When I provide duty-counsel services (which are free one-off legal services available at the courthouse or over the phone, for those not in the know), the questions I’m asked most often are about child support—getting it and avoiding it. Child support is also the one area where, despite its simplicity, people can still be misinformed.
If you’ve got kids, you know they’re expensive, and that’s before you factor in the outrageous cost of daycare and braces. Providing for your kids can seem doubly more expensive after you separate from your spouse and your finances are diminished.
The basics of child support are these:
- Biological parents must support their children, regardless of whether or not they are guardians of the children.
- The parent who has the kids more than 60 percent of the time in their care gets the full amount of child support.
- The child support the other parent pays is based on the Federal Child Support Guidelines. You look at your taxable income recorded on Line 150 of your T1 General Tax Return, the province you live in, and the number of kids you’re paying for, put it into one of the many free online calculators, and you get the number you need to pay each month in your base child support.
- If you’re sharing care of your kids and each parent has at least 40 percent of the time with the kids, then you determine how much each of you would pay if the other parent had care of the children full-time and you offset the two amounts. The person who would pay the higher amount pays the difference to the parent who would pay the lower amount.
- Unless otherwise agreed, extras like medical/dental and daycare (this is not an exhaustive list of extras) are shared proportionate to your incomes. Party A earns $40,000 annually; Party B earns $60,000 annually. Together, the total family income is $100,000 annually. Party B pays 60% of the extras because B earns 60 percent of the family income (Party B income divided by total family income).
Okay, this is all well and good, but how do you get from figuring out what one party has to pay to actually getting the money they have to pay? Hopefully, you can do it by cooperation and agreement, but when the other side won’t agree and won’t cooperate, we go to court.
This may lead to one of my favourite scenarios, Tactic 1: evading service to avoid child support.
One common complaint is that Party A does not know what Party B earns. A has asked B countless times for their tax information and B says to A, “You can go pound sand because there’s no way I’m ever giving you that information.”
Well, A doesn’t like that and files an action in court. Once the matter is in court, B is required to provide his tax information to A. So B starts avoiding that person that keeps coming by the house with papers.
A is screwed, right? No! A may have just won this fun little game. A goes to court and gets an order for substituted service. A can now serve by email or whatever method makes the most sense. B has two options: show up to court with tax documents or not show up to court.
If B does not show up to court, it’s easy for A to go into court and say, “Hey, judge, I think B is earning $60,000 per year.” Judge says, “Great! Let’s make an order that B has to pay you child support based on an income of $60,000 per year.” Game over.
Another great scenario, Tactic 2: quitting your job to avoid child support.
Well, B doesn’t want to pay child support and knows that child support is based on his taxable income. B thinks, “Easy-peasy. I’ll just quit my job and work under the table, or go travelling, or get training for a lower-paid skill set.” Now B is not earning anything. A is screwed, right? Nope!
A starts a court action. B may show up to court or may combine quitting his job with Tactic 1 (evading service). At court, A says, “Judge, I want child support.” B (if he shows up) says, “Judge, I want to pay child support but I just don’t earn any money.”
A says, “Judge, he’s got these skills and this experience, plus I know he’s working under the table/he’s voluntarily not earning any money.” Judge says, “Great, B, I think you are capable of earning $60,000/year, so you will pay child support based on that amount even though you’ve quit your job to 'find yourself'. You have an obligation to your children to earn as much as you are able to provide for their support. If you choose not to earn any money, that’s your choice, but you will have to pay child support like you’re earning the money you’re capable of earning.”
Now we get to the more complicated scenarios, Tactic 3: increasing expenses from your business to reduce your income.
B is self-employed with a sole proprietorship in this scenario. B’s business earns $100,000 per year, but in order to run his business he incurs expenses. The Canada Revenue Agency allows self-employed people to deduct various business expenses from their gross income before they are taxed. However, for those so inclined, it is possible to manipulate these expenses to give the business owner a personal benefit. So that’s what B does: B increases the expenses of his business for his own benefit while simultaneously reducing his taxable income and, therefore, his child support. A is screwed, right? Nope.
A starts a court action and gets B’s tax return. A reviews the expenses that B has disclosed as business expenses, but they seem awfully high. What B doesn’t realize is that the court can and will look at the expenses for the business and add those back into personal income for the purpose of child support.
Tactic 4 is an extension of Tactic 3 and is a delightful nut to crack. Tactic 4 is creating a corporation to run your income through.
So, as some of you will know, a corporation is considered its own person and can act as a shield for a person running the corporation from being personally liable for anything the corporation does.
Well, B likes this idea of being shielded from child support (and likely other creditors as well), so B creates a corporation to run his business. B works hard and provides services on behalf of the corporation and the corporation makes lots of money.
Now, with a corporation there are many ways that B can reduce his personal taxable income. The first way is by running almost all his personal expenses through the corporation. So the gross revenues of the corporation are reduced by the corporation’s expenses.
Another fun tactic is when the corporation hires B’s new girlfriend to do the “books” and pays the girlfriend a very healthy salary. The girlfriend’s salary is a pre-tax expense for the corporation. (This expense could also be used in Tactic 3).
Again, with a little bit of elbow grease and demanding the financial statements from the corporation, expenses for personal benefit will be added back into B’s income for child-support purposes. This will include B’s girlfriend’s salary, if she is being overpaid or is not really doing the work that B says she’s doing.
After the expenses are deducted from the gross revenues of the corporation, the corporation is taxed. Then the money can be disbursed from the corporation; but perhaps B doesn’t need that much money now that all his life expenses are being run through the corporation? Well, B doesn’t need to take all the money out of the corporation and can take only what he needs. This is called retaining earnings in the corporation.
There is a legitimate business reason to do this: for example, if the business needs a certain amount of money to keep running. If this is not the case, however, and B is simply using the corporation as a tax shelter, the courts will consider this and add this amount back into B’s income for the purposes of child support.
So with a little of work, you can get your child-support order. Then what? Perhaps B refuses to pay it?
Enter Family Maintenance Enforcement Program, also known as FMEP. Once you have your order, you can register it with FMEP. They will take over collecting from your children’s parent. If B continues to refuse to pay child support after an order is made, FMEP can garnishee his wages, bank accounts, and tax refunds. They can issue fines, penalties, and interest, revoke his driver’s licence and passport and send him to jail for nonpayment. FMEPs powers for tracking down a person who owes support are huge.
And just so you know, unpaid child support will survive B’s death and will be a debt owing against B’s estate.
If this article has not made it clear to you, the family system is serious about child support.