Corporations protect a shareholder’s personal assets from creditors. In some situations, corporations can be liable to pay a shareholder’s debts. Payment of family maintenance orders is one of these situations.
Across Canada, provinces have passed legislation that allows courts to make an order that a closely-held corporation is liable to pay support payments for its shareholders. In Alberta, this legislation is known as the Enforcement of Maintenance Orders Act.
The Court’s Power To Order A Corporation To Pay Support Payments
A court usually orders a corporation to pay a shareholder’s support payments as a matter of last resort after other efforts to compel a shareholder to make their support payments have failed. In Alberta, the Court of Queen’s Bench can make this order if the Director of the Maintenance Enforcement Program applies for such an order.
The Director can apply to have a corporation make support payments if:
- A person who owes support payments (the debtor) has defaulted on their payments under a maintenance order that is filed with the Director; and
- The Director believes the debtor or another person acting on the debtor’s behalf exercises authority over a corporation which legally owns or otherwise holds property or funds.
The Director can then apply to the court for an order that the property is, or the funds are attachable, subject to seizure and sale or subject to a support deduction notice, depending on the circumstances, for the purposes of payment of maintenance arrears the debtor must pay under the maintenance order.
When A Court May Order A Corporation To Pay Support
The Court of Queen’s Bench in Saskatchewan recently made such an order in the case of a couple who were the sole shareholders in a corporation. They had decided to separate. The husband agreed, in their separation agreement, to make payments totalling $110,000 regarding their family home. The agreement was integrated into a court order. The husband could not make this payment. Under the agreement, the husband had to pay this as a lump sum payment.
The wife asked the court to order that the corporation was jointly and severally liable with her husband for the lump sum support payment. The husband said the company would be financially ruined, and his wife would not receive the money she was owed. The husband also argued the corporation should not be required to make the support payment to the wife unless it had been created for an improper purpose.
A court can order a corporation to make support payments in Saskatchewan, though the Saskatchewan legislation’s requirements differ somewhat from the Alberta legislation. The court ordered the corporation to pay the support payments to the wife as the legal requirements were met.
s support payment as the husband was using the corporation for an improper purpose. Controlling shareholders cannot avoid making support payments to ex-partners and children by keeping assets in a corporation. Applicants for support need not show the other party created the corporation for an improper purpose before the court can act.
Courts across Canada generally have made similar decisions when confronted with these circumstances. Judges balance the rights of individuals to create business structures for valid business, tax and other reasons with the rights of ex-partners and the couple’s children to receive the support payments to which they are legally entitled.
People who are separating who find themselves in this situation should consult an experienced family law lawyer. They will learn what rights they have and how their rights can be protected.