Tax Implications of Divorce and Separation in Canada

Allan Madan, CA
 Jan 26, 2011
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Divorce and separation can be an extremely emotional and difficult time in your life. To make matters worse, these life changes can lead to unwanted financial stress. Nevertheless, there are various tax saving opportunities that can help save you money throughout your marital transition.

1. Split Your Family Assets

You should consider the after-tax cost of family assets when splitting them up upon separation or divorce.

For example:
Assume that you and your spouse both own the family home, which has a fair market value of $400,000.
Your spouse has $300,000 of RRSPs and $100,000 of non-registered investments.

The total value of all family assets is $800,000:

screen-shot-2016-08-15-at-5-31-33-pm1

Your share of these assets is $400,000, or one-half.  Upon separation, which assets should you ask to keep?  In making this decision, your goal is to maximize the after-tax value of your share of these assets.

The after-tax values of these assets are as follows:

screen-shot-2016-08-15-at-5-31-45-pm

If you keep the RRSPs and non-registered investments, you would end up with an after-tax value of $260,000 ($180,000 RRSP + $80,000 non-registered investments).  This is because when the RRSPs are cashed in, a tax of 40% (in this example) is payable on the gross amount of $300,000. Likewise, when the non-registered investments are sold, a tax of 20% (capital gains rate in this example) is payable, leaving only proceeds of only $80,000 after-tax.

However, if you keep the family home, you will end up with an after-tax value of $400,000. This is because you can claim the principal residence exemption on the sale of your home, making the entire amount tax-free.

In summary, you should ask to keep the home, and let your ex-spouse take the non-registered investments and RRSPs.  Click here to view “What happens to my assets upon divorce?”

 

2. Do Not Cash in RRSPs

Do not cash in your RRSPs when splitting your family assets. There is a special rule in the Income Tax Act that allows one spouse to transfer their RRSP to the other spouse upon separation or divorce. This is very helpful if you have to make an equalization payment to your spouse.

If you do not take advantage of this special tax rule, then you may end up having to cash in your RRSPs (included in your income), in order to make an equalization payment to your spouse.

 

Let’s take the example of Jenny and Sam who are in the process of divorcing each other.  Their assets are as follows:

screen-shot-2016-08-15-at-5-32-01-pm

The total family assets have a value of $1,650,000, or $825,000 for each of Jenny and Sam.  Jenny wants to keep the family home and artwork, while Sam will keep the RRSPS, which they both agree to.  With this splitting of assets, Jenny will receive $350,000 less than Sam, because the RRSPs are worth so much.  To be fair to both Sam and Jenny, Sam makes an RRSP transfer (i.e. and equalization payment) to Jenny’s RRSP account for $175,000.  After the transfer, Jenny and Sam end up with $825,000 of assets each.

screen-shot-2016-08-15-at-5-32-10-pm

3. Update the CRA with Your New Marital Status

If you have children, it is important to update the CRA on your new marital status after you have been separated or divorced. The Canada Child Benefits that you receive for your children is based on family income; this includes the combined income of you and your spouse.

If you are separated or divorced, then only your income will be factored into the calculation for the Canada Child Benefit that you are entitled to. Your spouse’s income will no longer be a part of the equation.

Therefore, it’s likely that you will receive an increased amount of the Canada Child Benefit by changing your marital status to divorced or separated.

4. Split Your Property Ownership

If you and your spouse own two properties together, then allocate one property to each of you. As a result, each spouse can separately claim the principal residence exemption.

5. Certain Legal Fees Are Tax Deductible

If you have to pay legal fees to your lawyer to collect support payments, then those legal fees are tax deductible on your personal tax return. However, legal fees paid to your lawyer to prepare a separation agreement or for disputes going back and forth on the split-up of family assets are non-tax deductible.

6. Claim the Eligible Dependent Tax Credit

If you have children through joint custody, then decide which spouses gets to claim this credit.  Both spouses cannot claim the credit.

Conclusion:

In conclusion, these 6 major tax implications will ultimately help save you money during divorce or separation and lessen any financial stress during your marital transition.

Disclaimer

The information provided on this page is intended to provide general information. The information does not take into account your personal situation and is not intended to be used without consultation from accounting and financial professionals. Allan Madan and Madan Chartered Accountant will not be held liable for any problems that arise from the usage of the information provided on this page.

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Comments 107

  1. I have a unique question. My daughters husband was terminated. After the termination they separated. The husband then elected to split his pension from his former employee with my daughter. The pension administrator refused to split the pension as he was not legally separated when he was terminated although he was separated when he asked for his pension pay out. To make it more complicated a portion of the pension was transferred and split but the non eligible cash balance was paid to the husband and was taxed by the pension administrator. As soon as the CASH portion hit the bank it was divided as per the separation agreement. For tax purposes can my daughter file a return showing her 50% of the non eligible cash portion as income and the husband showing the other 50% as income. NB Their does not seem to be any issue with splitting the eligible portion. THKS

    1. Hi Mr. Bowker,

      Thanks for your inquiry!

      Your daughter and her significant other are currently separated. Therefore, they are not eligible for splitting the pension income because the following criteria is not met:

      “You are married or in a common-law relationship and were not living apart from each other at the end of the tax year and for a period of 90 days or more commencing in the year because of a separation or breakdown in the marriage or common-law relationship”

      As such, your daughter’s significant other can make payments to your daughter as per their agreement but for income tax purposes, he will be including 100% of the amount on his return.

      – The team at Madan CA

  2. How does claiming dependents work – my BF and his wife have been separated for years. They have joint custody of their two children, but due to distance (she moved the kids 3 hrs away) we only have them alternate weekends, holidays, etc. We pay child support and for extra curricular activities, etc. He has never claimed the kids on taxes but he’d like to be able to claim the money paid for their piano lessons, etc. Can he do this without having claimed one as a dependent? Our tax software doesn’t seem to allow it but it might just be a limitation of the software. I tell him they should ‘split’ and each claim one child as a dependent but I doubt she would go for that… she doesn’t work and enjoys any ‘free’ money she can get 🙂

  3. Hello,

    I have a quick question for you. Is my TFSA family asset so it needs to be split on separation?

    Thank you
    Min

    1. Hi Min,

      Thank you for your question. However, this question is more of a legal in nature and as such, a legal expert’s advice should be sought.

      Sincerely,

      Allan

    1. Hi Hassan,

      No unfortunately only one person can claim the deduction for each child. You should arrange this before your separation. If not make sure you and your Ex have an understanding of who is claiming this amount.

      Thanks

      Team Allan

  4. I just recently got a divorce this past year and was wondering does CRA require me to fill out a form letting them know that I am no longer married?

    1. Hi Jill,

      All assets acquired before marriage belong to the owner that it was given too. All assets after marriage are to be split 50/50 by you and your ex husband. They are to be split and valued at FMV on your tax return this year.

      Thanks

      Allan

  5. My wife and I both work but I earn significantly more than her. When we are filing our taxes, who should claim our 3 kids dependent credits?. As well who should the kids fitness credit be claimed under? Should the person that makes more be claiming the kids or does it matter?

    Thanks

    1. Hi Abel,

      This is a tough question to answer not knowing the specifics of your tax return, but the generally the higher income earner will claim the credits associated with the child such as the fitness credit. Unfortunately the CRA states that for child care expenses they must be claimed by the lower income earner.

      Allan

  6. Hi Allan,

    My ex wife is taking my child care receipts that are in my name and claiming them as her expense when we have 50 – 50 shared custody. We are supposed to split expenses related to our children but it seems I am not getting equal part of my share. Does she have a right to claim my expenses?

    Thanks

    1. Hi Travis,

      With respect to whether your Wife can take your expense receipts I’m not sure of the legality for that, you may want to speak with your lawyer. As for whether she can claim them for tax purposes she should not be claiming child care expenses when they are under your custody. You are entitled to all of the expenses that incur.

      Best of Luck

      Allan

    1. Hello Sarah.

      RRSP’s are considering family property and are supposed to be divided equally in a legal separation or divorce. The Income Tax act allows you to make tax-free transfers between spouses where there is a court order or written agreement. This allows them to separate their registered assets equally with serious tax implications. Of course, negotiations in such times rarely go smoothly. It’s important that you make yourself aware of your new life is going to cost, and be aware of expenses.

      Regards,
      Allan Madan and Team

  7. I have been separated since March of 2013 ( Common law relationship). I understand that we can claim only one child as a dependent. However, can I still claim activities and Sports related expenses and day care for the child I don’t claim as “dependant”? Thank you.

  8. Hello Allan. I am a single parent of two kids. I was left by my husband four months ago and left to take care of our two kids. Are there any tax credits that can help me with taking care of my kids?

    – Gina

    1. Hello Gina.

      Based on your situation, you may be able to qualify for a number of credits. The first one is a dependent credit. Getting a dependent credit is like getting another basic personal credit in order to give you some help for supporting a household with a dependent on your own. The amount you can claim is $11, 038 minus your dependent’s net income. If you were required to make support payments for the dependent child, you do not qualify.

      After your marriage is officially dissolved, you may also qualify for the following credits.
      • If you share custody with your husband, the government will put you on what’s known as the “shared eligibility schedule “in order to receive a GST credit.
      • You may also be able to receive the Canada Child Tax Benefit, in which a schedule also applies.
      • Finally, if your children are under 18 you may be able to claim an additional credit of $2,234 for each child. In this instance, you and your ex must negotiate who will claim the credit. It cannot be shared, and cannot be claimed by more than one person. If you cannot agree, no one is allowed to make a claim.

      For any other questions about credits or other tax related matters, please do not hesitate to contact me.

      Regards,
      Allan Madan and Team

  9. Hi Allan. I am recently separated from my wife, although we remain at the same address while we work through the details. We do this because we do not have the financial resources to maintain two households. What are some tax considerations I need to take into account?

    Regards, George.

    1. Hello, and thanks for your questions.
      One of the biggest obstacles with this type of arrangement is convincing the CRA that you are no longer in a conjugal relationship (even though you still live in the same house). Since there are several benefits that increase when a couple has separated (i.e. the Canada Child Tax Benefit), there are reasons the CRA wants to ensure accuracy.
      There are several questions they will ask you to settle this matter:
      • Do you have separate bedrooms?
      • Is there an absence of sexual relations?
      • Do you still communicate?
      • Do you still do domestic activities for each other?
      • Do you eat your meals separately?
      • Do you engage in social activities together?

      If you have existing separation agreements, answering these questions may be enough to show a breakdown of the relationship. If you find yourself living in the same space as your separated spouse, you should agree how you will claim your status. If there is a difference in how you file, the CRA will review your returns. The CRA might also need additional proof, so be prepared to provide third-party proof.

  10. Hello Allan, I have recently separated from my common-law partner in July of last year. I have always shared my revenues from investment and split my pensions to optimize our taxes as a couple. Since our marital status is separated as of December 2013, would I record these revenues from investments as shared? Or would I record them as separate? Can the pension be split for six months?

    1. Hello,
      As far as pension-income splitting is concerned, you will not be able to do this in 2014 if you separated before October 2. As far as your investments are concerned, the attribution rules do not apply to income from the investments (i.e. interest or dividends) for any period during which you are separated due to a marital breakdown. In the case of capital gains incurred on transferred property, the attribution rules will only cease to apply if both you jointly elect for them not to apply under paragraph 74.5(3)(b).
      This election may be filed for any taxation year ending after the separation and applies to all dispositions occurring in that year or thereafter.

      Regards, Allan Madan and Team

  11. Hello Allan. I recently separated from my wife, and was ordered by a court to pay money to support her. However, I also made some payments before the date of the court order. Are these payments tax deductible?

    1. Hello,

      Payments to an ex or estranged spouse are usually tax deductible. However, there are two main requirements that must be fulfilled for them to be claimable. The first is that the payments must be periodic in nature, and not lump sum. The second is that you must have either a written agreement or a court order signed by both you and your spouse to support your claim.
      Payments that you made before the court order or written agreement date can be considered tax-deductible, but there is a condition. The document must explicitly state that any previous payments before the issue date are counted as being paid. Also, only payments that were made in the year of finalization or the year before can be treated retroactively.

      Regards,
      Allan Madan and Team

  12. How do equalization payments work? If I don’t cash in my RRSP and instead give it to my ex-wife, will I lose everything I’ve put into my RRSP to date? Would I still be able to contribute to my RRSP or do I have to start a brand new one?

  13. Hey Allan.

    A family member of mine is getting divorced from his wife. As a result, several properties are being divided. As one ex-spouse assumes one house and another ex-spouse assumes another, how are capital gains handled? They jointly own a house worth $300k, and one person is buying the other out for $150k. The house was bought approximately 20 years ago, for $100k.

    How much capital gains does the person being bought out owe? How do we calculate the tax based on the gains?

    1. Hello Luis.

      Typically, gains and losses are divided equally after-tax. Therefore, each spouse would be left with the net equalized property. The primary measure which dictates a fair settlement is after-tax income.

      Most likely, the person being bought out will calculate their gains like this. They would take $300K (present value of the property) – $100K (original value of the property). They would then divide the number in half (as they are being bought out), and arrive at a number around $100K. However, this is an approximation. There will be maintenance fees deducted from the gross amount, and any depreciation will be recaptured. Any tax on the gain would have to be calculated based on the tax status of the seller.

      However, if the relationship is strained this may be difficult to achieve. Spouses sometimes don’t plan effectively, because they don’t know what their tax situation will be post-divorce. Therefore, I would recommend that you speak to me as soon as possible so that we can review the matter further.

      Regards,
      Allan Madan and Team

  14. Hey Allan.

    We purchased a beautiful house less than a year ago. Now, my wife wants out of our relationship. We both took out huge Home Buyer’s Plan loans for the down payment. When we sell, do we have to pay it back right away? Or, does the standard 15 years still apply? Can I use my share to rent an apartment or other dwelling? Is there a minimum payment per year for the home buyer’s plan?

    1. Jory,

      I am sorry to hear about your circumstance. You have 15 years to pay it back, no matter what happens to the house. You are under no obligation to stay in the house. However, both of your debts will be included in the divisions of matrimonial property that you will undertake when you divorce. You may find that you don’t have much “share” left.

      Your minimum payment is 1/15th of the total amount you withdrew. Also, if you took a fixed rate mortgage there may be a penalty for selling your house. I would call the bank and find out.

      Regards,
      Allan Madan and Team

  15. Hello Allan.

    I recently got divorced, and the court ordered me to pay my ex-husband 30% of the value of my home. If it is my principal residence, and it only my name. He has not lived in the home for eight years. Can I write off my payment to him?

    1. Hello.

      It is unfortunate that you didn’t get the property settlement over sooner! The house likely came close to doubling since he left. Although it is sometimes hard to imagine, you would have been better giving him 55% then 30% now.

      The bad news is that a lump sum property settlement, which is not taxable to him or deductible to you. This is generally true in every jurisdiction.

      Regards,
      Allan Madan and Team

  16. Hello,

    I am currently divorcing my wife. I own a cabin and recreation property, which has increased in value approximately $350,000 over 6 years. I own the property jointly along with my wife, my two siblings, and their spouses. I, along with all the owners, are going to be selling the property.

    If I trade off my interest in our family home to my wife for her portion of the recreation property, can I claim the recreation property as my principal residence? I want to do this to avoid capital gains.

    1. Hello,

      Either your share of the cabin or your home can be tax-free for both your spouse and yourself, but not at the same time. In order for the cabin to qualify as your primary residence, you must have actually lived in it regularly and continuously. In most circumstances, the family home (as opposed to the cabin) qualifies as a primary residence.

      If you trade off the house for the cabin and the two of you elect to make the house tax free, your share of the cabin will be taxable on its sale. On the other hand, if you kept the house and the wife kept the cabin, capital gains tax would apply to your spouse and not you when the cabin is eventually sold.

      Regards,
      Allan Madan and Team

  17. Hello,

    My husband and I bought a house together that we lived in, and never rented. At the time, he thought it was a good idea to everything (house, mortgage, land) in his sister’s name. Now, we are talking about a divorce. I would like to know if I am entitled to anything concerning the house.

    1. Hello Sarah.

      The main question here is whether your sister-in-law treated the house as her own. If she charged you rent and filed a return as the owner of the house, then it is her house and you most likely do not have a claim. On the other hand, let us say that you and your husband made all the payments and paid the taxes. You also did all of the maintenance. Then, the house would be you and your husband’s. You sister would then be considered to hold the property in a constructive trust.

      Regards,
      Allan Madan and Team

  18. Allan,

    I have been divorced for my wife for a couple months now, and I am wondering if my spousal supports to her are deductible. I pay her a monthly sum of $550 as per our agreement. Also, how are these payments taxed?

    1. Hello,

      Support payments are deductible if they meet all of the following agreements. First, you must have been living separately and apart from your spouse for more than 90 days. The payments must have made in the current or the preceding year. Secondly, the payments must be periodic in nature and not lump sum. Thirdly, the payments must be specified in a written agreement and made according to it.
      Support payments made to your spouse are taxed in their hands. Effectively, you are making spousal support payments with pre-tax dollars and income splitting.

      Regards,
      Allan Madan and Team

  19. Me and my spouse just got divorced and have three children, aged 15,19, and 21. The second oldest child is in university while the oldest just finished and is looking for work. As such, all three children still live at home with me. Is there an alternative age limit on receiving the Canada Child Tax Benefit because they are still living with me?

    1. The CCTB is one that can only be claimed when the child is under the age of 18. The age restriction cannot be extended regardless of whether the child is still under your care or not. But the benefit can end before the child reaches 18 if the custody of the child changes or other eligibility requirements are not met. In your situation though, you will not be able to receive this benefit for the older two children. You may be able to receive the benefit for the younger child if you meet the eligibility requirements.

  20. Hello,
    I have been separated from my partner for several years. They are already retired and receiving pension benefit, but I am still working. How is an Ontario pension evaluated and paid out during a divorce?

    1. Hello,

      A pension is considered property, and must be valued. Your partner’s pension plan administrator will do this, after the proper forms and fees are provided. This is to be included as part of the “equalization of net family property” calculations. There is a limitation period of two years from the date of divorce, or six years from the date of separation for the making or property claims.
      Your partner’s income stream, through his pension and other entitlements, can also be used for spousal support considerations. However, this is separate from the property division I have listed above

      Regards,
      Allan Madan and Team

  21. Hello.

    Our child support payments are based on shared custody of two children. However, my sixteen year old son has decided to move in with me permanently. He does not wish to be with his father. Can I receive higher support payments for him? My daughter continues to alternate between us, as the original agreement was written.

    1. Hello,

      You would need to change the agreement. You can do this using a child support calculator, or seek the assistance of a lawyer specializing in family law. The steps would be to exchange information, do the calculations (one child shared, one primary residence), prepare a written agreement, and implement the new support amount. You would need to do this with the Family Responsibility Office.
      In addition to the basic amount, the original agreement may have provisions related to section 7 expenses. These need to be addressed, especially if there is any change in income information.
      ?
      Regards,
      Allan Madan and Team

  22. Hello.

    My ex and I have been separated for almost a year, and we have two children together. The children live with me in our home. I am paying the mortgage, and the property taxes. He pays the home insurance. Is he legally required to pay for half the mortgage and property tax?

    1. Hello Sandy,

      My first question would be as to your husband’s employment situation, and how much he makes. Generally speaking, he is required to pay for at least one-half of the carrying costs of the home. If he is working, he could be required to pay more. He may be also be required to pay you spousal support. Finally, he may also owe you arrears for the past couple years. Generally, these can only go back three years. Therefore, it is important that you speak with me as soon as possible.

      Regards,
      Allan Madan and Team

    2. Hello,

      My first question would be as to your husband’s employment situation, and how much he makes. Generally speaking, he is required to pay for at least one-half of the carrying costs of the home. If he is working, he could be required to pay more. He may be also be required to pay you spousal support. Finally, he may also owe you arrears for the past couple years. Generally, these can only go back three years. Therefore, it is important that you speak with me as soon as possible.

  23. Hello,

    I bought a brand new car two years ago. I am now getting divorced, and want to transfer the loan to my husband. The car was bought new, and I pay monthly. I have five years left to pay, and the loan is registered under my name only. However, the car is registered to his name. Is it possible to transfer, or does my husband need to apply for a new loan?

    1. Hello,

      Loan contracts are generally not transferrable without the consent of the lender. The reason for this is because the terms are based on the lender’s appreciation of the borrower’s capacity to repay the loan. If your lender is unwilling to transfer the contract, the usually process is to obtain a loan from a different lender to pay off your loan. You should, however, review your contract to see if there are any financial penalties for doing this.

      Regards,
      Allan Madan and Team

  24. I am in a joint custodial agreement. Does the fact that I pay child support mean I cannot apply for the child tax benefit and the universal childcare benefit? The child support payments were court appointed, can I claim these?

    1. Hello.

      If you pay child support, you are less likely to claim any child-related tax credits. If you have a court order dated after May 1, 1997 child support payments are no longer tax deductible. Also, you can only claim legal fees relating to collecting support payments.

      Regards,
      Allan Madan and Team

  25. I have been married for 15 years. I am going through a painful divorce. Needless to say, there are numerous amounts of legal costs and the bills are piling up. Are there any of these that are deductible?

    1. Hello,

      There are several legal costs that are deductible. For example, all of the following costs are deductible.

        Costs incurred to obtain periodic child support payments or to enforce pre-existing rights (regardless of the fact that the amount received for child support may not have to be reported as income)
        Costs incurred to enforce pre-existing spousal support
        Costs incurred to obtain spousal support
        Costs incurred to obtain an increase in support or to make child support non-taxable

      If you require any further information, don’t hesitate to contact me directly.

      Regards,
      Allan Madan and Team

  26. Hello.

    I’m divorcing from my husband after several years of marriage. We have several accounts together, and I want to know what happens when we finalize. We have a spousal RRSP and TFSA. Are spousal RRSP contributions allowed? What happens to our TFSA accumulations?

    1. Hello.

      Spousal RRSP contributions are no longer be allowed. While you are together, withdrawals from spousal or common-law partner RRSPs made by the annuitant are reportable by contributing spouses if RRSP contributions have been made in the current or previous two years. This rule is waived for separated/divorced couples.
      Funds in RRSP’s may be rolled over tax-free to ex-spouses, if the parties are living apart and payments follow an agreement. Transfers must be made directly between the RRSPs of the spouses: one spouse can’t be disqualified because of age (over age 71). The same rules for tax-free transfer of funds apply to RRIF accumulations. TFSA accumulations can be split tax-free. Funds from one party’s TFSA may be transferred tax-free to the other’s TFSA. This does not affect contribution room of either party.

      Regards,
      Allan Madan and Team

  27. I am getting a divorce after 10 years of marriage. We have a house together, as well as a number of other assets. As we are dividing them, what happens to the money once the house is sold after our divorce?

    1. Hello,

      In Ontario, the consent of both spouses is required on the transfer document. This needs to happen before the sale is complete and the transfer is registered. If they are both registered on the title, both owners must sign. If they are not on the title, the spouse who is not on the title must sign as the consenting spouse.

      In matters of separation or divorce, there are normally separate lawyers acting for each party. It is usually a condition that the lawyer acting on the sale hold all the monies in their trust account. They do this after payment of all liabilities associated with the sale have been paid. When everything has been resolved, both parties will instruct the lawyer to release the funds in accordance with signed directions.

      Regards,
      Allan Madan and Team

  28. Question……what happens tax wise if my common law spouse just pays me, buys me out, what are the tax implications? You probably already commented on this somewhere…
    R

    1. Hi Robbie,

      Not sure if it’s clear in the question, but it depends on the nature of the payment. If the spouse buys capital property from you for a price that is market value at the time of the purchase, then you, the seller, will have income earned on the sale of the property. The type and taxability of the income depends on the nature of the property.

      Best Regards

  29. Hello.

    My ex-wife and I have shared custody of our two children. We both pay into child support. I pay more child support, because I make more money than her. We have not exchanged income information in four years. The last time we shared information she told me she told me her income was 80K, and my income was 200K at the time. Therefore, I paid her the difference.

    I have accidentally gotten hold her financial statements and they show she made 205K in 2011. This leads me to believe she makes more than that today. What should I do about this? She is self-employed, and making close to my income!

    1. Hello.

      From the start, you both should have been updating every year. You need both income numbers for determining section 7 expenses proportions. It is never too late to start updating, though it may be challenging to have things retroactively corrected. Time starts from when you make your first request to exchange financial information. If she delays and refuses, a judge would make it effective back to the date you first requested it.

      Because your ex is self-employed, you are wise to be concerned about her ability to conceal income. Since she didn’t exchange income information, it could be that she hasn’t done any concealing. Once you initiate the process of updating incomes, she may start doing so.

      Therefore, you should request her income tax information from the past three years as part of her disclosure package. Also, get her to report what she does going forward. If her income mysteriously drops, you impute her income to be the average of the last three years instead of using her reported income. Also, be sure to request the whole thing when she submits. This should include her balance sheet and income statement. Do not settle for just her tax return information. That way, you can see what deductions she is claiming. While they may be to CRA, they may not be for family court purposes. In these circumstances, it is best to consult a family lawyer.

      Regards,
      Allan Madan and Team

  30. Hello.

    Not really a divorce/separation question, but here goes. I am a single mother, and I want to take the next step with my boyfriend. We are planning to move in together. I am aware that couples usually split finances when moving in, done by percentage of income. What happens when children are involved?

    He thinks he should pay one-quarter of child expenses. He also feels he shouldn’t pay any additional costs like community fees or insurance. He feels this way because I own the house, not him.

    1. Hello Amy,

      I would split out the child-related expenses (some food, clothes, extracurricular activities, etc.) and put them into their own budget. Then, divide the rest of the costs as if you are a couple. As for not paying insurance/community fees, these are part of the shelter component, so he should most certainly help. Or, you could come up with a “rent” amount for a home like the one you’re living in and he can contribute his share of that.

      Regards,
      Allan Madan and Team

  31. Hello, I pay child and spousal support to my ex-wife. I lost my job this year and I am required to pay $500 a month in spousal support and $1,000 a month for child support. In total, I paid $6000 in spousal support and $12,000 in child support for the year. What am I allowed to deduct from these payments on my tax return?

    1. Hi James, you can only deduct the $6,000 spousal support on your tax return. Also, your ex-wife is required to only report the $6,000 income from the spousal support on her tax return. Child support payments are non-deductible.

  32. My husband and I were married for six years. We recently separated, and we are trying to complete our separation agreement. One of our challenges is that he is stating that I am not legally entitled to half of our matrimonial home that we have sold. He believes this because he put the initial down-payment of $50,000.00 on first home.
    He bought our home in September of 2008, with the intent that we would married and move into the home. It was around this time he also bought my engagement ring. We got married in 2009 and moved into the house. Two years ago we moved into our second house, which is the one we have just sold.
    He has told me that since our first home was technically our matrimonial one, he is able to use the down payment as a deduction from the assets we are entitled to. Is this true? I’m not sure if this is worth finding over, especially if I’m just going to lose. I am pretty surprised that he is able to do this, when both of our names are on the mortgage of the new home.

    1. Hello,

      You may want to contact a divorce lawyer on this one, but I’ll do my best to answer.
      The home the spouses live in on the date of separation is the matrimonial home. The home that was sold before the date of separation is not a matrimonial home. Spouses aren’t entitle to date of marriage deductions for the value of the matrimonial home. The theory behind the law is that you did not contribute to the down payment of the home and costs in relation to the home before marriage. If you did contribute, you need to find a family law layer as to claims relating to trusts and joint family ventures. Each of you are entitled to recognition of financial positons on the date of marriage. The equalization scheme is based on a division of asset value during the date of marriage.

      Regards,
      Allan Madan and Team

  33. Hello

    I am separating from my husband because another woman is expecting a child from him. They don’t intend to live together, but he wants to recognize the child. So far, she isn’t asking him for financial support. Our three children will be living with me. Legally, does my husband have to support this other child? Or is this only required if the mother requests it? Will my portion of child support be affected?

    1. Hello.

      We could describe this issue as being with secondary dependents. The support payer has legal obligations to support his three children and the other child with the other woman. His responsibilities for this other child do not affect his payment obligations for the first three children. One of the aims of the child support guidelines is to treat all children with the same amount of child support. From a child’s perspective, the need is still there regardless of marital status.

      I do not believe this situation would result in the child support amount being affected. However, I strongly recommended you obtain more complete independent legal advice and discuss this situation with a family law lawyer.

      Regards,
      Allan Madan and Team

  34. Hi, my husband and I are planning on getting a divorce. We have a home worth $600,000, my RRSP has $100,000 in investments while my husband has accumulated $200,000 in his RRSP. He also has $160,000 in non-registered investments having a cost of $90,000. My husband also has $140,000 in the bank. We think that it would be fair if I took over the house while he takes both RRSP’s and his non-registered investments along with the cash in the bank. This would leave us with $600,000 each. Is this a good way to split our assets?

    1. Hello Tanya, this may not be the best way to split your assets. Right now it would be split 50/50, but after tax, it will be an unfair balance. Let’s say you decide to sell the house. You would receive the $600,000 tax free due to your principal residence exemption. If your husband decided to liquidate his assets, he would have to pay $138,000 of total tax on the combined RRSPs and $16,100 of taxes on the non-registered investments. After all is said and done, you would keep the full $600,000, while your husband would only keep $445,900 after paying $154,100 in total taxes.

      Most couples who try to split assets 50/50 rarely ever consider the tax implications in the future. You should always talk to your lawyer and accountant about any issues in splitting assets before finalizing any separation agreement.

      Allan and his team

  35. Hello,

    My husband had a large line of credit debt when he entered our marriage. It was over $37,000 but has grown to $50,000, with purchases like rings. The credit line has always remained in his name. Assuming rings are returned to him, does this remains his debt? Does this take away from the proceeds of selling our home?

    1. Taylor,

      I would be extremely careful if I were you. You are both entitled to an “equalization of net family property” under the Family Law Act. It is not correct to divide one asset at a time, such as when you refer only to the home proceeds. We must compare all assets and debts, of both of you, on both the date of marriage and the date of separation. The line of credit is a debt.
      We can then, if appropriate, seek a readjustment based on section 5(6) of the Family Law Act if appropriate based on your facts. How long have you been married? This may affect matters based on the aforesaid section 5(6). Thus, I strongly recommend that you DO NOT agree to any division of the home or otherwise before first seeking responsible legal advice.

      Regards,
      Allan Madan and Team

  36. Hello, when I married my husband, he had a house in Oakville while I owned a house in Mississauga, both were valued at $300,000 at the time. We first moved into his house in Oakville while we rented out my house in Mississauga. After about a year or so, we moved to the Mississauga house and rented out the Oakville one. When we got divorced, I stayed in the Mississauga house and my husband moved to North Carolina. The Oakville house is now worth $400,000 while the Mississauga one is valued at $350,000. How will we need to handle our equalization claims?

    1. Hi Kylee, although your husband is now living in the States, the Ontario courts will deem the Mississauga house as your last place of common habitual residence. At the time of your separation it would seem that there was just one “matrimonial home,” the home in Mississauga. The home in Oakville would be considered an income producing property.

      With that in mind, to calculate the Net Family Property (NFP) for your husband, it would be the value of the Oakville house at the date of separation subtract the value at the date of marriage. That would mean his NFP would be $100,000 ($400,000 subtract $300,000). He can also claim a $300,000 deduction because at the date of your separation, he does not own a matrimonial home.

      Your NFP is calculated by figuring out the value of your home at the date of your separation, which would be $350,000. You cannot deduct the value of the home at the date of marriage. Even though it was not a matrimonial home at the date of marriage, it was as of the date of separation.

      After all is said and done, you will have to owe your husband an equalization payment of 50% of ($350,000 – $100,000) or $75,000 and each of you may keep your respective houses. Your net value would be your home minus $75,000 which is $275,000. Your husband net value would be $300,000 + $75,000 due from you, which would be $475,000.

      On top of all of that, your husband has an equal right of possession your home in Mississauga. However, you will have no right of possession of his home in Oakville.

      Allan Madan and Team

  37. Greetings,

    I have been divorced since 1995 and have continued to state that status on my income tax returns. There have been no dealings between my ex and I since then. I am singe with no children, with a very low income (and a big tax debt). Am I supposed to continue indicating ‘divorced’, or single? Does stating one status over the other have any benefits?

    Thank you for this generous service you’re providing here.
    /cjn

    1. Hello cjn,

      90 days after separation or divorce, you can change your marital status to single.
      This can be done online, by phone (1800 387 1193) or by completing form RC65 Marital Status Change Form. There are only benefits through marital status if there are children involved or including your spouse for the working income benefit.

  38. Hello, for the last 3 months I have been on short term disability where my work pays 60% of my income every two weeks. I send my ex-wife $800 for child support each month, while I only retain $1000 for myself.

    I just learned that I will be put on long term disability and my insurance company will be giving me a cheque every month instead of my work giving me payments on a bi-weekly basis.

    From what I understand, I have to pay child support based on my income from the previous year. Last year I made around $50,000, but with my disability this year, I will only receive around $30,000. Is there any way to reduce my payments this year until I can get better and return to normal work?

    1. Hello John, there are two options that you can pursue. First of all, you will need to speak with your ex-wife about the situation and try to compromise a new deal for your child support. If you both agree on a new number, you will need to file a motion to change the existing child support amount and section 7 proportion.

      If you do not agree on a new deal, you can go to court to try and get it reduced. This option may end up costing you more than you will be saving due to lawyer and court fees.

  39. Hi, my wife and I have recently split up. We both have paid a lot for legal fees. Is there any way to deduct anything from these fees?

    Thanks in advanced for your response.

    1. Hello William, yes, the CRA has recently expanded the rules on what you can deduct off your legal fees. These include:
      • Obtaining an order for child support
      • Collecting late support payments
      • Establishing the amount of support payments
      • Seek to obtain an increase in your support payments
      • Seek to make child support non-taxable

      Please note that you cannot claim the costs to get a separation or divorce, or to establish custody or visitation arrangements for your children. You are also not permitted to claim legal costs you incur to establish, negotiate, or contest the amount of support payments you pay. Make sure that your lawyer highlights the fees that will be tax deductible.

  40. I incorporated m a consulting business in 2012, but landed a full time gig shortly after and never started my business. essentially its been inactive since and I haven’t filed a T2 since.
    I know I need to do so but do I need complete all requirements as above if its essentially been inactive ever since?

    1. Hi Marco,

      You must file a T2 Return annually, so long as your company is still in existence. You should consider dissolving the corporation if you no longer need it.

      Since the company was in active, consider filing the T2 Short Return; this is a simplified version of the T2 Corporate Tax Return. You should also attach schedule 50 to the T2 Short Return, as this schedule lists all shareholders owing more than 10% of the capital stock of the company.

      Please let me know if you would like me to file the return for you and/or dissolve the corporation.

      Thanks,

      Allan Madan, CPA, CA

  41. Hi Allan,

    Would a judge award spousal support in a case where the payee is willfully unemployed and intends to be so indefinitely with unrealistic career aspirations (e.g.starting up an etsy page and hoping to make a lot of money)?

    1. Hi Nathan,

      Many things are examined, particularly recent relevant work experience showing an earning pattern. A person (male or female) can have a doctorate degree (PhD) but with no relevant work experience and the degree does not always guarantee employment.

      There are very specific standards set for determining if someone is intentionally underemployed. Factual evidence of course is essential – you can’t just say that you think your ex is intentionally not working, the onus is on you to prove it.

  42. Hi Allan,

    I have a customer who isn’t paying the invoice I sent him. One problem is that I already remitted the sale price and the GST. What steps do I need to take to properly write this ticket off as bad debt?

    1. Hi Lindsay,

      If your customer doesn’t pay the account and you write the account off as a bad debt, make sure you remember to deduct the GST written off on the next GST return. To do this, deduct the amount of GST not collected on line 107 of the GST tax return. You have up to four years from the time you wrote off the bad debt to claim the GST. So you may want to review the accounts that you have written off over the past four years to ensure you claimed a refund of the GST.

      Many provincial sales tax systems work the same way, requiring you to remit the provincial sales tax at the time a sale is made, not when the money is collected. Therefore, if you charged provincial sales tax on the sale, remember to apply for the refund of this tax as well.

  43. Hello,
    I am divorced, we have 3 kids under 18 as end of 2014. One primarily lives with me, two primarily with her. Joint custody and joint guardianship for all kids. The two stay with me 30% of the time (2-3 days a week).

    My tax software will let me add the two as dependents (for reference without making a difference in results). I am stuck where my tax software asks the question about the two.. Does he live with the tax payer? Do I say yes to this? If I say yes, then the end result changes. I am a bit confused here considering the best reference I have to answer the question says.. If your dependant is a student who is away at school, he or she is likely still living with you for tax purposes. A student simply needs to live with you at some point during the tax year. For example, ask yourself: “If the student was not in school, where would he or she be living?” If the answer is “With me” then the student is considered to be living with you.

    So.. do I say they live with me or no?

    The other part of the same section simply says.. “Amount for Child” Yes/No. This seems to be combined with the first part making a difference in the final results.

    I use TurboTax if that helps any. Hope that all makes sense and you have an answer.

    Thank you.

  44. Hi Allan,

    I have two children with my ex-husband and while we share guardianship, I have primary residence and oversee the children’s day-to-day care. Per our Order, he sees them every other weekend and one weekday each week. He pays full child support of $1500/mo plus Sect. 7 expenses to a maximum of $600/mo.

    This is our first tax year claiming as divorced and I am wondering about the child care expenses, and the fitness and arts credits (all under Sect. 7) — who can claim them? I was under the impression it would be just me. Correct me if I’m wrong? Does he get to claim his proportionate ratio of those expenses for his return? I cannot find information online specific to this.

    Thank you in advance for your help
    Kay

    1. Hi Kay,

      The caregiver who has primary custody of the child generally claims the child-related deductions and credits.
      The amount for eligible dependant is primarily claimed by the parent that has custody of the child. In the case of joint custody, parents must agree on who will claim the Eligible Dependant amount for the child as this credit cannot be split. If there is no agreement reached, then neither parent may claim the eligible dependent amount. If a parent is paying child support, that parent may not claim this amount.
      The children’s fitness and arts amount is not tied to custody, it is generally who pays for it.
      Also, childcare expenses and medical expenses are also claimed by the parent that paid for the expenses.
      Keep in mind though, the CRA has the right to revoke all of the credits for both parents if you cannot agree to who takes which credit.

  45. my mom and dad are not divorced but have been separated for 15 years. Is my
    Mom still entitled to take half of his Canada pension?

  46. Hi, I filed as common-law last year but my ex and I broke up in july 2015. We still live at the same address were just no longer in a romantic relationship. I have no idea what i would file as this year. I changed my status online to single (wasnt sure what the difference was between single and seperated). If its wrong do I change it to seperated? Also what would my marital status be when i file this year?

    1. Hi Sarah,
      In order to be considered separated you must be living physically apart for at least 90 days and have not reconciled.

  47. Hi Allan,

    My husband and I are separated and he has agreed to an offer to settle indicating that he will remove me from the title of an investment property we own (which he is living in) and I will do likewise on the matrimonial home. In other words, he takes me off title of the investment property and I take him off title of the matrimonial home. In the offer to settle which he and his lawyer agreed to it says: “he will remove me from title and also the mortgage and loc on the investment property and will indemnify me against ALL taxes, claims, and liabilities, etc” Question: will I have to pay capital gains tax in this instance? Are there any clauses, releases, or CRA Sections that would clarify for me? Also, is there such a thing still as “once in a lifetime capital gains exemption”?

    1. Hi Tamara,
      According to the Income Tax Act, a spouse can transfer his/her property to the other spouse at the cost amount. This rollover provision ensures that capital gains tax is not levied on property transfers between spouses.

  48. Hi Allan, my husband and I are separated, no kids. We verbally agreed to not divide pensions and RRSPs, but could he still come after them? How do I protect these assets? Could they be written into the legal separation / divorce papers?

    1. Hi Dani,

      Make sure that you have everything in writing. You should consult a divorce lawyer to help you.

  49. Question,
    husband and I recently bought a house. we have kids under age 8. but are separating, how do we file taxes. He has already moved out and changed his address.

    1. Hi Sabylu,

      On your tax return indicate the date of separation. Your spouse should do the same. Determine who will be claiming tax credits for the children.

  50. I am my husband’s second marriage. We have been together for 13 years, 5 years common law and 8 yrs. married. He is now living in a facility after recovering from two individual brain cancer surgeries. His ex-wife has filed for half his RRSPs after being separated for a year and divorced for 10 years. During their marriage, she worked less than part time and didn’t contribute to RRSPs. When they split up he took two of the three children (in their teens) and didn’t get child support. Is there a time limitation on sharing of RRSPs in a divorce?

  51. “Hi there,
    I have been with my spouse for 4 years he has a common law wife that he has two children with. She has moved on and remarried and had another child.
    now she is claiming separated from her latest husband and living in a low income unit since august 15. but they are still together and stay together almost every night. is she eligible for the child tax benefit claiming as single to get the highest amount where she has no income, even though they are still seeing each other and haven’t had 90 day being actually separated?
    thanks
    lau”

    1. Hi Lau,

      The child tax benefit is based on family income (i.e. both spouses). If she reconciled with her spouse and is no longer separated, she should inform the CRA of her updated status.

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