Owning A Company Means You Have A Higher Disclosure Obligation

Disclosure Obligations Where One Party Owns a Company

Exchanging financial disclosure is a crucial step in divorce proceedings.

Section 3 child support is usually straight forward to calculate, because of the Federal Child Support Guidelines, which sets guideline amounts of child support based upon how many children the parties have, whether the parties have primary or shared parenting, and the income of the payor parent (or both parenting if it’s a shared parenting regime). However, child support calculations can become complex and are based upon accurate and complete financial disclosure. For example, if a payor parent makes well over $150,000 or if the payor parent receives his or her income from a company or partnership.

How Owning A Company Impacts Child Support And The Importance of Disclosure

If a payor parent is a shareholder, director, or officer of a corporation, his or her annual income on his or her tax return may not necessarily reflect the payor parent’s actual income. Under section 18(1) of the Federal Child Support Guidelines, the Court may consider further evidence beyond the taxable income if it is satisfied that the payor’s annual income does not accurately reflect the money available to the party to pay child support. A common scenario that arises is a payor parent, who receives his or her income from a company, will claim expenses in determining his or her taxable income. It can be difficult for the other spouse to ascertain whether or not an expense is really reasonable. Under a standard Notice to Disclose, the parent who has 1% or more interest in a privately held corporation is obligated to provide:

  1. the financial statements of the corporation and its subsidiaries for its 3 most recent taxation years;
  2. a statement showing a breakdown of all salaries, wages, management fees or other payments or benefits paid to yourself, or to persons or corporations with whom the corporation, and every related corporation, does not deal at arm’s length for the corporation’s 3 most recent taxation years; and
  3. a record showing your shareholder’s loan transactions for the past 12 months.

Case Law Regarding Disclosure Obligations In Alberta

The Alberta Court of Appeal recently released a decision, Cunningham v. Seveny 2017 ABCA 4, which dealt determining who bore the burden of proof in showing certain business expense deductions are reasonable for purposes of calculating income for child support. Unsurprisingly, the Court found that as a general rule, the shareholder should provide at least the following:

  1. A brief explanation concerning each payment category, including:
    1. The nature of the payment/expense;
      1. How it was calculated;
      2. Why it was a reasonable corporate expenditure;
      3. Whether any amounts paid or owing in relation to that category provided or resulted in a personal benefit to the shareholder or other non-arm’s length person (common examples of such expense categories in closely held corporations are vehicle, travel, promotion, phone, and insurance.) This would include an explanation for:
        1. What portion of the total expense formed the personal or non-arm’s length benefit;
        2. How this was calculated;A description of any services performed for the corporation by a non-arm’s length person (such as a new partner/spouse of the shareholder), and information regarding whether the salary s/he was paid for the services was commensurate with the market value of the services; and
    2. Documentation to support all of the above explanations, such as invoices and receipts regarding non-arm’s length payments.

If you own a company or are separating from someone who owns a company, it is a good idea to speak to a lawyer to determine financial disclosure obligations and ensure you have a firm grasp on each parties income so that support issues may be dealt with properly. If you have questions about disclosure or child support, our mediators can assist you. Connect with us today to learn more.

Our Calgary Mediators Provide Insight Into How You Can Help Your Friend Through A Divorce

calgary mediators

Support during hard times comes in all forms.

If someone you love confides in you about divorce it can be a little difficult to know what to say to comfort them or how to support them in the coming months or even years. Our Calgary mediators have put together their top 5 tips to help you navigate this uncertain time to help keep your friends sanity as well as your own.

Keep the Trash Talking to Yourself

While it may be very easy to get caught up in the whirlwind of emotions and engage in a pity party and trash talking over a bottle of wine – this isn’t a productive way to help either party. While it is healthy for your friend to vent and  sort out their emotions, you don’t always know the full story or have the skills to help them manage their emotions. As such, if you find yourself consistently in this position - it may be time to recommend a therapist. As well, the parties could decide to reconcile down the road and any harsh remarks you make in the heat of the moment can be hard to take back if you find yourself sitting across the dinner table from the couple who decided to get back together. Further, if engage and list of all the reasons why your friends ex isn’t right for them – it may make it hard for them to confine in you in the future when things are going amicably.

Try to Stay Neutral at Social Outings

Likely, if your friend is going through a divorce you have spent some time with their ex-partner and may even have formed a friendship of your own. This may make you feel caught in the middle of your loyalty to your friend and saving a relationship with their ex. Try to remain neutral in social settings if you are all involve and ensure you a cordial to both parties. If you are hosting an event and want both parties to attend ensure you let them both know that they are invited so that they can decide if they want to attend on their own and are not faced with a surprise run in.

Don’t Give Legal Advice (Even if You Have Been Through Your Own Separation)

One of the most frustrating things we deal with is working with parties who question our opinions because their friend went through a divorce and did abc while we are advocating that they do xyz. Every single relationship is different so it makes sense that all separations will be different too and require unique legal strategies. If you want a second opinion on – seek one – just make sure it’s from someone with an educated understanding of family law matters. At Jones Divorce Mediation we often encourage our clients to seek second opinions if we feel like they are no on board with our advice. This can come from another mediator or a divorce lawyer from a family law firm. Our main focus as Calgary mediators is to ensure that  you have all of the information you need to feel confident making decisions.

Help Out With Every Day Tasks

A divorce is a devastating life event and can be emotionally draining on the parties involved. One of the best things you can do to help is assist with some of the mundane daily tasks such as bringing over some ready-to-heat meals, offering to do some baby sitting or just taking the time to visit with your friend so that they know they are not alone.

Be Accepting Of Their Dating Life

When the time comes that your friend is ready to put themselves back on the dating market, be encouraging and open minded. They likely haven’t been on a date in years and the idea of small talk and getting to know someone new can be very daunting. You can also help your friend by being their safe contact and having them text you when they get home safely at night or have a code word if they need you to help put an end to a disastrous date. Try your best to have fun with your friend as they embark on this journey.

Our roles as Calgary mediators is to help you achieve meaning access to justice, but we know how important it is to have support during this difficult time. We always encourage clients to ensure they have a position support system in place to help with the emotion impact of a divorce - she we can focus on the legal proceedings. Connect with us today to set up your free initial consultation.

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