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Sweezey Disclosure

LAW FIRM NAME

Address

Calgary, AB TXX XXX

Attention: 

Dear __________:

 

Re: Disclosure Request – Evidence of Income_____________________________

 

As you are aware, exchanging financial disclosure is an essential part of legal proceedings, especially when it comes to determining Guideline Income for purposes of child support. 

The Federal Child Support Guidelines set out some requirements for disclosure when a party is a controlling shareholder of a corporation, which have been further clarified by caselaw in Alberta, most notably Sweezey v. Sweezey, 2016 ABQB 131 and in Cunningham v. Seveny, 2017 ABCA 4. In the Cunningham disclosure, the Court of Appeal commented that it is the individual who has the financial information who has the obligation to provide the relevant information. As such, since you are a controlling sharehold of the corporation, the obligation to disclose the necessary information lies with you. The Court of Appeal also set out that, in most cases, disclosure in line with the Notice to Disclose will often be sufficient. 

When, as in your case, there are erIn Sweezey, the Court set out that in addition to the financial statements of the corporation a statement showing a breakdown of all salaries, wages, management fees or other payments or benefits paid to, or on behalf of, persons or corporations with whom the corporation and every related corporation, does not deal at arm’s length. This includes any personal benefits received from the corporation by the shareholder or the shareholder’s spouse and other family members. 

The statement referred to must be sufficiently meaningful and clear to allow the other spouse, and the court, to understand the flow of funds. Simply relying on an accountant’s, or Canada Revenue Agency’s, acceptance of the deduction of certain expenses or by providing a copy of the general ledger without more is not likely to be sufficient.  

As a general rule, the shareholder should provide at least the following:

  • a brief explanation concerning each payment category, including: 
    • the nature of the payment/expense;
    • how it was calculated;
    • why it was a reasonable corporate expenditure;
    • whether any amounts paid or owing in relation to that category provided or resulted in a personal benefit to the shareholder or other non-arm’s length person (common examples of such expense categories in closely held corporations are vehicle, travel, promotion, phone, and insurance). This would include an explanation for:
      • what portion of the total expense formed the personal or non-arm’s length benefit; 
      • how this was calculated;
      • a description of any services performed for the corporation by a non-mm’s length person (such as a new partner/spouse of the shareholder), and information regarding whether the salary s/he was paid for the services was commensurate with the market value of the services; and
    • documentation to support all of the above explanations, such as invoices and receipts regarding non arm’s length payments.

 

I recognize that this may seem burdensome, but please know that our office is happy to assist where possible. It is important that this is completed as soon as possible. The consequence of not providing this could be significant such that the Court could make adverse inferences based on the lack of disclosure, which could result in the Court imputing income to you. 

 

Yours very truly,

JONES DIVORCE LAW LLP

JILL K. CROCKETT