Divorcing a self-employed spouse in Ontario can make financial issues more complicated. Unlike a salaried employee, a self-employed spouse may receive income through a business, corporation, salary, dividends, or other forms of payment, making financial disclosure especially important.
A self-employed spouse may have to provide more financial information than personal tax returns and notices of assessment. Business financial statements, corporate records, business valuations, and other financial information may be required to determine income for support and the value of a business interest for property division.
Financial Disclosure is Essential When a Spouse Is Self-Employed
Both spouses have an obligation to provide complete and accurate financial disclosure. This generally includes information about income, expenses, assets, and debts. To learn more about financial disclosure rules in Ontario divorce proceedings, click here.
Where a spouse is self-employed, the required disclosure may extend beyond personal tax returns and notices of assessment. Depending on the structure of the business, relevant documents may include corporate financial statements, business tax returns, bank and credit card statements, general ledgers, invoices, payroll records, shareholder loan accounts, and records of payments made to family members or related companies.
For child support purposes, the Federal Child Support Guidelines specifically require a self-employed spouse to provide the business’s financial statements for the three most recent taxation years, together with details of certain payments made to people or corporations with whom the spouse does not deal at arm’s length. A spouse who controls a corporation may also be required to disclose the financial statements of the corporation and its subsidiaries.
This information allows the parties and their lawyers to understand how money flows through the business, and whether the spouse’s reported personal income accurately reflects the resources available to them.
For more information on spousal support claims for self-employed spouses and business owners, click here.
Source: Federal Child Support Guidelines, SOR/97-175, s. 21(1)(d)–(f); O. Reg. 114/99, Family Law Rules, r. 13(3.1), (3.3).
A Business Interest May Be Included in Net Family Property
A spouse’s interest in a business may form part of that spouse’s net family property for the purposes of equalization. The value must be determined in accordance with the Family Law Act, including its rules concerning the valuation date, deductions, exclusions, and liabilities.
For married spouses, the valuation date is generally the earliest of the dates specified in the Family Law Act, including the date the spouses separated and there was no reasonable prospect that they would resume cohabitation. The value of property owned on the valuation date is then used in calculating net family property, subject to the Act’s rules.
This does not necessarily mean that the business must be sold or transferred to the other spouse. The business interest is generally accounted for as part of the calculation of net family property and may affect the equalization payment between the spouses.
Source: Family Law Act, R.S.O. 1990, c. F.3, ss. 4–5.
Business Records Can Help Establish the Value of a Business Interest
A spouse’s ownership interest in a business may also be relevant to property division. In Ontario, the value of the business interest as of the separation date may be included in the owner’s net family property.
This does not necessarily mean that the business must be sold or divided between the spouses. Instead, its value may affect the equalization payment owed between them.
A Chartered Business Valuator or forensic accountant may be required to assess the company’s assets, debts, earnings, goodwill, future profitability, and tax consequences.
Care must also be taken to avoid double counting the same business funds as both property for the purposes of equalization and recurring income for support.
Source: Family Law Rules, O. Reg. 114/99, r. 13(3.3).
Incomplete Disclosure Can Delay a Family Law Case
Incomplete financial disclosure can delay a family law matter and increase legal costs. A spouse may ask the court to order the production of specific business records. The court may also award costs, draw an adverse inference, impute income, or impose other consequences where disclosure obligations are not met.
Concerns about hidden income should be based on evidence. Unexplained transfers, personal expenses paid by the company, unusual shareholder loans, or a lifestyle that does not match the spouse’s reported income may justify further investigation.
Source: Federal Child Support Guidelines, SOR/97-175, ss. 21–22; O. Reg. 114/99, Family Law Rules, r. 13.
Getting to a Fair Agreement Without a Court Fight
Divorcing a self-employed spouse does not necessarily have to result in a lengthy court dispute. With timely disclosure and proper legal and financial advice, many spouses can reach a fair agreement while allowing the business to continue operating.
A family lawyer can help identify the documents that should be requested, determine whether an expert is required, and ensure that support and property issues are resolved using accurate financial information.
Attention Legal Counsel: Professional Mediation Services
When your clients have reached an impasse in settlement discussions, Andrew Feldstein offers third-party mediation services specifically designed for cases where both parties have independent legal representation.
Why lawyers refer cases to Andrew:
- 30+ years family law litigation experience providing courtroom-informed reality testing
- Expertise in complex financial matters including business valuations and professional corporations
- Efficient, structured process that respects counsel’s time and maintains client relationships
- Flexible scheduling including virtual mediation and travel to counsel offices
Cases we handle: Negotiation stalemates, complex asset division, support calculation disputes, parenting arrangements, multi-jurisdictional matters, and post-separation modifications.
Refer your next mediation: Call Andrew directly at 905-415-1635 ext. 255 or email info@separation.ca. Virtual and in-person sessions available throughout the GTA.
Categories: Divorce and Separation, Self-Employed, Business Valuation, Financial Disclosure