the total amount of the legal costs she incurred to either:

• establish the amount of support payments (child and/or spousal);

• collect late support payments;

• increase support payments (child and/or spousal);  and/or

 

• defend against a request by the payer (Jack) to reduce established support payments. 

If you are a recipient of child and/or spousal support, you can deduct, in your income tax return, the legal fees incurred to obtain, collect or increase support as well as defend a claim for the reduction of such support.  The legal costs incurred by a recipient to resolve any other issues such as property and parenting cannot be deducted.  Unfortunately, if you are the payer of child and/or spousal support, you cannot claim legal costs incurred to establish, negotiate, or contest the amount of support payments.

 

Your lawyer, if asked, will be responsible to prepare the tax receipt and determine the amount of legal costs you spent in the year to deal with the support issues mentioned above. So if you believe that some of the legal fees you incurred this year qualify as a tax deduction, don’t forget to ask your lawyer for a receipt!

Child Support – Why should I support my wife’s shopping addiction?

Following many discussions, Jack and Jill have finally agreed for Jill to have the children in her primary care (equal to 70% of the time) and Jack, because of his work obligations and difficult schedule, will have them in his care every second weekend including one or two evenings in between (or 30% of the time).  As a result of this arrangement and because he earns a substantially higher income than Jill, Jack’s monthly child support payment will increase.  Jack is concerned about Jill’s love for shopping. While he financially supported it during the marriage, Jack is convinced that a good chunk of the child support he will pay will not be spent on the children. Jack spoke to colleagues at work who used all sorts of strategies to reduce their child support payments. He wonders whether he should have insisted to have the children 50% of the time and whether it was a good idea to accept the long-awaited promotion handed out to him at work, resulting in a higher income… and higher child support payments.

Both of these options are not advisable.  Firstly, a parent should never make parenting decisions based on financial considerations (i.e. with a view of reducing child support).  The court would readily see such a decision for what it is and the parent would lose credibility before the court (or a mediator).  Decision-making authorities assess parenting arrangements based on what is in the best interest of the children, and nothing else.  Rights and obligations regarding children are the same whether you are married or living in a common law relationship.

In the same way, it is a terrible idea for a parent to take steps to quit a well-paying job or to voluntarily reduce his/her annual income to avoid paying child support.  If a court finds that the payer parent has voluntarily reduced his/her income, it may impute an annual income that is greater than the one shown on the income tax return.  The amount of the imputed income will be based on what the court believes the payer parent has the capability to earn.  Following the court decision, that parent will be obligated to pay the higher basic child support amount imputed.  

Many payer parents are concerned with the way basic child support is being used by the recipient parent. While this may be frustrating in some circumstances, the payer parent has no control over the money once it has been paid to the recipient parent. What payers need to understand is that basic child support is not meant to cover strictly expenses that directly benefit the children themselves (such as food and clothing).  It also serves to cover expenses which benefit the children indirectly (although it also has the effect of benefitting the parent as well), such as the mortgage and utilities (for the home in which the children live), the car (which is used to travel them around) and, yes, even the brand new porch…

The payer parent should also keep in mind that in the Federal Child Support Guidelines, basic child support amounts vary for each Canadian provinces and territories and are set based on the amount that an individual parent, with a specific income, is expected to spend to provide for his/her children.   It is simple, the higher the income, the higher the child support amount will be.  Although a payer parent may feel that it would be « cheaper » not to pay child support and to have the children half the time instead, let’s remember that raising children is extremely expensive (many little things, which you may not think about, result in considerable costs when pulled together; haircuts, school lunches and activities, birthday parties, toys, personal care items and, yes, those LuLu Lemon pants…).  In the vast majority of cases, the basic child support amount will not be sufficient to cover that parent’s share of the children’s expenses (both direct and indirect) and the recipient parent will often have to modify his/her current standard of living to support the children financially.

For more helpful information about basic child support and or extraordinary (special) expenses, subscribe to our full library of recorded programs (Study Box) at

www.familylawinabox.com.  (click here to be directed to our Study Box)

Life insurance to secure child support: There’s no way I’m leaving you this money!

Since the separation, Jack has never stopped paying the monthly premiums for the life insurance policy that he and Jill bought during their marriage.  As there is no chance of reconciliation, Jack wonders whether he should stop paying for Jill’s portion of the monthly premiums.  After all, why isn’t Jill paying for her own premiums? Jack’s friend Dave also told him that he should immediately remove Jill’s name as the beneficiary of his insurance policy and put the children instead.

 

If Jack was well advised, he would do neither.  When parents separate and there are dependent children to care for, it is very important for both parents to maintain life insurance coverage sufficient to provide for the children should the unthinkable happen.  As long as the children remain dependant financially, both parents have a continued obligation to provide financial support –child support – whether they are paying it or receiving it.

In most cases, when a parent dies, the children move in full-time with the surviving parent who is left with having to financially support the children, without any financial contribution from the other parent, unless proper life insurance coverage is in place.  Even if the deceased parent has made a Will and named the minor children as beneficiaries of part or all of his or her estate, the reality is that it often takes months, if not years, for an estate to be administered and the gifts to be distributed.  Furthermore, the Will may prevent the children to have access to the money until they are 18 years of age or even older.  In the meanwhile, the surviving parent struggles and the children suffer unnecessarily. 

 

Here are some additional reasons why separated parents should maintain life insurance coverage naming the other parent as irrevocable beneficiary in trust for the children AT ALL TIMES:

1. If you die and have made no provisions for the other parent to receive money for the support of your children, the surviving parent may very well sue your Estate to obtain that support.  This is bound to delay the administration of your estate considerably, in addition to forcing your executors to engage significant legal fees to defend the action and settle the issue, leaving less money for the children in the end.

 

2. If your child is a minor at the time of your death, he or she will not be entitled to receive any monies directly (from your Will or your insurance policy).  The monies will have to be administered by the person you named as trustee for your children.   If no one was named, the monies will be administered by the Office of the Public Guardian (OPG), a governmental institution who will step in to administer your financial affairs and decide what is best for your children.

 

3. Having your ex-spouse as beneficiary in trust of the life insurance proceeds for your children with specific directions as to how the funds may be used by him or her, and what is to be done with any leftover once the children cease to be dependent, will insure that the monies are used properly for the benefit of your children.

 

4. Your children will have immediate access to funds to maintain their standard of living after you are gone.  They will be able to pursue their activities or schooling, and there will be no gap between the time of your death and the time they have access to the fund they need to pursue their daily life.

 

5. Proper life insurance simplifies the lives of everyone involved if one of the parents dies, and the cost to maintain relatively large amounts of temporary life insurance coverage is quite minimal - depending of course on your age and health condition. 

Making sure your children are provided for in the event of your death is a part of being a responsible and loving parent.