What Happens When a Self-Employed Spouse Underreports Income for Child or Spousal Support?

When determining child or spousal support, one of the most important questions becomes: how much does the payor spouse earn? For someone who receives an annual salary, determining income may be relatively straightforward. But what happens when a spouse is self-employed, and you believe that the income they are reporting is not a true reflection of how much they are actually bringing in?

A spouse cannot avoid support obligations by reporting a lower income. In Canada, the Federal Child Support Guidelines (“CSGs”) provide the framework for determining income for child support purposes, while the Spousal Support Advisory Guidelines (“SSAGs”) provide guidance on the amount and duration of spousal support entitlement once entitlement is established.

Calculating Income

Section 16 of the CSG’s provides that a spouse’s annual income is determined using the sources of income reported under “Total income” in the T1 General and adjusted in accordance with Schedule III of the CSGs.^[1]

However, determining income may be less straightforward when a spouse is self-employed. Section 17 recognizes that sometimes the income calculated under section 16 may not always be the fairest measure. In those circumstances, the court may consider the spouse’s income over the last three years and determine an amount that is fair and reasonable, taking into account any pattern or fluctuation in income or any non-recurring amounts.^[2]

Further, under section 21(d) of the CSGs, a self-employed spouse is required to provide additional financial disclosure, including financial statements for their business or professional practice, and/or expert valuations. This information can help reveal whether the income reported personally reflects the spouse’s actual financial circumstances.

The CSGs also impose both initial and ongoing disclosure obligations. Parties are required to provide updated income information so that support continues to reflect their current circumstances. Complete and up-to-date disclosure is important because child and spousal support are based on financial circumstances that can change over time.^[4]

What if the Reported Income is Not Accurate?

If a spouse fails to provide adequate disclosure or the reported income does not fairly reflect their ability to pay support, the court may “impute” income to the payor. This means that the court assigns a higher income to the payor than their reported income when calculating support obligations.

Under section 19 of the CSGs, income may be imputed in a variety of circumstances. For example, the court may consider whether a spouse is intentionally under-employed or unemployed, whether income has been diverted, or whether unreasonable expenses have been deducted from income.^[5] This can be important where a self-employed spouse controls how and when they receive income. The court may examine the broader financial circumstances to determine whether the reported income provides an accurate picture of the spouse’s ability to pay support.

What Can You Do If You Suspect Income Is Being Underreported?

If you believe your former spouse is underreporting their income, the first step is obtaining proper financial disclosure. Business financial statements, tax returns, notices of assessment, corporate records, and other financial documents may help provide a clearer picture of the spouse’s actual income.

Where necessary, the court can examine the financial information and determine whether income should be adjusted or imputed for support purposes. In complex situations, it may be necessary to obtain expert valuations.

Ultimately, being self-employed often requires further investigation and potential challenges and complexities to determine the payor’s income for support purposes.

If you have questions about how your spouse’s income should be calculated for child or spousal support, or you believe their reported income does not reflect their actual financial circumstances, please contact experienced Family law lawyer Jessica Santucci of Devry Smith Frank LLP at 416-446-3323 or Jessica.santucci@devrylaw.ca.

This blog was co-authored by articling student Emma Wilson.