Defeating an Income Imputation Claim Over Business Growth

The Dispute

A separated father worked for a small import and retail business owned and run by his partner. Years earlier, a court estimated his income partly on undisclosed cash sales in a business he no longer ran, and fixed child support on that basis. When his former spouse later argued the business was thriving and hiding even more cash, she asked the court to more than double the income used to calculate his support.

The Parties’ Positions

The mother sought to attribute an income to the father more than double the figure fixed at the earlier trial, framing the increase as a material change in circumstances under the Divorce Act. She pointed to the earlier finding that part of his business income had gone unreported in cash, and argued that the same practice had continued as the business grew. She relied on sections 18 and 19 of the Federal Child Support Guidelines, on corporate income and imputation, and on the earlier finding that he was a de facto partner in the business. She further submitted that an adverse inference should follow from the refusal of the father’s partner, the company’s sole owner and director, to produce its financial records.

The father answered that the mother had not met her onus of establishing a material change under section 17(4) of the Divorce Act. He characterized her theory of continuing cash sales as speculative, and pointed to evidence that the business had moved toward electronic payment amid a broader shift away from cash during the pandemic. He and his partner testified that the expanded premises and a new showroom explained the growth in sales without any corresponding rise in unreported income. He further argued that no adverse inference was available against his partner or the company, since the mother had known for months that their financial records required a court order and had not applied for one in time.

The Court’s Decision

The court held that the mother had not met her onus of establishing a material change in the father’s income, and dismissed her application to impute a higher figure. It found that reasonable explanations had been given for the changes in the business over the intervening years, including its physical expansion. It added that an earlier finding about undisclosed cash reflects the evidence available at that time, rather than a fact that carries forward unaltered into a later proceeding. The court also declined to draw an adverse inference from the non-production of the company’s records, since the mother had not brought a timely application for them, and it ordered no change to the child support already fixed at trial.

Key Lessons for Support-Paying Business Owners and Parents Alleging Hidden Income

• Do not assume that an old income finding still holds years later. A finding about business income reflects only the evidence available at the time, so a later claim for a higher figure must show the facts changed, not just that sales grew.
• Apply for a non-party’s financial records early. Courts will not draw an adverse inference from a business owner’s refusal to disclose voluntarily where the requesting parent knew for months that a court order was needed and delayed applying for one.
• Document the legitimate reasons for a business’s growth before a support dispute begins. Evidence that increased sales followed an expansion of premises or a new line of business can rebut an inference of concealed income, if the connection is clearly established.
• Expect the onus to stay with the parent alleging the change. Under section 17(4) of the Divorce Act, suspicion that income has grown is not enough on its own, and a court can decline to impute a higher figure in a child support variation dispute where the business’s improved performance has a credible, independent explanation.

The outcome turned on the specific business records and testimony before the court on this application. A similar dispute may be decided differently on different evidence.

ATAC LAW represents parents in child and spousal support variation applications, including disputes over income earned through a closely held business.

Dan H. Griffith, Partner at ATAC LAW, acted for the father in this matter. View profile.