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Court Sees Through Support-Paying Spouse’s Shell Game

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Court Sees Through Support-Paying Spouse’s Shell Game

We have written before that separated and divorcing spouses have an obligation to make full disclosure in connection with their financial affairs, and that courts will countervail attempts to reduce income to avoid support. This is vital to the family law process, since accurate financial information is what drives the calculation of each spouse’s respective support obligation to the other.

In a recent Ontario case, the court was asked to consider a situation in which one of the spouses had deliberately transferred away shares in a lucrative business in order to lower the income on which support would be based.

The parties had been married for almost 15 years when they split. The father worked full-time while the mother stayed home to care for their two children. Under a negotiated separation agreement, which was later incorporated into their divorce judgment, the parties agreed that the father’s income would be deemed to be $200,000 per year, and that he would pay child and spousal support based on that figure. His support obligations would remain at that level unless his income changed by more than 10 percent.

Ten months later, the father transferred the entirety of his shares in a business he owned to his new common-law spouse. Then – claiming that his income should be based on Line 150 of his federal income tax return, rather than the $200,000 agreed – he brought a court motion to have his support obligations reduced accordingly. At the time, he owed the mother more than $100,000 in arrears.

The court declined to make such an order, and the Court of Appeal later concurred. Clearly, the father had unilaterally and willingly reduced his income, by making what the court called a “voluntary non-arm’s-length transfer of an income-producing asset for nominal if any compensation “. In other words, the only motive behind the share transfer to the new spouse was to reduce the income on which the father’s support would be based. The lavish lifestyle that the father and his new wife continued to enjoy was at least partly the result of the lucrative business that was now in her hands.

Also, the parties had to stick with the contract they had made (and the subsequent divorce order incorporating it). The $200,000 figure that was agreed to represent the father’s income included money he would earn from the business; he had failed to show that his income had dropped more than the requisite 10 percent to trigger a variation.

For the full text of the decision, see:

Verschuren v. Verschuren (2014), 2014 ONCA 518

 

At Russell Alexander, Family Lawyers our focus is exclusively family law, offering pre-separation legal advice and assisting clients with family related issues including: custody and access, separation agreements, child and spousal support, division of family property, paternity disputes, and enforcement of court orders. For more information, visit our main site.