Should income be imputed based on a pattern of monetary gifts and/or dividend income?

Korman v. Korman, 2015 ONCA 578

An important issue addressed by this case was whether income should be imputed based on a pattern of monetary gifts and/or dividend income allocated to a spouse by the spouse’s parent.

Background

Mr. Korman (the Appellant), and Ms. Korman (the respondent), were married 21 years before separating in 2009.  They had two children who were approximately 17 and 22 years of age at the time of the trial.

At trial, the parties did not disagree on the issue of support entitlement; however, they disagreed over the issue of the amount of support.  The parties disputed the quantum of retroactive child support and spousal support and the amount of ongoing spousal support in addition to the issue of what income amount should be used to determine same.

Funds Received from Mr. Korman’s Parents

In determining the parties’ respective incomes, the trial judge found that Mr. Korman’s parents provided financial assistance in many ways by giving various monetary gifts from which Mr. Korman and his family benefited substantially.  Mr. Korman and his family had historically made spending decisions based on the anticipation of the gifts received from his parents.

In addition, Mr. Korman’s mother also allocated to he and each of his siblings what was deemed to be dividend income from a corporation his mother controlled in order to reduce her income tax liability.  However, Mr. Korman and his siblings never actually received the dividends.

Mr. Korman’s Employment Income

Mr. Korman’s employment income had decreased significantly from 2008 onward, which is summarized as follows:

YearIncome
2010$145,469.10
2011$138,447.30
2012$120,659.80

Imputation of Income

Mr. Korman agreed to Consent Orders in 2010 and 2012 that he would pay interim support based on an income of $120,000, however, Mr. Korman disputed this amount and he eventually fell into arrears.

The Trial Judge found that, given the family history, Mr. Korman would likely continue receiving dividends as gifts or as part of his mother’s tax planning for the rest of his life.

The Trial Judge, therefore imputed Mr. Korman’s annual income to $120,000 and Mr. Korman then appealed the trial decision.

Appeal Decision

The Appeal Court found no basis for overturning the Trial Judge’s decision regarding the imputation of Mr. Korman’s income.

Analysis

Section 19(1) of the Federal Guidelines gives courts the power to impute income in certain circumstances.

The Appeal Court relied on the decision in Bank v Dobell, 2007 ONCA and the application of section 19(1) of the Ontario Child Support Guidelines, which is essentially the same as section 19(1) of the Federal Guidelines.  The Court in Bank v Dobellfound the following:

  • Section 19(1) list of circumstances in which income can and should be imputed is nonexhaustive and can include circumstances that are analogous to those listed in the statute;
  • The specific facts and circumstances of the family are important considerations in determining whether imputation is appropriate;
  • A spouse’s income for support purposes is presumptively the amount listed on line 150 of the payor’s Income Tax Return and presumptively limited to income that is subject to taxation;
  • Since gifts are not taxable, they are not part of a support payor’s presumptive income, however, a payor’s income for support purposes may include more than his or her presumptive income;
  • Courts have discretion to impute income based on what a fair amount would be for support, given the parents’ financial means, and what would encourage consistency and resolution;

The Appeal Court considered Mr. Korman’s income from employment, gifts he historically received, and the annual dividend income reported on his Tax Return.  Based on these sources of income, the Court found that Mr. Korman earned an average annual income of approximately $134,858.73 over the three previous years and this established his presumptive income for support purposes.

However, the Court found that the dividend income was more notional than real because the evidence showed that Mr. Korman and his siblings did not actually receive the income as the funds were held and used by their mother.  As such, the dividend income should not be included in Mr. Korman’s annual income for support purposes.

Nevertheless, the evidence regarding Mr. Korman’s financial circumstances established that there was “a settled pattern of monetary gifts… over many years, to assist him in maintaining his lifestyle”.  Additionally, the gifts received from Mr. Korman’s parents were used throughout the marriage as a source of funds to pay for the family’s expenses.

Further, the Court found that the income imputed by the Trial Judge does not impose any obligation to continue giving the gifts.  Rather, the imputation simply reflected a “factual determination” regarding Mr. Korman’s “actual past revenues and his likely financial future.”

Additionally, the Court found that the gifts from Mr. Korman’s parents continued after separation and the amount imputed was the same as that which Mr. Korman consented to in the two Consent Orders, which Mr. Korman did not seek to vary.

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