Announcement

Collapse
No announcement yet.

child support requirements?

Collapse
This topic is closed.
X
X
 
  • Filter
  • Time
  • Show
Clear All
new posts

  • child support requirements?

    My common law spouse owns his own business and claims he only has to pay child support for an income of less the 50,000, even though the business itself made over $200,000. He says his personal income was much less. Is that right? Also besides child support is he required to help with daycare or anything else? We have a three year old boy and live in BC.

    Also we own our own home and he has a daughter he already pays support to, if that makes a difference.

  • #2
    Originally posted by jankes71 View Post
    My common law spouse owns his own business and claims he only has to pay child support for an income of less the 50,000, even though the business itself made over $200,000. He says his personal income was much less. Is that right? Also besides child support is he required to help with daycare or anything else? We have a three year old boy and live in BC.

    Also we own our own home and he has a daughter he already pays support to, if that makes a difference.
    You need to check out the laws in BC as provincially it is different.But I do know they can audit him and go through all his records if you complain. I would say get a lawyer.Good Luck !!!

    Comment


    • #3
      the business may have made a certain amount but I am sure that he is just paying himself a salary. Not sure how that works with child support.

      Comment


      • #4
        Originally posted by standing on the sidelines View Post
        the business may have made a certain amount but I am sure that he is just paying himself a salary. Not sure how that works with child support.
        I know this woman whose husband was making money under the table and never reported it as income.The courts can look at his bank records anywhere in Canada and garnish it. They know the law,again talk to a lawyer and tell her/him your suspicions. Take care

        Comment


        • #5
          Thank you everyone. I have been told that the money he claims he has made is just the salary he has chosen to pay himself, and that he can basically pay himself whatever he wants. I have been told the same that a lawyer will request his bank recorda and see the money, etc that has gone through..

          Comment


          • #6
            If the business is a sole proprietorship the business' income is his income, so he'd have to claim the $200,000. If it's a partnership, his income would be the full fraction of his ownership stake, or $100,000 if he owned 50%. If it's a corporation, his income is only what he's paid by the corporation and he can pay himself whatever he wants. So, if the company makes $200,000, he is well within his rights to pay himself only $50,000.

            That said, if he doesn't have a solid business reason for the business retaining $150,000 then it's going to be pretty obvious that he's only doing that to avoid paying you, and most judges would be unhappy with that and would likley impute a salary figure on him. Also, if the business pays for his vehicle and anything else, it affects his lifestyle, so a judge could take that into account and impute a higher salary.

            So, if you went to court, he'd have to have a pretty good business plan that showed that it was necessary to reduce his income to $50,000 in order for a judge to accept that. Furthermore, it would be unlikely that he'd need to reduce his take-home by that much for more than 5 years, so you could expect, at the worst, that he'd have to start paying on the full amount (or close to it) at some time.

            Comment


            • #7
              Family Law - Child Support Guidelines and the Self-Employed - St. Catharines, Welland, Niagara, Ontario

              This is a good site to read through about self employment and CS in Ontario.

              It states,

              Any self-employed person being asked for child support has certain disclosure requirements. This means that he or she is required, by law, to produce to their spouse any and all documentation necessary to prove the income and expenses set out in the tax return. If asked, the payor needs to be prepared to back up every deduction from income made in a given year, by producing receipts if necessary. Most of these expenses will be legitimate monies spent to earn income, and therefore should be deducted before any child support calculation is completed. However, simply because a deduction is permissible for Canada Customs and Revenue Agency ("CCRA") purposes, does NOT mean it will necessarily be taken away from gross income for the purposes of determining child support.

              Comment


              • #8
                That's applicable to sole proprietorships or partnerships.

                If the company's incorporated, technically the owner isn't self-employed, as the corporation is recognised as a separate, legal entity and is the employer of the owner if he or she draws a salary.

                Comment


                • #9
                  Originally posted by Shafted and Piston View Post
                  That's applicable to sole proprietorships or partnerships.

                  If the company's incorporated, technically the owner isn't self-employed, as the corporation is recognised as a separate, legal entity and is the employer of the owner if he or she draws a salary.
                  True enough, but the owner is effectively self-employed. The personal income for support purposes is what the owner draws from the corporation, which should be the amount they T4 themselves (ignoring dividends for now).

                  The problem comes if/when the owner decides to T4 themselves lower than the amount they actually draw, which could put them offside of the Income Tax Act regarding shareholder loans (to get technical). That could happen when if the owner is motivated to show a low income (i.e. for support purposes under family law). The only way that will get discovered is if the financial statements of the corporation are subjected to scrutiny i.e. audit.

                  Comment


                  • #10
                    Originally posted by dadtotheend View Post
                    True enough, but the owner is effectively self-employed. The personal income for support purposes is what the owner draws from the corporation, which should be the amount they T4 themselves (ignoring dividends for now).

                    The problem comes if/when the owner decides to T4 themselves lower than the amount they actually draw, which could put them offside of the Income Tax Act regarding shareholder loans (to get technical). That could happen when if the owner is motivated to show a low income (i.e. for support purposes under family law). The only way that will get discovered is if the financial statements of the corporation are subjected to scrutiny i.e. audit.
                    I think that, even if they T4 themselves on the actual amount they can leave themselves open to having an income imputed if the salary is substantially less than the corporation's income and there's no sound business reason for the corporation to retain the income. If, as in this case, the company's income before the owner's salary and taxes is $200k and the owner takes $50k, he'd better have some solid plans for that other $150k or it'll be clear that he's just taking a lower salary in order to avoid paying support. This is especially true if he used to pay himself more.

                    If, however, the corporation needs the money for current or short-medium term aquisitions or hirings, it's reasonable that the money is retained in the corporation for those purposes. At this point it comes down to the business' plan and what the judge believes.

                    Comment


                    • #11
                      Originally posted by Shafted and Piston View Post
                      I think that, even if they T4 themselves on the actual amount they can leave themselves open to having an income imputed if the salary is substantially less than the corporation's income and there's no sound business reason for the corporation to retain the income. If, as in this case, the company's income before the owner's salary and taxes is $200k and the owner takes $50k, he'd better have some solid plans for that other $150k or it'll be clear that he's just taking a lower salary in order to avoid paying support. This is especially true if he used to pay himself more.

                      If, however, the corporation needs the money for current or short-medium term aquisitions or hirings, it's reasonable that the money is retained in the corporation for those purposes. At this point it comes down to the business' plan and what the judge believes.
                      Income tax savings alone are a sufficiently sound business reason to leave money in the corporation. Justifying money left in the business with a business plan is unnecessary. When people ask me whether they should incorporate I tell them that if they are making more money than they need to live on, then incorporation has tax advantages. The owner in the example above will achieve tax savings if he can manage to leave $150K of the profits in the corporation and only take $50K. He will also live a lower standard of living on $50K than on $200K.

                      If the owner decides to live a lifestyle that is commensurate with a $50K draw, and to leave the remainder in the separate legal entity (as you correctly observe) that is his business decision. For family law support purposes, there may well be additions to his $50K income to adjust for lawful income tax deductions of a personal nature taken in the business (e.g. vehicle, home office, meals/entertainment), but it is not for us to say that he should or should not take the excess profits out of the business. That's his decision - his lifestyle is affected by not drawing that extra income.

                      Where the extra money left in the business will come into play is in the valuation of the corporation for division of family property. The $150K that is left in the business is an asset of the corporation, which affects the value of the shares held by the owner. Those shares need to valued when an equalization payment is determined.
                      Last edited by dadtotheend; 01-05-2009, 08:23 PM.

                      Comment

                      Our Divorce Forums
                      Forums dedicated to helping people all across Canada get through the separation and divorce process, with discussions about legal issues, parenting issues, financial issues and more.
                      Working...
                      X