Determining child and spousal support can be complex in high-income families, especially when one or both spouses own corporations. This blog post will outline the key considerations in these cases, including determining income, imputing income, and calculating support, focusing on upper-income families. This applies to both married and common-law couples.
Determining Income for Spouses with Corporate Ownership
In cases where a spouse owns one or more corporations, determining income goes beyond simply looking at their personal income tax return. Here’s a step-by-step guide:
- Reviewing Personal Income: The starting point is the personal income tax return, specifically line 15000, which shows the total reported income. However, this is often just the beginning, as numerous adjustments may be needed.
- Adjusting Income: Income can come from various sources, such as dividends, capital gains, and corporate holdings. For example, capital gains may need to be included in full, dividends included at the actual amount paid, and deductions for some expenses, such as carrying charges, must be considered.
- Including Corporate Income: If a spouse owns a corporation, the company’s profits are often added to their personal income. For instance, if a spouse draws $50,000 from the company and the company generates an additional $100,000 in profit, their total income might initially be considered $150,000.
- Adjustments to Including Corporate Income: However, adjustments may be made based on legitimate business reasons, such as reinvesting profits into the business for capital expenses or debt repayment. A spouse may argue that not all corporate profits should be included in their personal income. This might lead to income being assessed at a range between the salary drawn and total profits, such as an amount between $50,000 and $150,000 in the example above.
Imputing Income
In some cases, income is “imputed” to a spouse if they receive unreported benefits from the corporation. Common examples include:
- Use of a Company Vehicle: If a vehicle is used for both business and personal purposes, the personal use portion may be added to the spouse’s income.
- Cell Phone Payments and Other Perks: Other business perks like company-paid cell phones or personal use of corporate credit card points can also be considered.
These benefits can increase the spouse’s total income for support purposes, ensuring that all financial resources are accurately reflected.
Because calculating income in corporate ownership cases can be complex, many parties retain Chartered Business Valuators (CBVs) to perform this analysis accurately.
Calculating Support in High-Income Cases
Canada’s Child Support Guidelines are mandatory for most income levels up to $150,000 per year. For incomes above that threshold, judges have some discretion but typically follow the guidelines for incomes up to and even exceeding $350,000. Beyond this, they may consider the unique circumstances of the case.
Child support is neither taxable to the recipient nor tax-deductible for the payor.
For spousal support, the Spousal Support Advisory Guidelines(SSAGs) are based on a report prepared for the Government of Canada. are not legally binding but are widely followed by judges. These guidelines recommend support amounts for incomes up to $350,000. Above this level, judges can exercise discretion, though the guidelines are often still followed.
Factors Affecting Spousal Support Calculations
The amount of spousal support depends on several factors, including:
- With Dependent Children: When children under 18 are involved, the focus is on ensuring a similar standard of living between both households. The length of the cohabitation, the ages of the children, and each spouse’s income are considered.
- Without Dependent Children: In cases where there are no dependent children, spousal support depends largely on the length of the marriage and the income disparity between the spouses. The longer the marriage and the greater the income difference, the higher the support amount.
- Duration of Support: Support payments are typically made for a period ranging from half the length to the entire length of the cohabitation. In cases involving children under 18, support may continue until the youngest child finishes high school, even if this exceeds the length of the marriage. For relationships lasting more than 20 years, spousal support may be indefinite, meaning no set end date.
- Spousal Support is Tax-Deductible: Unlike child support, spousal support is tax-deductible for the payor and taxable for the recipient.
Support for High-Income Spouses: Balancing Guidelines and Actual Needs
In high-income cases, while the guidelines provide a baseline, judges often look at the actual financial needs of the spouse seeking support. A detailed budget outlining housing, child-related costs, and personal expenses help determine an appropriate support amount.
Conclusion
Using Mediation or Collaborative Law to address these complex financial issues can be highly effective. These processes allow for settlements that reflect the needs and interests of both spouses and children. A CBV, CPA or other financial professional can become part of the team to help you and your spouse arrive at a workable and durable settlement. Contact Settlenow.online today to discuss your family’s needs.
