When parents go through a divorce or separation, child support might be one of the most important matters to settle. For families where one or both parents are high-income earners, there could be issues around whether or not the high-earning parent (or parents) is providing full disclosure regarding their income. It’s not unheard of for a support-owing parent to try to reduce their child support obligations by hiding income or not providing full disclosure.
In a recent decision issued by the Court of Appeal of Alberta, the court heard from a mother who was seeking to appeal a decision from a lower court in which she said the judge erred by accepting the father’s evidence about his income, which she said was much lower than what he makes. The decision allows us to see what kind of disclosure is necessary for these situations and how the courts might impute income when full disclosure is not provided.
Father’s income is tied to business interests
The parties began living together in 1996 and were married two years later. They had three children while they were together and separated in 2016. At the time of the trial, one of the children was no longer considered a child of the marriage.
While together, the parties lived in Fort McMurray, but the father moved to British Columbia following the separation. The father’s income was largely from 14 corporations he had an interest. They were collectively referred to as a single entity in the decision, and we will refer to them as “AG.”
AG operated in the oil market, and businesses suffered from COVID-19. This led to recorded losses in 2019, 2020, and 2021. Some corporations have since entered into forbearance agreements with creditors and have begun to liquidate assets.
During the initial trial, the mother asked the court to direct the father to complete his financial disclosure. When he failed, she asked the court to put his income at $500,000 per year to establish child and spousal support obligations. Just 10 days before the trial, the father provided a report that stated his income in 2021 was $66,954.
The report relied on unverified information, but the chamber’s judge set the father’s income at what he said he was making. The chamber’s judge added,
“I am simply unable to conclude from the evidence that (the father) is experiencing any additional income or benefits beyond those which have been disclosed and acknowledged.”
The mother appealed on the grounds that the father provided insufficient disclosure and that the chamber’s judge erred in admitting and relying on the “expert report” provided by the father, adding that it was unreliable.
Did the father meet his duty for disclosure?
The father told the court that he believes he has provided sufficient financial disclosure, including financial statements from AG for 2019 and 2020, but that similar statements for 2021 still need to be made available. The court reviewed the documents provided and noted that while they outline what AG contributed for the parties following the separation (including benefits, vehicles, and phones), they don’t contain any information about corporate expenses that benefit the father, instead showing only his gross salary of $5,000 per month.
The court agreed with the mother that the report provided by the father raises more questions than it answered in determining his income. The court pointed out that the document relies solely on the information provided by the father. The documents contained no information about AG’s expenses and benefits provided to the father at $1,000 per year, whereas the mother’s evidence indicated those amounts to be closer to $3,000 per month. Some costs associated with benefits are left out, and specific insurance for vehicles is provided to the parties. It’s also silent about things such as internet access for the father, which it is reasonable to assume AG pays for since the father works from home.
The court also sided with the mother’s argument that the father’s disclosure was silent on payouts to shareholders or shareholder loans. She was also concerned about the intermingling of corporate funds, which may have been placed in personal bank accounts as well as corporate ones. Ultimately, the court found that the father had not discharged his obligation to explain the benefits he may have received from AG.
Court imputes income on father
The court then turned to the remedy for the situation, specifically imputing the father’s income. The chambers judge did not have to pursue this exercise after accepting the father’s evidence about his income. The court reiterated that the mother sought an imputed income of $500,000, and at appeal, the father quickly suggested that $250,000 would be more appropriate.
The court also recognized that some of the corporations under AG are in dire financial states. Still, with proper disclosure, it was possible to ascertain exactly what position they were in. Rather than requiring the father to take another stab at providing disclosure, the court decided to impute income and was eventually satisfied at $100,000 per year. This number was determined after factoring in $3,000 per month in benefits and a salary of $66,954. This is far short of what the mother required but will lead to more support payments than were otherwise ordered.
HMC Lawyers can help high-net-worth individuals through family law issues
The experienced family law team at HMC Lawyers understands the emotional and financial stresses of separation and divorce. We help our clients make informed decisions by providing thoughtful and practical legal advice. We work with high-net-worth individuals in these situations to address their unique needs, including the division of assets and liabilities. We also seek to reach positive resolutions through negotiation and mediation on behalf of our clients but are ready to litigate when necessary. To find out how we can help you, please contact us online or by phone at 1-800-480-3534.