The Holey Veil - Courts Can Now Pierce the Corporate Veil to Set and Enforce Support Payments

Individually owned business enterprises no longer offer protection in family litigation as they have traditionally done in commercial litigation, but the Ontario Court of Appeal has outlined when and how the corporate veil may be pierced. In an October 2006 ruling (Wildman v. Wildman), the court determined that individuals who own companies cannot use businesses to avoid paying child and spousal support.

The corporate veil is the structure that allows business people, for tax and other purposes, to have two separate legal personae. This veil can protect business owners and their families personally from the functions of their corporations. However, in the ruling, the judge held that "the law must be vigilant to ensure that permissible corporate arrangements do not work an injustice in the realm of family law. In appropriate cases, piercing of 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."

Here are the guidelines for such rulings: First, the business must be owned by the individual spouse who has complete financial, practical, and policy control over it. Next, the business owner in question must have used this control "to commit a fraud or wrong that would unjustly deprive a claimant of his or her rights" and, finally, "the misconduct must be the reason for the third party's injury or loss." This means that, though the company need not have been formed in order to commit such a wrong, if it did commit the wrong it can lose the protections of the corporate veil. The priority is determining what the spouses' real assets are and how to distribute them fairly.

In the case in question, the business-owner spouse did not keep his personal and business interests separate and enjoyed redirected finances for his own use. He also disregarded court orders concerning support payments to his spouse and two children. The court saw that the corporate veil did not separate the spouse from his company and thus could not be used to prevent support from reaching his wife and children.

Reviewed March 2015