By Jaskiran Bajwa
Financial planners always suggest that parents start saving for their children’s education early. That’s great advice. But if those parents split up, questions may arise about who controls the funds being saved for schooling and who is responsible for any additional educational costs.
There are two child support guidelines
The Federal Child Support Guidelines are part of the Divorce Act and apply to parents who are divorcing or who are changing a child support order that was part of a divorce action. The Alberta Child Support Guidelines are part of the Family Law Act (FLA) and these apply to all other parents. The guidelines are similar. Both include formulas used to calculate the base or “table” amount of child support that the payor is required to contribute. It is based on the number of children the payor is obligated to support and their income.
Educational expenses are Section 7 expenses
Parents are responsible for special or “extraordinary” expenses incurred when raising the children. These are known as Section 7 expenses. Whether you are the payor or the recipient, it helps to know how s. 7 expenses will be factored into the overall child support equation.
When it comes to post-secondary education, parents in Alberta are obligated to meet costs associated with college or university. That is why education expenses are among the most commonly court-ordered s. 7 expenses.
Section 7 expenses are divided based on each parent’s income. If their incomes are comparable, any special childcare expenses will be split equally. But if one parent earns significantly more than the other, they will be expected to shoulder more of the burden.
If a child lives at home during their post-secondary studies, a financial arrangement similar to their high school years could remain in place, though there will be extra costs for such expenses as tuition and books.Other common s. 7 expenses in relation to post-secondary education include:
- computers and related expenses;
- transit fees or automobile-related expenses;
- student fees; and
- rent and other living expenses.
Support can continue beyond the age of 18
There is no absolute cut-off for support payments to cover post-secondary education costs, in terms of age or level of education. Until children are 18, both the Divorce Act and the FLA require parents to pay child support unless the child has "withdrawn" from their care.
After the age of 18, child support may be continued. There are many factors the court will consider, such as the child's ability to become self-sufficient and the demands of their education program. Generally speaking, parents are expected to support their children until they complete at least one post-secondary program. The payment of child support during consequent post-secondary programs may also be required by courts if the parents have adequate financial resources.
Children can take a ‘gap year’
If a child takes a break from their schooling to work or to travel, that does not automatically end any support obligations from the parents, though it will generally result in the suspension support payments. The court will look at the child’s plans to return to school. If a judge is satisfied the child is committed to receiving a higher education and the field they intend to study in will result in better job prospects or greater income for the child they can order the support payments to resume on a child re-entering a post-secondary educational institution.
RESPs and divorce
A registered education savings plan (RESP) is a government-supported, tax-deferred savings plan to help parents save money for a child’s post-secondary education. Many parents set these up to help save money for a child’s post-secondary education, and both parents may contribute to the plan but issues may arise during a marital breakdown.
Under the Income Tax Act, RESPs are not required to be divided between the parents. The two former partners can continue to be joint subscribers on an RESP and contribute to it.The RESP can also be split equally between the two parties as long as the funds are transferred from one RESP to another and the beneficiaries remain the same.
When setting up an education savings plan, parents should ensure they are joint subscribers or owners of the policy. If the RESP is in just one parent’s name, that person would control it after a divorce, including being entitled to withdraw funds for their own benefit rather than using them to cover the cost of a child’s educational pursuits.
Keep in mind that an RESP is an asset that is not protected from creditors. If your ex-partner files for bankruptcy, creditors may demand all or part of the value of the plan.
The government can claw back its contribution
With an RESP, the federal government currently matches 20 percent of the contributions up to $2,500, to a maximum of $500 each year through a Canada Education Savings Grant. Children from middle- and low-income families might be eligible to get additional amounts, up to a lifetime limit of $7,200.
If your children decide not to pursue post-secondary education, the government could claw back the grant money it contributed and tax you for the interest on those funds. That will also happen if money in the plan is withdrawn for reasons other than the beneficiary’s education such as the policy owner using the withdrawn funds for their own purposes.
Contact us for assistance
Determining who is financially responsible for a child’s post-secondary education after a marital breakdown can be complicated. Contact Demas Schaefer Family Lawyers so that we can help you determine what is fair, so your children can pursue the schooling they desire.