When we look at support payments and the self employed, there are special considerations that are different than when someone is a salaried employee.
As family law lawyers, one of the most common issues we deal with in family law is finding out what someone is entitled to (or has to pay) for child support or spousal support.
The amount of child support are based upon the Federal Child Support Guidelines.
Spousal support payments are also based upon what a person earns.
When people are self-employed, this can be a challenging question.
In the case of child support, a payor's obligations are determined using the federal Child Support Guidelines. In order to determine what someone must pay, we must determine their income.
Spousal support is determined using the Spousal Support Advisory Guidelines (SSAG). The application of these guidelines is less straightforward than those for child support. Before spousal support is payable, we first need to ask the question if the person is entitled to spousal support. Once there is entitlement, a number of factors are considered including the ages of the spouses, the length of their marriage or cohabitation, and their respective earning potentials.
Regardless of whether we are looking at child or spousal support, determining the payor's income is an essential step in the process. Support payments and the self employed are different than for those who are regular employees where this is a relatively easy task. We simply look at their annual income reported on their tax return and Notice of Assessment from the Canada Revenue Agency. For self-employed people this can be a more difficult task.
Generally speaking, when we look at support payments and the self employed we will want to use their net income for the purposes of determining support obligations. That means their income used for tax purposes after deductions have been made for legitimate business expenses. In some cases spouses may agree that this net income is appropriate; however, in other cases a recipient of support may contest the use of net income for determining support on the basis that it does not truly reflect the payor's ability to pay.
The law currently allows self-employed people to use their net income for determining support to some degree, but just because the CRA accepts write offs as legitimate does not mean that the write offs will be considered legitimate for determining support. Courts tend to take a holistic approach to this issue and try to determine realistically what money is really available to the payor for the purposes of paying support. For example, where someone has written off professional dues of their income as a non-discretionary expense required to run his or her business, the courts may well find this to be an acceptable reduction of income for support purposes. In contrast, may have far less understanding where significant money has been written off for meals, entertainment, or leasing a vehicle.
Of course, what is fair will be determined on a case by case basis. The number one thing for any self-employed person to remember is that the onus is on the payor to establish that write-offs are legitimate. That resolves into some simple advice we give our clients: keep excellent records of your expenses and work with an accountant or bookkeeper if necessary to make sure that your business activities are clear and well-documented. You want to be able to show what you spent and explain why the expenditures were essential to your business activities.
Jim Monier-Williams is a lawyer at Hemminger Law Group and he wrote this article. Please contact Jim for your no-obligation consultation.
Return from support payments and the self-employed.