When children are involved in a divorce, the parties will need to address issues concerning parenting time and child support. Relatedly, they will also need to fulfill their disclosure obligations to calculate the appropriate amount of child support. The base amount of child support is determined by the number of children in the household and the income of the payor parent or both parties if there is shared parenting. Child support is also considered the right of the child, and courts do not take this entitlement lightly. Therefore, parties need to be aware of their disclosure obligations and provide up-to-date disclosure continually so that child support can be determined.
Even if parties do not provide each other with up-to-date disclosure, the court can still order retroactive child support if it is later discovered that one or more parties changed their income. This was the case in Johannson v. Haaranen, 2019 ABCA 73, in which the mother sought retroactive child support from the father, as she had later discovered that he had not disclosed his increase in income. The parties had an existing agreement on income for determining child support, which had not been updated through exchanging financial documents.
This post will discuss what happens when there is an existing agreement concerning income and financial disclosure that neither of the parties has followed. Also, this post will provide takeaways for parties seeking to understand their disclosure obligations and the consequences for failing to disclose their financial information sufficiently.
Parties to a family law case must disclose their financial information. In particular, parties are to disclose information about their income so that child support can be determined. There are commonly two types of child support: the table amount, which is a standard amount depending on the number of children and the payor’s income, and special expenses.
Child support can depend on the parenting arrangement between the parties. If the children live with one parent for over 60 per cent of the time, then the other parent will be the payor and only their income is considered for the table amount of child support. If there is shared parenting such that each parent spends at least 40 per cent of their time with the children, then the parties typically arrange a “set-off” amount. The set-off amount calculates what each parent would pay if they were the payor and determines the net amount so that the parent with the higher income would pay the set-off amount.
Parties typically arrange to share expenses proportionally to their incomes for special expenses. Therefore, both parties must often provide financial information concerning their income, even if one parent is the payor for the table amount of child support.
Under s. 7.4 of the Divorce Act, parties must provide complete, accurate, and up-to-date information about their finances. Each party must take active steps towards continually providing their disclosure, especially where there have been changes. Section 19(1) of the Federal Child Support Guidelines requires a party to provide complete disclosure throughout the family case. Providing full disclosure is an ongoing obligation, especially for child support.
These obligations are often incorporated in separation agreements, which include terms that parties must exchange their tax returns each year to determine if any changes to child support are necessary. However, in many circumstances, parties do not exchange financial information every year. The case below explains what may happen if the parties do not disclose updated financial information for child support as outlined in a separation agreement.
Generally, parties must provide a sworn financial statement outlining their financial circumstances and income sources. To fulfill your disclosure obligations, parties must attach supporting documents to their sworn financial statement. Documents to be attached include income tax returns, notices of assessments, recent pay stubs, bank and credit card statements, statements for lines of credit, RRSP statements, etc. Essentially, parties must provide documents that prove all of their income sources. If the parties own property, they must also provide property appraisals. Pension valuations should also be provided, if applicable.
Sometimes, a party’s income may come primarily from a corporation they own or control. In those circumstances, the financial documents concerning the corporation must also be disclosed, including corporate financial statements and tax returns. If there are trusts involved, the party should also provide information regarding the trusts.
Parties who are self-employed may have claimed business expenses in their tax returns and would need to be able to explain their deducted business expenses sufficiently.
As mentioned above, parties may have a separation agreement that requires them to provide tax returns continually to update child support. However, it is often the case that this only occurs once their lives become more separate after a divorce. Still, parties must fully and accurately disclose their financial circumstances on an ongoing basis. Failure to do so impacts retroactive child support, as was the situation in the Johannson case.
In the Johannson case, the parties were married for 12 years. During the marriage, they had three children aged 18, 15, and 12 at the time of trial. After separation, the parties had shared parenting of the children. They also had a separation agreement in which they agreed to exchange updated tax returns each year. While the parties did not exchange updated financial information in the years following, the father voluntarily increased his child support payments twice.
In 2017, the middle child began living solely with the mother, so she sought the father’s updated tax returns to recalculate child support. The father’s 2016 tax return revealed that his income was significantly more than what was set out in the separation agreement. In particular, his income in the separation agreement was $127,000, and his 2016 income was $220,000. The mother applied for retroactive child support.
The court found that it was blameworthy conduct for the father to fail to disclose his increase in income. This was especially true considering that he knew his obligations would increase based on increased income, as he had voluntarily increased child support in the past.
The father cross-applied and appealed the matter, arguing that the mother was underemployed and that her income should be calculated based on gross income rather than line 150 of her tax returns, as this was how it was calculated in the separation agreement, and the mother was self-employed. However, the Court of Appeal upheld the lower court’s finding that the mother’s income should be based on her line 150 income, as she demonstrated that her business expenses were valid. Also, during the separation agreement, the mother was underemployed, so her gross income was used to calculate her income. At the time of trial, she worked full-time, so her line 150 income was used to determine child support.
Parties to a family law proceeding must make full and accurate ongoing disclosure. There can be significant consequences for failing to comply with disclosure obligations, so it is important to understand them from the outset.
If you require outstanding financial disclosure or assistance with your disclosure obligations, contact our family law lawyers at Mincher Koeman. Our team has experience assisting business professionals and entrepreneurs with disclosure issues in family law proceedings. Our Calgary and Canmore family lawyers are dedicated to finding the best resolution for you.
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