Debunking the myths and legends that haunt family law, including those about waiving obligations and business income.
Most times when you ask a lawyer a question, the first words out of their mouth are “that depends …” Family law is no different! However, Canada’s child support legislation is legislators’ best possible attempt to create black and white laws – clear, concise, and consistent.
The foundational principle that underpins this area of the law is that child support is the right of the child. Child support has lifted countless children out of poverty since the Child Support Guidelines were introduced in 1997. It has also provided parents an avenue out of family violence. Despite the Guidelines’ attempt to be clear and consistent, it is still a complex area of the law with many technical nooks and crannies. Let’s dig deeper.
Myth: If I sign away my parenting rights then I will not have to pay child support.
Myth: I told her to get an abortion so I should not have to pay child support.
Alberta’s legislation does not tie child support to parenting in any way (aside from in shared parenting scenarios). This is because child support is the right of the child, not the right of a parent. The result is that all parents, regardless of how involved (or uninvolved) they are, by law must financially support their children.
There are a few narrow exceptions to this rule, including:
- persons whose human reproductive material has been used in assisted reproduction for third parties (although this does not include pregnancies arising from intercourse)
- where the other parent’s new partner has legally adopted the child
Myth: My business’ income does not count. Only what is on my personal tax returns counts in figuring out my income for child support.
The starting point for calculating a parent’s Guideline Income is typically Line 15000 (formerly Line 150) of their income tax return. However, this is not always the end of those calculations. Sometimes the court will look at:
- the parent’s pattern of income over several years
- how much money is available to the parent to pay support, including pre-tax corporate income, where the parent is a shareholder, director, or officer of a corporation
- the value of the services the parent is providing to the business
- making adjustments to account for any transactions the business has with persons who are not at arm’s length from the parent or business
Beyond this, the court can also impute (assign) income to a parent for several reasons. Reasons that often affect business operators are:
- the parent being intentionally under-employed
- diversion of income
- property not being reasonably used to generate income
- failing to provide adequate financial disclosure
- unreasonably deducting expenses from income
- income derived from sources which are taxed at a lower rate or exempt from tax, such as dividends and capital gains
The fact that a claimed expense (either on the Financial Statements or the Statement of Business Activities on the income tax returns) is allowed under the Income Tax Act does not make it a reasonable expense deduction for Guideline Income calculations. For example, a person can deduct a mobile phone plan as a business expense. Say a parent/business operator uses the mobile phone for both personal and business purposes, and therefore does not have to pay for a mobile phone personally. In this case, the expense may be (at least in part) an unreasonable one to deduct from income in Guideline Income calculations. Other common items include business use-of-home deductions, vehicle and related expenses, meals and entertainment, travel, etc.
Establishing sufficient financial disclosure or documentation to accurately calculate Guideline Income can be extremely difficult. However, if the business operator refuses to provide sufficient disclosure, the Court may presume that the expense(s) claimed are unreasonable by drawing an adverse inference and imputing income accordingly.
To summarize: With parents who run a business, we are usually trying to figure out what I call their “lifestyle income.” If a parent’s income taxes say they make $10,000 per year but they have a vacation home, travel often, drive luxury vehicles, have a large home, etc., then obviously $10,000 is not a reasonable income upon which to base their child support obligations. Remember again, child support is the right of the child.
One final note: This approach to calculating income has also largely been adopted for spousal support purposes. There are occasionally a few deviations or exceptions, but it is very similar.
Myth: We both agree that there will be no child support so we will just waive it in our agreement.
Again, because child support is the right of the child, parents are generally cannot waive it in agreements or otherwise.
There are sometimes narrow exceptions to this, such as shared parenting arrangements where the parents have similar incomes and have fairly addressed how they will handle the children’s expenses in the absence of child support. In other words, the court will not respect the wavier unless detailed information accompanies it that lays out:
- the parents’ financial obligations, and
- the division of property to indirectly benefit the child or other special provisions being made for the child’s benefit, and
- information showing it would be unfair, because of the arrangements made, to pay the Guideline support.
The parent who would be the payor takes on an enormous risk in signing any agreement which purports to “waive” child support (without adequately proving it has been provided for through other avenues). The other parent may go back on that agreement in the future and ask for not only ongoing child support, but also retroactive (or “back-pay”) child support. How far back they could go would depend on the circumstances of the case. Regardless, it is risky to the would-be payor.
Myth: Our kids have always done these activities so they will automatically be included as section 7 expenses.
Child support includes more than the set monthly amount based on the number of children, the province the payor(s) lives(s) in, and the income of the payor parent(s). It also includes special or extraordinary expenses – or “section 7 expenses” as they are commonly called. Extracurricular activities are one of many possible section 7 expenses. Other items include daycare for parents who work or are in school, post-secondary education expenses, health insurance premiums, etc.
Unlike some items, extracurricular activity expenses are not automatically included as section 7 items. They must not only be extracurricular, but also extraordinary. In considering whether to include extraordinary extracurricular expenses, we explore:
- whether the expense is reasonable given the parents’ income(s)
- whether the expense is in the child’s best interests, and
- the family spending pattern (if any) prior to separation.
If the spending pattern prior to separation was unreasonable considering the parents’ income(s), then it is not a given that the expense will continue post-separation. And what was reasonable prior to separation may no longer be reasonable after separation given that the same income(s) now must support two households instead of one. In other words, the same money must stretch further and sometimes that means that long-standing extracurricular expenses are no longer affordable.
Myth: I want to become a legal guardian of my grandchildren so I will have to pay child support.
Child support is the obligation of parents (not guardians) and persons “standing in the place of a parent” (limited to spouses of parents). As such, Alberta’s Family Law Act does not require grandparent guardians to pay child support. The same would be true for any other friend or extended family member who becomes a guardian of a child.
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Disclaimer
The information in this article was correct at time of publishing. The law may have changed since then. The views expressed in this article are those of the author and do not necessarily reflect the views of LawNow or the Centre for Public Legal Education Alberta.
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About Erika Hagen
