Company Income

[MarkSwayCanada]

My Ex owns 50% of a company.

This company owns investment property. Its profitable, has a large cash balance. But she does not manage the company at all (Her dad does everything) and they have never declared a dividend.

My ex and lawyer want to exclude this income. Please advise? thanks

[rockscan]

Owning a company is different than getting a salary or income from the property. It also impacts support and equalization differently. Do you know that she has income or is their refusal along the lines of “my client has no income”.

You can argue for copies of her bank statements, a copy of business documents outlining her involvement and ownership. I would also ask for copies of credit and mortgage applications as it shows what she claims her income is.

Note though, if you lose the request for the documents, you could be on the hook for her legal costs for the argument to get them.

[MarkSwayCanada]

She does have salary income and earns about 80000, her portion of the company yearly income would be about 25000 (This company was setup by her father and she does not earn salary from this company) so its fairly material as it would affect child support and s7.

[rockscan]

“Would be”

Is this something she received through the marriage that you know of or are you speculating?

If you know it is an annual income or she reports it as an annual income on her taxes then it would be considered as income for child support calculations. If it was a one off for this year then they could argue that it should only be considered for that year and pay the difference with her 80 grand considered going forward.

Not sure why they think it should not be included. In many cases income is not included when it wasn't seen. For instance, an RRSP pay out that went directly to an account.

[arbortrail22]

I'm interested in your terminology. Her portion of the net income (and her father's) is tied out to retained earnings each year in the Corp? So there is an account with retained earning that builds each year by $50k within the Corp? I would probe on the reasons that the income isn't distributed? Is it re-invested, used for capital purchases, etc. I would explore WHY the income wouldn't be available to her, not the fact that they don't take the dividends. Also, the other owner isn't arm's length. The guidance is all income available for support purposes.... https://www.justice.gc.ca/eng/rp-pr/...p/v2/v2_5.html If the capital is needed in the business to fund its operations, that's a different concept- look up - “killing the goose that lays the golden egg”- related to pre-tax business income relating to support payments

[Desperate_Dad]

I will give my two cents here since I was in a similar situation except I was on the other end of it. I had a portfolio of investments that my ex and her lawyer wanted included and I said it should be excluded. I tried to educate my ex and her lawyer but it ended up going to trial. My situation was this. This entire portfolio wa accumulated before I even met her and was generating investment income that was reinvested during the relationship but no new funds were added during the relationship. So this was all my income and she had nothing to do with it. At trial, they lost and I won. The only thing that ticked me off was the judge didn't charge my ex or her lawyer costs for making such a dumb argument.

Now to your situation. You haven't given us any indication who contributed this money. Did you or your ex contribute any income to this investment portfolio during the relationship or did she and her father already have this portfolio when the relationship statrted?

I can only speculate because you haven't told us anything. My guess is that her father contributed everything - either during or before the relationship you had with your ex. Then he likely made his daughter (your ex) a 50% shareholder - now it's also possible she doesn't own anything. It depends whether her shares are common voting shares or common non-voting shares. If the father owns all the common voting shares which I think is likely, then she owns nothing. Common voting shares determine ownership. Common non voting shares just mean she has a vested interest in the company.and could be paid a dividend in the future.

So she may own 50% of the total shares in the company but if all her shares are non-voting then she owns nothing. The father makes all the decisions and she has no say whatsoever. That's the sense I get based on what you told us in your OP. So if what I speculate is true, this income would be excluded.

If you provide us with further information, my opinion may or may not change depending on what you tell us.

What I can tell you is I have been an accountant for 40 plus years and my experience with lawyers is that they are completely clueless about corporate structures and in fact everything about corporations. All they do is demand what is in their clients best interests whether its right or wrong. Most if not all of these family court lawyers are unqualified to assess financial information. And you wonder why Family Court is a disaster? Ignorance and incompetence of lawyers and judges.