The Rich Do Have Problems, Part 2: Defending Their “Monkey Business” While Avoiding Support
In a recent Blog, we introduced one of the issues that often crops up in a divorce between affluent spouses: Attempts by the support-paying spouse to avoid their significant financial obligations to the other spouse, by obscuring and minimizing the true extent of their income and assets.
These efforts might involve setting up an impenetrable wall of complex corporate structures. Or they may feature a series sophisticated-yet-dubious banking transactions, plus a labyrinth of legal trusts and offshore accounts. But whatever the method, the intended result is for the support-eligible spouse to be left with inaccurate and misleading information – which in turn hampers the likelihood of a fair divorce.
Another common strategy by business-savvy support payors, is to deliberately distance themselves from the corporations that they run. This leaves them poised to argue that they have no right to access company funds – and thus no income, ability, or duty to pay spousal or child support to their former spouse.
The recent Saskatchewan Court of Appeal case in Merrifield v. Merrifield illustrates this misguided approach. The husband was the sole/majority/major shareholder in a network of 15 companies, all held through a complex corporate structure. In the course of the divorce proceedings against his wife of 15 years, he denied having access to corporate funds, and also claimed they were exempt under a domestic contract they had signed. In his view, this excused him from paying support in the period leading up to trial.
The wife, who had no income, accused the husband of understating his financial resources. She asked the court to “pierce the corporate veil” in order to thwart the husband’s attempts to divert and shelter his income through his many corporations. The court readily did so, stating:
… For the father to come to court and plead that he enjoys ‘‘little” income (he says $243,467) yet enjoys the high flying (sometimes literally) lifestyle that he does is at best disingenuous, and perhaps outright mendacious. …
I also note that while the father claims a modest income, his leisure activities are not consonant with same. He says many of these business trips and other expenses are for legitimate business purposes. Some may be; with many others, it is difficult to accept that argument. As an example, mother’s counsel cited the father’s use of corporate funds to sponsor his current girlfriend in a “bikini contest’ in the USA. It is difficult to conceive of this being a legitimate business expense, unless of course it is “monkey business” that is in issue. The father, through his material and submissions, appears to be able to keep a straight face while proffering explanations of his expenses which are, at best, thin. The father also appears to show no shame at enjoying such a lifestyle while simultaneously refusing to pay support for his children at an appropriate level.
In the end, the court examined the husband’s lifestyle, assets, and income sources which included capital dividends. The court noted that even if it looked at only one of his companies, there was $850,000 in pre-tax income available, not to mention the $150,000 in personal benefits he had received from two others. The court concluded that at least 65 percent of those amounts were available to the husband for the purpose of paying spousal support and child support for his three children. After imputing an income of $927,000 per year, the court ordered him to pay $10,000 a month in child support, and $12,500 per month in spousal support on an interim basis.
For the full text of the decision, see:
Merrifield v. Merrifield, 2021 SKCA 85