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Husband Pays Wife $125K as Income-Splitting; Then Fires Her After Split – What Happens Next?

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Husband Pays Wife $125K as Income-Splitting; Then Fires Her After Split – What Happens Next?

The couple had been married for 21 years. The wife had not actually worked since 2000, but was nonetheless paid $125,000 per year in the role of a non-voting shareholder, as a means of income-splitting for income tax purposes. She provided no real services to the corporation in return for this “salary”.

When the husband and wife split up in 2013, the husband terminated the wife’s employment with the corporation, and immediately cut off her health and medical benefits (although after an exchange of lawyer’s letters, those benefits were later reinstated).

Although the couple agreed that after separation the wife was entitled to temporary support until their divorce, they disagreed on the amount: the husband suggested $5,500 per month, while the wife thought it should be $8,500 per month, based on the husband’s roughly $300,000 in annual income.

The court granted support to the wife at the $8,500-per-month level she requested. One of the governing rules for determining the amount of interim support pending the divorce, is that – provided the husband could afford it – the amount should be sufficient to allow the wife to continue living at the same standard of living enjoyed prior to separation.

In this case, the couple had lived comfortably while married; the husband consistently earned in the low six figures, but he put the retained earnings into a corporate investment account which now had a balance of over $1.3 million. In terms of their day-to-day lifestyle, the court described it this way:

During their marriage, the parties enjoyed a comfortable lifestyle. They owned a vacation property in Scottsdale, Arizona which was sold following their separation for approximately $215,000 (USD). They jointly own a condominium in Toronto which has been valued at $810,000 as of January, 2014. The parties own multiple pieces of fine art, both personally and through the Corporation. The corporate art collection has been appraised at $171,000 and the value of their personally-owned work exceeds $85,000. During their marriage, the parties took a number of trips outside Canada, largely connected with the respondent’s business, and dined out frequently.

In addition to this background context, the court also considered the fact that since separation the wife had adjusted her expenses downward to reflect the low amount of support that the husband was voluntarily paying her since separation, but that it would be unfair to ask her to keep that up, particularly in light of the money that was at the husband’s disposal through corporate earnings.

The husband was therefore ordered to pay the wife $8,500 per month, and to keep the wife on his benefits as long as possible.
For the full text of the decision, see:

Woodruff v. Howard, 2014 ONSC 5723

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