Arnold v. Washburn
[Indexed as: Arnold v. Washburn]
57 O.R. (3d) 287
[2001] O.J. No. 4996
Docket No. C35085
Court of Appeal for Ontario
Catzman, Carthy and Moldaver JJ.A.
December 19, 2001
- Application for leave to appeal to the Supreme Court of Canada was dismissed December 19, 2002 (Gonthier, Major and Arbour). S.C.C. File No. 29080. S.C.C. Bulletin, 2002, p. 1878.
Family law -- Support -- Child support -- Wife bringing application for increased child support for children who had reached age of majority -- Trial judge applied s. 17(1)(c) of Child Support Guidelines to exclude husband's profits from exercise of employee share options from his income -- Trial judge did not err in exercise of his discretion -- Trial judge recognized huge "imbalance in money power" of parties and made award to wife under s. 7 of Guidelines of amount equal to 95 per cent of vacation costs incurred by husband when he vacationed with children -- Vacation expenses not properly awarded under s. 7 of Guidelines -- Trial judge should have exercised his discretion under s. 3(2) of Guidelines instead -- Husband's profits from exercise of stock options could be taken into account in exercising discretion under s. 3(2) -- Additional $1,000 per month in child support awarded on appeal -- Child Support Guidelines, O. Reg. 391/97, ss. 3(2), 7, 17(1)(c).
The wife was awarded $3,000 monthly for the support of the parties' three children by a 1991 consent judgment. In 1999, the husband realized $3,181,315 from the exercise of stock options received from his employer. In 2000, the wife brought an application for increased child support. She asked the trial judge to average the husband's income over the years, including those years when stock was sold, and to recognize that he retained stock from which he would presumably profit in future years. The trial judge refused to do so and applied s. 17(1)(c) under the then-applicable Child Support Guidelines to exclude in its entirety the share profits realized in 1999. He declared the husband's annual income to be $377,000 and awarded $4,121.80 per month for the support of two children who had reached the age of majority and were engaged in post-secondary education. The trial judge also made an award for the payment to the wife of an amount equal to 95 per cent of the vacation costs incurred by the husband for himself and the children when vacationing with the children. The wife appealed. The husband cross-appealed.
Held, the appeal and the cross-appeal should be allowed.
The stock option income was properly characterized as a non- recurring amount in the circumstances of this case. Even if this characterization was incorrect, the old s. 17(1)(b) of the Guidelines implicitly gave a trial judge discretion to take into account pattern of income and fluctuations in income in determining the payer's annual income, and the new s. 17 makes this discretion explicit. The trial judge's decision to exclude the income from the sale of the shares from his determination of the husband's annual income was an exercise of discretion that revealed no error in principle. However, the trial judge did not turn to s. 3(2) of the Guidelines to determine if the amount otherwise indicated by the Guidelines was appropriate for children of the age of majority, although it was clear from the balance of his reasons that he did not consider the guideline amount of support appropriate to the needs of the two children and the financial ability of the husband. He should not have awarded the wife the vacation credit under s. 7 of the Guidelines. The only part of s. 7 that might apply was s. 7(1)(f), "extraordinary expenses for extracurricular activities". However, vacations are not extracurricular activities, and the award under s. 7 could not stand. The trial judge apparently realized that he had not included enough in annual income to accommodate an appropriate amount for vacation expenses and thus added this provision under s. 7. Instead of awarding leisure travel expenses under s. 7, he should have exercised his discretion under s. 3(2) of the Guidelines. In considering the financial ability of the parties to contribute to the children's support under s. 3(2) of the Guidelines, it would have been appropriate to take into account the husband's exercise of the stock options. Taking all relevant factors into account, an additional $1,000 per month should be added to the judgment under s. 3(2) of the Guidelines.
APPEAL and CROSS-APPEAL from a judgment on an application to increase child support.
Cases referred to Andries v. Andries (1998), 1998 14093 (MB CA), 126 Man. R. (2d) 189, 159 D.L.R. (4th) 665, 167 W.A.C. 189, [1998] 7 W.W.R. 536, 36 R.F.L. (4th) 175 (C.A.), revg (1997), 1997 23045 (MB QB), 119 Man. R. (2d) 224 (Q.B.); Francis v. Baker, 1999 659 (SCC), [1999] 3 S.C.R. 250, 44 O.R. (3d) 736n, 177 D.L.R. (4th) 1, 246 N.R. 45, 50 R.F.L. (4th) 228; McLaughlin v. McLaughlin (1998), 1998 5558 (BC CA), 57 B.C.L.R. (3d) 186, 167 D.L.R. (4th) 39, [1999] 7 W.W.R. 415, 44 R.F.L. (4th) 148 (B.C.C.A.), supp. reasons (1999), 1999 BCCA 135, 172 D.L.R. (4th) 70, 44 R.F.L. (4th) 176 (B.C.C.A.); Raftus v. Raftus (1998), 1998 NSCA 75, 166 N.S.R. (2d) 179, 159 D.L.R. (4th) 264, 498 A.P.R. 179, 37 R.F.L. (4th) 59 (C.A.)
Rules and regulations referred to O. Reg. 391/97, Child Support Guidelines, ss. 3(2), 7, 16, 17 O. Reg. 114/99, Family Law Rules, rule 18(14)
Hector Emond and Asfrah Syed, for appellant. Robert Montague, for respondent.
The judgment of the court was delivered by
Introduction and Background
1CARTHY J.A.: -- On an application for increased support for children of the marriage, Justice Rutherford declared the respondent husband's annual income to be $377,000 and awarded $4,121.80 per month support for two children of the marriage from February 1, 2000 (the date of the application) forward. He further ordered that the respondent pay certain educational and club expenses incurred by the children as special and extraordinary expenses pursuant to s. 7 of the Federal Child Support Guidelines, O. Reg. 391/97. In addition, he made an award for the payment to the wife of an amount equal to 95 per cent of the vacation costs incurred by the respondent for himself and the children when vacationing with the children. The appellant was awarded costs on a party and party basis.
2The appellant seeks to increase the monthly award of support for the children to reflect in some measure the respondent's income in 1999 of $3,181,315 earned through the exercise of employment stock options. The respondent seeks by cross-appeal to eliminate the vacation cost award and to set aside the award of costs in favour of the appellant.
3The parties were married in 1974 and separated in 1988. They settled their differences and, in 1991, they obtained a judgment on consent awarding the appellant $3,000 monthly for the support of three children. At that time, and since, the respondent was a Vice-President of Northern Telecom Limited (Nortel). At the time of the settlement, the children were entering their teen years and the two children for whom increased support is now sought are of the age of majority and engaged in post-secondary education. The respondent's income has risen markedly at Nortel, the children's expenses have risen, and no issue is taken with the fact that there has been a material change of circumstances justifying the application.
Stock Option Income and Annual Income
4The focus of the appeal is upon the treatment to be given to the respondent's income under the Guidelines. From time to time, Nortel has given the respondent stock options. The exercise of these options is reflected as income on the T1 General form. In 1993, the respondent realized $385,048 from the exercise of such options and the sale of the shares and, in 1999, the year before this application for variance was commenced, a profit of $3,181,315 was realized. Including salary, bonus and investment income, his income from all sources in 1999 was $3,583,172. Applying the guideline tables to that total income would produce a support award for two children of $37,466 monthly.
5The calculation of the payer's annual income under the Guidelines begins with s. 16. At the time of the trial judge's first endorsement, that section provided: [See Note 1 at end of document]
Calculation of annual income
- Subject to sections 17 to 20, a spouse's annual income is determined using the sources of income set out under the heading "Total income" in the T1 General form issued by Revenue Canada and is adjusted in accordance with Schedule III.
6The applicant in this case asked the trial judge to average the respondent's income over the years, including those when stocks were sold, and to recognize that the father retained stock from which he would presumably profit in future years. The trial judge refused to do so and applied s. 17(1)(c) under the then applicable Guidelines to exclude in its entirety the share profits realized in 1999. Section 17 read:
Pattern of income
17(1) Where the court is of the opinion that the determination of a spouse's annual income from a source of income under section 16 would not provide the fairest determination of the annual income from that source, the court may determine the annual income from that source
(a) where the amount in respect of the source of income has increased in each of the three most recent taxation years or has decreased in each of those three years, to be the amount from that source of income in the spouse's most recent taxation year;
(b) where the amount in respect of the source of income has not increased or decreased as described in paragraph (a), to be the average of the amount received by the spouse from that source of income in the three most recent taxation years, or such other amount, if any, that the court considers appropriate; or
(c) where the spouse has received a non-recurring amount in any of the three most recent taxation years, to be such portion of the amount as the court considers appropriate, if any.
7The trial judge's reasons for this exclusion were [at paras. 6-7]:
The appropriate calculation of the respondent's "annual income" for the purposes of the Support Guidelines begins with section 16. Looking at the "total income" section of the respondent's 1999 T1 return for income tax yields a very large figure because of the inclusion of the appropriate portion of the proceeds of his 1999 sale of shares. Without that latter element, his income is comprised of his salary, a substantial bonus, and income from his investment portfolio. Because the amount of bonus varies and the investment yield will vary somewhat as well, I adopt $377,000 as an amount counsel for both parties were in essential agreement on as the respondent's "annual income" without direct inclusion of monies received from the sale of shares. I say "direct" inclusion because those monies are involved indirectly in that they produce the investment income element of the annual income.
I do not think inclusion of part or all of proceeds of the sales of shares in 1993 or 1999 in the "annual income" would produce the fairest determination of the respondent's annual income from his employer, and I rely on my authority in paragraph 17(1)(c) of the Support Guidelines to exclude all of these amounts. They are large amounts, which do not form a pattern of "income" and otherwise skew in a major way what pattern does emerge. Moreover, the wealth from those sales contributes to the respondent's annual income through the yield from the investment portfolio.
8The trial judge relied on s. 17(1)(c) as it was in force at the time of his endorsement on September 14, 2000. Section 17 of the Guidelines was replaced before the trial judge rendered judgment. The new s. 17(1) came into force on November 1, 2000. It provides:
17(1) If the court is of the opinion that the determination of a spouse's annual income under section 16 would not be the fairest determination of that income, the court may have regard to the spouse's income over the last three years and determine an amount that is fair and reasonable in light of any pattern of income, fluctuation in income or receipt of a non-recurring amount during those years.
Both the old s. 17(1)(c), upon which the trial judge relied, and the new s. 17(1) give a trial judge discretion to include any part of a non-recurring amount in a spouse's annual income. With some reservation, I am prepared to assume that the stock option income was properly characterized as a non-recurring amount in the circumstances of this case. However, even if this characterization was incorrect, I note that the old s. 17(1)(b) implicitly gave a trial judge discretion to take into account pattern of income and fluctuations in income in determining the payer's annual income, and the new s. 17 makes this discretion explicit.
9In the present case, the trial judge's decision to exclude the income from the sale of shares from his determination of the respondent's annual income was an exercise of discretion that reveals no error in principle. He could have attributed the share income or some portion of it for Guideline purposes, but chose not to, observing that some of the investment income was derived from the proceeds of the share sales. I note that the investment income of the husband was between $3,000 and $5,000 in each of 1997 and 1998, supporting the conclusion that most of his $93,616 of investment income in 1999 was earned on investment of the $3 million.
Support for Children of the Age of Majority and Vacation Expenses
10However, the trial judge never did turn to s. 3(2) of the Guidelines to determine if the amount otherwise indicated by the Guidelines was appropriate for children of the age of majority. Section 3(2) reads:
Child the age of majority or over
3(2) Unless otherwise provided under these Guidelines, where a child to whom a child support order relates is the age of majority or over, the amount of the child support order is
(a) the amount determined by applying these Guidelines as if the child were under the age of majority; or
(b) if the court considers that approach to be inappropriate, the amount that it considers appropriate, having regard to the condition, means, needs and other circumstances of the child and the financial ability of each spouse to contribute to the support of the child.
11Although this provision was not referred to by the trial judge, it is clear from the balance of his reasons that he did not consider the guideline amount of support appropriate to the needs of the two children and the financial ability of the husband.
12At the first hearing in September 2000, the trial judge simply concluded that the respondent's annual income of $377,000 indicated support for three children of $5,324.80 per month. He later revised this figure to a guideline amount of $4,121.80 for two children when the eldest was accommodated apart from the court order. He directed that the payments be revised accordingly, retroactive to the date of the application.
13At an appointment in November 2000, the trial judge issued a second endorsement in which he granted the wife permission to return with evidence to satisfy him that there were special expenses that are not subsumed in the guideline amount and are recoverable under s. 7 of the Guidelines. That section permits awards for specific purposes such as medical, child care, schooling and extracurricular activities and provides for these expenses to be shared in proportion to incomes.
14Section 7 reads:
Special or extraordinary expenses
7(1) In a child support order the court may, on either spouse's request, provide for an amount to cover all or any portion of the following expenses, which expenses may be estimated, taking into account the necessity of the expense in relation to the child's best interests and the reasonableness of the expense in relation to the means of the spouses and those of the child and to the family's spending pattern prior to the separation:
(a) child care expenses incurred as a result of the custodial parent's employment, illness, disability or education or training for employment;
(b) that portion of the medical and dental insurance premiums attributable to the child;
(c) health-related expenses that exceed insurance reimbursement by at least $100 annually, including orthodontic treatment, professional counselling provided by a psychologist, social worker, psychiatrist or any other person, physiotherapy, occupational therapy, speech therapy and prescription drugs, hearing aids, glasses and contact lenses;
(d) extraordinary expenses for primary or secondary school education or for any other educational programs that meet the child's particular needs;
(e) expenses for post-secondary education; and
(f) extraordinary expenses for extracurricular activities.
Sharing of expense
(2) The guiding principle in determining the amount of an expense referred to in subsection (1) is that the expense is shared by the spouses in proportion to their respective incomes after deducting from the expense, the contribution, if any, from the child.
Subsidies, tax deductions, etc.
(3) In determining the amount of an expense referred to in subsection (1), the court must take into account any subsidies, benefits or income tax deductions or credits relating to the expense, and any eligibility to claim a subsidy, benefit or income tax deduction or credit relating to the expense.
15At that final hearing in December 2000, the trial judge reviewed the circumstances of the children and the various budgets that had been submitted as to expenses for their care. He concluded that he couldn't determine with any precision how much the care costs would be. In his review of a number of special expenses claimed under s. 7, the trial judge allowed expenses for tuition, tutoring fees, computers and club memberships, largely with the husband's consent. Other expenses, including a car lease, were rejected. These expenses were allowed in full rather than proportionate to incomes as provided in s. 7(2), presumably because the awards were mostly on consent.
16Finally, he dealt with vacation expenses [at para. 26] as follows:
That leaves only the expenses claimed for what appears to be holiday or leisure travel. Again, I don't really have any evidence by way of background or context against which to assess the claims for trip expenses for the children. The table amount presumably subsumes some amount of vacation expenses, but I have no way of allocating it on the record before me. I know very little about the travelling habits of the parties. The applicant shows annual vacation expense of $1667.67 in her financial statement [Record Tab 5E] while the respondent has not provided any details of his expenses in Part 6 of his financial statement [Record Tab 12]. During the argument respondent's counsel advised me that he knew that N. did not need new golf equipment because he had just returned from a week golfing with his father in Florida and was well equipped with clubs. Rather than leave the case in a more festering state than may be necessary, notwithstanding the lack of evidence, I think that it would be fair in the circumstances for the respondent to provide to the applicant, annually, an amount of money equal to 95 per cent of whatever amount he spent on leisure travel or vacation for J. and/or N. in the previous 12 months. That calculation would include his own travel costs if he participated in the leisure trip or vacation with the child or children. The reason I think this should be done is that there appears to me, in addition to some fundamental conflicts in parenting philosophies, that there is a huge imbalance in the money power of the parties, which can and may well be operating unfairly to the applicant.
17This item is the subject of the cross-appeal, which must, in my view, be allowed. The only provision in s. 7 of the Guidelines that might apply would be s. 7(1)(f), "extraordinary expenses for extracurricular activities". "Curriculum" refers to schooling: see New Shorter Oxford English Dictionary (1993). "Extracurricular" in common parlance refers to ancillary elements to the formal teaching programme. It is an extracurricular activity to play a violin in the school orchestra. It would be an extraordinary expense to purchase a very expensive violin for that purpose. Even organized activities with no connection to the child's school, such as dance or music lessons, team sports, or a chess club, might qualify as "extracurricular activities". However, vacations, holidays and leisure travel cannot on any rationalization be fitted into that confined descriptive area.
18Canadian appellate courts have been divided in their interpretation of what makes an expense "extraordinary" for the purposes of s. 7(1)(f). See Raftus v. Raftus (1998), 1998 NSCA 75, 37 R.F.L. (4th) 59, 159 D.L.R. (4th) 264 (N.S.C.A.); Andries v. Andries (1998), 1998 14093 (MB CA), 36 R.F.L. (4th) 175, 159 D.L.R. (4th) 665 (Man. C.A.); McLaughlin v. McLaughlin (1998), 1998 5558 (BC CA), 44 R.F.L. (4th) 148, 167 D.L.R. (4th) 39 (B.C.C.A.). This is not the proper case to decide the meaning of "extraordinary expenses" in Ontario. Suffice it to say that s. 7(1)(f) applies only to "extracurricular" activities, and that a family vacation is not an extracurricular activity.
19The appellant's response to the cross-appeal was that the trial judge realized he had not included enough in annual income to accommodate an appropriate amount for vacation expenses and thus added this provision under s. 7. I agree. In effect, the trial judge found that the amount of child support otherwise determined under the Guidelines was inappropriately low. While he was entitled to do so, he should have exercised his discretion under s. 3(2) rather than awarding leisure travel expenses under s. 7.
20For convenience, I repeat the wording of s. 3(2):
Child the age of majority or over
3(2) Unless otherwise provided under these Guidelines, where a child to whom a child support order relates is the age of majority or over, the amount of the child support order is
(a) the amount determined by applying these Guidelines as if the child were under the age of majority; or
(b) if the court considers that approach to be inappropriate, the amount that it considers appropriate, having regard to the condition, means, needs and other circumstances of the child and the financial ability of each spouse to contribute to the support of the child.
21The fact that the trial judge saw fit to add the vacation allowance and his reasons for doing so demonstrate that he regarded the guideline amount as inappropriate. This court could send the issue back for reconsideration but in the interest of the parties and the children I think it best to conclude the proceedings with what may be a somewhat arbitrary assessment.
22The Guidelines no doubt assume vacation costs commensurate with the indicated income and I would therefore not duplicate the trial judge's s. 7 order under s. 3(2). As stated earlier, I am not persuaded that the trial judge erred in the exercise of discretion in excluding the stock option income from the calculation of the respondent's annual income. A fair determination of annual income under s. 17 requires a trial judge to consider the payer's pattern of income, including non-recurring or fluctuating amounts, and arrive at an amount that reflects as accurately as possible the actual income of the payer for the present and into the future. The trial judge's discretion under s. 3(2), by contrast, focuses not on the payer's income but rather on the amount of support and its appropriateness having regard to the needs and condition of the children and the financial ability of the spouses to contribute to the children's support.
23Even though including the stock option income would not give rise to the fairest determination of the respondent's annual income in this case, that income can have an effect on the appropriate amount of child support under s. 3(2). There is no doubt that this $3 million added substantially to the husband's financial ability to contribute to the children's support. While the trial judge did not make a finding about the appropriate level of support under s. 3(2), he did address himself to the question of the respondent's financial ability. Indeed, his very reason for awarding the vacation expenses under s. 7 was to address the "huge imbalance in the money power of the parties, which can and may well be operating unfairly to the applicant".
24The other factors relevant to determining an appropriate amount of support under s. 3(2) are the conditions, means, needs and other circumstances of the children. One of the few points of reference available to the court in assessing these factors is the set of budgets of the children's expenses. The trial judge refers to the uncertainty created by changes in the budgets presented by the appellant from time to time. The explanation given to this court was that the final budget presented in September 2000 was based upon the then known facts as to the husband's financial situation. Earlier ones were based on lesser assumptions. In Francis v. Baker, 1999 659 (SCC), [1999] 3 S.C.R. 250 at p. 279, 177 D.L.R. (4th) 1, the court stated:
The trial judge noted that the respondent's budgets were prepared without the benefit of the appellant's financial information, and that they did not include the level of discretionary expenses that might be appropriate for children whose father is in the financial category of the appellant. Also referred to in the trial judgment is the fact that the appellant himself leads a lavish lifestyle and spares no expense on the children when they are with him.
25In the present case, only the most recent budget was prepared on the basis of the respondent's actual financial ability to support the children. It embodies a high level of discretionary expenditures that is arguably appropriate for the children of a father in the respondent's financial position. The last budget arrives at a total for the two children of $118,000 for the year. Even deducting expenses for computers, tuition, school supplies, club fees and tutoring, for which the husband is separately responsible, and reducing the amount to account for some exaggeration on the part of the appellant, the budget still represents expenses of $70,000 a year, while the table amount of support being paid by the husband (excluding the special expenses I have also excluded from the budget) is approximately $49,500 a year.
26What, then, is the appropriate amount of support under s. 3(2)(b)? While that amount must reflect in some measure the respondent's increased ability to contribute to the children's support in light of his very high stock option income in 1999 and the children's needs as reflected in the latest budget of their expenses, arriving at a final figure remains a difficult and indeterminate task. Taking all relevant factors into account, I would add to the judgment an additional $1,000 per month as what I consider appropriate additional support for the children under s. 3(2) of the Guidelines.
Costs
27The cross appeal sought leave to appeal the costs award at trial. The applicant was awarded costs on a party and party basis and seeks solicitor and client costs. The respondent argues that the offers to settle made by the parties dictate that she be denied costs. No offer to settle brought into play rule 18(14) of the Family Law Rules, O. Reg. 114/99 and leave to appeal is denied. The trial judge's discretion as to costs should not be disturbed.
Disposition
28The appeal and cross-appeal are therefore allowed and the judgment below amended accordingly. Success is divided and while the extent of success cannot be determined it is appropriate in all the circumstances that the husband pay the costs as of one appeal on a party and party basis.
Appeal and cross-appeal allowed.
Notes
Note 1: Section 16 has since been amended so that it now refers to the Canada Customs and Revenue Agency rather than Revenue Canada.
