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Capital Reserve and its effect on determining Income for Support Purposes

Date: 12 Aug, 2018

A capital reserve can be described as a portion of a businesses’ capital/income that is needed to sustain the business itself and is not available for the purpose of funding support. This is touched upon in both Section 12 and Section 18 of the Child Support Guidelines. As readers of this blog are aware, the Child Support Guidelines are a federally mandated method of determining the amount of child support to be paid. This was an effort by Parliament to eliminate the wide variety of child support being ordered across the country. Simply put, if you make this much money, you will pay this much in child support. That of course is a vast over simplification and there are many exceptions and factors to be taken into account. One of those factors is for individuals who are self-employed or earn their income from a business, what money is available to be taken from that business to fund support.

Support payors can attempt to shelter profit by leaving it in their company and not drawing it and declaring it in their personal hands. The courts have the ability to go beyond what is simply being declared to determine what income realistically is available. One of those considerations is monies needed for a capital reserve. Alternatively what is needed to sustain the company as a viable enterprise. Often companies need to qualify for operating lines of credit from banks. Those banks may impose a term that the borrowing company maintain a minimum amount of cash reserves on hand.

As is usual with family law, that which appears to be simple,can actually be far more complicated.