Spousal support cases involving self-employed spouses or business owners are more complicated than cases involving salaried employees. These cases require Family Law courts to examine a business owner’s true income, earning capacity, and financial resources. For entrepreneurs, contractors, consultants, tradespeople, and small business owners, issues such as fluctuating income, business write-offs, and discretionary expenses can become central issues in litigation.
LEGAL FRAMEWORK:
Spousal support in Ontario is governed primarily by the federal Divorce Act (for married spouses seeking divorce) and Ontario’s Family Law Act (non married spouses).
Under section 15.2 of the Divorce Act and section 33 of the Family Law Act, family courts consider factors such as the spouses’ means and needs, the length of the relationship, whether the parties worked during the relationship, and the economic disadvantage arising from the marriage or its breakdown.
In ordinary cases, the courts rely heavily on the Spousal Support Advisory Guidelines, which use the parties’ incomes as a starting point for calculating support ranges. However, determining income for a self-employed person or business-owner is far more complicated.
For self-employed people or business owners, income shown on an Income Tax Return does not tell the whole story. These individuals may have fluctuating annual earnings. It is crucial to note that business owners may benefit from deductions for vehicle expenses, home office expenses, meals and entertainment, travel expenses, cell phone expenses, and internet services.
As a result, family law courts can add back discretionary or personal expenses to determine a spouse’s true income available for support, as taxable income and support income are not always the same thing.
THE NORMALIZATION PROCESS:
Family law courts often must “normalize” income when assessing support claims. Many self-employed workers or business owners experience variable income from year to year. Courts may address this by averaging income over three years rather than relying on a single year’s earnings. This helps smooth temporary increases or declines and creates a fairer support calculation.
A court may also examine whether an alleged reduction in income is genuine or strategic to minimize support obligations.
Where a court believes a spouse is underreporting income or intentionally earning less than they reasonably could, the court may “impute” income. The leading case is Drygala v. Pauli, where the Ontario Court of Appeal confirmed that courts can impute income where a spouse is intentionally underemployed or unemployed. The court stated that intentional underemployment does not require bad faith, only that a figure is earning less than they reasonably could.
Courts may rely on bank statements, corporate records, lifestyle evidence, shareholder ledgers, and forensic accounting evidence when determining true income. This can include corporate tax returns, financial statements, general ledgers, shareholder loan accounts, business bank records, GST/HST filings, expense reports, and retained earnings information.
As self-employed and business income can fluctuate significantly, support orders may later be varied if there is a “material change in circumstances.” However, as previously discussed, courts distinguish between genuine financial hardship and voluntary income reduction. Courts may refuse to reduce support where a business owner voluntarily decreases income or restructures finances to minimize obligations.
LOGISTICAL CHALLENGES:
Spousal support cases involving business owners often require expert evidence, business valuation, income reports, tracing corporate expenditures, and extensive disclosure. These cases can become document-heavy and expensive because the dispute is often not about entitlement to support, but rather about determining accurate income.
Self-employed spousal support cases are among the most financially complex matters in Ontario family law. Courts recognize that business income can fluctuate and that tax deductions may not reflect true disposable income. As a result, judges frequently look beyond tax returns to determine a fair support outcome.
For recipient spouses, careful scrutiny of corporate finances and discretionary expenses may reveal income that is not immediately apparent from tax filings alone. As each business structure and financial situation is unique, obtaining legal and accounting advice early in the process is often essential.
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Why lawyers refer cases to Andrew:
- 30+ years family law litigation experience providing courtroom-informed reality testing
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Cases we handle: Negotiation stalemates, complex asset division, support calculation disputes, parenting arrangements, multi-jurisdictional matters, and post-separation modifications.
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