In Z.A.S. v. T.S., 2024 BCSC 2205, the British Columbia Supreme Court (BCSC) provided a detailed analysis of the factors and financial intricacies involved in calculating income for purposes of spousal and child support payments. The Court specifically considered the corporate income available to a payor parent when considering their guideline income.

To calculate support, the Court will consider a payor parent's guideline Income. The Court's assessment of one's guideline income is a complex exercise. The starting point of this exercise is to calculate each party's tax return income, or their "Line 15000 income," which will form the basis for determining the amount of support to be paid or received. For employed individuals, this number typically gives a court a full picture of the funds available for support. However, there are often added complexities in certain cases, such as where a payor parent earns income through a corporation. A judge may need to add all or part of a corporation's pre-tax income to arrive at the appropriate guideline income amount.

This was the scenario in Z.A.S. v. T.S., 2024 BCSC 2205, where Madam Justice W.A. Baker was faced with the difficult task of determining the correct pre-tax corporate income to calculate the payor's parent's guideline income. After considering various financial statements, expert reports, and company records, Madam Justice W.A. Baker re-assessed the payor parent's guideline income, lowering the amount for future payments.

Background

The parties, Z.A.S. and T.S., were married in 1998 and separated in February 2020. They had two children, M.S., who was 12 years old, and A.S., who was 10 years old at the time of the judgment. During their relationship, the couple started several business ventures. In 1998, Z.A.S. and T.S. opened Market Meats, a small family business specializing in meat products. Over the years, the Market Meats enterprise expanded and eventually became the Market Meats Group (MMG), holding three locations across the Lower Mainland.

T.S. worked alongside Z.A.S. in the maintenance and operations of Market Meats and, later, MMG. However, by 2005, the parties agreed to open Beauty Bar Corp., a small makeup and beauty store that would be T.S.'s venture. While all the family businesses were owned equally by both parties, following the acquisition of Beauty Bar Corp., the parties decided that Z.A.S. would make the operating decisions for MMG, and T.S. would make the operating decisions for Beauty Bar Corp.

The couple's businesses experienced various financial ups and downs throughout the marriage. Beauty Bar Corp. turned out to be largely unprofitable, and despite various attempts by the parties to revive the business, the downtrend continued. MMG also faced its own financial challenges. MMG experienced periods of strong sales; however, by 2022, the business had slowed down following a combination of supply chain issues, rising costs, and staff turnover due to the COVID-19 pandemic. At the time of the parties' separation in February 2020, they agreed that Beauty Bar retained no value.

The Guideline Income: Z.A.S. and T.S.

Following the parties' separation in 2020, Z.A.S. and T.S. agreed to a court order on July 8, 2021, that provided the following:

• The guideline income of Z.A.S. would be set at $850,000.

• The guideline income of T.S. would be set at $50,000.

• Z.A.S. would pay T.S. $18,095 a month for spousal support.

• Z.A.S. would pay T.S. $10,419 a month for child support.

• Z.A.S. would pay himself a monthly salary of $70,833.33 from MMG, which he would use towards his monthly child support and spousal support payments to T.S.

A Company's Financial Strain and the Court's Recognition of the Implications on a Payor Parent

On March 16, 2022, in response to declining business revenues and increased expenses, Z.A.S. brought forward an application to reduce the guideline income from the previously agreed amount of $850,000 to $540,000 and to increase the guideline income for T.S. from $50,000 to $86,000. While Z.A.S. was not successful in modifying the guideline income for his ex-spouse, he successfully obtained a small adjustment to his guideline income. The Court ultimately lowered his guideline income to $780,000. As a result, his monthly spousal support payments were adjusted from $18,095 to $16,306 a month, and his monthly child support payments were adjusted from $10,419 to $9,593 a month. Because of this reduction, Z.A.S. would no longer be required to pay himself a monthly salary of $70,833.33; instead, he would pay himself a monthly salary of $65,000.

Following the revised order made on March 16, 2022, the financial position of MMG continued to worsen. As a result of the reduced profitability of MMG, Z.A.S. could no longer take a salary from the company as he had legally been ordered to do. The Court acknowledged that Z.A.S. had a continued obligation to support his children but found that the financial realities of the company could no longer reasonably allow Z.A.S. to draw an income from MMG. The Court accepted that neither the previously set guideline income of $850,000 nor the previously set guideline income of $780,000 could be economically sustainable for Z.A.S.

Z.A.S. and the Court's Reassessment of the Guideline Income

After examining an income report prepared by an expert, the Court determined that by discounting the amounts legitimately retained by MMG to maintain and operate the business—such as reinvested capital and principal debt repayments—the available income to Z.A.S. from MMG for the three previous years was $0.00 in 2019, $140,455 in 2020, and $0.00 in 2021.

In consideration of this analysis, the Court ultimately concluded that the appropriate guideline income of Z.A.S. for the years between 2019 and 2021 was as follows:

• 2019: $162,713

• 2020: $480,009

• 2021: $422,113

This case offers an important lesson about the Court's emphasis on striking a balance between ensuring a payor parent fulfills their necessary obligations to provide for spousal and child support, while also considering the economic realities and financial strain imposed on a payor parent.