MacLean Law’s top High Income Child and Spousal Support Lawyers deal with recipients and paying spouses in cases where incomes and the corresponding child and spousal support payments can be eye watering. Our High Income Child and Spousal Support Lawyers lawyers hold the record for the highest spousal and child support in BC $116,000 monthly.
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You know your spouse earns lots of money, but they say they do not, and their finances are a mystery. How might you find out what your spouse actually earns, such that you and your children will receive the correct amount of spousal support and child support?
In this article, Senior Lawyer at MacLean Law Jonathan Wai comments on the recent case of Healey v. Healey 2022 BCSC 2072, where the court considered the Guideline Income for High Earning Child and Spousal Support Payor, in this case of a spouse who earned income from a number of sources including as a financial advisor, personal company benefits from two companies, and income from a holding company and excluded company.
In this case, the parties had each called an expert witness to testify as to what the husband’s income was. Normally, the parties are to agree upon a joint expert for family property but support does not require a joint expert, so this situation of competing experts occurred.
Parties Calculations of Income Far Apart
In any case, the wife asked the court to find that the husband’s income for support purposes was about $753,000 per year. The husband, in contrast, asked the court to set his income at about $255,000 per year, a considerable difference of almost $500,000 per year in income.
The court noted that there was no dispute between the experts as to the husband’s income as a financial advisor, including benefits paid by the company he used for this business, to be “added back” to his income or included in his income. As such, the court found this part of his income at $149,000.
Above that, the wife’s expert also noted other income, including capital gains, dividends, and corporate income from a separate holding company, such that the total income was $753,000, as above.
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The husband’s expert took issue with the methodology of arriving at that number. In this regard, the court noted the husband’s position as follows:
[47] The first reason is that, in his submission, using historical earnings data for Alco is inappropriate as going forward, the capital available to generate investment income will be dramatically reduced. In particular, it is Mr. Healey’s evidence that he intends to declare a dividend from Alco before its 2022 year-end (by November 30, 2022) which he says is required to repay a shareholder loan to him from the company of approximately $1.88 million, as at November 30, 2021 (and now higher with accrued interest).
[48] With respect to the capital available in Alco to generate income, Mr. Healey’s evidence, provided through testimony from his corporate accountant Mr. Dougherty, is that he will need to withdraw, from Alco, approximately the same amount as the outstanding balance on his shareholder loan to address his tax liability. Mr. Healey submits that, assuming that he will need to withdraw $2 million, that based on the fair market value of Alco’s investment portfolio as at May 31, 2022 of $2.231 million,[1] only approximately $200,000 to $250,000 in Alco capital will be available on which investment income can be earned.\
Put a little more simply, it appears that while the holding company Alco made earnings historically, a good amount of this was going to be used to repay the shareholder’s loan, likely the amount that the husband had invested in his own company. Furthermore, there was also going to be a rather large tax bill coming due. The Court considered these arguments, and essentially agreed with the husband’s expert, noting:
[53] In my view, it would be unreasonable to utilize Ms. Daum’s calculation of Alco’s earnings from 2020 and 2021 given the dramatic fluctuation in investment returns over those years. Mr. Jensen calculates that Alco earned 4.3% on its investments in 2020 and 24% in 2021. The average of those two percentages is approximately 14%—which is higher than the returns in any of the years prior to 2021. The inevitable conclusion is that the 24% return in 2021 was anomalous and applying the earnings figures from that year to calculate Guideline income going forward would therefore be unfair, in that it is unlikely such returns will be generated in the future.
[54] With respect to the rate of return to be applied on Alco’s investment assets for the purpose of calculating Guideline income, Mr. Healey proposes that the average rate of return on Alco’s investments over a five-and a-half-year period be applied—being the 8.4% estimated by Mr. Jensen for this period. He submits that given the historical fluctuation in Alco’s investment earnings and market uncertainty going forward, that this is the fairest approach.
In other words, the court accepted that the Alco company had a “spike” of earnings in the year 2021, which was not likely to be repeated, and noted the ups and downs of income in other years for the company.
As for what rate of return to use, the court noted:
[55] In other decisions, this Court has applied a historical rate of return on investments as a method of determining the amount of Guideline income to impute for investment earnings.
[56] In Stringer v. Stringer, 2017 BCSC 1470, Justice Watchuk applied a “conservative rate of return” of 3% on investments worth approximately $1.9 million based on the history of earnings set out in the payor’s investment accounts: at para. 164.
[57] In N.P. v. M.C.P., 2012 BCSC 1843, Justice Fenlon, as she then was, considered the appropriate method of determining the income for a payor spouse whose primary source of income was investment returns on a $6.2 million investment portfolio. Justice Fenlon decided that the best approximation of the income available to the payor from his investment portfolio was the expert evidence regarding the portfolio’s rate of return over a seven-year period. Of note, as is an issue in the case at bar, Fenlon J. in N.P. considered as a factor the downturn in the global economy over the last three of the seven years of investment returns considered in that case: N.P. at paras. 55–60; referred to in Stinger at para. 82.
[58] I find that it is appropriate to apply the average rate of return of 8.4% on Alco’s investment portfolio for the purposes of determining the amount of Guideline income attributed to Mr. Healey from this source going forward. What needs to be decided next is what value should be used for Alco’s investment portfolio to which this rate of return is applied.
Guideline Income for High Earning Child and Spousal Support Paying Spouses
As well, with regards to the tax liability and repayment of shareholder’s loan, and the husband’s plan to pay it out:
[60] As already stated, Mr. Healey’s evidence at trial is that before November 30, 2022, he intends to liquidate the bulk of Alco’s investments to deal with the tax liability which results from the sale of Alco assets completed in 2019 to pay for one-half of Ms. Healey’s interest in the Dunbar home, and later, to provide a litigation cost advance to Ms. Healey.
[61] Ms. Healey submits that this Court should not accept this evidence. She submits that if Mr. Healey actually wanted to resolve his tax liability by selling Alco investments, he could have done so in 2019, 2020 or 2021. Ms. Healey asks the Court to infer that Mr. Healey will not liquidate Alco investments, but rather that he intends to wait until after trial to obtain funds from some other source to deal with the tax liability, including potentially by obtaining repayment of all or a part of his shareholder loan to KFD or using other family money.
[62] The inference sought by Ms. Healey is simply far too speculative. Mr. Healey’s evidence that he intends to liquidate most of Alco’s investments is supported by the evidence of his accountant Mr. Dougherty, who testified that Mr. Healey has a tax debt which will have to be paid. Mr. Healey admitted at trial that he has failed to deal with the tax liability since it arose in 2019, but denies that he has done so for an improper purpose. He submits that it would have been imprudent to liquidate Alco assets during the decline in financial markets in 2020 and he would have been criticized for any attempt to take money out of Alco while this family case was on-going. I accept this evidence.
[63] In addition, there is insufficient evidence on which I am able to conclude that Mr. Healey’s evidence, that he is not able to demand repayment of his shareholder loan to KFD or to redeem his shares in KFD, is not credible. I do not find a basis to disbelieve the evidence of Mr. Johannesen that Mr. Healey’s shareholder loan would not be paid out. The following evidence supports this finding:
- a)KFD was set up as part of a tax and estate plan designed to gradually distribute funds to beneficiaries, one of whom was Mr. Healey, and to minimize the tax consequences experienced by beneficiaries as a result of the distribution of funds;
- b)There is no intention for shareholder loans, including Mr. Healey’s, to be paid out in full or on a lump sum basis because:
- The shareholders agreement of Thomas Downie Holding Ltd. (“TDH”), the operating company upstream of KFD which actually holds assets which could be sold, requires unanimous consent of the TDH shareholders in order to advance funds to KFD; and
- Paying out Mr. Healey’s shareholder loan would require payout of other shareholder loans and TDH does not at this time hold sufficient assets to do so and satisfy the resulting tax liability.
[64] In conclusion, I accept Mr. Healey’s testimony that by November 30, 2022, he intends to satisfy his tax liability by selling Alco investments, and in doing so will substantially reduce Alco’s capital and therefore its investment earning potential going forward.
The court concluded that the husband’s income from Alco was about $120,000. Given the husband’s finances, however, that was not the end of the income determination.
Look For Personal Expenses Run Through Any Company
The court went on to consider the personal benefits the husband received from his financial advising company, and also the holding company Alco, for about $26,376 was to be added to his income, together with a $17,370 “tax gross-up” (income is listed as higher, given in some cases a benefit can be received with lower tax implications).
The husband also received payments from a different holding company, which was an excluded asset. The wife attempted to say these payments were income. The court said it was not:
[81] … The transaction at issue, which began with the redemption of some of his shares and ended with the recording of a shareholder loan from Mr. Healey to KFD and monthly payments notionally to repay this shareholder loan, does not result in what I would describe as income for Mr. Healey. I find that the $4,000 amount per month that Mr. Healey receives from KFD is a return of capital, not a return on capital, and therefore does not constitute Guideline income.
In summary the court found Mr. Healey’s income to the date of trial as follows (with a reduction to $255,000 afterwards starting January 2023):
Employment Income: $1,075 Other non-taxable income (personal benefits): $26,376 Other non-taxable income (tax gross-up on personal benefits): $17,370 Corporate income from West Shore: $149,000 Corporate Income from Alco: $120,950 Total: $314,771
After finding the wife’s income of approximately $30,000 per year, the court ordered $8,827 per month in spousal support for the last two months of 2022, and $7,011 thereafter. We note the amount would have been far higher, had the wife been successful in claiming the husband’s income was $750,000.
The court also ordered child support based on these incomes (with different considerations for two of the three children who were in university by this time).
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And as you can see, the determination of income where a spouse has multiple corporations, receives personal benefits from them, and has various shareholders loans and other complex financial arrangements, can prove difficult, even where financial experts are involved. It is essential to receive accurate legal advice in assessing the financial picture and also reviewing the expert reports, so that you can be assured of the actual amount of income of your spouse. Hire the best high income child and spousal support lawyers by making sure of their reputation for winning these cases on a regular basis.
MacLean Law’s High Income Child and Spousal Support Lawyers, act out of our offices Greater Vancouver, Victoria, Kelowna, Calgary and Toronto are pleased to meet with you in person or remotely to advise you regarding your Guideline Income for High Earning Child and Spousal Support Payor cases. Contact us at any of our offices across Canada.
