Two Helpful Reminders When Deciding the Parties’ Income
The Ontario Court of Appeal examined an interesting case. It is called Mason v. Mason, 2016 ONCA 725 (CanLII) and you can read it here.
In this case, the Husband and Wife started a business. It was incorporated. The Husband bought out the Wife’s share of the Corporation. The Husband therefore owed the Wife a large amount of money. The payout was part of the Equalization Payment and formally listed in a Separation Agreement.
The Separation Agreement is the same effect as a court order. If a court order or Separation Agreement states that a party owes money to another, then the debt created by the order has an interest rate. The interest rate is called the post-judgment interest rate. The amount is set by the government of Ontario. The Husband argued that the post-judgment interest owing at the time should count as part of the wife’s income. The Honourable Justice Simons held, however, that only the interest accumulated to the Wife that she already received is income.
Let me explain by example. Let us say that the Husband agreed to pay the Wife an Equalization Payment of $200 000 in 2015. The post-judgment interest is 4%. When the parties wanted to calculate the Wife’s income on January 1, 2016 the Wife received $30 000.00. The Wife’s income would include 4% of $30 000. The interest on the remaining $170 000.00 is not income until the Wife receives this amount.
The second issue is the determination of the Husband’s salary. The Husband set his own take-home salary. The Wife also wanted to add pre-tax profit of the Corporation to the Husband’s income. The Corporation suffered a loss during the last year.
Simmons J.A. held recorded the proper procedure as follows:
- Usually, a judge should use the payor’s pre-tax income as recorded in the payor’s income tax return line 150
- If the judge feels that line 150 would not provide an accurate picture of the payor’s income, however, then the judge can examine the payor’s pre-tax corporate profits for the past three years.
Justice Simmons held that the Husband’s income should be higher than that recorded in Line 150 of his income tax returns because:
- The losses sustained were due to one-time reasons that were already resolved;
- Much of the losses were caused by the disruption involving the Divorce;
- Generally, the Corporation’s profits were improving.