Financial Disclosure Obligations: Self-Employed Individuals / Business Owners

financial disclosure

Financial Disclosure Obligations: Self-Employed Individuals/Business Owners

Adequate disclosure in family law cases means being transparent, forthcoming, and honest about one’s financial circumstances. There is an expectation on parties to disclose all relevant information fully, even if it may be unfavorable to their case. This includes not only current financial status but also historical financial records and any changes in financial circumstances that may have occurred since the separation.

The exchange of Financial Disclosure in family law cases is the preliminary step. After this, one can make progress towards a settlement following a separation.  Only after the determination of each party’s incomes as well as their respective assets and debts, can the focus then transition to settlement of support obligations and property division.

If a party is self-employed or owns a business, there are now two components of the financial disclosure they need to provide. These are:

AND

  • Cunningham disclosure

Why do we request the Cunningham Disclosure?

As many business owners would admit, what shows up on a personal tax return is not necessarily reflective of the income they have available to them or the value that they may receive financially from the gross company revenue earned by their company.  Oftentimes, a business owner can arrange their finances with the goal of paying less tax. One way to achieve this is through not claiming all income available to them as in any given year. Another route is by paying for expenses through their company, which can also have a personal benefit.  It is due to the nature of a self-employed party’s income and payment of expenses that additional documents are needed by anyone who is self-employed or owns a business.

The rationale behind Cunningham disclosure obligations is clear. It is to enable both parties and the court to make informed decisions regarding issues such as spousal support, child support, division of property, and other financial arrangements. Without comprehensive disclosure, it becomes challenging for the court to render fair and just judgments. Failure to comply with Cunningham disclosure obligations can have serious consequences, including adverse rulings by the court and potential penalties.

Cunningham Disclosure: What do I Need to Provide?

The landmark decision of Cunningham set out a general principle. Individuals who earn income through self-employment, or closely held corporations, not only had to produce the details of that income (including a statement of all payments or benefits), but they also have an obligation to provide a sufficient and comprehensive explanation for all of the expenses they deducted from that income, in order to enable the courts to determine the reasonableness of those deductions.

What Constitutes Adequate Financial Disclosure of Income and Expenses?

The caselaw sets out the “general rule” with respect to the scope of disclosure. Under the Alberta Child Support Guideline, there is a requirement for disclosure from shareholders under section 21(f) and self-employed individuals under section 21(d), which includes:

  1. A brief explanation concerning each payment category, including:
    1. The nature of the payment/expense;
    2. How it was calculated;
    3. Why it was a reasonable corporate expenditure;
    4. Whether any amounts paid or owing in relation to that category provided or resulted in a personal benefit to the shareholder or other non-arm’s length person (common examples of such expense categories in closely held corporations are vehicle, travel, promotion, phone, and insurance.) This would include an explanation for:
      1. What portion of the total expense formed the personal or non-arm’s length benefit;
      2. How this was calculated; A description of any services performed for the corporation by a non-arm’s length person (such as a new partner/spouse of the shareholder), and information regarding whether the salary s/he was paid for the services was commensurate with the market value of the services; and
  1. Documentation to support all of the above explanations, such as invoices and receipts regarding non-arm’s length payments.

Consequences of Non-Compliance:

Non-compliance with Cunningham disclosure obligations can have serious repercussions for the non-disclosing party. The court may infer that the undisclosed information is unfavorable to that party’s case and may make rulings based on incomplete or inaccurate information. Additionally, the non-disclosing party may be subject to court orders compelling disclosure, monetary sanctions, or even contempt proceedings.

In some cases, deliberate attempts to conceal assets or manipulate financial information can result in severe penalties. This includes criminal charges for fraud. Therefore, it is imperative for parties in family law disputes to take their disclosure obligations seriously. Parties need to ensure full compliance with the law.

How Can Kahane Law Office Help?

Cunningham disclosure obligations play a pivotal role in Alberta family law cases. They ensure transparency, fairness, and integrity in the legal process. Parties involved in family law disputes must understand their disclosure obligations and adhere to them diligently. By providing full and frank disclosure of all relevant financial information, parties can facilitate a smoother resolution of their disputes and promote the interests of justice and equity.

The family law lawyers at Kahane Law Office understand this seemingly overwhelming process. They have experience with respect to relocation law. Specifically, burdens of proof and how to best help you with your case. Schedule an appointment with one of our family law lawyers by contacting our office today at 403 225 8810.