General information.
Why is there spousal support?
How does the court decide if support payments should be made?
Common Law Spousal Support.
How does the court decide about how much should be paid?
How long will the payments go on?
Are these payments tax deductible?
Ensuring the spousal support payments you make is tax deductible.
Avoiding unexpected taxes for recipients.
Grossing Up a payer's Income.
The bottom-line on spousal support.
General Information.
Spousal support is a payment made by one spouse (the "payer") to the other
spouse (the "payee"), to help defray the recipient's day-to-day living
expenses. This payment is to help him/her get by as a single person, until
he/she becomes independent or self-sufficient.
Spousal support is also known by the terms "alimony" and "maintenance,"
Spousal support is available to married spouses and common-law partners alike.
Unlike child support there are no guidelines or regulations, which specify the
amount of spousal support to be paid.
Whether spousal support must be paid and how much support must be paid will
depend on the particular circumstances of your case.
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Why is there spousal support?
During most relationships, there was only one mortgage (or rent payment), only
one hydro bill and one grocery payment. After the relationship ends, there are
two mortgage/rent payments, two hydro bills and two sets of groceries to buy.
Usually, all of these bills must be paid out of the same amount of income,
which supported the family before separation.
One spouse may have worked while the other looked after the home and children,
which allowed the working spouse to pursue his or her career. Support payments
assist the spouse that has either not been employed in the work force, or who
has been working but is making less money than the other spouse.
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How does the court decide if support payments
should be made?
There is no automatic presumption that spousal support will be payable when a
relationship ends. Each case will depend on its own facts and circumstances. If
a both parties are self sufficient, and there is no valid reason to issue a
support Order, the court will not do so.
In general, the court will take into consideration all of the individual
factors of the relationship, including:
-
How long was the couple married, or living in a marriage like relationship? The
longer the marriage, the greater the likelihood of an Order for spousal
support. As well, the longer the marriage is, the stronger the presumption will
be that the parties should have an equal or almost equal standard of living.
-
Difference in Incomes: The greater the difference in income between the parties
is, the greater the likelihood will be that an Order for spousal support will
be made.
-
Economic Disadvantage: The more one spouse has lost as result of the marriage,
such as job skills, job opportunities or employability (for example, with a
stay-at-home spouse), the greater the likelihood of an Order for spousal
support.
-
Earning Capacity: The more one party's earning capacity is reduced because of
family obligations like child care, for example, the greater the likelihood of
an Order for spousal support.
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Common Law Spousal Support.
Spousal support is available to straight and same-sex married and common law
couples. Where on the separation of a common law couple (either opposite-sex or
same-sex) one spouse is dependent upon the other, the Court may require spousal
support to be paid.
There are rules regarding the length of time that spouses lived together in a
marriage like relationship before spousal support is applicable (the length of
time is determined by the province). In some provinces there are time limits on
commencing an action for support in a common law relationship (For example, in
British Columbia, to succeed the action must be commences within one year from
the date the spouses ceased to be in a marriage like relationship).
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How does the court decide about how much should
be paid?
Unlike child support, there are no current guidelines to determine how much
support should be paid. In broad terms, the amount of an Order for spousal
support is calculated by looking at the disposable income of the "payer" and
the actual needs of the "payee".
The court will examine the gross income of a the payer, less his/her necessary
and actual living expenses such as child support, housing costs, utilities,
food etc, and the needs of the payee. Spousal support payments will be
calculated after taking all relevant factors into account.
In a case where there is not enough money to cover child support and the day
to day needs of the payee, child support will take priority over spousal
support. The amount of spousal support paid simply may not suffice to cover the
payee's needs. The former spouses will have to share in the financial
consequences of the end of their relationship. In general, the courts will not
force someone into bankruptcy to provide support for the other party.
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How long will the payments go on?
Neither marriages nor common-law relationships are meant to create life-long
pension plans for the payee when the relationship ends. Following the end of a
common-law or married relationship, each party has a duty to become independent
and self-sufficient as soon as possible. As one family law judge has stated:
"Marriage is not a legal institution created for the redistribution of wealth."
A party who becomes self-sufficient, or who is self-sufficient following the
end of the relationship, will not be entitled to receive spousal support.
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Are spousal support payments tax deductible?
The spouse who pays support is entitled to claim the amount of the payments as
a deduction against his or her income tax. The receiving spouse is consequently
obliged to claim the support he or she has received as taxable income on his or
her tax return. If he/she is working, the amount received in spousal support
must be added to his/her employment income. The payee will be taxed on his/her
total income, including support payments.
TO ENSURE YOU CAN CLAIM THIS DEDUCTION, the Order or family agreement, which
obliges the payer to make the spousal support payments, must clearly state that
the payments are for spousal support. Without this clear statement, the federal
Income Tax Act requires the payments to be treated as child support payments,
which are not tax deductible. Also, they are they not reportable as taxable
income in the hands of the payee (your former spouse and partner).
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Ensuring the spousal support payments you make is
tax deductible.
If you want to ensure that the money you are paying as spousal support is
deductible, there are some important points you must pay attention to:
-
Court Orders: The Order must clearly state a fixed sum, and that this fixed sum
is described in the Order as "spousal support."
-
Separation Agreements: In addition to a clause describing a fixed sum as
"spousal support," the agreement must also contain a clause stating that the
parties have been separated since a certain date and intend to continue to live
separate and apart.
-
In general, the tax department will not recognize anything other than a
properly executed separation agreement or court Order (Such as an oral or
informal agreement), no matter the nature of your agreement. There are some
exceptions to this rule, but to ensure that you get the proper tax deductions,
it is best to arrange your support payments in a formal fashion.
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Avoiding unexpected taxes for recipients.
Receiving support payments requires the payee to report the payments of income,
and it is taxable as income. But the recipient of support may also be subject
to other taxes that aren't so obvious.
One of the more common ways this can happen is if the payer is making the
payments directly through a company he or she owns to the payee. In a case like
that, the person getting the money risks having the payer declare the money to
have been paid as a corporate dividend or as salary as if the recipient was an
employee of the company. This can result in higher than expected taxes being
charged to the recipient.
The easiest way to guard against unexpected taxes is to ensure that the
payments are made by way of a personal cheque, drawn on the payer's personal
bank account.
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Grossing Up a payer's Income.
Some payers have a lower income tax obligation than others, such as payers who
live in the United States (where there may be a lower tax rate). In such a
case, the payer can have his/her income "grossed up" to reflect this tax
advantage when spousal support is determined. The idea is to ensure that
persons with an unusually low tax burden pay a fair amount of support by having
their income assessed taking the lower tax rate into account.
The grossing up process essentially involves figuring out the amount of money
the payer would have to earn to have the same after-tax income at the normal
tax rates for other residents of a Canadian province. This will result in a
deemed increase to the amount of money the payer earns for the purposes of
calculating spousal support, and a consequential increase in the amount of
spousal support, which might be awarded.
Grossing up a payer's income can be complicated, and requires a sound
knowledge of the income tax implications of different jurisdictions.
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The bottom-line on spousal support.
There is no automatic entitlement to spousal support. An experienced Family Law
lawyer can assist you in helping determine whether spousal support payments are
likely to be required, how much they should be, and how long they should go on.
Each case will be determined by the individual circumstances, which should be
discussed with a Family Law Lawyer.
If you think you are entitled to spousal support, or you would like to know
what your obligations to pay spousal support might be, contact one of our
experienced Family Law lawyers.
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