Understanding Disclosing Financial Information When Relationships End
One of the most important steps in moving forward a family law file is exchange of parties’ financial disclosure that includes but not limited to Personal Income Tax Returns, Notice of Assessment, pay stubs, bank account and credit card statements, RRSP and pension statements etc. The parties can either elect to exchange financial disclosure on a mutually agreed date or file a court application called Notice to Disclose (desk application) to obtain other party’s disclosure. The parties have an obligation to provide their financial disclosure in a timely manner. These documents are exchanged to determine important issues like parties’ Guideline income to calculate child support and spousal support. The court may impute such amount of income to a party as it considers appropriate in the circumstances if a party fails to provide income information when under a legal obligation to do so.
Obviously, some people fail to disclose their financial position. Intentional or not, parties disclosure is a key element to the separation and divorce process. The Alberta based family law lawyers at Kahane Law Office help people secure financial disclosure and then make informed choices. Both our Calgary and Edmonton law offices help clients across the province.
Financial Disclosure Of Assets
In addition, the parties must provide their financial disclosure to establish a complete list of their assets and liabilities as well as any exemption claim for the purposes of property division in a claim for a family property order. When an application seeking a family property order is filed, each party is required to file with the court a statement, verified by oath, disclosing particulars of all the property of that spouse, whether the property is situated in Alberta or elsewhere. The statement also must include particulars of property disposed of by that party within one year before the application was commenced.
Proving Employment Income Information
If a party is an employee receiving T4 slip from his/her employer, then determining his/her annual income for the purposes of calculating child and spousal support is usually a straight-forward calculation. A party’s personal income tax returns, notice of assessment, T4s and pay stubs will often provide the information to determine the Guideline Income. The starting point to determine their gross annual income is using the Line 150 on their Income Tax Returns and making any adjustments in accordance with Schedule III of the Federal Child Support Guidelines.
Financial Disclosure If Self-Employed
Financial Disclosure operates differently when dealing with self employed individuals. People’s income often reflects aggressive tax planning instead of actual profits. Other times, people attempt to reduce what they owe to a spouse by manipulating their income. When a party is self-employed or a shareholder, director or officer of a corporation, income determination can be complicated. Further, determining value of a business or a company for the purposes of property division is a complex matter. Often parties will jointly or separately retain experts like forensic accountants or business valuators to determine Guideline Income and value of the company.
Unincorporated Businesses / Proprietorship
As per the standard Notice to Disclose application, certain documents make up official financial disclosure. For example, the following documents require disclosure if a party is self-employed in an unincorporated business:
- particulars or copies of every cheque issued to the party providing the financial disclosure during the last 6 weeks from any business or corporation in which he/she has an interest, or to which he/she has rendered a service;
- the financial statements of the party`s business or professional practice for the 3 most recent taxation years; and
- a statement showing a breakdown of all salaries, wages, management fees or other payments or benefits paid to yourself, or to persons or corporations with whom you do not deal at arm’s length, for the 3 most recent taxation years.
If a party is a partner in a partnership, then under a standard Notice to Disclose application, he/she needs to provide confirmation of his/her income and draws from, and capital in, the partnership for its 3 most recent taxation years.
If a party has 1% or more interest in a privately held corporation, the law requires specific financial disclosure. For example, documents requiring disclosure under the standard Notice to Disclose application include:
- The financial statements of the corporation and its subsidiaries for its 3 most recent taxation years;
- A statement showing a breakdown of all salaries, wages, management fees or other payments or benefits paid to yourself, or to persons or corporations with whom the corporation, and every related corporation, does not deal at arm’s length for the corporation’s 3 most recent taxation years; and
- A record showing the shareholder’s loan transactions for the past 12 months.
Beneficiaries Of Trusts
Under the standard Notice to Disclose application, if a party is a beneficiary under a trust, then needs to provide a copy of the trust settlement agreement and copies of the trust’s 3 most recent financial statements.
Other Financial Disclosure Information
In addition to the above financial disclosure, statement documents listed in a standard Notice to Disclose application, a forensic accountant and other experts require additional documentation to prepare their report when a self-employed person is earning from his/her own company as well as for the valuation of the company. For example, these include but are not limited to:
- T1 tax returns inclusive of all schedules, slips, notice of assessment and reassessment for each relevant fiscal year;
- T2 Income Tax returns and notice of assessment and reassessment for each relevant fiscal year;
- General ledger details, trial balances and adjusting journal entries for each relevant fiscal year;
- Lending agreement, arm`s and non-arm`s length;
- Any valuation conducted on the company in prior years;
- Any current or past offers to acquire the company;
- Articles of incorporation and minute book;
- Shareholder Agreement;
- Partnership Agreement;
- All business plans, shareholder and/or investor presentations, budget, forecast or projections prepared in recent years;
- Analysis of salaries, consulting fees or other forms of remuneration paid to the parties for each relevant fiscal year. Further, they require an estimate of economic or fair market value of services performed in exchange for the amounts paid;
- Description of each party`s role in the company;
- A listing of company’s top ten customers. Sales to those customers and a description of the products sold during each relevant fiscal year;
- Financial disclosure of any non-recurring income, or expense items recorded in the financial statements during each relevant fiscal year;
- A listing of transactions in the financial statement that have not occurred at market value. Required for each relevant fiscal year: and lastly
- Identification of any assets or liabilities included in the financial statements that are redundant to the company`s operations. Also, identify and describe any contingent assets and/or liabilities that exist in the company.
Getting The Financial Disclosure Help You Need
Our Alberta family law lawyers enjoy helping people. They deal with financial disclosure issues on a very regular basis. If you need help with dividing assets, debts, or determining incomes for spousal or child support calculations, call today! Reach our lawyers in Calgary, Alberta at 403-225-8810. For our team in Edmonton Alberta, please call (780) 571-8463. Often email allows for the fastest response with more information provided to you about your next steps. Feel free to email us directly here.