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One of the reasons people may incorporate a company is to shield themselves from personal liability should the company be sued or go bankrupt. This protection that shields the owner of a company is known as the “corporate veil.” “Lifting” or “piercing” the corporate veil can be difficult to do, but as we see in a recent decision from the Ontario Superior Court of Justice, there are occasions when the courts may do so in a family law situation.

Spousal support goes underpaid

The parties arrived before the court as a result of the husband’s failure to pay spousal support. He was ordered to pay $13,759 in monthly spousal support to the wife. The husband resisted the order and made attempts to vary it. He has since fallen into substantial arrears. At the time of the trial he owned the wife almost $480,000 in unpaid spousal support and costs. The province’s Family Responsibility Office has collected some unpaid support, but only by garnishing the husband’s wages.

Cottages are sold

In the summer of 2020 the husband sold a cottage he personally owned. This sale generated proceeds of $86,718.63. A cottage next door to his was owned by a corporation (“911”) which the husband solely owns. That cottage was also sold, generating $180,206.76 in proceeds. The combined sales generated over $265,000 in proceeds which are currently being held by the husband’s solicitor. The wife asked the court for those proceeds to be applied against the support that was in arrears.

The court broke the issue down into parts, asking whether each cottage’s proceeds should be given to the wife.

Should the proceeds from both cottages go against support owed?

The husband claimed that the proceeds from the sale of his personal cottage should not be handed over because he had a change in income and stated that he may not ultimately owe any support. However, the court found that the husband “has not provided meaningful information to support his position.” In fact, he had not supported any evidence to back up his claim that his income had dropped from the $644,172 imputed to him. As a result, the court ordered the proceeds from the sale of the personally held cottage to be given to the wife.

The court then turned to the matter of whether the corporate veil should be pierced to allow the wife to recover additional unpaid support. The court noted that in appropriate cases, the corporate veil may be pierced to allow for people to collect support from the support payor’s business, quoting a 2006 decision from the Ontario Court of Appeal.

The 2006 decision stated that three factors must be established in order to pierce the veil:

a.  The individual exercises complete control of finances, policy and business practices of the company.

b. That control must have been used by the individual to commit a fraud or wrong that would unjustly deprive a claimant of his or her rights.

c. The misconduct must be the reason for the third party’s injury or loss.

Applying the test to this case, the court found that the husband did exercise complete control of the company that owned the cottage. The court also held that the husband was wrongly using the company in order to keep his former wife from collecting support. Finally, that wrongdoing was tied to the wife’s loss of support. Because of these reasons, the proceeds from the sale of the cottage owned by 911 were also ordered to be given to the wife.

Contact Gelman & Associates to learn how our experienced family law lawyers can ensure the fair division of business assets during a separation or divorce. We provide our clients with the information and resources required to make informed decisions during a difficult period of transition. In addition to the extensive web-based resources available to our clients, all prospective clients are given a comprehensive family law kit during their initial consultation, with ample information and resources to help individuals understand and navigate the separation and divorce process. We can be reached by phone at (416) 736-0200 or 1-844-736-0200 or online to schedule an initial consultation.