Hidden Business Assets and Unequal Property Division

Financial disclosure and property division are often contentious issues following separation or divorce, particularly when one spouse operates a business, holds assets through family members, or has access to hidden financial resources not reflected in their reported income.

In Chamseddine v. Ghani, the Ontario Court of Appeal considered several interconnected issues involving beneficial business ownership, unequal division of net family property, and income imputation for child support and spousal support purposes.

The decision illustrates how courts may look beyond formal ownership arrangements and reported earnings when determining the financial consequences of marriage breakdown.

Marriage Breakdown Leads to Property and Support Disputes

The parties married in 2010, had two children, and separated in April 2023. During the marriage, the wife primarily cared for the children and managed the household while also performing administrative work for the husband’s businesses.

The husband operated woodworking and construction businesses. After his original company entered bankruptcy, successive businesses providing similar services were incorporated in his brother’s name.

The parties also owned a property containing their matrimonial home and commercial space used by the business. Although legal ownership changed several times, the property was eventually transferred to the husband’s brother. The trial court ultimately determined that the spouses were its beneficial owners.

Trial Court Makes Several Financial Orders

Following a five-day trial, the lower court ordered an unequal division of net family property, imputed income to the husband for child and spousal support, and ordered the matrimonial home sold. It also rejected an alleged mortgage against the property.

The trial court made significant adverse credibility findings against the husband and his brother, finding that their accounts were inconsistent and that the husband had failed to provide complete financial disclosure.

The husband appealed the findings concerning beneficial business ownership, unequal property division, imputed income, and the alleged mortgage.

Court Examines the True Ownership of the Family Business

One central issue was whether the husband beneficially owned the woodworking business despite his brother being its registered shareholder. The trial court concluded that the husband was the beneficial owner based on several factors, including his substantial control over company finances, significantly higher salary, and his brother’s limited knowledge of business operations.

The trial court also considered correspondence in which the brother indicated he was prepared to acknowledge holding the business in trust for the husband.

Court of Appeal Upholds Beneficial Ownership Finding

On appeal, the Court found that the correspondence was not protected by settlement privilege, although the brother’s admission should not have been used against the husband. Nevertheless, the remaining evidence was sufficient to uphold the beneficial ownership finding.

Importantly, the Court confirmed that a non-titled spouse cannot assert a trust claim against a third party on behalf of the other spouse for equalization purposes. Accordingly, the business was not directly included in the husband’s net family property calculation.

However, the ownership arrangement remained relevant to the wife’s unequal property division claim.

When Can Courts Order Unequal Property Division?

Under section 5(6) of Ontario’s Family Law Act, courts may order an unequal division of net family property where ordinary equalization would be unconscionable, having regard to the statutory circumstances. In this case, the ordinary equalization calculation produced a payment of only $5,710 to the wife.

The trial court found that placing the business in the brother’s name, without corresponding contributions from him, deprived the wife of an appropriate share of its value. The business had been developed partly using equity associated with the matrimonial property.

Reckless Depletion of Net Family Property

The husband’s failure to pursue ownership rights against his brother following separation was characterized as a reckless depletion of net family property.

Based on the available evidence, the trial court estimated the relevant depletion at $120,000 and awarded the wife an additional $60,000, bringing the total property payment to $65,710.

The husband argued that the unequal division claim had not been properly pleaded and that the court had improperly focused on his conduct rather than the financial outcome.

Notice of an Unequal Division Claim

The Court of Appeal rejected both arguments. It confirmed that unequal division need not always be specifically pleaded if the other party has sufficient notice that the court will be asked to depart from ordinary equalization.

The husband had been aware of the wife’s position concerning business ownership throughout the proceedings, and the trial court found that he was not surprised by her claim.

The Court also found that the trial court had properly considered whether ordinary equalization would produce an unconscionable financial result.

Court Upholds Imputed Income for Child and Spousal Support

Another significant issue concerned the husband’s income for child and spousal support purposes. The trial court imputed income of $250,000 for 2023 and $200,000 annually thereafter. The husband argued that these figures were speculative and unsupported by the evidence.

However, the Court of Appeal emphasized that income imputation is a fact-specific exercise, particularly when financial disclosure is incomplete.

Corporate Benefits and Personal Expenses Inform Income Calculations

The evidence showed that the husband previously earned an annual salary of $124,800, had access to company vehicles, and benefited from the business paying substantial personal and household expenses.

His own financial statement also disclosed annual personal expenses exceeding $106,000, excluding housing and transportation.

The trial court used this information, together with estimated housing and transportation costs and tax adjustments, to determine his income. It also accounted for the loss of a lucrative business contract when reducing his imputed income after 2023.

Incomplete Financial Disclosure Affects Support Determinations

The husband’s disclosure deficiencies extended beyond his reported income. He had not produced several financial records, including personal and corporate credit card statements and loan documentation.

The Court reiterated that once an evidentiary foundation for income imputation is established, the responding party has a positive obligation to provide evidence supporting their position.

The Court of Appeal upheld the income calculations, emphasizing that the husband had failed to provide the documentation necessary for a more precise determination.

Court Rejects Alleged $450,000 Mortgage

The Court also upheld the trial court’s rejection of an alleged $450,000 vendor take-back mortgage against the matrimonial property.

The mortgage claim was undermined by inconsistent testimony, limited documentation, and questions about whether the individuals involved had authority to encumber the property. The wife and another registered owner had not signed documents establishing the alleged mortgage.

The Court found no reason to interfere with the trial court’s conclusions.

Lessons for Ontario Divorce and Property Disputes

The Court of Appeal dismissed the husband’s appeal and ordered an additional $21,000 in costs payable to the wife, including $7,000 enforceable as support.

The decision highlights the importance of examining the financial realities underlying business ownership and asset arrangements during divorce proceedings. Registered ownership does not necessarily establish beneficial ownership, and arrangements involving family members may become relevant when determining whether ordinary property equalization would be unconscionable.

The ruling also demonstrates how incomplete financial disclosure can affect support calculations. Where reliable income records are unavailable, courts may consider spending patterns, corporate benefits, and other evidence of financial resources.

Johnson Miller Family Lawyers: Providing Dynamic Advice on Complex Divorce and Property Division in Windsor-Essex County

At Johnson Miller Family Lawyers, our Windsor-Essex family lawyers assist clients throughout Windsor, Essex County, Tecumseh, LaSalle, Amherstburg, Leamington, and surrounding communities with divorce, separation, property equalization, hidden assets or income, business-related disputes, and child and spousal support matters. To schedule a confidential consultation, please call (519) 973-1500 or contact us online.