Business Owners and Support Obligations Following Separation or Divorce
In family law matters, support obligations and disputes surrounding them (including disputes over spousal support and child support ) are often the most contentious. In our experience, such disputes often generate the most questions from clients who are going through a separation or divorce especially if they are entrepreneurs or business owners.
Family Law and Support Obligation
Child support payments are based on an accurate assessment of the payor spouse’s annual income, the number of children in the relationship, how custody of those children is shared between the parents, and the federal Child Support Guidelines. Child support payment obligations are often complicated by factors such as a high-earning spouse, or one who owns a business.
Spousal support payments are calculated based on the relative earning capacity and income of each spouse, as well as other factors including the length of the relationship, the health status of each spouse, and their ages. Like child support obligations, spousal support obligations are often complicated in situations where one or both spouses owns a business or has other significant assets.
How is fair support calculated when the payor spouse is self employed or a business owner?
Ordinarily, a person’s income for the purposes of paying support is based on Line 150 of their income tax return. This is usually straight forward for spouses with a salaried, full-time job. However, self-employed individuals and business owners are able to allocate revenue and deduct expenses in a way that reduces their personal income, which impacts the calculation of both child and spousal support payments.
Payments of child and spousal support are to be calculated based on true ability to pay. The court has discretion to review business tax returns and determine the actual income of a spouse for the purposes of support payments.
Reasons why self-employed and business income may be difficult to calculate
Spouses that own businesses may have significant assets that are held by the corporation, such as real estate, vehicles and bank accounts, that may be more properly be considered assets belonging to the payor spouse. In other cases, a self-employed individual may have fluctuations in their income from year to year, and may argue for a reduction in payments if a given tax return represents an unusually high income that year.
Financially focused family law advice for business owners and self-employed individuals
At Financial Litigation, we offer our clients comprehensive family law advice, based on an accurate assessment of marital assets and spousal income. We work closely with financial experts, including forensic accountants and valuations specialists, to review assets and business records and provide a fair assessment of income for the purpose of calculating support payments. With the confidence our assistance provides, parties can resolve outstanding issues and reach a fair resolution in their separation or divorce. To schedule an appointment, contact us online or call 416-769-4107 x1.