Working through a separation or divorce where one or both of the parties are business owners or entrepreneurs can make an already complicated process that much more difficult to navigate. At times, courts are told that one of the parties in such a situation is hiding income generated from a business and that they should have an income imputed upon them. While the courts do impute income on people, a recent decision from the Ontario Superior Court of Justice shows that a certain degree of proof is needed if a party asks the court to impute income on their former partner.
Mother alleges father is hiding income
The parties were married on July 25, 2015. They had one child before they separated on January 25, 2020. The parties owned property and businesses both jointly and separately. While they were working through their divorce, neither party provided an income report to the court pertaining to the father’s income, though the father did provide an affidavit from an accountant stating that his income from one of his businesses is $47,988 to $191,913. However, the father’s reported income on his tax returns was under $20,000 for each of the three years leading up to the separation. However, the mother said his income is much higher, claiming it to be $1.5 million annually.
What can the court use to determine the father’s income?
In trying to determine how much money the father earns for the sake of child support and spousal support. The court also stated that financial disclosure is the underpinning of family law litigation and that a failure to disclose financial information can result in the court imputing income.
In this case, the mother provided the court with a text message where the father was purported to have written, “you have to be willing to have a different lifestyle cause I’ve done my numbers amount 1.5 mill is my payout and the past 4-5 years every year we made an investment to added something to our life so technically I have to earn 1.5 mill minimum for us to keep our heads above water and if we wanna make investments and grow at the same time…”
The mother added that the father failed to provide the court with bank account information, as well as income from poker games he plays in and cannabis businesses he is involved with.
In the meantime, the father said that in a previous appearance the mother asked the court to impute upon him an income of $550,000, which he claims is still much more than he makes, and that the mother has no real proof that he makes more than he stated, adding that the COVID-19 pandemic has impacted his real estate business, which includes rental properties.
In this case, the court found that the wife’s evidence of a text message was not enough to impute an income of $1.5 million on the father. Instead, the court looked at the monthly living expenses listed by the parties in order to arrive at an income amount. Since this was a temporary order seeking to establish “rough justice,” the court said it would look at what the father’s expenses were. The court arrived at $285,000 per year, after taking the father’s annual expenses and adding $17,500 to gross up the amount by 35% to account for taxes.
To speak with one of our experienced Windsor family lawyers about business valuation and dividing business assets during divorce, call 519.973.1500, get started now or contact us online. Many of our clients are referred to us by former and current clients, and by lawyers, accountants and other professionals.