Wednesday March 31 2021

General publication

Establishing Child Support When Your Ex-spouse Owns A Successful Business

The assessment of income is a factually based exercise, and the Quebec courts benefit from a large discretion in its evaluation for the purposes of child support and alimony. 

To establish the parent's and/or ex-spouse’s capacity to pay, case law has recognized that the court should not limit itself to the income declared in a tax return. Pursuant to the article 446 of the Code of Civil Procedure, the court may also take account of the value of the parent’s assets and the income they generate or could generate.

This principle holds true in circumstances where a parent and/or ex-spouse is self-employed and is the titular proprietor of a company.

If a portion of the company’s profits is kept in the company’s bank account, these profits, that are not distributed to the shareholder in the form of a dividend, are what we refer to as “retained earnings.” 

Retained earnings of a business are the accumulated profits that do not always flow to shareholders in the form of dividends. They reflect the overall success of a business.

Current case law indicates that the retained earnings of the company are an asset of the company, but also of its shareholders. Thus, the courts have recognized that part of the retained earnings of the company in which the parent is a sole shareholder may be considered to increase the calculation of their gross annual income and thereby to calculate the child support and alimony payable.

Generally, 5% to 30% of the company's retained earnings may be added to the parent’s and/or ex-spouse’s declared personal income. However, caution should be exercised in this regard, since retained earnings do not always constitute cash but are rather long-term investments, such as property.

Jessica Zegarelli, Lawyer

Alepin Gauthier Avocats Inc.

This text contains legal information of a general nature and should not replace legal advice with a lawyer or notary who will take into account the particularities of your situation.