IMPUTING INCOME DURING A SEPARATION

divorce, income, finances, disclosure, financial disclosure; imputing wage

Calculating Income for Support: The Role of Imputing Wage

When people separate or divorce, there may be ongoing financial obligations to provide support for a former partner or spouse or any children of the relationship.  In this instance, the first question is whether there should be payment of support or not?  Upon proving entitlement to support, the next question is what is the income level of each party? This is known as imputing income.

For the purpose of child support and spousal or partner support, the determination and calculation of income is through the framework set out in the Federal Child Support Guidelines (Canada).

Determining income for the purpose of support can be relatively straightforward or very complicated depending on the circumstances.  There is often disagreement on what incomes should be set at. As a result, there is disagreement on the corresponding amount of support that one must pay.  The Federal Child Support Guidelines allows for income to be imputed in appropriate circumstances.

What Is Imputing Income?

Imputing income occurs when the Court assigns an income level for a party which is different from what that party states their income should be.  It primarily occurs in two instances:

  1. when a person’s income is higher than his or her actual earnings for the purpose of support.
  1. when a person’s income is an amount, for the purpose of support, in the absence of information regarding actual income.

When Can Income Be Imputed?

A court may impute income in appropriate circumstances. Section 19 of the Federal Child Support Guidelines list such circumstances:

  1. the spouse is intentionally under-employed or unemployed, other than where the under-employment or unemployment is required by the needs of a child of the marriage or any child under the age of majority or by the reasonable educational or health needs of the spouse;
  2. the spouse is exempt from paying federal or provincial income tax;
  3. the spouse lives in a country that has effective rates of income tax that are significantly lower than those in Canada;
  4. it appears that income has been diverted which would affect the level of child support to be determined under these Guidelines;
  5. the spouse’s property is not reasonably utilized to generate income;
  6. the spouse has failed to provide income information when under a legal obligation to do so;
  7. the spouse unreasonably deducts expenses from income;
  8. the spouse derives a significant portion of income from dividends, capital gains or other sources that are taxed at a lower rate than employment or business income or that are exempt from tax; and
  9. the spouse is a beneficiary under a trust and is or will be in receipt of income or other benefits from the trust.

The reasonableness of an expense deducted from income is not solely determined by whether the deduction is permitted under the Income Tax Act.  This means that an expense deduction may be allowed under the Income Tax Act but still found to be unreasonable for support purposes, in which case the expense deducted would be added back to income for the purpose of support.

What Is Intentional Under-Employment or Unemployment?

The test is that of reasonableness, according to the Alberta Court of Appeal decision of Peters v. Atchooay, 2002 ABCA 347.  Income can be imputed where it is shown the payor has capacity to earn more than he or she does but does not do so based on a choice that is unreasonable in the circumstances.

An involuntary reduction in income arising from circumstances beyond the person’s control is not subject to imputation.

Under-employment or unemployment due to the needs of a child or the reasonable educational or health needs of a spouse, partner, or parent will not be considered as imputed income.

If the under-employment or unemployment arises from voluntary choice and these exceptions do not apply, the court may exercise its discretion to impute income. This will be done based on whether the under-employment or unemployment is reasonable under the circumstances.

How is Reasonableness Assessed?

Reasonableness is assessed through the lens of the support obligation, having regard to the circumstances.  Earning capacity is a key consideration. It is determined based on factors such as:

  1. age;
  2. education;
  3. experience;
  4. skills, health;
  5. availability of work;
  6. ability to relocate; and
  7. and other factors.

Agreements that existed prior to separation, such as parenting arrangements, or retirement plans, are also relevant but not determinative.

A decision to pursue unrealistic, unproductive, or non-remunerative career aspirations will not relieve a person from a support obligation.  Self-fulfillment is a consideration but does not take priority over support requirements.

How can Kahane Law Office help?

The family law lawyers at Kahane Law Office are experienced in support and income determination issues.  We understand this complex area of the law and how it may apply in your circumstances. We know the information required to show whether income should be imputed or not to establish appropriate support.  Schedule an appointment with one of our family law lawyers by contacting our office today at 403 225 8810.