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Divorce and the Tax Department

Reducing the amount of tax that we have to pay to the Federal Government is something we all take very seriously due to the fact that we seem to have less money these days and everything costs more.  It becomes even more important when a family is split apart by a separation or divorce.

One of the ways we try to assist people in arranging their affairs following a separation or divorce is to try to maximize the amount of money left in each new household.  This sometimes is not easy.  In situations where there is more than one child, attempts were made to permit each spouse to claim one child so as to enable them to obtain an Equivalent to Spouse deduction on their taxes.  The tax department frequently disallowed these attempts, as the reality was that usually the children resided with one parent and the other parent was obligated to make payments for all the children.  With shared custody becoming more popular these days, it may be possible to have a situation where both put monies into an account to be used for the children’s expenses upon agreement between the parents.  This removes any control over the payment and its expenditure by one parent or the other.  This may then result in both parents being able to claim the Equivalent to Spouse deduction.

Another issue is who can claim the Child Tax Credit.  Only one parent can receive this payment per month.  Custody does not seem to be the overriding concern of the tax department – rather, they seem to focus more on residency at the beginning of the month.  Again, in an attempt to maximize cash flow, in cases where the parties are actually sharing custody, the parties may want to set up the residency of the children so that they are with the lower income parent at the beginning of the month and with the higher income parent in the later part of the month.  This arguable would entitle the lower income parent to claim this Credit.

One final issue, which now appears to be settled, is that parties are entitled to deduct their legal fees that were incurred to obtain or enforce child and spousal support payments.  As this is an area that seems to bring separated couples before the courts almost annually, this is welcome relief for spouses and also assists in defraying the high cost of court proceedings.

Each case is different and the comments contained herein may not be available in your situation.  It is always important to review these matters with your legal advisor.

 James A. Glass