Family law cases in Ontario can become complex when they involve corporations. When one or both spouses hold shares in or have a transactional relationship with a corporation, the disclosure of corporate documents can be critical for the accurate determination of spousal support, child support, and property division. This article considers some of the documentary disclosure you should be aware of in family law cases when corporations are involved. It also highlights the legal principles underpinning the concept of a corporation in the context of disclosure.
By understanding the corporation as a 'creature of the law', we can appreciate the concept of a corporation's 'separate legal personality' and the relationship this 'separate legal personality' has to disclosure obligations in family law. The phrase ‘creature of the law’ means that a corporation exists because the law permits it to. Although some theories in American jurisprudence pit the corporation as a creation of the market or as a sum of its shareholders who hold property rights in the corporation,[1] English and Canadian jurisprudence have primarily treated corporations as ‘creatures of the law’ since 1897. In the famous case Salomon v Salomon & Co Ltd, the United Kingdom’s House of Lords firmly established the principle that a company is, at law, an independent legal person distinct from its subscribers.[2] This principle gave rise to the concept of 'separate legal personality', and is a direct consequence of being conceptualized as a 'creature of the law'. The concept of 'separate legal personality', therefore, gives rights to a corporation that are similar to those of a person under the law.
The Importance of Full Corporate Disclosure
This concept of ‘separate legal personality’ has direct implications on the disclosure process in family law. Spouses sometimes use this principle as an excuse to avoid disclosure obligations, either in an attempt to obfuscate their financial interests or to prolong litigation and financially burden the other party. Since the corporation is considered an independent legal person under the law, people sometimes form the misconception that the corporation can be used as a tool to offset their personal liability, including support obligations. However, experienced lawyers can take steps to directly address and sanction this behaviour in court. Even without legal representation, it is crucial to be aware of the key documents you should seek from your spouse during the disclosure process, particularly if your family has any connections with a corporation. Acquiring these documents can significantly strengthen your bargaining power in negotiations or the likelihood of success in court when dealing with support and property division matters.
T1 General Income Tax Return: The T1 General Income Tax Return is a pivotal document for determining an individual’s personal income. It includes all income sources, such as salary, dividends, and investments. In family law cases, the T1 is a primary document for assessing income and is used to calculate child or spousal support. Every individual in Canada is required by the Canadian Revenue Agency (CRA) to file a T1, as it provides a comprehensive overview of their earnings throughout the year.
T4 Statement of Renumeration Paid: If a spouse is an employee of a corporation, the T4 Statement provides a breakdown of their salary, bonuses, and other employment benefits. This document is essential to determine accurate income for support obligations. The T4 offers a clear view of what a spouse earned as an employee and helps verify consistency with the T1.
Notice of Assessment (NOA): Issued by the CRA, the NOA summarizes an individual’s tax return and confirms the income reported on their T1. This document is important for the verification of declared income and may highlight discrepancies that could impact support calculations. In family law, the verification of income is key to ensuring accurate spousal and child support calculations.
T2 Corporate Income Tax Return: The T2 is the corporate equivalent of the T1. Filed by a corporation, the T2 demonstrates a corporation’s income, expenses, and taxes paid. If a spouse holds shares in or controls the corporation, a T2 helps determine how much income the corporation generates and how that income impacts their overall financial position. If your spouse is the owner of a business or has an interest in a corporation, the T2 corporate tax return can be vital for assessing their income and can play a critical role in determining support obligations and property division.
Shareholder Registry: The shareholder registry records who holds shares in a corporation and the extent of that share ownership. This document is useful when a spouse has shares in a corporation, as it can reveal their level of control and financial interest in the company. When shares exist, they often form part of the property division process in family law.
Shareholder Agreements: Shareholder agreements outline the rights, obligations, and limitations of shareholders. They may include buy-sell provisions, restrictions on transferring shares, or terms that affect the valuation of a business during a divorce. These agreements can play a key role in property division.
Dividends Records: Dividends paid to shareholders represent another form of income outside of an individual’s salary. For spouses receiving significant dividends, these payments must be disclosed and included in income calculations for the purposes of support. Dividends records are an important component of the disclosure process that ensures all sources of income are properly accounted for.
Corporate Financial Statements: Financial statements are the foundation for understanding the financial health of a company. These include:
1. Balance sheets, which provide an overview of the company’s assets, liabilities, and shareholder equity. In family law, this document helps certified business valuators value business interests for the purposes of property division and assessing income for the purposes of support.
2. Income statements, which show revenue, expenses, and net profit, can be pivotal for determining employee incomes and a company’s available resources.
3. Cash flow statements, which outline inflows and outflows of cash, demonstrate a business’s liquidity and whether the business is able to support its debts and available income to the owner.
General Ledger: A general ledger is a detailed record of all financial transactions in a company. It is essential in cases when one party suspects hidden income or assets. By reviewing the general ledger, discrepancies or manipulated transactions can be uncovered to prevent understated personal income.
Corporate Bank Statements: Corporate bank statements are essential in family law cases, particularly when one spouse may have access to significant corporate or business accounts. These bank statements provide real-time insights into a company’s financial activity, helping track the flow of money, identify hidden income, and ensure accurate financial disclosure. In the recent Carter v Carter, bank statements played a critical role in the discovery of the husband's undisclosed income and violations of court orders related to his chronic non-disclosure. By reviewing bank statements, irregularities in declared income can be uncovered and addressed.
Why These Documents Matter
In family law, financial disclosure is crucial to ensure a person’s rights and entitlements under the Family Law Act and Divorce Act are properly reflected in spousal support, child support, and property division calculations. When families own a business or have shares in a corporation, documents like the T1 and T2 tax returns, corporate financial statements, and dividends records can be critical for assessing income and property rights. In the unlikely event a spouse has acted in 'bad faith' during the disclosure process, these records can help uncover hidden assets, understated income, or inaccurate business valuations.
Although obtaining full corporate disclosure from corporations can be complex and nuanced, especially if a spouse is using a corporation to conceal income, an experienced lawyer can effectively navigate this legal terrain to ensure all relevant documentation is disclosed.
Lessons from Salomon v Salomon and Family Law
In the 1897 case Salomon v Salomon, Mr. Salomon operated his company as a leather merchant and wholesale boot manufacturer. Although his company suffered a downturn and owed money to its creditors, the House of Lords found that his company was not an alias or agent of himself, but rather, an independent legal person.[3] This decision protected Mr. Salomon from the liability he faced against his company’s creditors, simply because the company, as a separate legal person, carried the liability. In the 1890s, the implications of this legal principle correlated with an increase in people incorporating companies to engage in excessive risk taking for their own personal gain, without due regard to the externalized costs imposed on creditors and society.[4] Since liability was offset to the corporation, the theory is that people who incorporated companies were able to engage in greater risk-taking.
While some spouses in modern-day family law cases continue to take similar risks in litigation through blatant non-disclosure, the over 125 years that the law has had to evolve and transplant itself from the case of Salomon v Salomon into Canadian jurisprudence brings with it tools that can sanction people who engage in such behaviours. To except Salomon's doctrine of separate legal personality in the context of a matrimonial proceeding, the corporation must be completely dominated, controlled, and used as a shield for fraudulent or improper conduct by the payor spouse, such that the misconduct is the reason for the third party’s injury or loss.[5] In Wildman v Wildman, the third party at loss was the payor husband’s children in respect of child support owed to their mother.[6] In Aubin v Petrone, Justice Jolaine Antonio confirmed the scope of Wildman to pierce the corporate veil, with the added factor that:[7]
[O]bligations imposed by family law are on equal footing with other legal obligations and deserve fair balancing where interests compete. It is also appropriate to recognize, as the trial judge did, that ‘in the family law context, the creditor spouse cannot choose whether to deal with the corporation the way a commercial creditor can. The assets of the family unit are tied to the corporation’ […].
Although the assets of the family unit are tied to the corporation, the test for disclosure appears to stand in respect of the payor spouse and the corporation, not a third party connected to a matrimonial proceeding. As further indicated by Justice Jolene Antonio, ‘[t]he concept of the corporate veil enters family law most frequently on questions of child support’.[8] This is likely a result of the fact that children of the marriage are most often the third party at loss as a result of the payor spouse’s misconduct.
In Canada, the jurisprudence on piercing and lifting the corporate veil is otherwise conceptually convoluted. In Transamerica Life Insurance Co of Canada v Canada Life Assurance Co, the Ontario Superior Court of Justice applied the three older English veil-peircing principles from Adams v Cape Industries plc to find that exceptions to the doctrine of separate personality exist when: (1) the company is a ‘facade’ or ‘sham’; (2) the parent and subsidiary company is a single economic unit, only in the context wherein it is necessary to ‘give effect to legislation’ (or prevent that legislation’s frustration); or (3) the company is an authorized agent of its controllers or members, corporate or human.[9] In Yaiguaje v Chevron Corporation, the Ontario Court of Appeal affirmed that the test from Transamerica should be rigorously applied before imposing an exception to separate legal personality. However, it also noted that courts remain cautious and reluctant to pierce the veil except in extreme cases.[10] Importantly, the test has been deemed acceptable in both a liability and enforcement context as a result of the Court of Appeal's decision in Wildman. While Wildman did not extend the test from Transamerica directly, it did illustrate how veil-piercing can be used in enforcement contexts, such as to ensure the payment of spousal and child support.
Although the three exceptions to the doctrine of separate personality in Transamerica were fundamentally borrowed from Adams v Cape in England, the second two exceptions listed above were held as invalid in Adams. In England, at the time, the corporate veil could only be pierced when the company was a 'facade' or 'sham'. Nevertheless, all three exceptions from Adams were held as valid in Canada’s Transamerica. Furthermore, Adams only represents one aspect of the common law’s position on exceptions to separate legal personality in England and Wales; the landmark Prest v Petrodel now maintains the three authoritative exceptions on the doctrine of separate legal personality: (1) wherein the company is a ‘facade’ or ‘sham’ to which Lord Sumption’s evasion principle from Prest v Petrodel applies; (2) in cases of fraud, which follows from Lord Denning’s discussion in Lazarus Estates Ltd v Beasley; or (3) in instances when its use was for a deliberately dishonest purpose, as established in principle in Woolfson v Strathclyd Regional Council and confirmed by Lord Sumpton in Prest v Petrodel.[11] Currently, there is no instance where these exceptions have been prima facie applied in England and Wales.
Attempts to pierce the corporate veil to remove a corporation's 'separate legal personality' have been unsuccessful in both England and Canada when the complainant argued it was possible to attach the liability of the corporation to its subscriber. However, in Canada's Wildman, the reverse argument was employed: that it is possible the attach the liability of its subscriber to the corporation in order to enforce the collection of rightly owed assets. At the Ontario Court of Appeal, the appellant husband argued that the trial judge improperly pierced the corporate veil of the appellant’s companies to impose liability on those companies to enforce a debt owed by the appellant on those companies. In the end, the Court of Appeal dismissed the appeal, holding that:[12]
[P]iercing the corporate veil of one spouse's business enterprises may be an essential mechanism for ensuring that the other spouse and children of the marriage receive the financial support to which, by law, they are entitled.
Justice JC MacPherson found it necessary to pierce the corporate veil, relying on the dictum from two cases: 642947 Ontario Ltd v Fleischer and Transamerica Life Insurance.[13] With respect to Fleischer, Justice JC MacPherson injected the principle that the corporate veil could be pierced when not doing so would be flagrantly opposed to justice.[14] However, this position sits in sharp contrast to the heavily relied on English case, Adams v Cape, as initially cited by Transamerica, to transplant the doctrine of piercing the corporate veil into Canadian jurisprudence. In Adams, Lord Justice Slade noted that ‘the court is not free to disregard the principle of Salomon v Salomon merely because it considers that justice so requires’.[15] Although Justice JC MacPherson noted that there is a ‘strong public policy argument to be made for a review of closely held corporations in the context of support’,[16] the standard of application for such a test on the question of justice is contradictory to Adams.
Rather than considering the question of justice when piercing the corporate veil, the second and more authoritative dictum from Transamerica ought to be followed in a matrimonial context:[17]
The corporation was 'completely dominated and controlled and being used as a shield for fraudulent or improper conduct’.
The circumstances by which the corporation in Wildman was completely dominated, controlled, and being used as a shield for fraud are twofold.
First, section 18 of both the Federal and Provincial Child Support Guidelines states that in instances that a spouse ‘is a shareholder, director or officer of a corporation’ and the ‘amount of the spouse's annual income […] does not fairly reflect all the money available to the spouse for the payment of child support’, the court can lift the corporate veil to ensure that the money received in income by the paying parent ‘accurately reflects all the money available for the payment of child support’.[18] However, this position necessarily relies on instances wherein the spouse in question completely dominated the corporation in the context of their child support obligations to the entitled party; the defendant or respondent in the action must be a payor spouse.
Second, Justice JC MacPherson noted that the company ‘need not have been created with an improper purpose in mind to justify piercing the corporate veil; it is sufficient that the corporation is used for an improper purpose’.[19] The focus, therefore, is not only on why the company was incorporated, but how it was used by the controlling spouse. This dictum sits in stark contrast to the landmark English position in Prest v Petrodel, wherein the husband, although misplacing his assets to his own benefit and giving false evidence, did not deliberately evade or frustrate an existing legal obligation or restriction: ‘[T]he legal interest in the properties [was] vested in the companies […] long before the marriage broke up’.[20] This evasion principle, or ‘facade’ or ‘sham’, appears to have been incorporated and extended by Justice JC MacPherson in Wildman to include the use of the corporation during matrimonial proceedings, despite not having necessarily incorporated the company for an improper purpose.
In the recent Carter v Carter, the husband incorporated, dominated, controlled, and used his various corporations as a shield for both fraudulent and improper conduct.[21] Some of the corporations were also both created and used to hide assets from the wife and her children. The children, in particular, faced significant financial prejudice and loss as a result of the payor husband's misconduct, which included fraud, chronic non-disclosure, and use of the corporations to avoid his support obligations and perpetuate litigation abuse. The husband also continued to operate his corporations contrary to a Mareva Injunction and Freezing Order, for which he was held in contempt of court. In respect of the doctrine of separate legal personality, the Superior Court of Justice sanctioned the husband’s latter behaviours when it ordered that the corporate veils of his various corporations were pierced. By piercing the corporate veil, Justice Finlayson discharged the principle that the corporation is a separate legal entity; the husband and his corporations thus became one and the same. The husband’s liabilities to the wife then extended to his corporations as a result of his fraudulent and improper use of them. Prior to this judgement and during the litigation process, the court also made orders against various banks to disclose the husband's corporate bank records when he would not do so himself.
Conclusions
Exceptions to the firmly established doctrine of separate legal personality have only ever been applied in very unique situations in Canada. Although the doctrine of piercing or lifting the corporate veil was borrowed from the English case Adams v Cape (which is no longer the authoritative position in English common law) in Canada’s Transamerica, the law has since evolved in Canada to require that a payor parent in matrimonial proceedings completely dominate and control the corporation, having used the corporation as a shield for fraud, and to engage in misconduct that results in the third party’s injury or loss.
The position on the doctrine of piercing and lifting the corporate veil in Canada will likely shift as Courts attempt to amalgamate previous jurisprudence to simplify the common law’s position, perhaps with greater regard to the United Kingdom's landmark Prest v Petrodel. Otherwise, Transamerica will continue to prevail as the primary dictum for piercing the corporate veil, whilst Wildman continues as the only prima facie instance the court will except separate legal personality in a matrimonial context. Separate legal personality of a corporate entity could be disregarded in appropriate family law cases when the corporation is completely dominated and controlled by spouse and being used as shield for fraudulent or improper conduct. Otherwise, it is highly unlikely that exceptions to the doctrine of separate legal personality will be employed by the court.
As an excellent first step, your awareness of documents that can assist in your endeavour to accurately calculate child support, spousal support, or property division can significantly impact the outcome of negotiations or your case in court. With the right approach from experienced lawyers, steps can be taken to address spouses who specifically use corporations to conceal income, engage in chronic non-disclosure, or commit fraud. Full corporate disclosure can be achieved, whether your spouse has a clean history of transparency or a more insidious pattern of deception. If you have questions about how the disclosure of corporate documents may affect your case or need assistance in securing disclosure, our legal team has extensive experience handling complex family law cases involving corporate interests, financial disclosure, and fraud.
This article is prepared for the general information of interested persons. It is not, and does not attempt to be, comprehensive in nature. Due to the general nature of its content, it should not be regarded as legal advice. Johnnie Cox is an Associate Lawyer at John G. Cox Family Law. With an International Commercial Law LLM from the University of Sussex, his academic background in international corporate governance and comparative law positions him to effectively navigate complex family law matters.
Citations: [1] Tara Helfman, ‘Transatlantic Influences on American Corporate Jurisprudence: Theorizing the Corporation in the United States’ (2016) 23 IJ of GLS 383 385. [2] Salomon v Salomon & Co Ltd [1897] AC 22. [3] ibid. [4] David Milton, ‘Piercing the Corporate Veil, Financial Responsibility, and the Limits of Limited Liability’ (2007) 56 Emory LJ 1305. [5] Wildman v Wildman 2006 CanLII 33540 (ON CA). [6] ibid. [7] Aubin v Petrone 2020 ABCA 13 36. [8] ibid 37. [9] Transamerica Life Insurance Co of Canada v Canada Life Assurance Co [1996] OJ No 1568 19-21. [10] Yaiguaje v Chevron Corporation 2015 SCC 42. [11] Prest v Petrodel [2013] UKSC 34 453. [12] Wildman (n5) 49. [13] ibid 23. [14] ibid. [15] Adams v Cape [1990] Ch 433. [16] Transamerica (n 9) 31. [17] Wildman (n5) 25. [18] ibid 26-7. [19] ibid 38. [20] Prest (n 11) 488. [21] Carter v Carter 2024 ONSC 5414.
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