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The recent judgment of Justice Sachs in the matter of Thomson v Richardson dealt with the issue of calculating income for the purpose of determining a payor’s child support obligation.  Specifically, the case touched on how income should be calculated when a person is self-employed and their company’s billings are different than their declared income.

Ms. Thomson and Mr. Richardson divorced in 2003.  The Divorce Judgment, granted on consent at the time, stipulated that Mr. Rogerson was to pay $1,261.00 per month, for two children, based on an income of $102,000.00 per year.  The judgment also provided for a sharing of “the costs of child care,” with Mr. Richardson paying 71% of those costs and Ms. Thomson paying the balance.

In 2011, the father, Mr. Richardson, brought an application to vary the terms of the Divorce Judgment on the basis that one child was attending university away from home.  Mr. Richardson sought to only pay child support for the summer months when the child resided with her mother at home.  He also sought a contribution from Ms. Thomson towards the child’s post-secondary education expenses.  In response, Ms. Thomson brought a cross-motion alleging that the father had underpaid child support in the years since the Divorce Judgment.

Under section 14 of the Federal Child Support Guidelines (CSG), to vary a support order an applicant must demonstrate a “change in circumstances.”

Change in circumstances in defined in three ways: 1) for orders made before May 1, 1997, the coming into force of the CSG; 2) for orders that have been made under the Guidelines tables, an event that would result in a different order (a change in income of the payor spouse, for example); or 3) for orders not based on the CSG tables, any change in condition, means, needs or other circumstances of either the spouse or the child.

The couple agreed that a change in circumstances had occurred (one child was at University for 8 months of the year) and that support should only be paid for the child during the months she was home at her mother’s.  Accordingly, Justice Sachs discussed the method of calculating the father’s income and whether there was underpaid child support from the years following the Divorce Judgment.

Mr. Richardson personally owned a consulting company; his company had contracts with certain clients who paid for the father’s services.  Through this company, Mr. Richardson billed his clients.  The company would then deduct expenses and pay the father a portion of the net income realized after the deduction of expenses.  As a result, Mr. Richardson’s income as shown in his income tax return was generally lower than his overall billings for that year.  According to the former spouse’s Divorce Judgment, Mr. Richardson was to pay support based on his income, not as represented in his income tax return, but rather on the basis of his company’s billings for that year.

While the parties agreed on the husband’s income for the years 2004 to 2008, the mother contested Mr. Richardson’s income for 2003, the year of the Divorce Judgment.  That year, following their separation, Mr. Richardson declared a dividend from his company, to pay down a joint line of credit he had agreed to pay according to the settlement with Ms. Thomson. As a result, his income as declared on his income tax return was substantially higher for that year, $158,420.00.  Ms. Thomson contended that, for that year, the father should pay support based on his income as it appeared on his tax return.

However, on this point, Justice Sachs sided with Mr. Richardson, asserting that,

…while ordinarily income for child support purposes is calculated on the basis of income as declared for tax purposes, including dividends, this is not the basis on which these parties have chosen to calculate child support. Rather…they have used the amounts as billed (before expenses) or earned by the father, whether through his company or otherwise.  In almost all cases this has resulted in a higher income being attributed to the father.  Given this, it would be unfair to in effect change the rules of the game for the one year when using a different way of calculating the father’s income for support purposes benefits the mother.

Justice Sachs then evaluated whether Mr. Richardson had underpaid support for the years 2004-2008.  Throughout those years the father paid support based on an income of $102,000.00.  When Justice Sachs reviewed the income actually earned by the father in those years, he found that he had underpaid the mother by $5,304.00.  Justice Sachs dismissed Mr. Richardson’s assertion that the support paid during those years did not take into account extra expenses that he had paid.  He noted that Mr. Richardson had an obligation to contribute towards extraordinary expenses (s. 7 CSG) and that the $5,304.00 simply went towards paying the appropriate table amount of support.

The father also paid a shortfall of $3,372.00 in support in 2009 owing to the fact that he had become employed and also received billings for 9 months of the year.  The former spouses agreed that the father should pay support for two children for the time that the child was not away at school and for one child when the child was away.  They also agreed that post-secondary expenses that the child did not pay herself should be shared between them in proportion to their incomes.

The final issue in dispute was whether the mother, who had earned no income in 2009 due to the fact that she was trying to start her own business, should have an income imputed to her.  Section 19 of the CSG allows the court to impute such amount of income to a spouse as it deems appropriate in the circumstances where the spouse’s disclosed income does not fairly reflect what the spouse should pay in child support.  Ms. Thomson agreed that some income should be imputed to her because of her earnings history, and suggested the amount of $20,000.00.  Justice Sachs, however, determined that, given Ms. Thomson’s earnings history and known obligations, the amount should be closer to $30,000.00.

Finally, Justice Sachs dismissed Ms. Thomson’s suggestion that K’s contribution towards her education should be enhanced by her summer earnings, asserting that the child “has [already] made a sufficient contribution to her university expenses and has gone into debt to do so.”

With respect to the future, Justice Sachs held that the parties are to continue to share post-secondary school expenses for both children in proportion to their incomes.  As well, the father is to pay the mother support based on when the children are residing with her, as opposed to attending school.