The Fixed Formula: The Reality Behind the Government Line

The Fixed Formula: THE REALITY BEHIND THE GOVERNMENT LINE

Child Support: The Fixed Formula in Action

THE REALITY BEHIND THE GOVERNMENT LINE

by Susan Jane von Achten*

The Government Line

Child support paid under Orders or Agreements made on or after May 1, 1997 will no longer be taxed as income to the recipient or be deductible to the payer.

The Reality

Does that mean that the recipient will have more money at the end of the day? The answer is categorically "no". This has been proven by accountants, economists and lawyers alike and has been demonstrated previously in a number of articles in this and other periodicals.

The Government Line

The child support guidelines, based on a set figure according to the level of income of the payer and the number of children requiring support, will help parents, lawyers and judges set fair and consistent child support payments.

The Reality

Show me two families with the same wants, needs and problems! We are all individual human beings with our own idiosyncrasies, not clones conveniently fitting into our stereotype boxes.

The Government Line

O.K., we'll give you a break. We'll allow you an "add-on" for children for whom extraordinary arrangements for child care are required; for medical and health expenses over $200.00 a year not covered by provincial\territorial health insurance, particular education expenses and extraordinary expenses incurred for children with a special interest or talent. But, come to court, incur legal expenses (non-deductible, by the way) and prove it!

Yes, yes, we know that many of you are suffering undue hardship as a result of the breakdown of your relationship. We'll throw you a bone - apply to court and plead "undue hardship". But, you'll have to show the Court that you have a lower standard of living than the other parent in order to get a few more dollars a week as a recipient or reduce your payment by a couple of dollars.

The Reality

The Government concedes that we are not all clones, but the net result of their concession is that additional legal expenses will be incurred to establish additional need or hardship. Perhaps, more important, children will suffer, as they always do, when their parents are both fighting, again, in court.

The Government Line

Every year your level of support will be increased according to the cost of living - a figure calculated by economists.

The Reality

What the Government does not tell you is that every year the change in the amount of support will constitute a material change of circumstance, thus allowing either the payer or recipient the right to commence legal proceedings for a variation in support payments. Does anybody want to live under the sword of an annual trip to court? Further, every year the payer will have the opportunity of arranging his or her working life in order to demonstrate a reduction in income. It is all well and good to be able to force the payer spouse to provide his or her annual tax returns, but experience suggests that if a payer can come to court with a series of recent pay cheques showing a reduced level of income, the court is likely to accord less weight to the annual tax return. In addition, consider how long it takes to adjudicate finally on a variation in the courts. The practice and procedure in family law disputes results in prolonged litigation.

The Government Line

People ask us, why do we consider only the level of income of the payer? The answer is very simple: the new guidelines are designed to recognize artificially the family as one unit, with each parent continuing to contribute, according to his or her means, to the support of the children. Therefore we calculate the payer's income and assume that the recipient contributes his or her fair share to the support of their children, based on the percentage of his or her income previously contributed during the course of their marriage. It is called the economics of scale.

The Reality

Oh, really! The Government has spent a phenomenal amount of money employing economists to structure a precise mathematical formula to calculate the amount of support a non-custodial parent should pay for child support, in order that the child's standard of living is maintained. To round off such mathematical precision with a huge assumption necessarily undermines the credibility of the formula. This "assumption" by the Government is fundamentally flawed. How often does the custodial parent remain in the same financial position after separation as before separation.

THE REALITY IN THE UNITED KINGDOM

The Child Support Act 1991, c.48 ("the Act"), a similar beast to the Canadian Child Support Guidelines, came into effect in 1993. The net result of the set formula for child support has been injustice to both the custodial parent and the non-custodial parent; immense suffering by children, and huge financial losses incurred by the government in implementing the new system and in the collection of payments. There have been job losses, the loss of homes and businesses, and even suicides found by Coroners' Courts to have been directly caused by the legislation. Within a year of the legislation's coming into force, the British Government amended the Act and proposed further amendments to the Act, addressing many of the problems arising out of the legislation. The Canadian Government claims to have examined systems in other jurisdictions. They have either ignored the British problems or brushed them under the carpet.

Problems with the Fixed Formula

There are some financial issues which are incapable of being provided for under any set formula. Some of them are as follows:

  1. capital property settlements
  2. disputes over the potential earning capacity of each of the parents;
  3. those who exploit capital;
  4. school fees or disability in relation to any child within the extended family circle, or of disability of either parent or carer;
  5. special dietary requirements of any member of the households, subject to the medical evidence;
  6. substantial/onerous arrears and/or interest accrued thereon;
  7. calculations for the self-employed;
  8. allegations that assessments are being deliberately avoided or reduced;
  9. separated spouses who are living under one roof, with one of the spouses having custody of the children;
  10. substantial staying access which does not amount to a joint custody order;
  11. joint custody orders where the income earning ability of one or both of the spouses is reduced;
  12. the cost of child care and other incidental expenses such as medical or dental insurance, camp, music lessons, etc. The list is potentially endless. How can any formula take into account such variables and indeed the vicissitudes of life? The Canadian government intends to introduce a system for add-ons and a hardship test to address some of these other considerations. But the add-on and hardship categories are not wide enough, nor are the tests for being able to substantiate such a claim under one of these headings.

Experience has shown that the fixed formula creates entrenched attitudes. The payor either will not or cannot pay any more for extra needs of the children not reflected in the formula. The custodial parent is unable to obtain additional sums needed for unforseen child expenses. This is often the approach adopted under the present legislation in Canada, but drawing on the British experience, post-formula, the stances taken by the payor and payee are more hostile and inflexible. Pre-formula legislation allowed for "give and take" which tempered financial separation agreements. The formula is rigid in its application, removing freedom of bargaining power and agreement. As a result, there is no incentive for mutual co-operation between parties; something which every family lawyer strives for when seeking to resolve matrimonial disputes. On the British experience, the importance for each of the parties to get on with his or her own life is reduced.

Capital Property

The child support guidelines operate independently of the principles for equalization of net family properties. The guidelines would not, for example, take into consideration the fact that one party has transferred an interest in the matrimonial home to the other party who was caring full time for the children. This is so, even where a spouse has received an outright transfer of the former matrimonial home in exchange, say, for an undertaking not to pursue any claims for periodic payments for the children (although such claims can never be dismissed), or to accept a particular level of child support payments. Thus, capital settlements are potentially ignored by the formula system when calculating child support payments.

This is manifestly unjust and inequitable. Child support guidelines which ignore property settlements defeat the principles of property division and freedom of bargaining power which have been designed over years of practice and founded in statute and common law to cater to the best interests of the child and to allow separating couples to get on with their lives.

The British government accepts that the formula system frustrates any sensible resolution which attempts to place a current value on settlements made in the past in order to give some notional figure for current income which could be taken into account in the formula. The Government suggests that lawyers find other ways to settle claims. Creation of new ways to resolve capital property disputes means protracted court cases, time and money. Who will pay, financially and emotionally?

The Practical Consequences of the Act in Relation to Pre-Child Support Act Capital Settlements are:

(a) The absent parent having agreed to pay the mortgage on the matrimonial home occupied by the custodial parent and children is forced to pay higher child support payments. The guidelines do not permit the absent parent to reduce his or her assessable income by the amount of those mortgage instalments. Nor can the absent parent who takes out a second mortgage to re-house himself or herself use the new mortgage to reduce assessable income.

This may prevent the paying spouse from taking a second or new mortgage in his or her own name. The absent parent faces potential financial hardship in maintaining a home purchased after the split with his or her partner, but prior to the implementation of the child support guidelines which call for increased child support, because the recipient spouse can seek a variation of a prior separation agreement at any time after May 1, 1997 and thus invoke the guidelines.

(b) The British experience has shown that the absent parent and his or her new partner will potentially be deprived of a home of their own. While the first wife or husband remains in the former matrimonial home, the second family finds itself forced into rented and/or lower standard accommodation.

There is no principle of law which states that a parent in this position may not become an owner-occupier simply by reason of a failed marriage or relationship. None the less, this is the situation some parents find themselves in as a result of the British child support legislation.

Children of first marriages suffer because the absent parent, financially forced into lesser accommodation, does not have the space or facilities for them to stay during stay over access. Furthermore, the absent parent lacks the financial resources to afford to care for the children during stay over access as a consequence of the higher support payments to the custodial parent, (where previously the payments were lower, or non-existent as a result of a freely negotiated agreement between them). Children are therefore being denied the right to be with their absent parent and vice versa.

Thus, upon introduction of the formula for the calculation of child support in Canada, if there is no consideration of prior capital settlements, the absent parent may be detrimentally affected by any previous agreement or order for equalization and will be unable to return to the court for variation so that the payor's new circumstances can be reflected in the equalization of the property agreement/order.

Material Change of Circumstance

It has been stated by Justice Minister Allan Rock, although not written in any document or regulation available to date, that child support payments under the guideline system will be increased on an annual basis and that the annual increase will constitute a "material change of circumstance". The ramifications of that statement are profound. Instead of reducing the number of child support applications in the court -- which was an underlying reason for the introduction of the child support guidelines -- the number of applications to the court will increase phenomenally.

Every year there will be a potential right for each recipient parent to go back to court to seek a variation on the level of support payable by the non-custodial parent. The introduction of the child support guidelines and the regulations for the implementation and the interpretation of the guidelines and the add-on principle and the hardship test, are issues which will need to be decided upon by the Courts. On an examination of the proposed legislation and understanding of the guideline principles, as enunciated by the Justice Minister, the floodgates of family litigation will be opened.

How can there by a material change of circumstance for agreements entered into after May 1, 1997, since the annual increase in levels of child support payable will be a foreseeable event. As the law stands today, if any event is foreseeable, it does not constitute a material change of circumstance. That is, for a support order to be varied, there must be a material change of circumstance that "if known at the time would have resulted in different terms. If the matter relied on, as constituting a change, was known at the relevant time it cannot be relied on as the basis for variation". Is the Government intending to reverse, by statute, L.G. v. G.B. [1995] 3 S.C.R. 370? The scope for legal argument is going to be immense.

Determining the Meaning and Application of the Legislation

There are a vast number of issues which will have to be determined in that way, and thus there will be a huge number of cases which will have to be heard and determined in order for the practitioner to know how to implement and interpret the legislation; how to advise clients, and how to do the best job they can for a client in seeking the highest level of payment for the custodial parent and the least for the non-custodial parent, within the rigid structure of the guidelines.

Increase in the Number of Lump Sum Payments

The effect of child support regulations will mean that when couples part and seek legal settlement of their property and financial affairs, the pressure will be intensified for an order, either for the sale of the former matrimonial home or its transfer to the absent parent in return for a lump sum payment to the caring parent. The result of such pressure is far from satisfactory for all parties and children involved; the custodial parent and the children will lose the stability of their home; children may be forced to change schools (a further unsettling effect on children already traumatized by the family split). The non-custodial parent may have to take on an additional mortgage to buy out the custodial parent. Further, such a step will have the net result of increasing the absent parent's financial burden and possibly decreasing the amount of child support liability. The children lose their home and lose out financially. The level of support may have a detrimental effect on the custodial parent's entitlement to legal aid and to potential tax benefits.

Administration

The British Government has discovered that the amount of money necessary to run the child support collection agency is greater than the amount of money they collect each year. This may change in time. To date, however, the only people from whom they are collecting any money are those parents who were already paying child support. The system fails to collect monies from non-custodial parents who are refusing to pay, concealing their financial status or who have absconded.

The proposals by the government to prevent people from avoiding their child support obligations are not far-reaching enough and can easily be avoided. It is easy to obtain a second passport and driver's licence. The right of provincial enforcement agencies to search data bases for information about the non-custodial parent has the potential for abuse of the principle of confidentiality of information. The extended right to divert the payer's pension to satisfy arrears may possibly conflict with the property rights of the payer and his or her second family. Further, there is precedent that arrears of more than a year may be erased. No guidance is given as to how far back the government can go to enforce payment of arrears.

Privacy of Information

In the United Kingdom, the data protection offices received evidence of the child support agency's sending to the custodial parent a full breakdown of the non-custodial parent's income and financial status. This practice is being examined by the data protection office in order to establish whether it breaches one or more of the data protection principles.

Further, there is evidence that, in some cases, the address of the absent parent has been passed to the parent with care of the children and vice versa. Such breaches as these must be avoided, particularly in the case of children born of rape or incest or of sexually abused victims.

Formula v. Status Quo

The old legislation in the United Kingdom was far from perfect. There was little or no consistency in the ancillary and child maintenance orders made in the courts and many non-custodial parents either successfully concealed their financial status or simply disappeared without a trace, leaving the custodial parent with no money and the government with a huge welfare payment bill. The same is true in Canada.

The true advantage of these imperfect systems was/is its flexibility. An advocate can appear before a court in Canada and state his or her client's case. The court has to approach its decision judicially and give a reasoned judgment which is subject to appeal. Judges are able to look at each family's wants, needs and lifestyles individually and make an order that is best suited to the case. Of course, rarely are parties totally satisfied with the outcome, but the awards and orders made are tempered with equity, usually allowing each party to get on with his or her life.

This contrasts sharply with the proposed Canadian formula and the inflexible British counterpart which take no surrounding circumstances into account, save and except for the add-ons and hardship categories. Having to argue with a book of tables prepared by economists, practitioners will feel not only a deep sense of injustice, but also of helplessness. Few things are worse than having a client in serious trouble for whom you can do nothing except to advise him or her that "this is what the guidelines say".

It has been suggested by Philip Epstein that in the near future all child support payments will be determined by an administrative agency. This is the case in the U.K. Experience of practice in England has shown that depriving people of the right to adjudication of their case by the courts has been one of the most unjust moves by the British Government and one of the greatest "sore points" to custodial and non-custodial parents alike. Levels of support are set by formula and the right to a hearing before the administrative agency is "appeal" only. That right of appeal is severely limited. Obtaining a hearing can take up to a year or more. Throughout the "waiting time for appeal", the level of assessed support remains intact. Arrears accrue and enforcement procedures can be invoked. The result is total chaos. The distress caused to payer and recipient alike is huge, widening the rift between the parties. The children, of course, are caught in the middle and the traumatic effect on them can be overwhelming.

Best Interests of the Children

Surely the essence of family law is to ensure that the best interests of the children are addressed and to allow former partners to get on with their lives. Justice tempered with equity, not mathematical calculation, should determine their lives.

Children lose out financially and emotionally when there are protracted court battles to find other ways of settling capital property, to determine issues of law under the implementation of the new child support guidelines, and to seek (perhaps annually) a variation of support in the courts. Resentment between separating couples, anxious to be rid of each other, will be perpetuated. Is it worth paying such a high price in order for a cold mathematical calculation to take root?

Conclusion

The financial consequences of couples separating are too multifarious and too important to the parties involved to be left to a bureaucratic exercise of number play. Such decisions should be made by reasoned argument, applying principles of justice and equity and having regard to all the circumstances. How can peoples lives be determined by a formula? Everyone has different wants and needs, different abilities and disadvantages. Finally, and perhaps most important, will the best interest of the children be served in the world of the fixed formula? The British experience illustrates that they will not.

*Barrister at Law (England and Wales)
Student-at-law with the Toronto law firm of Torkin, Manes, Cohen & Arbus

This article is reprinted here with the kind permission of Money and Family Law and its publisher, Thomson Canada Ltd. (Carswell). See Volume 11, No. 7 (July 1996) issue of Money and Family Law.

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