How Mediation Determines Income for Child or Spousal Support?

Why Does Income Matter for Child and Spousal Support?

How Does Income Affect Child Support in Ontario?

For many child support situations in Ontario, the paying parent’s income is an important part of calculating the basic monthly amount.

The Federal Child Support Guidelines provide child support tables based primarily on:

• The paying parent’s income
• The number of children
• The applicable province or territory

The income used for this purpose is often referred to as Guideline income.

Tax information can provide an important starting point, but determining Guideline income may require more than copying one number from a tax return.

This can become particularly important when a parent:

• Is self-employed
• Owns or controls a corporation
• Receives large bonuses or commissions
• Regularly works overtime
• Has rental or investment income
• Experiences major changes in earnings from year to year

How Does Income Affect Section 7 Expenses?

Income can also matter when parents discuss Section 7 expenses, sometimes called special or extraordinary expenses.

Depending on the circumstances, these may include expenses related to:

• Childcare
• Certain medical or dental costs
• Some educational expenses
• Certain extracurricular activities
• Postsecondary education

Where Section 7 expenses apply, the parents’ incomes can be relevant when determining how eligible expenses should be shared.

How Does Income Affect Spousal Support?

Income is also important when spouses discuss spousal support, but the process is different from basic child support calculations.

Spousal support is not determined by income alone.

Issues that may need to be considered include:

• The income of both spouses
• The length of the relationship
• The roles each spouse had during the relationship
• Each person’s financial circumstances after separation
• Whether there is an entitlement to spousal support
• The potential amount and duration of support

How Does Mediation Handle Employment, Self-Employment and Variable Income?

How Is Regular Employment Income Reviewed?

For an employee with stable earnings, the review may begin with salary or hourly wages.

Relevant employment income can include:

• Regular salary
• Hourly wages
• Overtime
• Shift premiums
• Tips where applicable
• Commissions
• Bonuses
• Performance incentives
• Other employment earnings

Recent pay statements can help show current earnings, while tax records provide a broader view of annual income.

Do Bonuses, Commissions and Overtime Count as Income for Support?

Bonuses, commissions and overtime may be relevant when determining income for support.

The key question is usually how those earnings fit into the person’s broader income pattern.

For example, a bonus may be:

• Guaranteed under an employment contract
• Based on individual performance
• Based on company performance
• Paid regularly each year
• Highly unpredictable
• A one-time payment

Commissions may also rise or fall significantly depending on sales performance.

Overtime can create similar questions. One employee may work approximately the same amount of overtime every year, while another may have earned unusually high overtime during a temporary staffing shortage.

In Toronto Family Mediation, the spouses can review the records and discuss whether the additional earnings appear regular, temporary or unpredictable.

The mediator facilitates that discussion but does not impose a particular treatment of the income.

What Happens When Income Changes From Year to Year?

Variable income often requires more context.

Someone may have:

• Seasonal employment
• Contract work
• Commission-based employment
• Irregular overtime
• Performance bonuses
• Variable business earnings
• Periods of reduced hours
• Recent job changes

The review of financial statements over the course of several years may aid the disputing parties to determine the existence of a pattern.

For instance, three years of earnings may illustrate that an employee receiving commissions earns consistently in the range of $90,000-$120,000.

This pattern might be more revealing than looking at one of the best or worst years alone.

Nevertheless, the average of the past might not always reflect the present.

If a person changes their job or their working conditions substantially, the latest figures might be especially relevant.

There is no universal averaging formula applicable to all mediations.

How Is Self-Employment Income Reviewed for Child or Spousal Support?

Self-employment income can require a closer review because business finances and personal income may overlap.

This can apply to:

• Sole proprietors
• Incorporated business owners
• Partners
• Consultants
• Contractors
• Professionals operating through corporations

A business owner may report taxable income after deducting legitimate business expenses.

Issues that may need discussion include:

• Business revenue
• Business expenses
• Salary paid to the owner
• Dividends
• Shareholder benefits
• Personal expenses paid by the business
• Vehicle expenses
• Travel expenses
• Retained corporate income where relevant
• Other corporate distributions

The fact that an expense is claimed for tax purposes does not automatically answer how it should be considered for support purposes.

That distinction can be important.

Can Business Expenses Affect the Income Used for Support?

Business expenses are a common area of discussion when one spouse is self-employed.

Some expenses are clearly necessary to operate a business. Others may contain both business and personal elements.

For example, questions could arise about:

• Vehicle costs
• Travel
• Meals
• Home-office expenses
• Telephone costs
• Payments to family members
• Shareholder expenses

Toronto Divorce Mediation can provide a structured process for discussing these items.

A practical approach may include:

1. Identifying which expense is disputed.
2. Reviewing the supporting business records.
3. Clarifying the business reason for the expense.
4. Obtaining additional accounting information if necessary.
5. Seeking legal or financial advice where appropriate.
6. Discussing whether the parties can agree on an income figure.

The goal is not to assume that a business owner has done anything improper.

It is to make sure both spouses understand the financial information before relying on it for support negotiations.

What Happens When Income Changes or the Spouses Disagree About the Amount?

What If One Spouse Says Their Income Has Dropped?

A person’s income may decline for many reasons.

Common examples include:

• Job loss
• Reduced working hours
• Loss of overtime
• Lower commissions
• Career changes
• Starting a new business
• Retirement
• Loss of an important business client
• Temporary business difficulties
• Medical or disability-related changes where relevant

Mediation can help the spouses examine the circumstances surrounding the change.

For example, the parties may review:

• Recent pay records
• Employment termination documents
• Employment contracts
• Updated business statements
• Current-year earnings
• Previous years’ income
• Other documents showing why earnings changed

What If One Spouse Disputes the Other Spouse’s Reported Income?

There are several reasons why spouses may disagree about income.

One person may believe:

• The tax return does not reflect actual earnings
• Business expenses are too high
• Bonuses have not been fully considered
• Corporate income should be reviewed
• Foreign income has not been included
• Financial documents are incomplete
• A recent income reduction needs more explanation
• The other spouse has a greater earning capacity than their current income suggests

A disagreement should usually begin with facts and financial records rather than accusations.

Possible next steps include:

1. Requesting additional financial disclosure.
2. Reviewing several years of tax and income records.
3. Reviewing business or corporate information.
4. Obtaining accounting information.
5. Consulting a financial professional where appropriate.
6. Obtaining independent legal advice.
7. Pausing support negotiations until sufficient information is available.

Complete disclosure can help narrow the disagreement even when the spouses do not initially agree on the income figure.

What Is Imputed Income and Can It Come Up in Mediation?

Imputed income can become an issue when one spouse argues that the other person’s reported income does not fairly represent the income that should be considered for support.

Situations that may raise this issue can include allegations involving:

• Intentional unemployment
• Intentional underemployment
• Disputed business expenses
• Income diverted through a corporation
• Inadequate financial disclosure
• A significant unexplained reduction in earnings