What Does Imputation of Income Mean in Family Law Proceedings in Alberta?

What Does Imputation of Income Mean in Family Law Proceedings in Alberta?

When married couples decide to divorce, the amount of spousal and child support payments they may be required to make are determined in accordance with both the Alberta Child Support Guidelines and Canada's Federal Child Support Guidelines. Calculations for support amounts are based on the child's financial needs, the parenting time the child receives from each parent, and both parents' incomes.

Determining appropriate support amounts based on each spouse's income should be straightforward. However, if a parent chooses not to work or intentionally works less than what would be considered a reasonable amount given their financial circumstances and obligations, the process can become challenging. Complications can also arise if a parent hides assets or knowingly misrepresents their income to try lowering the amount of support payments they will be required to make.

If a judge has reason to believe that a spouse is intentionally unemployed or underemployed, or that their disclosed income is inaccurate or misrepresented, they may choose to impute their income. Imputing income occurs when a judge assigns an income amount that they believe is closer to what the spouse actually earns or should be able to earn in their profession.

Depending on their type of employment, a spouse’s income documentation may not provide a complete representation of what they earn. For example, some people may get paid primarily in cash. Those who are self-employed may have opportunities to hide their own money in their company or claim personal  expenses as business deductions. People whose earnings are determined by commission payments or whose salaries are based on bonus structures may have irregular pay schedules, making it easier to hide certain earnings.

To determine if a parent in Alberta is intentionally unemployed or underemployed, the court requires evidence that the payor has deliberately and intentionally chosen to evade their support obligations and has taken unreasonable steps to avoid them. However, the onus to prove this has occurred falls to the payee. A spouse who suspects their ex is behaving dishonestly must have strong evidence to support their claim. When making these determinations, the judge will typically consider the following.

  • The steps taken by the payor to find work commensurate with their skills and abilities
  • The payor’s previous work history
  • The payor’s current ability to work
  • A reasonable expectation of earnings
  • Market conditions as they relate to the payor's work history, skills, and expertise
  • And possibly more

A judge might impute income for a number of reasons, including:

  • Difficulty proving income because the payor is exempt from paying federal or provincial income taxes
  • The payor lives in a country with income tax rates significantly lower than those in Canada
  • Evidence exists proving the payor has diverted income
  • The payor has not reasonably utilized their property to generate income
  • The payor receives income from dividends, capital gains, or other sources that are taxed at a lower rate than employment 
  • The payor receives business income that is exempt from tax
  • The payor is a beneficiary of a trust and receives (or will receive) income or other benefits from the trust.

Contact Verhaeghe Family Lawyers Today</h2 >

If you would like to learn more about your spousal and child support rights and obligations, Verhaeghe family lawyers may be able to assist you. Contact us today for more information and to schedule a consultation.

* Please note that the information in this article is not intended as legal advice but rather as a general overview of family law. If you are seeking legal advice, please consult with a lawyer.

Cunningham v Seveny: Disclosure of Income in Child Support Cases

Cunningham v Seveny: Disclosure of Income in Child Support Cases

Financial obligations do not end when a relationship dissolves. Following a divorce or separation, former spouses or common-law partners often embark on the process of dividing property and assets, as well as negotiating spousal and/or child support. In an ideal situation, both former spouses collaborate on the terms of their separation, and provide accurate disclosures of their financial situations. Unfortunately, that is not always the case.

If there is contention as to the accuracy of the payor parent’s declared finances, the question arises - who is obligated to provide the proof? The short answer, as discussed in Cunningham v Seveny: the payor parent.

Misrepresentation of Income

A payor parent’s income, for the purposes of the Federal Child Support Guidelines, is established based on the amount declared on Line 150 of their annual tax return. If the payor parent wishes to evade their child support obligations, they may strive to reduce this number. In situations where the payor parent receives income from self-employed sources, or through a partnership or corporation that they control, they may claim business expenses that contribute to reducing their Line 150 income.

Business expenses such as the use of a corporate vehicle, cell phone, or computer, as well as costs associated with entertainment, travel, and more, may be deducted for income tax purposes. However, these business expenses may also result in a personal benefit to the parent, which may therefore render them relevant in child support calculations. 

Imputation of Income

Where a payor parent is found to be dishonest about their finances, the court may enact an imputation of income. This means that a new amount, deemed appropriate by new calculations, may be imputed - or, attributed - to the payor parent. They will then be required to pay child support based on the imputed amount, not the amount they initially claimed.

Burden of Proof

In Cunningham v Seveny, the payor parent claimed he had provided all relevant financial information for the calculation of the support he owed. He contended that his ex-wife was responsible for engaging an external assessor to examine the reasonableness of his claims, since she was the one bringing their accuracy into question. The court, however, ruled his contention to be incorrect.

The rights of children are the priority in child support cases. If the recipient parent must hire a lawyer or external assessor to investigate the payor parent’s finances, these costs may reduce the amount of financial support the children receive in the meantime, potentially impacting their quality of life.

The payor parent must therefore disclose their deductions from the outset. If they wish to claim that the deductions had no personal benefit to them, then they must provide the court with reasonable explanations. In the case of Cunningham v Seveny, the court ordered the payor parent to provide adequate disclosure of his income, with explanations where required. Any recalculations of child support would then be based on this amount.

Contact Verhaeghe Family Lawyers Today

If you have questions regarding a matter of child support, spousal support, divorce, or more, our Alberta family lawyers may be able to help. Contact us today through our online booking form or over the phone to schedule a consultation with Verhaeghe Law and discuss what may be possible in your case.

* Note that the information in this article is intended as a general overview on a legal subject. It does not constitute legal advice. If you are seeking legal advice, please speak with a lawyer.