Imputed Income: When the Court Decides What You “Should” Be Earning

When your relationship ends and child or spousal support is on the table for resolution, everything starts with one question: How much does each spouse or parent earn?

It sounds simple. You’d think the answer is on your respective income tax returns. But in Family Law, the income a court uses to calculate support isn’t always the income each of you actually earns.

Sometimes the court decides what you could be earning, and uses that number instead. This is called “imputing” income, and it has become one of the most hotly contested issues in support cases today.

Why Income Can be the Battleground

In Ontario, there are two different starting points:

• Child support is calculated under the Child Support Guidelines, and
• Spousal support is usually worked out using the Spousal Support Advisory Guidelines.

Note that while the Child Support Guidelines are legislated, the Spousal Support Advisory Guidelines aren’t mandatory.

But courts still rely on both very heavily, and both are driven by income.

Once the basic facts of your case are settled (such as the length of the relationship and who has the children), income is often the only thing left to fight about. So it’s no surprise that each of you might try to show the other earns more, while resisting any suggestion that you should be earning more yourself.

Finding Real Income vs. Imputing Income

There are two different things going on when a court looks past the figures on your tax return.

Sometimes the court is simply trying to get an accurate picture of what you really earn – not just what you earn from income tax purposes. For example, the court may look at:

• Business expenses that were deducted unreasonably,
• Income from dividends, capital gains or similar sources,
• Income that is not subject to tax.

Other times, the court might assign you an income you don’t actually have. This is called “imputing” income and it can happen where:

• You are intentionally unemployed,
• You are intentionally under-employed (meaning you are not earning at your full capacity, given your work history and/or education),
• You have assets that aren’t being reasonably used to generate income, when they should be, or
• You haven’t provided the financial disclosure you were required to give.

“I’m Not Working” Isn’t the End of the Story

In Family Law cases, the most common defence that a person will try to raise against having to pay support is that he or she is unemployed, and apparently cannot find suitable work.

Especially in tough economic times, it may seem to be a reasonable excuse on it face, but the problem is that some support payors will make false claims, in order to avoid their legal obligations to a spouse or child.

Fortunately, Canadian Family Law has safeguards in place. The law looks at whether:

• The person is intentionally unemployed, or
• The person is earning less than they could.

This approach is set out by the Ontario Court of Appeal in a well-known decision called  Drygala v. Pauli , 2002 CanLII 41868. If you’re the one claiming inevitable unemployment, the court will ask itself the following questions:

• Whether, based on the evidence, you are intentionally under-employed or unemployed,
• If so, whether that is justified by your reasonable educational or health needs, or the needs of a child, and
• If not justified, what income should be imputed to you.

Importantly, under the principles in the Drygala case, you don’t have to have bad faith in connection with your unemployment, meaning you don’t have to be trying to avoid paying support. Choosing to earn less than you’re capable of earning can be enough to trigger the court’s intervention.

Evidence Matters

It’s important to know that a court won’t impute income to a spouse or parent merely because the other one asks it to. The person asking must give the court a proper evidentiary basis.

Here are some points to know:

• If one spouse isn’t working at all, a court may – at the very least – impute a part-time or full-time minimum wage income.
• However, the court will want evidence about how many hours that person could realistically work, especially if they are caring for children.
• The court may look at a person’s recent work history – but that will be less helpful if someone has been out of the workforce for many years.

As mentioned, the court may start by imputing income at the minimum wage level; it will be harder to persuade it to impute an income above minimum wage. To do so, the court will need to see persuasive evidence, which might include:

• A person’s recent job history,
• What they earn per hour in a part-time job (extended to full-time), or
• Testimony from people who work in that field or from an employment expert.

Is the Fight Over Income Worth It, In the End?

Here’s something many people don’t consider: imputing a modest income to one spouse may barely change the support range at all.

If the other spouse already earns a high income, adding a small imputed income to the lower earner might shift the numbers very little, and the legal costs of arguing the point could outweigh any benefit. Sometimes conceding a reasonable figure is the smarter move.

That’s also why it’s worth asking your lawyer to run the numbers under several different income scenarios, rather than just one “best case” calculation. Knowing how much each assumption actually matters can help you decide where to focus your energy. If you have questions about how income is being calculated in your support case, give our office a call. We’re happy to help you understand where you stand.