My Million-Dollar Child
Over a decade ago, while fighting in court on a $17,000 date-of-marriage deduction, my ex-husband and I had completely missed the importance of Section 7. We could not imagine that our child care cost would end up just a bit short of 1 million dollars. Mind you, we did not have anything like live-in nanny, private school, horse riding expenses, or any major medical issues.
Children’s Expenses (Special Expenses, Extraordinary Expenses, Section 7) is the most overlooked and underestimated financial issue in separation and divorce. Most people focus on property division values rather than on a full picture of dynamic and unpredictable expenses of raising children.
Call me insensitive, but since my divorce in 2005 I am keeping a tally of my child care expenses. The table is very large and complex and has over 10 categories. Originally, I started it for a reconciliation, but ultimately got used to the process and continue tallying up.
Now, with minimal projected post-secondary tuition costs, I am looking at $572,000 of the total cash outflow. Adjust these numbers for 5% since the year they occurred, and you are getting a whopping number of almost $912,000. Not that far from a million. Just imagine not having a proper Separation Agreement to address who pays for what and how.
SECTION 7 CHILD CARE COSTS:
The very first thing I do, when starting with new clients who have children, is the Section 7. I have created a template in Excel. It covers the major child care sections: Daycare, Medical, Dental, Education, Extra-Curricular Activities with respective sub-sections: summer camp, prescription medication, special needs therapy, and much more to list here.I suggest to my clients to take all the time in the world to capture, analyse and project these numbers, create their own categories and do their research, if necessary.Once I adjust the numbers for all the tax credits and deductions, both parents and their lawyers can see the big picture.
HOW TO TRACK CHILD CARE COSTS AFTER A DIVORCE
Michael and Anna (fictitious names) are my clients, they worked on Section 7 using a Dropbox cloud storage. With the help of technology, we could quickly gather all the necessary information and saved time and cost. It also opened up issues they never even thought of; for example, ADHD medication in absence of medical insurance, future orthodontist expenses.
Both appreciated the value of the process and decided to continue using the joint Section 7 folder for their ongoing post-divorce expense reconciliation.
To further smooth the rough edges, I always recommend using a separate payment tool, bank account or a credit card for children’s expenses. And this is why:
You know the running total for each month, year.It avoids the drama of your ex-spouse seeing and commenting on your personal financial life by simply not seeing your own expenses (for example: $300 spa trip or $250 night out with friends ).During the tax season, you know where to find your numbers for tax credit and deductions.
CRA has a great source of how-to information related to Section 7.