A spouse who is self-employed must provide financial statements for their business, as well as a statement showing a breakdown of all salaries and wages.

Family Courts may assume you or your spouse’s income is higher than it actually is.

The term imputed income refers to the treatment of an individual’s income as if it is greater than what he or she is actually earning.  If the Court finds that one parent is unemployed or underemployed (earning less than he or she is capable of), it may impute a minimum level of income to that parent.  It is often used to determine child or spousal support.

In considering why a parent is unemployed or underemployed, the loss of a job for legitimate reasons such as a lay off would be considered to be legitimate or the inability of a spouse to find a new job through diligent efforts which can be proven.  In these types of instances, a Judge may not impute an income or may impute a lower income.

One of the most common situations in which a Court may impute an income to a self-employed spouse is if that spouse unreasonably deducts expenses from their income. In these cases, the Court may add those deductions back to your income, and calculate support based on the higher amount of income. When making these determinations, the Court will adopt a perspective of balancing the business necessity of the expense against the alternative of using the funds for support payments.

Failing to provide adequate financial disclosure where there is a legal obligation to do so is another reason why the Court may impute an income.  If the self-employed spouse fails or refuses to provide income information related to their business, a Judge may impute an income to that spouse. 

Income diversion is yet another instance where income may be imputed.  This happens when a spouse has diverted income which would affect the level of support payable.  This could happen when a spouse has keeps most of their income in the business, and only pay themselves a small salary.  If it appears to a Judge that the spouse’s income is lower, they may impute some of that income back to the spouse.

In MacNamara v MacNamara, the Court imputed an income to a self-employed spouse for unreasonable deductions from one of the businesses he owned.  He also failed to provide any completed income tax returns or financial statements.  The spouse’s line 150 income on his income tax return showed approximately $44,900 and the Court imputed his share of his company’s profits being $64,100 to arrive at a total income of $109,000.  He was subsequently ordered to pay child support in accordance with his imputed income.

Mediation is an excellent alternative to going to Court and having the Court impute an income to a self-employed spouse.  The parties can agree on a reasonable income for the self-employed spouse and move forward with negotiations and settle their matter in a much more timely and cost-effective manner.  Mediation takes away the sour taste of an ongoing Court battle which may include imputing an income, which often leaves the self-employed spouse bitter and angry, and makes it difficult to co-parent effectively.

Self-Employed and Separating

Blog posts are for informational purposes only and do not constitute legal advice.

Written by Marian Grande, Mediator
October 7, 2020

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