CHILD MAINTENANCE: SELF EMPLOYED PERSONS AND FINANCIAL DISCLOSURE
In Family Law there is often the need to deal with issues of spousal maintenance or child maintenance.
The Federal Child Support Guidelines deal with how much child maintenance or child support that should be paid. The Federal Spousal Support Guidelines deal with how much spousal maintenance should be paid. In either case the 1st step is for the decision maker to establish how much income both parties are making.
Generally speaking the less a person’s income is the less they have to pay. Generally speaking people want to make their incomes look smaller so they don’t have to pay so much.
In order to determine the income a person is making, a Financial Statement is required. In Provincial Court there is a Financial Statement. People find the Provincial Court Financial Statement to be lengthy, overly detailed, and difficult to understand. In Supreme Court there is a Financial Statement. People find the Supreme Court Financial Statement to be lengthy, overly detailed, and difficult to understand.
In each case the Financial Statement requires a lot of attachments to be attached to the Financial Statement. These attachments include recent pay cheque/EI/Welfare/Disability/Pension stubs to be attached as well as 3 years of the Tax documents you sent to Revenue Canada declaring your income (T1 General), and 3 years of Tax documents Revenue Canada sent back wherein Revenue Canada accepts your income as being (Notice of Assessment).
Self-employed people are a special case. Usually the pay cheque/EI/Welfare/Disability/Pension stubs establish a person’s income. They are generated by a 3rd person or company so they can be relied upon by the judge. When a person is self-employed the documented that is offered up to establish his/her income is created by the self-employed person themselves and not by a 3rd person so it is generally greeted by the courts with suspicion.
The court can use other smaller details within the Financial Statement and its attachments to generally tell whether this self-employed person should be believed about their income. For example, if they report a very low income but their business statements show that they are eating out on the town every night and the business is buying Cannuck’s game tickets for them, their income is probably greater than they are reporting.
This is why the courts require the attachments and all the details of the Financial Statement to be in perfect condition. If the Financial Statement and/or attachments are not in perfect condition one runs the significant risk of being imputed income.
Imputed income means that the judge can arbitrarily decide what a person’s income is based on details that the judge has found to be important. Those details the judge has found to be important are generally difficult to guestimate, but usually involve evidence from the other party about what they think the self-employed person is making. Woe to the self-employed person who does not attach business statements, as required by the family law rules, to the Financial Statement.
Contrary to popular belief, “business statements” are not contained as part of one’s T1General tax form, usually generated by an accountant sorting through one’s shoe box of receipts.
Business statements are monthly business books maintained by the self-employed person every month (from the shoe box of receipts), and provided to the accountant in non-shoe box format. The accountant uses the business statements to enter the proper information onto one’s T1 General Tax form before submitting it to Revenue Canada.
A self-employed person needs to have perfect financial disclosure with perfect attachments and a perfect Financial Statement or run the large risk of being imputed income by the judge from other details that the judge has observed about financial disclosure. If there is no financial disclosure to draw details from, the court has a tendency to impute income on a punitive scale for not filing at all, or filing with great deficiency. The court is usually the 1st to point out that financial disclosure and filing a Financial Statement is mandatory, so if one does not do it, one is disobeying the rules and requires punishment. The court would also rather err on the side of imputing too much income to a rule breaker, than err by imputing too little, and providing a benefit to a rule breaker who does not perform the mandatory financial disclosure.
For these reasons it is a good idea for a self-employed person to seek legal counsel in family law. The benefit outweighs the cost and simply a good business decision. By paying a lawyer to help with financial statements and financial disclosure one usually saves thousands of dollars that is how spending some on a lawyer avoids losing much to an order that could have been smaller.
If one is seeking maintenance from a self-employed person it is wise to have a lawyer to point out to the judge where the income of the payor is being hidden, thus making the maintenance as large as it should be, rather than simply settling.