Appeal Court Sets Payor Parent’s Income Higher for Non-Disclosure

One of the major difficulties in ensuring adequate child support is the need for more disclosure by the payor parent. Without sufficient evidence concerning the payor’s income, it is difficult for a court to establish that their income is higher. It is also very challenging for a parent receiving child support to obtain more financial disclosure, as the payor parent may not disclose everything. 

However, in a recent Alberta Court of Appeal decision, Morin v. Morin, 2022 ABCA 389, the court intervened to impute a higher income ($100,000 per year) for the payor father upon finding that the evidence available at the lower court level was insufficient to conclude that his income was approximately $67,000 per year. We will discuss the court’s analysis, which provides helpful takeaways in addressing inadequate disclosure from a payor parent. 

Lower Court Judge Accepted Father’s Expert Report 

The parties had three children, and two were considered children of the marriage who were entitled to child support from the father. 

The father held interests in 14 corporations in the aviation industry, which were referred to as the “Aurora Group.” In recent years from 2019 to 2021, the Aurora Group experienced losses due to the declining oil market and COVID-19. Due to these losses, many of the Aurora Group corporations had entered into agreements with their creditors to prevent receivership and to arrange for the liquidation of the corporation’s assets, which included planes, helicopters, and airport hangars. 

Throughout the marriage, the mother was a stay-at-home mother who did part-time bookkeeping for the Aurora Group. 

The father filed an expert report regarding his guideline income to establish his income. However, this was only provided 10 days before the parties’ special chambers hearing. In the report, the expert found that the father’s income was approximately $67,000 per year. 

The chambers judge accepted the expert report, concluding that the father had provided “extensive disclosure.” The judge also noted that the wife’s concerns were vague and generalized, even though she argued that:

1. The report was late, so she was unable to properly review and respond to it; 
2. The report relied on unverified information regarding the Aurora Group’s financial circumstances, which was provided by the father to the expert; and 
3. The report did not properly capture the personal benefit that the father received, which included the Aurora Group paying for his expenses.

The chambers judge found that there was not enough evidence to find that the father was receiving additional income or personal benefits other than those already disclosed. The judge also concluded that since the Aurora Group owed money to creditors, this ensured that the father was not improperly receiving more through the use of the corporation’s assets. 

The chambers judge based his child support order on the father’s income of approximately $67,000. 

Court Can Add Corporation’s Income to the Payor Parent’s Income

According to section 18(1)(a) of the Federal Child Support Guidelines, the court can include any or all of a corporation’s pre-tax income to the payor parent’s income if the court believes that the payor’s Line 150 income as a shareholder, director or officer of a corporation, does not accurately reflect the money available to the payor for the purposes of child support. To do so, the court can add back tax deductible items, such as payments or benefits given to those with whom the corporation does not deal at arm’s length unless it is shown that the payments or benefits are reasonable. This means that a court can assess payments or benefits given to the parent with an interest in the corporation, as they do not deal with the corporation at arm’s length (i.e. they have an interest).  

To apply section 18 of the Guidelines, the payor must disclose the following:

1. The corporation’s financial statements for the previous three years (s 21(1)(f)(i)); and
2. Statements that show payments to anyone with whom the corporation does not deal with at arm’s length (such as the payor parent, if they have an interest in the corporation), including salaries, wages, management fees, or other payments or benefits (s 21(1)(f)(ii)).

Suppose the corporation deducted business expenses from its pre-tax income, which were used to benefit the payor parent. In that case, they must disclose what the deductions were for and why the expenses did not provide a personal benefit to them, or if they did, how much was provided.

When there is non-disclosure, the court may decide (“impute”) the payor’s income. 

Corporate Statement Did Not Describe Corporate Expenses to Father

The father was required to show statements that described the breakdown of salaries, wages, management fees, or other payments or benefits paid by the Aurora Group to him. The document he provided set out the following:

1. The father’s income from one of the Aurora Group corporations; 
2. The father’s payment towards the mortgage and property taxes for the family home; 
3. Benefits from the Aurora Group to related parties (i.e. the mother and their children), including:
   1. Two vehicles used by the mother and one for the children, paid for and owned by the Aurora Group; 
   2. The children’s telephone plans; 
   3. Utilities for the family home and one other property; and
   4. Costs for internet, satellite TV and a home phone.

However, the court noted that the statement did not describe the payments or benefits provided to the father, and it only described his salary of $5,000 per month. 

Later in the proceedings, the expert report concluded that the personal benefits to the father included the following, which was less than $1,000 per year:

1. Internet costs; 
2. Cell phone expenses; and 
3. Vehicle insurance.

However, the Court of Appeal noted that the expert’s conclusion was based only on the information provided by the father to the expert. The report also did not explain the corporations’ expenses or describe how they were reasonable. 

The Court of Appeal also noted the following issue with the report:

1. It was unclear if the corporations paid for other expenses of the father’s vehicle other than insurance; 
2. The father worked from home, and internet costs were noted by the expert, but the report did not mention that the father worked in a home owned by the Aurora Group; 
3. Payouts of shareholder loans by some corporations to the father were not explained;
4. Some corporate funds were intermingled with personal bank accounts, which were not explained. 

The court recognized that while the Aurora Group was dealing with financial difficulty, this did not relieve the father of his obligation to provide adequate disclosure. 

Ultimately, the court imputed an income of $100,000 per year for the father, based on his Line 150 income of $66,954 and assuming that his personal benefits were approximately $3,000 per month.

Key Takeaways 

Considering what may be left out of an expert’s guideline income report is important. If the payor parent is interested in a corporation, there must be sufficient disclosure regarding the personal benefits they receive. It may be helpful to gather evidence on what payments or benefits may have been omitted from a guideline income report. 

Calgary Family Lawyers Providing Advice In Hidden Assets and Non-Disclosure 

A significant challenge in divorce cases is non-disclosure, which creates difficulties in determining the payor’s income for child support and spousal support. If your ex-spouse has an interest in one or more corporations, some of the payments and benefits provided by the corporation may need to be added to their income. Our family law lawyers at Mincher Koeman are experienced in cases involving hidden assets and non-disclosure and can assist you in developing a strategy for your case. Our family law lawyers are dedicated to finding the best resolution for your divorce case. 

To book a consultation, please get in touch with us online or by phone at 403-910-3000.