Spousal Support Advisory Guidelines July 2008

8. THE WITH CHILD SUPPORT FORMULA (continued)

8.6 Shared Custody

The basic formula is constructed around the typical fact situation, where the higher income spouse pays child and spousal support to the lower income spouse who has the primary care of the children. Here we address custodial variations, the first being shared custody.

Where the spouses have shared custody, the starting point for the calculation of child support under s. 9(a) of the Federal Child Support Guidelines is the straight set-off of table amounts for the number of children subject to shared custody, as set out in the Supreme Court decision in Contino v. Leonelli-Contino.[82] That amount is then adjusted, usually upwards, but occasionally downwards, based upon s. 9(b) (increased costs of shared custody and actual spending on children by the spouses) and s. 9(c) (other circumstances, including relative incomes, income levels, assets and debts, household standards of living, any reliance upon previous levels of child support paid). The Contino decision was handed down after the release of the Draft Proposal, but the shared custody formula anticipated that outcome. The majority in Contino emphasised that there is no presumption in favour of the full table amount for the payor, nor is there any presumption in favour of the straight set-off, under section 9.

Under the basic with child support formula, child support is deducted from the payor’s income and then that child support amount plus a notional amount for child support is deducted from the recipient’s income, to obtain individual net disposable income. Shared custody requires some changes to this basic formula.

Assume for the moment that the payor is paying only the straight set-off amount of child support in a shared custody case. If we were only to deduct the smaller set-off amount of child support for the payor spouse in a shared custody situation, that would misrepresent and understate the payor parent’s contribution to child support. Shared custody assumes that both parents spend directly upon the child in their shared care. The full table amount (plus any s. 7 contributions) is thus deducted from the payor spouse’s net disposable income. For the recipient, the notional table amount (plus any contribution to s. 7 expenses) is deducted from his or her income. This would be done in the calculation of INDI, even though the child support paid by the payor and received by the recipient would be the straight set-off amount.

If the straight set-off of child support is calculated as above, it turns out that the spousal support ranges are basically the same in these shared custody situations as in sole custody situations. Shared custody arrangements do not result in any automatic lowering of spousal support. It was important that the shared custody formula not provide any false financial incentives to encourage shared custody litigation, while at the same time providing ample room within the range to adjust for the realities of shared parenting.

Example 8.4

Peter and Cynthia have separated after nine years together. Peter works as a reporter at the local television station, earning $65,000 gross per year, while his wife Cynthia works for a local arts organization, earning $39,000 gross per year.

Peter and Cynthia share custody of their two children, aged 8 and 7 on a week about, 50/50 basis. In these circumstances, there could be entitlement issues, but we will assume entitlement here for exposition purposes.

First, assume Peter only pays the straight set-off amount of child support, i.e. $972 - $584 = $388. We would deduct from Peter’s income the full table amount of $972, of which $584 is spent by him directly for the children in his care and $388 is paid as child support to Cynthia. Cynthia’s income would still be reduced by her notional table amount of $584. If Cynthia receives the full amount of the child benefits, and assuming entitlement, then the range for spousal support would be zero to $142 per month.

8.6.1 Adjusting for rotating child benefits

Since the release of the Draft Proposal, there has been a change in policy governing the receipt of the Child Tax Benefit and the child portion of the GST/HST Credit. The Canada Revenue Agency (CRA) decided that parents in shared custody cases "will have their benefits rotated between them only on a six-month on, six-month off basis". According to the CRA policy, it is possible for only one shared custody parent to receive the full child benefits provided that the parents do not self-identify or otherwise come to CRA’s attention. The same approach has now been extended to the Universal Child Care Benefit (UCCB) in shared custody situations. As with all tax matters, the CRA policy cannot be altered by the parents’ agreement or by a court order.

Under the with child support formula, these child benefits are treated as income and thus the allocation of the Child Tax Benefit, GST Credit and UCCB can affect the spousal support range for amount. It is therefore critical to be clear on this income issue.

In our Example 8.4, if the child benefits are rotated, thereby reducing Cynthia’s income, the formula range would be higher, from zero to $289 per month.

8.6.2 Adjusting the ranges for child support that departs from the set-off

To make matters more difficult, in some shared custody cases, the amount of support is increased beyond the straight set-off amount, for various reasons: to reflect the increased costs of shared custody (or the respective abilities of the parents to incur those increased costs); to adjust for the recipient parent’s larger share of actual child care costs; to reflect a parent’s reliance upon a previous higher amount of child support, as in Contino; or to reduce disparities in the standards of living between the parental households. A central concern expressed in Contino was that the children not experience any dramatic change in standards of living as they move between the two parental households.

To return to Example 8.4, what if Peter pays more than the straight set-off amount of $388 per month? Much depends upon why Peter pays more. If Peter pays a higher amount of child support because Cynthia spends more on the children or because of the increased costs of shared custody, no adjustment should be made.

On the other hand, if Peter pays more child support simply to reduce the disparity in household standards of living, an adjustment should probably be made to the ranges for spousal support, as there is less need for the same function to be performed by spousal support. For example, if Peter were to pay child support of $569 per month on this standard-of-living rationale, rather than $388, then the range for spousal support would be zero to zero after adjustment (assuming the full child benefits are paid to Cynthia). At child support of $569 per month, Cynthia would have noticeably more of the family’s net disposable income than Peter, leaving no room for spousal support under the with child support formula.

Contino emphasized the discretionary nature of child support in shared custody cases. Departures from the set-off can even sometimes go below the set-off amount. There can be a number of reasons for departing from the set-off amount, either above or below. A careful analysis of those reasons is thus necessary, to determine whether any adjustment should be made in calculating the formula ranges and, eventually, in choosing the appropriate amount within the ranges.

8.6.3 Adjusting the limits of the range

We received much feedback from mediators and lawyers working with shared custody parents, stating that these parents often opt for a 50/50 split of the couple’s family net disposable income or monthly cash flow after the payment of child and spousal support (remember that this is a broader and different measure from INDI or individual net disposable income). This option leaves the children with roughly the same resources and standard of living in each household. We agree that this equal split of net income should be available as one of the normal range of outcomes — not mandated, just available — in every shared custody case.

The shared custody formula for spousal support usually includes this 50/50 split within the range, but in some cases this 50/50 split falls just outside the upper or lower end of the range. In these cases, the shared custody range has been broadened to include this 50/50 split. Take Example 8.4 which shows a range of zero to $142 per month where Peter pays the set-off amount of $388 as child support (and assuming that Cynthia receives the full child benefits). At the upper end of the range, Cynthia would be left with 49.7 per cent of the family net disposable income. To increase her share to 50 per cent, the upper end of the spousal support range would have to be $179. Under our revised shared custody formula, the range here would become zero to $179 per month, to ensure that the 50/50 split falls within the range.

In what cases has the formula range been adjusted? In cases where parental incomes are lower or not that far apart (like Peter and Cynthia), the upper end of the range has been adjusted upwards a bit. In cases where the recipient parent has little or no income and there are two or more children subject to shared custody, then the lower end of the range has been adjusted downwards, to ensure that the 50/50 split falls within the range. These adjustments are made automatically by the software programs.

In these latter cases, where there are two or more children subject to shared custody and the recipient has little or no income, the formula will produce a range with a lower end that leaves the lower-income recipient with 50 per cent of the family’s net disposable income and the rest of the range will obviously go higher. During the feedback process, some criticized this range of outcomes, suggesting that a shared custody recipient should never receive spousal support that would give her or him more than 50 per cent of the family’s net disposable income. After all, they suggested, under this arrangement, both parents face the same ongoing obligations of child care going into the future, with neither parent experiencing more disadvantage.

The answer to these criticisms is that the past is relevant in these cases, as there is a reason the recipient has little or no income, usually explained by that parent’s past shouldering of the bulk of child care responsibilities. In most shared custody cases, both parents have shared parenting during the relationship, so that there is less disadvantage and less disparity in their incomes at the end of the marriage. Where the recipient has little or no income, she or he will have a greater need for increased support in the short run. But the shared custody arrangement will reduce the impact of ongoing child care upon the recipient’s employment prospects, such that progress towards self-sufficiency should occur more quickly. In these cases, spousal support will likely be reduced in the near future on review or variation, and the duration of support may be shorter.

8.7 Split custody

In a split custody situation, more significant changes to the basic formula are required. If each parent has one or more children in their primary care or custody, then s. 8 of the Federal Child Support Guidelines requires a set-off of table amounts, with each spouse paying the table amount for the number of children in the other spouse's custody. But this means that each parent will also be considered to support the child or children in their care directly, out of their remaining income. Thus, in the split custody situation, a notional table amount must be deducted from each parent, not just the recipient but the payor as well.

Since there is one child in each household, there are no economies of scale and accordingly larger proportions of their incomes are devoted to child support, leaving a smaller pool of INDI to be divided by way of spousal support. Again, as with shared custody, this would be done in the calculation of INDI, even though the child support paid by the payor and received by the recipient would be the set-off amount directed by the s. 8 formula.

Example 8.5

Take the case of Peter and Cynthia again, and assume that each parent has custody of one child, same incomes, same facts. Peter’s one child table amount would be $601 per month, Cynthia’s $358 per month. Under s. 8 of the Federal Child Support Guidelines, these table amounts would be offset, with Peter paying Cynthia $243 per month. In calculating Peter’s individual net disposable income, for spousal support purposes, the full one child amount is deducted, twice, once for the table amount effectively paid to Cynthia and once for the notional amount spent directly on the child in his care. Similarly, in calculating Cynthia’s INDI, a double deduction of her one-child table amount is made, once for the amount effectively paid to Peter for the child in his care, plus a notional table amount for the child in Cynthia’s own care.

The actual child support paid by Peter to Cynthia would be $243, the one-child set-off amount under s. 8. Using the split custody formula for spousal support, Peter would pay spousal support to Cynthia in the range of zero to $445 per month.

8.8 Step-Children

Under the Divorce Act and provincial family law statutes, a spouse can be found to stand in the place of a parent towards a child who is not his or her biological or adoptive child.[83] With that finding, a step-parent becomes liable to pay child support, in an amount that is "appropriate" under section 5 of the Child Support Guidelines, "having regard to these Guidelines and any other parent’s legal duty to support the child". For the most part, the threshold for finding step-parent status is fairly high, not easily satisfied in short marriages except for very young children.[84] After the Supreme Court decision in Chartier,[85] some courts have lowered that threshold, making it more likely that a spouse will be found to stand in the place of a parent after a shorter marriage. In British Columbia, the Family Relations Act imposes a step-parent child support obligation if "the step-parent contributed to the support and maintenance of the child for at least one year". [86]

During the feedback phase, especially in British Columbia, there were questions about which formula is appropriate to apply in short-marriage step-parent situations or whether there should be an exception under the with child support formula for step-parent cases. There were concerns that this formula generated spousal support obligations that were too substantial in such cases.

In the vast majority of step-parent cases, the with child support formula will apply with no difficulty. In many cases, the step-parent will treat the children as his or her own after the breakdown of the marriage. In some of these cases, there will be both step-children and biological children, with all of them treated alike. In other cases, the threshold for the finding of step-parent status will be high enough that the marriage will be a medium-to-long one, with substantial spousal support obligations.

In our view, the short marriage concerns are now resolved by the creation of a range for duration under this formula. Upon closer analysis, the difficulty in these step-parent cases was not the range for amount, but the potentially long duration under the age-of-children test for the upper end of the range and its use as a "default rule". An example can demonstrate how the addition of a lower end for the durational range allows for a reasonable range of outcomes in step-parent cases.

Example 8.6

Art and Kathie have been married for 5 years. Art earns $80,000 per year and Kathie earns $20,000. Kathie had two children from a previous relationship at the time she and Art got married, two girls who are now 10 and 12. Assume that Kathie does not receive any child support from the girls’ father and that she has sole custody of the girls.

Under the Federal Child Support Guidelines, Art could be required to pay as much as the table amount of child support, $1,159 per month. If Art pays the full table amount, the basic with child support formula would produce an amount for spousal support in the range of $474 to $1,025 per month.

As for the duration of spousal support, the order would be indefinite (duration not specified), with a cumulative durational range of 2.5 years at the lower end to 8 years at the upper end. The upper end of the durational range here is determined by the age-of-children test, i.e. when the youngest daughter (now 10) finishes high school at age 18, or 8 years. The lower end, however, is fixed by the length-of-marriage test, as both children are older and in full-time school, i.e. one-half the length of the marriage, or 2 = years. Upon a future review or a variation application, a court could put a relatively short time limit on spousal support, depending upon the facts.

The facts of this simple example can be modified to strengthen or weaken the spousal support claim. If the girls are younger during their relationship with Art, so that they are only 6 and 8 at separation, then the durational range would be 2 = to 12 years and there would be strong factors pushing towards the upper end of the range. Contrast the effect of the low British Columbia threshold under the Family Relations Act. The girls are 6 and 8 at separation, but assume that Art was only married to Kathie for two years. The upper end of the durational range would still be 12 years, but the lower end would be reduced to one year, i.e. one-half year for each year of marriage.

Under section 8 of the Child Support Guidelines, it is possible for a step-parent to pay less than the table amount of child support if appropriate. A reduced amount is only ordered or agreed upon when the biological parent is already paying child support.[87] Where the amount of child support is reduced under s. 8, the with child support formula range should be calculated using the full table amount rather than the reduced amount.[88]

8.9 A Hybrid Formula for Spousal Support Paid by the Custodial Parent (The Custodial Payor Formula)

The basic formula for marriages with dependent children assumes that the higher income spouse pays both child and spousal support to the recipient parent, who also has sole custody or primary care of the children. The spousal support to be paid must then adjust for the payor’s child support payments. The shared and split custody situations may change the math, but both still involve the higher income spouse paying both child and spousal support to the recipient.

A different formula is required where the higher income spouse paying spousal support is also the parent with sole custody or primary care of the children. Now spousal support and child support flow in opposite directions. the without child support formula does not apply, however, as it assumes no dependent children. While we could have left this situation as an exception, with no formulaic solution, it is common enough that we constructed a formula to guide outcomes in this situation.

Either of the two formulas could be used as a starting point and then modified to accommodate custodial payors. We chose to start from the without child support formula for custodial payors. In this situation the recipient parent does not have the primary care of children and thus more closely resembles the single recipient in the without child support formula. The primary rationale for the payment of spousal support in these cases will be merger over time, rather than parental partnership. That said, a number of lower income recipient spouses in this situation will continue to play an important role in their children’s lives and any formula must be able to adjust in such cases. The other advantage of the without child support formula is ease of calculation, but the formula will have to be modified to back out child support and to take into account tax implications.

Most of these cases will involve older children and longer marriages, where the husband is the higher-income payor and the parent with primary care. In many of these cases, the non-custodial wife may have a sizeable compensatory claim from her past role in child-rearing, which will be reflected in the range for spousal support, and the location of any amount within that range. In these cases involving older children and longer marriages, the children will cease to be children of the marriage within a few years and the wife will cross-over into the without child support formula, as is explained below in Chapter 14 on variation and review. In a subset of custodial payor cases, there will be illness or disability issues for the non-custodial spouses, many of which can be accommodated within the ranges or restructuring, but exceptions will be made in some cases, as discussed below in Chapter 12 below. There is a small minority of custodial payor cases that involve young children, shorter marriages and husbands claiming spousal support from their wives.

Formula for Spousal Support Paid by Custodial Parent (The Custodial Payor Formula)

  1. Reduce the payor spouse’s Guidelines income by the grossed-up notional table amount for child support (plus a gross-up of any contributions to s. 7 expenses).
  2. If the recipient spouse is paying child support, reduce the recipient’s Guidelines income by the grossed-up amount of child support paid (table amount plus any s. 7 contributions).
  3. Determine the adjusted gross income difference between the spouses and then quantum ranges from 1.5 percent to 2 percent for each year of marriage, up to a maximum of 50.
  4. Duration ranges from .5 to 1 year of support for each year of marriage, with the same rules for indefinite (duration not specified) support as under the without child support formula.

In reducing gross incomes by grossed-up amounts for child support, this formula does the same thing conceptually as the basic with child support formula — it establishes the spouses’ available incomes after their child support obligations are fulfilled. To gross up the child support will require a calculation of the gross value of the non-taxable child support, using the appropriate marginal tax rate for the payor or recipient spouse.

Example 8.6

Matt earns $100,000 gross per year and has custody of two teenage children. Anna earns $30,000 gross per year. The spouses separated after 16 years together. There are no s. 7 expenses.

Assume entitlement to spousal support has been established.

First, Matt’s income is reduced by the table amount for two children, $1,404, grossed-up to $2,525 per month or $30,300 annually. Matt’s reduced income would thus be $69,700. Anna is required to pay child support at the table amount of $444 per month, grossed-up to $625 monthly or $7,500 annually. Anna’s reduced income would be $22,500. After a 16-year marriage, Anna would receive a range of 24 to 32 percent of the adjusted gross income difference of $47,200.

Under the custodial payor formula, Matt would pay spousal support in a range from $944 to $1,259 per month, for a duration of 8 to 16 years.

There is one exception distinctive to this custodial payor formula, discussed in more detail below in Chapter 12. Where the recipient spouse and non-primary parent plays an important role in the child’s care and upbringing after separation, yet the marriage is shorter and the child is younger, the ranges for amount and duration applied under this custodial payor formula may not allow that spouse to continue to fulfil that parental role. In our view, in such cases, under this parenting exception, it should be possible to exceed the upper limits on both amount and duration for that purpose.

8.10 A Hybrid Formula for Adult Children and Section 3(2)(b)

After the release of the Draft Proposal, we added another formula to this family of formulas, another hybrid formula, this time for adult children whose child support is determined under section 3(2)(b) of the Federal Child Support Guidelines. In these cases of children who are the age of majority or over, the table-amount-plus-section-7-expenses approach is considered "inappropriate". Under the case law, these are usually cases where:

  1. the adult child attends a post-secondary institution away from home;
  2. the adult child makes a sizeable contribution to his or her own education expenses; or
  3. there are other non-parental resources to defray education expenses, like scholarships or RESP’s or grandparent monies.

Under section 3(2)(b), an individual budget is usually prepared for the adult child and, after the child and other contributions are deducted, the remaining deficit is then apportioned between the parents, based upon their incomes or some other arrangement. These child support amounts will differ significantly from any amounts using the table and section 7 expenses, almost invariably lower.

This adult children formula will only apply where the child support for all the remaining children of the marriage is determined under section 3(2)(b) of the Child Support Guidelines and there are no children for whom a table amount of child support is being paid under section 3(1) or section 3(2)(a). It should not be used, for example, where there is one older child away at university and another still at home in high school. In that case, the basic with child support formula would be used, with any necessary adjustment to the amounts of child support contributed by each parent for the child away at school.

Under this adult children formula, like the custodial payor formula, the framework of the without child support formula is used, but adjusted for the child support amounts paid, another hybrid formula. Once each parent’s contribution to the child’s budget has been allocated under s. 3(2)(b), those actual child support amounts are grossed up and deducted from each spouse’s gross income. Then the without child support formula is applied, using the adjusted gross income difference and the length of marriage factor to determine amount and duration. The box above for the custodial payor can be used to describe the calculations, with one change: the actual amounts of each parent’s contribution to child support will be grossed up, rather than table and section 7 amounts.

Example 8.7

Take Matt and Anna from the previous Example 8.6 and assume that there is only one child of the marriage, now 20 years old and attending university away from home. Matt earns $100,000 and Anna earns $30,000. Their son’s tuition, books and living expenses total $20,000 and, through a mix of summer employment and scholarships, he can contribute $5,000. The parents have agreed to divide the remaining $15,000 between them, $12,000 by Matt ($1,000 per month) and $3,000 by Anna ($250 per month).

Under this formula, Matt’s gross income would be reduced by the grossed up amount of the child support, or $21,300, while Anna’s grossed up contribution would be $4,100. The adjusted gross income difference would be $78,700 less $25,900, leaving $52,800.

After a 16-year marriage, under this formula, the range for spousal support for Anna is 24 to 32 per cent of $52,800, or $1,056 to $1,408 per month, for whatever duration would remain of the original 8 to 16 years.

Another practical advantage of this formula is that it eases the transition between formulas. Most of these cases are longer marriages and, once the last child ceases to be a "child of the marriage" and child support stops, the spouses will "cross over" to the unadjusted without child support formula, described briefly below. In Example 8.7, when the son ceases to a "child of the marriage" in a few years, Anna’s spousal support would be determined by crossing over to the without child support formula, with no adjustment any longer for child support. The range for amount would be 24 to 32 per cent of the gross income difference of $70,000, or $1,400 to $1,867 per month, again for whatever duration would remain of the original 8 to 16 years.

8.11 Crossover to the with child support formula

There is one last issue to be flagged here, that of crossover between the two formulas. The most frequent crossover situation will be in cases where child support ceases after a medium-to-long marriage, where the children were older or even university-age at the time of the initial order, as in Example 8.7 above. At this point, either spouse can apply to vary, to bring spousal support under the without child support formula. In most cases, it will be the recipient making the application, to obtain an increase in support under the without child support formula, once child support is no longer payable and the payor’s ability to pay is improved as a result. Specific examples of crossover are considered in Chapter 14 on variation and review.

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