Disclaimer: This article aims to provide educational information surrounding child support. It is not intended to serve as legal advice. Consult with a lawyer and exercise your discretion before taking action based on the information provided in the blog.
Child support is about more than just numbers—it’s about making sure children get the support they need and that both parents are treated fairly.
Whether you’re paying or receiving support, the stakes are high on both ends of the spectrum. If you are overpaying, it can cause financial strain. However, if your spouse is underpaying, it can leave your child without the resources they deserve.
However, determining the correct amount isn’t always as simple as using a calculator. Factors like fluctuating income, self-employment, and even how corporate income is handled can make things more complicated. So, how do you determine the right amount of support?
In this article, we’ll dive into some of the nuances of child support calculations and explain why understanding these details is so important for ensuring fairness for everyone involved.
Calculating child support payments using the Child Support Guidelines
For married couples, child support is calculated in Ontario based on the Federal Child Support Guidelines. These guidelines base child support obligations on the number of children and the paying parent’s gross income. Generally, a parent’s income is determined through their income tax return.
Sometimes, the support payor’s income is easily determined and may be as simple as looking at a T4 or their tax return. However, total income includes more than just employment income, which can be more challenging to measure. This income can consist of self-employment or corporate income, and adjustments may need to be made in such instances.
How child support is calculated when your annual income fluctuates
Your income may fluctuate year over year for a variety of reasons. For example, a real estate agent’s income is directly tied to market conditions. We have seen in Ontario how the market can rise and fall, especially over the past few years.
Similarly, commission-based roles or seasonal work can cause a parent’s income to rise and fall, making it difficult to determine a consistent figure for child support calculations.
Whatever the reason, calculating an accurate child support payment can be challenging when a parent’s income is unpredictable.
In these situations, courts may need to look beyond the most recent year’s tax return to ensure the child support payment reflects the parent’s actual financial ability. In fact, it is required to look at up to three years to get a better picture of a parent’s typical earnings and avoid the unfairness that might arise from using a single year’s income figure.
How corporate income affects child support calculations
While a corporation is legally a separate entity from its shareholders, directors, and officers, family courts can “pierce the corporate veil” to assess the actual income available to a parent for child and spousal support. This means the court can look beyond the corporation’s formal structure to determine if the reported income reflects the parent’s actual financial situation.
For example, consider a spouse who controls a corporation as the sole director and shareholder. In this case, the parent has the ability to decide how much of the corporation’s earnings they declare as their salary or dividends. They may choose to leave a significant portion of the profits within the business, reducing their personal income on paper, even though the money remains under their control.
Should the corporation’s income be included for child support purposes? The answer: possibly.
A corporation may have legitimate reasons for retaining earnings, such as reinvestment or covering business expenses. However, if the supporting parent manipulates the corporate structure to reduce their declared income, the court will examine the situation closely.
In Ontario, Section 18 of the Federal Child Support Guidelines allows courts to include all or part of a corporation’s pre-tax income to ensure the child support calculation is fair and reflects the parent’s true financial capacity.
Plat Simionati LLP: Family Law Advice For Your Family’s Needs
Clearly, determining the amount of child support you need to pay or receive can be more complicated than simply plugging numbers into a child support calculator. Factors such as various sources of income, corporate earnings, or income manipulation can all make accurate calculations more difficult. Each case is unique, and there are often various factors to consider that can affect how child support is calculated.
Having a family lawyer by your side can make all the difference. At Plat Simionati LLP, we understand that family law matters can be stressful and overwhelming. Our experienced team is here to provide you with the legal guidance you need to ensure that your child support arrangements are fair, transparent, and legally sound.
To learn more about this or any other family law matter, contact our team today!