Love and Legalities — Support Starts With the Pay Stub
There are two types of support to consider following marriage or relationship breakdown: child support and spousal support.
Child support is governed by the Federal Child Support Guidelines or the Child Support Guidelines (Ontario). To address the issue of spousal support, lawyers refer to the Spousal Support Advisory Guidelines.
Please note the child support guidelines are law and the spousal support advisory guidelines are advisory only, but are regularly referred to by courts.
The starting point to determine a spouse’s annual income is the total income (Line 15000) set out in their T1 General Income Tax and Benefit Return. This can also be found on a spouse’s Notice of Assessment. Where income earners are T4 employees and have no additional sources of income, for example, rental income or investment income, the analysis typically ends here.
However, where a spouse is a shareholder, director or officer of a corporation or considered self-employed we need to consider whether or not how that spouse is paid from the corporation, what personal benefits are received as a result of expenses paid by the corporation and whether or not there is pre-tax corporate income.
In order to determine income available in a corporation for support purposes, we usually retain the assistance of accountants who specialize in the preparation of Income Reports. The expert’s role will be to review the corporation’s income tax returns, financial statements and other material, as required, typically over a three-year period. The expert will usually provide an opinion on income for the court’s consideration.
The court will also consider patterns of income. For example, depending on the nature of an individual’s business, a spouse’s income may be significant in one year and nominal the next year. Section 17 of the Federal Child Support Guidelines provides that where a spouse’s annual income found at Line 15000 of their tax return would not be the “fairest determination of that income” the court has the ability to look at a “spouse’s income over the last three years and determine an amount that is fair and reasonable in light of any pattern of income, fluctuation in income or receipt of a nonrecurring amount during those years.”
Finally, the court also has the ability to impute income to an individual. Imputation of income is where the court will attribute an income to a spouse even though the spouse is not necessarily earning at this level. As set out in Section 18 of the Federal Child Support Guidelines, some circumstances where a court will impute income to a spouse include but are not limited to:
- The spouse is intentionally underemployed or unemployed;
- The spouse failed to provide income information when under a legal obligation to do so;
- The spouse unreasonably deducts expenses from income; or
- The spouse is a beneficiary under a trust and is or will be in receipt of income or other benefits from the trust.
This article was originally published by The Hamilton Spectator.
