It is commonly said that 75% of marriages that have a child with autism will end in divorce. This may or may not be true but according to Mrs. Drysdale, the other 25% are simply waiting for the right moment.
I’m not pretending to be an expert in matters of marital separation as I have not been fortunate enough to go through such an ordeal. I found researching this post to be extraordinarily difficult as the rules are vague and can easily vary based on separation agreements and court rulings. The bottom line is that if you can work together to come up with a plan you will be much better off.
An autism diagnosis and a divorce are two of the most devastating financial events that can occur to a family. With some advance planning and cooperation from the two parents, the financial implications can be minimized.
There is an excellent article in the Financial Post about how to save money in a divorce. It is a short read, but very worthwhile.
The new Family Law Act came into effect last year and many of the terms you may be familiar with have changed. The Legal Services Society has a guide to the new act which you can find here.
This brief introduction to the financial arrangements of divorce and separation is no substitute for professional advice which I strongly recommend that you seek.
The broad tax implications
For divorces (and separations longer than 90 days) after April 1997 any child support payments are not deductible by the payer and don’t have to be claimed as income by the recipient. Spousal support payments on the other hand can be claimed as a deduction by the payer and must be claimed as income by the recipient.
To identify if a payment is child or spousal support, you must look to the court order or written agreement. Any payments which are not specifically designated for the sole support of the former spouse are to be considered child support.
In order to claim a spousal support deduction, the payer must first pay all of the child support payments. Any arrears in child support payments are added to the next year’s support payments and again these must be paid before any spousal support is claimed.
Taxation of payments to third parties
Examples of payments to third parties include property tax and insurance. It is important to structure these payments properly so as to minimize taxation. In order to deduct such payments, three conditions must be met:
- There is an agreement or order specifying that these payments are to be made for the benefit of the recipient spouse.
- The payer and recipient are living apart.
- The written agreement or court order specifies that the payer may deduct these payments and the recipient will claim them as income.
When to notify CRA of the marital status change?
The Canada Revenue Agency (CRA) must be notified in the month following the change of marital status. If you are separated, CRA must be notified after 90 continuous days of separation. You can use the form RC65 to notify CRA.
Canada Child Tax Benefit (CCTB)
The CCTB will be recalculated based on the new family income and will be adjusted in the month following the marital breakup. The person who resides with the child and is responsible for his/her upbringing is the one who will receive the CCTB.
It’s important to remember that the CCTB is based on family income. After the breakup of a marriage it may be advantageous for the lower income person to receive the CCTB so as to maximize the monthly cheque. A well-crafted separation agreement or order or judgment should take this into account and designate the lower income parent to be the one to claim for the CCTB.
In a shared custody arrangement if the parents:
- live in separate locations;
- live with the child on an equal or near-equal basis; and
- are primarily responsible for the child’s care and upbringing when living with the child.
then the CCTB will be apportioned on a 50/50 basis.
Remember that you must continue to file an income tax return every year in order to receive the CCTB even if you have no income.
Eligible Dependent Claim
You can claim the Amount for an Eligible Dependent (AED – also known as the “single parent exemption”) if you didn’t have a spouse or common-law partner living with you and you supported a dependent and you lived in the same home as the dependent. If a parent pays child support they become ineligible for the AED. Once again a properly written agreement will specify who may claim for this amount.
Only one person can claim for an eligible dependent. If you have shared custody and both make support payments for the dependent, only one person may claim for an eligible dependent. If you can’t agree who is to make this claim, then no one can claim it.
Child Care Expenses
Both separated parents can now claim child care expenses (assuming there is no other supporting person) up to the limit for that child ($10,000 if the child qualifies for the Disability Tax Credit). However there are some caveats:
- The expenses must be for the period that the parent has custody of the child
- That parent must pay the expenses
- It still must be for the purposes of:
- Earning employment income
- Going to school
- Running a business
- If both parents use the same child care provider, they must pay separately and obtain receipts to reflect the period that they had custody.
If there is a separation and subsequent reconciliation, Form T778 Child Care Expenses Deduction will guide you through the amount you can claim.
Either party may continue to claim for medical expenses provided they made the payments for a supported person. The big difference is that while married or common-law couples can pool their medical expenses to lower the tax payable, divorced or separated parents must make individual claims.
Where possible, the family’s medical expenses should be claimed by the parent with the lower income in order to maximize the medical expense tax credit.
Tax Credits and Deductions
It should be specified in the separation agreement which parent will be claiming the available credits and deductions.
BC Autism Funding
There should be no great change as this amount is not taxable. As before, only one parent may be in charge of the funds from the AFU and this is unlikely to change after a separation or divorce.
Fitness and Arts Tax Credit
Each parent can claim the fitness amount and arts amount. However, the claims cannot be for the same expenditures and the combined claim per child for each program cannot exceed the $500 limitation.
Who gets the extra $500 for a disabled child? Either parent can claim this amount as long as another person has not already claimed the same fees.
You can’t deduct legal fees used to obtain a divorce, establish or contest child custody, or to divide property.
Legal fees that are deductible include:
- To obtain child or spousal support
- Legal fees used to collect salary or wages
- Fees to try to make child support payments non-taxable
Personal Residence Exemption
Prior to a marital separation, only one residence per family could be used for the “Principal Residence Exemption”. This is used to exempt the property from any capital gains tax during the years that it is designated as a principal residence. Following the separation, each parent is now entitled to their own “Principal Residence Exemption” but only after:
- One year of living apart and
- They are separated pursuant to a judicial order or written separation agreement
A significant delay to a separation could involve a nasty tax surprise for a separated couple who each own a primary residence.
This has been a far from comprehensive guide to divorce involving a child with autism. The key point to everything written above is that you must have a clear, well written separation agreement. It should designate which parent is entitled to the child tax credits and deductions available under the Income Tax Act. This can amount to a substantial amount of money and should certainly be considered when calculating child and parental support payments.
Emotions typically run very high during this period, but it is critical to remember that a well-crafted agreement will go a long way to relieving heartache and legal bills down the road. Cooperation, not confrontation will ultimately lead to a better financial outcome for all parties.
I have always encouraged parents of children with autism to be masters of their own financial domain. Dealing with the Autism Funds Unit, applying for tax credits and deductions and managing their child’s therapy is certainly within the grasp of most people. Divorce is a different beast altogether and good professional advice is essential. At the very least, you should have a reputable lawyer draft the separation agreement. In very complicated cases you may need to enlist the services of an accountant.
I would strongly encourage any of you to share your personal experiences and tips in the comment section below.