I recently did a set of spending plans for a separated couple. They are trying to sort out how they will share parenting arrangements in the future.  Their individual financial situations depend on what they decide. Are they going to share parenting, or will one parent be designated the Primary Caregiver?

In an ideal world, this couple would decide what is best for the children without thinking about how it will affect them financially, but often, people let their financial situation drive their decisions rather than vice versa.

How do different parenting arrangements affect the individual parent’s financial situation?

These are the basic rules:

Primary Caregiver Situation

The primary caregiver, the person who parents the children more than 60% of the time, receives child support from the other parent. The primary caregiver also gets all the tax credits and benefits related to the children.

Example 1:

Parent A is the primary caregiver of a two- and four-year-old child and earns $40,000 per year, while Parent B earns $60,000 annually. Parent B pays Parent A $900 a month in child support.

How does this look after taxes are considered?

Parent A pays about $6,000 in taxes (including EI and CPP).

Parent A is therefore left with $40,000 less $6,000 in taxes plus $10,800 (child support – non-taxable to Parent A)  plus $4,000 (Canada Child Benefit) for a grand total of $48,800 (after tax) per year.

Parent B pays about $14,000 in taxes (including EI and CPP – Parent B does not get any credits related to the children). 

Parent B is therefore left with $60,000 less $14,000 less $10,800 (child support) for a grand total of $35,200 after tax. That differs from Parent A, who started out with less.

As stated, Parent A is the primary caregiver of the children and so will, therefore, have much greater costs. That said, in the above situation, Parent B will also be on the hook for a greater percentage of child-related expenses, such as work-related child care. In this case, if Parent A earns $40,000 yearly with a two and four-year-old, there will likely be child care. Parent B will pay 60% of the childcare costs, and Parent A will pay 40%. Parent A gets to claim the childcare expense and Parent B does not.

Will Parent B understand that and give up almost $20,000 per year, or will Parent B decide equal parenting would be better?

Shared Parenting Situation

If the parents share parenting, they each must pay child support to the other parent. Essentially, it works like this:

Example 2:

Parent A earns $50,000, and Parent B earns $50,000.

Parent A has to pay $760 to Parent B for child support, and Parent B has to pay $760 to Parent A for child support. These two amounts offset each other. 

Example 3:

Parent A earns $40,000, and Parent B earns $60,000 (as above in example 1)

This time, Parent A pays a monthly amount of child support to Parent B, $600, and Parent B pays $900 to Parent A. These amounts are calculated based on the Federal Child Support Guidelines. Here is a handy calculator.

The child support guidelines are meant to equalize the children’s standard of living in the two different households (where they spend equal time). The calculation considers taxes as the recipient of the $300 receives the money tax-free, and the payer does not get a deduction.  Now, their respective incomes look like this:

Parent A – $40,000  less taxes of $6,000 or 14.7% plus $3,600 in child support plus $2,000 (Canada Child Benefit; it is shared) for a grand total of $38,000 (after tax) per year.

Parent B – $60,000 less taxes of $11,500 or 19.15% (this is lower than in example 1 as this time parent B gets to claim one child as a dependent)  less $3,600 in child support plus $2,000 Canada Child Benefit for a grand total of $46,900 (after tax) per year.

Parent A and B’s incomes are not completely equalized, but Parent B will end up paying more for things like medical and dental for the children as well as for extracurricular activities and other special expenses for the children. Parent B pays 60% of these expenses, and Parent A pays 40%.

If I were Parent B and were only concerned with money, I would choose example 3.

Do you see what the child support guidelines did?

The guidelines encouraged both parents to step up and be equal caregivers to their children—money talks.

In an ideal world, both parents would also step up and share parenting responsibilities, not just the money.

Parents starting out on the shared parenting path will struggle at first. One parent was likely the primary caregiver when the couple was married. That is usually the way it works. They will have to learn strategies for sharing parenting duties in the future.