RESP payments vs Child Support.

[Leszek]

My son is turning 18 and will be going to university. I have a fat RESP fund for him. He lives with his mother and will continue to live there throughout his academics. I'm currently paying child support.

I haven't looked at the RESP report yet but from my own notes, I conclude that it's 35-40% of my own contributions and grants. The rest is realized gains, dividends and unrealized gains. I set up this RESP fund well afer divorce, so it's all mine plus grants against my contributions.

I'm just learning about how RESP payouts work. My understanding is that there are some limits on how much grant money is paid out but no limits on the rest. If I divide current value of this fund by four years of planned academics, I would be paying out in excess of $25,000CAD per year to my son's bank account. This exceeds my share of academic expenses and child support combined. So what happens in such case? Is child support still paid? My son would be taxed for this, so how does tax payable affect this decision? He has applied for summer job so may have income of his own. Also, since money is being paid out to his account, I am in no control of what he does with it. I don't worry specifically about him but I'm sure issues do occur out there, so there must be a proven path through this. Any advice or reference to literature would be much appreciated.

[rockscan]

RESP payments vs Child Support.

Whew, breathe, you'll be ok. RESPs seem complicated but they aren't and they do nothing to change family law. And despite what anyone else will say, RESP funds are subject to family law rules BEFORE income tax or financial laws.

First, the RESP is your account and yours only. You do with the money what you want to do. Kudos to you for saving in advance because school costs are expensive. You don't have to tell anyone how much is in there as it's your account. Think of the RESP like your own savings account that the government rewards you for. The interest and principle is yours. The grants are the governments. If you don't use the grants, they go back when your child is done school. You get all the interest and principle when he's done. (And I say this from experience as my husband gets the remaining five grand he has in his RESP as his kid reaches 22 this year).

The grants are where it gets a little bit tricky but not so much. Use those funds. Your son will get taxed if his annual income each year is over the personal amount (I believe it's 11 grand). Use a little of the grant funds every year. Your financial advisor will tell you how much is there and you can work it out yourself.

Now the school expenses...those are based on your section 7 split and your son's contribution. Generally speaking the court decides 1/3 is allocated to the child unless there are extenuating circumstances like they decided to go to school on the other side of the country because they wanted to see the mountains, in that case they would have a higher fee. Your share would be the proportionate share of the net cost which is after tax benefits (you may need a lawyer to help you out with that calculation). So let's say his total fees were $18,000 for the year (a good divided by 3 amount). He would pay $6000 and you and your ex would split the remaining 12. Let's say the tax benefit is 2,000, you would split 10,000 proportionate to income. Your total could be say $6,000 or $4,000 depending on how much you make compared to her income. Either way, you pay what is your share only. And it doesn't really matter who it goes to or what they use it for, you paid your share and you can prove it. If your kid is irresponsible and spends it on beer, that's not your problem, he was given your money for his costs.

I should also note that if your child is given grant funds from OSAP if you're in Ontario or a scholarship, that would come off the top of the costs before splitting three ways.

If kid stays home you would pay child support but you wouldn't pay residence or meal plan fees since your CS goes to that. If he goes away, your CS would be reduced to "summer only" and you pay for four months of cs because you are paying residence and meal plan fees.

So my advice is this...talk to your financial advisor about how much grant funds are in your RESP. Talk to your son about his educational path and what he expects to do and for how long. Then you figure out how to split the grant money and the rest of the funds. In the end, say you had $50,000 saved and he only needed $20,000 if the remaining 30 is all principle and interest, that's yours to do with what you want.

[Leszek]

Thanks, Rock! I appreciate the time you too to provide this information. It does point me towards a different path that I am currently evaluating. I would like to ask some more questions about that. But first, I do need help to evaluate the path I had described above. And yes, I am booked to talk to someone who most likely is acting in the capacity of financial planner but I do appreciate feedback from 'regular folk like me'. Aren't online forums revolutionary?

The RESP fund has well over $100K in it. Grants are probably around $30K (maybe less but we'll take this for easy calculation). Also, for easy calculation, let's assume I pay $12K child support per year. My son is enrolled into a four year program and I definitely count on him graduating. This means that over next four years I would be paying $48K in child support. I will maximize grant money pay out each year to make sure all of that is spent. But this leaves over $80K in the RESP, still growing based on my trades and market performance. If I pay that $80K out to my account, I understand there will be serious tax consequences to me. On the other hand, if I pay 20K of that non-grant money to my son then he will only be taxed for 15K ($20 non-grant money + $6 grant money - 11K) in the lowest tax bracket.

The latter is to me a sensible approach. If I'm missing something, please explain. If that idea checks out with you then what happens to child support? It seems odd to me that I pay $26K to my son and still $12 to my ex. Even when we deduct grant money, my share of academic expenses and tax my son would pay, he's still receiving more per year than child support payments amount to. It's as if it made no sense to fatten up RESP...

[rockscan]

Youre trying to group cs and section 7. They are separate. You have to pay for school expenses regardless of what you pay in cs. There is a good part and that is that school costa are lower when he lives at home. Residence and food is an additional 15 grand a year. Either way you can’t get out of paying both because they are owed.

You should see how much room you have in your RRSP and shift it over to that or you can simply dump it in a different fund. You don’t get taxed to move funds between accounts and if you have the room in your RRSP then it’s a tax benefit to you.

[Leszek]

OK. So I got some education from my bank FA. I have greatly overestimated grants. This means I have greatly underestimated gains, which they call 'interest'. Also, my own contributions they call 'capital'.

1) The capital can be paid out to me any time with no tax consequences to me. Great news!
2) The grant will be paid out in the first year because it's just around $7K. 13 weeks limit rule applies to this year, so already by early next year entire grant is going to be paid out to my son and he won't be taxed for that.
3) That leaves over $80K which I will divide somewhat equally to pay out ~$20K per year into my son's account.

I'm not moving any more money to my RRSPs. There's too much money there, already. I'm not trying to get out of paying any expenses. I already pay more than I am legally obliged to simply because my son needs the funds. My question is: what happens to child support payments, given that my son will show income of roughly $22K per year?

[rockscan]

RESP payments vs Child Support.

You only pay what you owe. Anything else over and above that is a gift. Child support is separate from school. You owe that while he is in school as he lives at home.

Don’t pay him any more than you have to. If you want to do anything for him, buy him something when he’s done.

Use the grant money first and then capital. Don’t put it in his account if his mother is involved. She will have a share of the costs and she should be paying them.

ETA: you still pay support despite your son having that income. His income is due to a gift you give him over and above what you owe. He is in school full time and therefore entitled to support so don’t pay anything more than you owe.

[Leszek]

My philosophy is that my son's needs come first. If we were still together, I would be paying for everything, anyway. If his mother chips in a few dollars, fine. We don't count on that. In case such as mine, it would be normal to leave everything to the sole child via Will so there's no reason to try and 'save a dime'. The best plan is to ensure that he is successful and if that is achieved with spending a few thousand dollars per year more than can be legally claimed by ex, so be it. In the end, it is immaterial. When he is successful, he will make millions.

The only question is: how to make that money move in most efficient way. It doesn't have to be perfect but there needs to be logic applied. Child support is a type of maintenance payment that is generally based on having a child with no income. I find it hard to believe that I am still obliged to provide payments via child support to an 18-year-old who has at least $22K yearly income. This is an important question for me to understand. If that $12K of child support is no longer payable then I can send $6K to my son's TFSA and $6K to his own discretion (car, non-registered trading account, etc). This is a much different proposition than paying $12K in child support, most of which goes to pay off mortgage of another man who I doubt will leave any real-estate to my son.

[rockscan]

The only question is: how to make that money move in most efficient way. It doesn't have to be perfect but there needs to be logic applied. Child support is a type of maintenance payment that is generally based on having a child with no income. I find it hard to believe that I am still obliged to provide payments via child support to an 18-year-old who has at least $22K yearly income. This is an important question for me to understand. If that $12K of child support is no longer payable then I can send $6K to my son's TFSA and $6K to his own discretion (car, non-registered trading account, etc). This is a much different proposition than paying $12K in child support, most of which goes to pay off mortgage of another man who I doubt will leave any real-estate to my son.

Your logic and the law’s logic appear to be two different things. As long as your son is in school full time he is a “child of the marriage” and as that, your ex is responsible for his “care”. He plans to live with his mother therefore she has expenses for him namely food, roof, utilities. Therefore you pay her the child support his maintenance so to speak.

The child support IS payable as he is in school. Unless he plans to pay his mother the monthly amount, you owe her child support.

[Leszek]

The Federal Guidelines set out specific rules for calculating support for a child under the age of majority. For a child at or over the age of majority, you can use the same rules. Or, if you find that this approach is not appropriate, you may agree to base the amount of support for an older child on:

the child’s needs, means and other circumstances
the ability of each of you to contribute financially

https://www.justice.gc.ca/eng/rp-pr/...ep2-etap2.html

[rockscan]

They say that but it doesn’t happen. If he is in school full time then he is considered a child of majority. Any additional money you give him is considered a gift in the courts eyes. You still need to pay your ex child support if he is not paying her rent. Lewi v Lewi is the prevailing case law on the means question.

Also note outside family law, if he has investments he won’t be eligible for grant funds from OSAP and that is free money he should be taking advantage of.

[Leszek]

if he is not paying her rent.

That's exactly what he would be doing. The reason why I want him to have income is so that he continues to on his path to understand the world we live in by covering his expenses. He has had a monthly budget with me since he was five. He's been very good with it and over the years, the amount has been increasing. He has saved up a good chunk. We talk and have very good understanding in these matters. I have no reasons to worry about his aptitude.

However, there are things like summer jobs that he gets very excited about while I hope he shifts that excitement towards graduating from university. It's great to save up some money making $15.00/hour when you have no fixed expenses. His friends do exactly that. Why invest four years in further education if you can simply get a job in grocery store and save up $750.00 per month after blowing some money off? Well, if he understood what lodging costs and saw the money leaving his account monthly, I believe he would be a bit more excited about university.

My ex doesn't want to do this saying he's too young. I know her and I know those are not the reasons. But if she doesn't want to, I can't force that because it may cause problems that could be a distraction for my son. He's entering university and it's more important to me that he lives in a comfy setting.

I also don't buy 'too young' argument from others because he is still fully supervised. I was 19 when I left home, went to another country and had to learn a completely foreign language. Several other guys around the same age did the same thing. We had to find work, having no permit to do so. We all did OK. I eventually landed in Canada and survived on my own. I could not afford university. I barely made it though college, not having money to even buy books. In the third semester I had best marks in class, while we had native Canadians failing English. Mommy provides a room, mommy cooks, mommy does laundry... How can anyone expect these young people to learn responsibility? From theory? Four classes started the program, one class graduated. Immigrants from Vietnam, for whom English is probably the hardest language to learn, made it but many native Canadians did not. No, 18 is not too young for accountability. That's the legal age of majority. If he went to the army, he'd have to pull that trigger. So no, I don't think that $2K or $3K into an 18-year-old's account is a bad idea. I know my son is ready. Even if something would go wrong, she always has the path to claim child support.

grant funds from OSAP and that is free money he should be taking advantage of

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Thanks for the tip. I'll take a look at that. If I don't pay out that RESP fund to him, I'll have a serious headache what to do with it. Unless, I just wait a few years, in case he'd go for another program.

[rockscan]

That's exactly what he would be doing.

Why should he pay rent when you can pay child support?

The reason why I want him to have income is so that he continues to on his path to understand the world we live in by covering his expenses. He has had a monthly budget with me since he was five. He's been very good with it and over the years, the amount has been increasing. He has saved up a good chunk. We talk and have very good understanding in these matters. I have no reasons to worry about his aptitude.

But it’s not income, it’s you paying him what you should be paying his mother. Previously you said you don’t want to be paying another man’s mortgage but you are letting your son do it.

However, there are things like summer jobs that he gets very excited about while I hope he shifts that excitement towards graduating from university. It's great to save up some money making $15.00/hour when you have no fixed expenses. His friends do exactly that. Why invest four years in further education if you can simply get a job in grocery store and save up $750.00 per month after blowing some money off? Well, if he understood what lodging costs and saw the money leaving his account monthly, I believe he would be a bit more excited about university.

But you just said he’s responsible and he is prepared for school. Which is it?

My ex doesn't want to do this saying he's too young. I know her and I know those are not the reasons. But if she doesn't want to, I can't force that because it may cause problems that could be a distraction for my son. He's entering university and it's more important to me that he lives in a comfy setting.

She’s right. He shouldn’t have to worry about these things and he wouldn’t if you simply paid your monthly support and let him focus on school. It looks entirely that you want to end your connection to your ex and go off to Europe leaving him to deal with it. That’s selfish. You have a responsibility to your ex until he has graduated from a full time degree. Stop trying to put that on your kid.

I also don't buy 'too young' argument from others because he is still fully supervised. I was 19 when I left home, went to another country and had to learn a completely foreign language. Several other guys around the same age did the same thing. We had to find work, having no permit to do so. We all did OK. I eventually landed in Canada and survived on my own. I could not afford university. I barely made it though college, not having money to even buy books. In the third semester I had best marks in class, while we had native Canadians failing English. Mommy provides a room, mommy cooks, mommy does laundry... How can anyone expect these young people to learn responsibility? From theory? Four classes started the program, one class graduated. Immigrants from Vietnam, for whom English is probably the hardest language to learn, made it but many native Canadians did not. No, 18 is not too young for accountability. That's the legal age of majority. If he went to the army, he'd have to pull that trigger. So no, I don't think that $2K or $3K into an 18-year-old's account is a bad idea. I know my son is ready. Even if something would go wrong, she always has the path to claim child support.

So again, you are leaving it to your son to take on your responsibility because you had to do it so now so should he. Instead of wanting a better life for your son you will hand him thousands and wash your hands of him. Dad of the year right here.

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Thanks for the tip. I'll take a look at that. If I don't pay out that RESP fund to him, I'll have a serious headache what to do with it. Unless, I just wait a few years, in case he'd go for another program.

God help you have to take responsibility…

Your posts scream of you absolving yourself. I get it, you were on your own at that age and think he should be too. However that’s not how things work in Canadian law. It’s sad that you think money is enough to remove yourself from the responsibility of being a parent. Don’t be surprised if your relationship with your son deteriorates going forward. Money can buy a lot of things but it can’t buy this.

[Leszek]

Wow!

I need to spend extended time in Europe to take care of my family home which is currently unoccupied. My son knows this and is fully supportive. If you consider this selfish then you live in another dimension. I'm not surprised that you can't answer basic questions in other posts.

Of course, I will be leaving my ex's life. She was the one to exit our marriage. I am still true to my wedding vows. She chose otherwise. Best of luck to her and her new partner. You probably assume we fight and hate each other. This would go along with your other wrong assumptions like that "she's hard to work with". I've stayed close by for many years simply because we had to both work together on our son's development. I think we've done a good job raising our son and he's well on path to success. He's grown up and needs less and less supervision. As a mother she wants to 'baby' him. As a father, I remind her he's not a baby. It's time for me to move on with my life, too.

Don't you worry one bit about my relationship with my son. If there's a relationship to deteriorate, there is some worry on the other side. I don't share that concern but she is worried. We talked about this extensively just yesterday. I advised her to let our son take more and more responsibility so he learns from practice and feels good about achieving goals and participating in matters of 'grown-ups'. Preventing him from doing things he wants to do will certainly strain their relationship. He is a bit ahead of a typical 18-year old. If she holds him back, he may get upset and move out. That is the worst case scenario that we need to avoid. I don't think things are that bad but he is strong-minded and definitely capable of doing so.

I think you're either having trouble understanding basic questions that I'm asking or you might for some reason be already negatively predisposed towards me. You respond to my posts but provide very little substance. Not much feedback from other users, either. I hope you don't mind if I stop wasting time here and leave you with other wrong conclusions you are making. I have to take care of some matters and since ex is too stressed out to even think about them, I need to find info and present a resolution. I think you tried to help at a certain point but somewhere things went south. Best of luck to you if you had good intentions!

[rockscan]

I did answer your questions, you didn’t like the answers.

When it comes to family law the child is the most important thing. Your family home means nothing to the court. There have been fathers on here with medical conditions, job losses, homelessness and more—courts didn’t care. They also don’t see an 18 yo in full time school as having to take responsibility. It is pretty straight forward in cases where one parent is the payor—they pay support and a portion of school and kid simply goes to school. The court’s key idea is the child should not have to suffer for their parent’s divorce. And the court’s idea of suffering is very different than a parent’s view.

No one is commenting either because they don’t know about RESPs/post secondary or they don’t have a comment since you seem to have all the answers.

Good luck to you with the mess you are creating for yourself!

[velas]

If your son goes to work and earns 20k a year in income, there could be an argument for having support reduced due to "means", But if you're giving him 20k a year, that's not income to him and the courts won't allow you to reduce your support to his mother as a result. Maybe you and your son and his mother could agree to that though? As long as his mother gets the correct child support, your son could pay it to her as "rent" and learn how to manage the money. We also have a large RESP for my daughter (not 100k large, lol) and the money we've withdrawn has always come to our account. The grants and investment income go to her as income even though we get the money in our account to use as we see fit. She's never earned enough to have it matter though.