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  • Self-employed Ex and deductions...

    My ex has been very difficult to deal with in regards to financial disclosure. Being self-employed he grossed around 110,000 a year (this is on paper as payed out by a business) but wrote off inflated expenses which left him living on a mere net of 15,000 a year if that. When ordered to provide receipts etc to support his claims, he dropped off 3 banker's boxes of unorganized paperwork at my former lawyer's office the day before the deadline. Do judges look at the gross income in cases like this? I am now representing myself due to not having $10,000 retainer fees to get me through the trial dated Nov 30th. He is trying very hard to get spousal support from me and child support for two children that he only has seen EOW since 2006, and hasn't seen them since May. Over the past 4 years my income has gone up while he is claming his has gone down by all these deductions just to support his case against me. He also does his own books coincidentally.
    Frustrating.

  • #2
    I'd doubt he has a claim for spousal support, since your income changes occurred near the end of your relationship (when did you split?) He might have a valid claim if he sacrificed his own earning power (maybe stayed at home with kids? or funded your education?) to support your career.

    I don't think he can claim for child support either, since he has the children less than 40% of time.

    What are his arguments for child support and spousal support?

    Irrelevant that he does his own books (at least he's not claiming accountants' fees to further reduce net income).

    Comment


    • #3
      Im in a similar scenario....I have alot to lose as I purchased and paid for the matrimonial home while my ex paid some expenses during the marriage while putting the balance of his earnings into his own business that went from almost nothing to grossing at least $500K a year and he claims he's making only $15,000.00 a year also and possibly going bankrupt no less....why is your ex allowed to drop off receipts to your lawyers office....take him for discovery.....he will have to come clean as to what he's really doing.....I guess he doesn't have a lawyer because you would then as for financial disclosure....I'd help you more but I'm in the middle of something similar and can only pass on what I've got so far...If you have the kids the majority of the time, he pays you support not on the $15,000.00 but since he's self-employed ask him for something that's more believable...like a $45,000 income, etc....hope this helps

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      • #4
        If he is filing his taxes, then Revenue Canada is fine with his expense claims, whether he does his own return or not. If Revenue Canada is fine with it, you would have to provide pretty profound arguements to get a court to see his income as other than what his tax return says.

        Revenue Canada does indeed flag returns that have extraordinarily high expense claims. That doesn't mean that all claims are legitimate, but neither are they all illegitimate.

        That you think he earns more money is not going to have much weight in court. However if he talked about his business in the past and you can provide a description and breakdown, even just estimates, of what his expenses usually were, then this would be a good start.

        If he is filing inflated expense claims with CRA, then he is really vulnerable to an audit. CRA auditors won't be impressed by anyone dumping a mixed up box of receipts on their desk. You should gently suggest to him that if you have to expose him in family court, then it will also bite him on the ass with the CRA and he will face an audit and have to pay thousands in back taxes, as well the support he owes you. Then you should gently suggest that he provide a more realistic income, clean up his act with his tax returns in the future, pay you what he owes you, and play it straight from then on.

        Keep in mind the possibility that he may actually have legitimate expenses. He may also have write-offs from previous years that he using this year, which is perfectly legitimate from a tax standpoint but might be questionable in family law.

        Without knowing what sort of business he runs, and what type of expenses he claims, then it's really hard to offer any solid advice. Businesses really do go bankrupt from time to time, and self-employed people can lose a lot of clients in a bad economy yet still have the same expenses as previous years.

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        • #5
          I think I read in another post somewhere, that for CS support purposes, line 150 is not used for the calculation of child support. That deductions the CRA allows does not always cross over to the financial statement required for child support, so some of those expenses he wold have to add back into his income

          Comment


          • #6
            A court will render a verdict based on the history of his earnings or T1s. If there are gross inconsistencies between his past years' T1s and his current T1s then a Judge will flag that regardless whether or not Revenue Canada did not.

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            • #7
              at the trial management conference...

              yesterday, the judge told my ex that he has to get all his finances reviewed by an accountant and organized for trial so there is no time wasted. He furthermore told my ex that his application for spousal support would be rejected as he is an adult, is capable of earning money and supporting himself as he has been doing. Huge relief there.

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              • #8
                Im going through something similar. My ex hasn't produced his changes to our separation agreement as of yet but has warned me that is asking for both of us to produce our T4's annually and we will pay daycare costs etc based on proportionate share of income. He hides money, does cash jobs etc. I know for a fact that his T4 does not indicate what he actually makes. I have threatened with having CRA come in for audits but he continues to push his ways on me. Im happy to hear that the judge told your ex that spousal support would not happen - what about CS?

                Comment


                • #9
                  I just went through this after not receiving any CS for the last 20 months. I am representing myself to keep my costs down.

                  My ex was self-employed as a landscaper and his tax returns for the last 3 years only showed an income of less than $12K a year. What he was doing was writing virtually everthing off including 90% of his household expenses claiming that they were business expenses.

                  To determine a fair income, I had him investigated and was able to put together a "lifestyle budget" from those findings. His lifestyle was supported by an income of over $250K. I also found a US property, vehicle leases, vacations etc. It is important to have an idea of the gross income levels you think your ex is making and create a budget based on his lifestyle. This is a great start and you can work it backwards from there to determine the income needed to support it.

                  I filed an Motion to Disclose that included that standard stuff but also self employment specifics such as a mileage record for all business related motor vehicle use, passport records to show any trips etc. In a CRA audit, you must detail where you went, who you saw with contact details, the business purpose and the mileage you claimed on a per incident basis. Same level of detail here.

                  Because I was asking for a higher level of detail than the courts normally allow, I prepared an Affidavit to support the Motion to Disclose. In it, I had factual info (stuff I knew to be true) as well as what I believed to be true such as his girlfriends Hummer being registered by her with a Security Agreement on it from his company. You will need a "smoking gun" to get this passed. I had several, including an internet posting on a social networking site from my ex about his new Arizona home. A couple of Public records searches later and I had documents that showed his name on the title, a mortgage document signed by him and a downpayment amount of $150K. FYI, his Notice of Assessment showed an income of less than $7K that year.

                  I hope this helps. Good Luck

                  Comment


                  • #10
                    Net income for tax purposes does not equal net income for family law support purposes. There are certain addbacks to income for items that may be deductible for tax purposes but which have a personal element, such as:

                    -business use of a home office
                    -business use of a vehicle
                    -meals/entertainment
                    -cell phones

                    etc.

                    The problem is that this situation introduces confusion and can escalate the costs of separation as accountants, lawyers and other experts may have to be brought in to sift through the complications.

                    Comment

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