Bob (age 33) and Cindy (age 32) have been married for 12 years and are getting divorced. They have two children, Nicole (age 9) and Chad (age 5). Bob started his own business three years ago and he thinks the tax-adjusted value is $201,000. He argues that the business is new and its value cannot be counted on, so it should not be divided. Bob's annual salary is $87,000. His expenses are $2,050 per month. This does not include any credit card or support payments. Cindy is going back to school to become a nurse. She will finish her degree in three years, and then she will earn approximately $35,000 per year. She will earn no income while in school. Cindy's expenses are $4,828 per month. This includes her tuition expenses, which average $350 per month. Bob is offering to help Cindy through school by paying spousal support of $2,000 per month for one year, then $1,500 per month for two additional years. The support will be indexed annually. The children will live with Cindy. According to the Federal Child Support Guidelines, Bob's payments will be $1,245 per month to support the two children until they finish school or reach the age of majority. This number will drop to $774 per month (adjusted for the 3% growth rate) after the oldest child leaves home or school. They live in a province where the age of majority is 19 years. The family residence is valued at $220,000 with a mortgage of $130,000 at 7.5% interest for 15 years. Cindy would like to remain in the home with the children. They also have a rental house worth $160,000 with a mortgage of $100,000. They receive $1,200 per month in rental income, and the monthly expenses are approximately $1,200 per month. Cindy's has two RRSPs with a tax-adjusted value of $17,000. She also inherited a family art collection about a year ago. The collection is valued at $43,000. Bob and Cindy have a joint Visa credit card that they both use with a balance of approximately $22,600. Without Bob's knowledge, Cindy also opened another joint American Express credit card with a balance of approximately $5,000. Bob has made the following proposal: Cindy will take the house, the rental, the RRSPs, her art collection, and the debt. Bob will keep only his business. Bob feels that since his business is so new and cannot be counted on, he is making a very generous proposal. Assume they will each retire at age 65-the age at which they will qualify for full OAS benefits- and that Bob will be splitting his CPP with Cindy. 8. 9. Cindy finishes school, but has a hard time finding a job. She asks Bob to pay her spousal support in the amount of $500 in addition to the amounts set out in their separation agreement until she finds employment. Which of the following is the tax treatment of the payment? a) Bob can deduct the extra $500 if Cindy agrees. b) Bob must deduct the extra $500. c) Bob cannot deduct the extra $500. d) Bob can deduct the extra $500 if Cindy claims it as income. Which of the following scenarios would NOT threaten Cindy's financial stability? a) Bob declares bankruptcy and gets his spousal support obligation discharged. b) Bob is found to be uninsurable after agreeing to insure his spousal support payments with life insurance. c) Bob becomes disabled and can no longer work. He does not have disability insurance. d) All of the above would threaten Cindy's spousal support. Child and spousal support are: a) Not taxable to the recipient b) Both taxable to recipient c) Treated differently: spousal support is taxable to the recipient and child support is not d) Treated differently: child support is taxable to the recipient and spousal support is not What is the equity value of the marital home? a) $220,000 b) $90,000 c) $130,000 d) $60,000 10. 11. 12. In the year before their separation agreement was final, Bob gave Cindy a cheque for $10,000 to help cover her tuition and monthly expenses. Which of the following statements is true? a) The payment will be deductible by Bob and taxable to Cindy as long as the final written agreement references the money and clearly indicates that they agree to that tax treatment b) The payment will not be deductible by Bob and taxable to Cindy because it was a lump sum payment c) The payment will be deductible by Bob and taxable to Cindy because the money was paid in the same year as the final written agreement was signed. d) The payment will not be deductible by Bob and taxable to Cindy because it was not intended to be child support. Bob (age 33) and Cindy (age 32) have been married for 12 years and are getting divorced. They have two children, Nicole (age 9) and Chad (age 5). Bob started his own business three years ago and he thinks the tax-adjusted value is $201,000. He argues that the business is new and its value cannot be counted on, so it should not be divided. Bob's annual salary is $87,000. His expenses are $2,050 per month. This does not include any credit card or support payments. Cindy is going back to school to become a nurse. She will finish her degree in three years, and then she will earn approximately $35,000 per year. She will earn no income while in school. Cindy's expenses are $4,828 per month. This includes her tuition expenses, which average $350 per month. Bob is offering to help Cindy through school by paying spousal support of $2,000 per month for one year, then $1,500 per month for two additional years. The support will be indexed annually. The children will live with Cindy. According to the Federal Child Support Guidelines, Bob's payments will be $1,245 per month to support the two children until they finish school or reach the age of majority. This number will drop to $774 per month (adjusted for the 3% growth rate) after the oldest child leaves home or school. They live in a province where the age of majority is 19 years. The family residence is valued at $220,000 with a mortgage of $130,000 at 7.5% interest for 15 years. Cindy would like to remain in the home with the children. They also have a rental house worth $160,000 with a mortgage of $100,000. They receive $1,200 per month in rental income, and the monthly expenses are approximately $1,200 per month. Cindy's has two RRSPs with a tax-adjusted value of $17,000. She also inherited a family art collection about a year ago. The collection is valued at $43,000. Bob and Cindy have a joint Visa credit card that they both use with a balance of approximately $22,600. Without Bob's knowledge, Cindy also opened another joint American Express credit card with a balance of approximately $5,000. Bob has made the following proposal: Cindy will take the house, the rental, the RRSPs, her art collection, and the debt. Bob will keep only his business. Bob feels that since his business is so new and cannot be counted on, he is making a very generous proposal. Assume they will each retire at age 65-the age at which they will qualify for full OAS benefits- and that Bob will be splitting his CPP with Cindy. 8. 9. Cindy finishes school, but has a hard time finding a job. She asks Bob to pay her spousal support in the amount of $500 in addition to the amounts set out in their separation agreement until she finds employment. Which of the following is the tax treatment of the payment? a) Bob can deduct the extra $500 if Cindy agrees. b) Bob must deduct the extra $500. c) Bob cannot deduct the extra $500. d) Bob can deduct the extra $500 if Cindy claims it as income. Which of the following scenarios would NOT threaten Cindy's financial stability? a) Bob declares bankruptcy and gets his spousal support obligation discharged. b) Bob is found to be uninsurable after agreeing to insure his spousal support payments with life insurance. c) Bob becomes disabled and can no longer work. He does not have disability insurance. d) All of the above would threaten Cindy's spousal support. Child and spousal support are: a) Not taxable to the recipient b) Both taxable to recipient c) Treated differently: spousal support is taxable to the recipient and child support is not d) Treated differently: child support is taxable to the recipient and spousal support is not What is the equity value of the marital home? a) $220,000 b) $90,000 c) $130,000 d) $60,000 10. 11. 12. In the year before their separation agreement was final, Bob gave Cindy a cheque for $10,000 to help cover her tuition and monthly expenses. Which of the following statements is true? a) The payment will be deductible by Bob and taxable to Cindy as long as the final written agreement references the money and clearly indicates that they agree to that tax treatment b) The payment will not be deductible by Bob and taxable to Cindy because it was a lump sum payment c) The payment will be deductible by Bob and taxable to Cindy because the money was paid in the same year as the final written agreement was signed. d) The payment will not be deductible by Bob and taxable to Cindy because it was not intended to be child support