Overview
The Court has the power to attribute income to a party in a family law case. This is usually reserved for two circumstances. First, where a party is deliberately underemployed. Second, when a party is misrepresenting their income. Both circumstances can have the effect of reduced child support and/or spousal support obligations, which the Court does not like.
The Court has a remedy for this issue vis-a-vis income imputation pursuant to decisions like Templeton v Templeton as well as section 19 of the Federal Child Support Guidelines. These laws help ensure that support payments are not reduced simply because a party is hiding income or quitting their job to avoid making genuine payments. Of particular note, the party wishing for income to be imputed to the other party bears the onus of proving it.
The Child Support Guidelines
Income imputation is made with reference to section 19 of the Guidelines (federal or provincial depending on your circumstances):
19. (1) The court may impute such amount of income to a parent or spouse as it considers appropriate in the circumstances, which circumstances include,
(a) the parent or spouse is intentionally under-employed or unemployed, other than where the under-employment or unemployment is required by the needs of any child or by the reasonable educational or health needs of the parent or spouse;
(b) the parent or spouse is exempt from paying federal or provincial income tax;
(c) the parent or spouse lives in a country that has effective rates of income tax that are significantly lower than those in Canada;
(d) it appears that income has been diverted which would affect the level of child support to be determined under these guidelines;
(e) the parent's or spouse's property is not reasonably utilized to generate income;
(f) the parent or spouse has failed to provide income information when under a legal obligation to do so;
(g) the parent or spouse unreasonably deducts expenses from income;
(h) the parent or spouse derives a significant portion of income from dividends, capital gains or other sources that are taxed at a lower rate than employment or business income or that are exempt from tax; and
(i) the parent or spouse is a beneficiary under a trust and is or will be in receipt of income or other benefits from the trust. O. Reg. 391/97, s. 19 (1); O. Reg. 446/01, s. 6.
(2) For the purpose of clause (1) (g), the reasonableness of an expense deduction is not solely governed by whether the deduction is permitted under the Income Tax Act (Canada). O. Reg. 391/97, s. 19 (2).
It should be noted that income imputation, pursuant to section 19 of the Child Support Guidelines, is also utilized in spousal support cases, as specifically mentioned in the Spousal Support Advisory Guidelines.
Important notes from Templeton v Templeton, 2018 ONSC 815
The inclusion of income imputation in the guidelines emphasizes the prioritization of children's support over the parents' interests. . The decision to impute income depends on the specific circumstances of the case, and the court must have a basis in the evidence for the amount chosen. Deliberate underemployment or unemployment can lead to income imputation,. Factors such as age, education, health, work history, and available opportunities may be considered. Deliberate underemployment may also apply when a party pursues unrealistic career aspirations or engages in reckless behaviour affecting their earning capacity. There may be a grace period for seeking comparable employment after involuntary job loss, but if alternative options are not pursued within a reasonable timeframe, income may be imputed. Ultimately, the court assesses the reasonableness of the payor's decisions and actions and determines a reasonable amount of imputed income based on various factors. The court has summarized the law on income imputation:
Income imputation provides a means by which the court can ensure that parents meet their joint and ongoing obligation to support their children. As the Ontario Court of Appeal stated in Korman v. Korman, 2015 ONCA 578 (C.A.), at para 51:
[t]he courts retain discretion to impute income to a payor spouse in excess of that spouse's presumptive income where the imputed income is supported by the evidence and is consistent with the objective of establishing "fair support based on the means of the parents in an objective manner that reduces conflict, ensures consistency and encourages resolution.
The specific inclusion in the Guidelines of authority for the court to impute income highlights that the fundamental obligation of a parent to support their children takes priority over the parent's own interests and choices. It also reinforces that parents must act responsibly when making financial decisions that may affect the level of income available from them for the support of their children. The list of circumstances set out in section 19 in which the court may impute income is not exhaustive, and therefore it does not circumscribe the court's general discretion to impute income in other situations where it considers it appropriate to do so. These other situations need not be analogous to the circumstances listed in section 19 in order to provide a foundation for imputation of income.
The imputation of income to a party is a fact-driven exercise that turns on the unique circumstances of the case before the court. Regardless of the basis upon which income is imputed, the amount of income that the court imputes to a party is a matter of discretion. The only limitation on the discretion of the court in this regard is that there must be some basis in the evidence for the amount that the court has chosen to impute.
The Ontario Court of Appeal addressed the issue of imputation of income pursuant to section 19(1)(a) of the Guidelines on the basis of intentional unemployment or under-employment in Drygala and more recently in Lavie v. Lavie, 2018 ONCA 10 (C.A.). The following general principles derive from those decisions and other cases which have considered section 19(1)(a):
1. Section 1 of the Guidelines stipulates that one of the objectives of the Guidelines is to establish a fair standard of support for children so as to ensure that they benefit from the financial means of both parents after separation. To this end, there is a duty on the part of the payor to actively seek out reasonable income-earning opportunities that will maximize their earning potential so as to meet the needs of their children. If a parent is earning less than they reasonably could be, they are intentionally underemployed and income may be imputed to them;
2. A finding of deliberate under-employment or unemployment does not require evidence of bad faith on the part of the payor parent or an attempt on their part to evade support obligations. A parent is intentionally under-employed within the meaning of this section if they earn less than they are capable of earning having regard for all of the circumstances. The parent is intentionally unemployed when they choose not to work when capable of earning an income;
3. In determining whether a party is intentionally under-employed or unemployed, the court should consider the party's capacity to earn income in light of their age, education, health, work history and the availability of work that is within the scope of the party's capabilities;
4. A self-induced lack of income or reduction of income with no realistic prospect of future financial advancement is not a basis upon which to avoid or reduce child support payments. Accordingly, the court may find the party to be deliberately under-employed and impute income where the party has persisted in un-remunerative employment or self-employment, or where they have pursued unrealistic or unproductive career aspirations;
5. The court may also impute income to a party on the basis of deliberate under-employment or unemployment if the party quits their employment for selfish or bad faith reasons, or if they engage in reckless behaviour which affects their income-earning capacity;
6. When a party experiences an involuntary loss of employment or self-employment, they may be given a "grace period" to investigate options and seek out income earning opportunities in their field at a comparable rate of remuneration before income will be imputed to them. However, if they have been unable to secure comparable employment within a reasonable time frame, they will be required to accept other less remunerative opportunities or options outside of the area of their expertise in order to satisfy their obligation to contribute to the support of their children;
7. Even if the court determines that the payor parent is deliberately under-employed or unemployed, the court has the discretion to decide whether or not to impute income to them. This decision will turn on the court's overall assessment of the reasonableness of the payor's decisions and actions in relation to their income. If an employment decision results in a significant reduction of income, it must be justified in a compelling way;
8. Finally, in determining the amount of income to impute on the basis of deliberate under-employment or unemployment, the court must consider what is reasonable in the circumstances of the particular case. The factors that the court is required to consider include the age, education, experience, skills and health of the payor, their past earning history and the amount of income that the payor could reasonably earn if they worked to capacity.
If you are a parent misrepresenting your income, withholding disclosure or you are intentionally underemployed, the Court can say your income ought to be higher than it is for support purposes. However, the Court is not trying to punish support payors who lose their job or who have had their income reduced for genuine reasons, provided that they are making attempts to rectify the situation.
Obvious takeaways? The Court may be willing to impute income to parties in family law cases. Perhaps most important is the principle that parents and spouses have a duty to work at a job pursuant to factors like their skill and age. Especially when parties have children, they cannot simply decide to not work.
