Riddolls v. Barrett, 2023 ONCJ 506
CITATION: Riddolls v. Barrett, 2023 ONCJ 506
DATE: November 14, 2023
COURT FILE NO. D43171/22
ONTARIO COURT OF JUSTICE
B E T W E E N:
MICHELLE KATHERINE RIDDOLLS
ARISTOTELI LEBEDEV, for the APPLICANT
APPLICANT
- and –
BRANDON WILLIAM ROBERT BARRETT
ACTING IN PERSON
RESPONDENT
HEARD: NOVEMBER 8, 2023
JUSTICE S.B. SHERR
REASONS FOR DECISION
Part One – Introduction
[1] The remaining issue for trial in this case was the determination of the respondent’s (the father’s) annual income for the purpose of calculating his child support obligations for the parties’ two children (the children).
[2] The applicant (the mother) seeks to impute the father’s annual income at $113,350. The father asks that his annual income be assessed at $39,000.
[3] The parties agreed that the start date of the support order shall be June 1, 2022, and that the father will receive credit for support paid since that date in the amount of $1,500.
[4] The parties further agreed, at trial, that the father would irrevocably designate the mother as trustee, and the children as beneficiaries of his life insurance policy with Sun Life, for so long as the children are eligible for child support pursuant to the Family Law Act (the Act). This policy has a face value of $150,000.
[5] The mother relied on her affidavits and financial statement filed for trial. The father did not file a trial affidavit nor an updated financial statement, as directed by the court. He was permitted, at the trial, to provide oral evidence. The parties cross-examined each other.
Part Two – Brief background facts
[6] The father is 42 years old. The mother is 32 years old.
[7] The parties cohabited from September 2019 until February 2022.
[8] The parties have two children. M will turn three years old in January 2024. A will turn 2 years old in December 2023.
[9] The children have resided with the mother since the parties separated.
[10] The mother is employed as a teacher.
[11] The father is the sole shareholder and operator of a landscaping and snow removal company.
[12] The mother issued this application on October 5, 2022, seeking parenting and child support orders.
[13] On January 11, 2023, on consent, the court ordered the father to pay temporary child support to the mother of $500 each month. This was the Child Support Guidelines (the guidelines) table amount for two children, based on the father’s representation that he was earning annual income of $32,900. This amount was subject to adjustment, both with respect to the amount and the start date.
[14] On March 29, 2023, the parties were given leave to bring motions for temporary parenting and support orders. Both parties were represented by counsel at that time and brought these motions.
[15] The father did not attend court on the return of the temporary motions on May 10, 2023. His counsel was removed from the record at her request. The court ordered that the father pay temporary child support to the mother of $1,374 each month, starting on November 1, 2022, based on an imputed annual income to him of $92,000. Further, the father was ordered to pay the mother’s costs of the motions of $4,000.
[16] On August 3, 2023, the parties resolved all parenting issues. A final order was made that the mother have final decision-making responsibility for the children and that the father have specified parenting time with them. The father was ordered to provide financial disclosure to the mother.
[17] On August 10, 2023, the case was adjourned as the father had not provided his financial disclosure. The mother advised the court that the father had not paid support or costs. She was given leave to bring a motion to strike the father’s Answer/Claim. Costs of the appearance were reserved.
[18] The father had still not filed any further disclosure by the next court attendance on September 13, 2023. The mother had not brought a motion to strike his Answer/Claim. Directions for this trial were made. The father was ordered to serve and file his trial affidavit, an updated sworn financial statement and a statement of what order he was seeking by October 20, 2023. Again, the father did none of this. Costs of that appearance were reserved.
Part Three – The father’s evidence
[19] The father deposed that:
a) He has a high school education.
b) He has worked in landscaping and snow removal, off and on, since he was 13 years old.
c) He has had other jobs, including working as a labourer for a masonry company and doing HVAC work. He also worked with a printing press.
d) He has never earned more than $40,000 in any year.
e) He incorporated and started his own landscaping and snow removal business in 2016. He is the sole shareholder and operator of the corporation. This is a franchise business.
f) His business had gross income of $185,012 in 2019, $234,848 in 2020 and $264,672 in 2021.
g) Until September 2022, he had two trucks for his business. He had two full-time employees and two part-time employees.
h) In September 2022, one of the company’s trucks was stolen. This caused considerable harm to his business. He can no longer afford to hire employees and now operates the business alone. He said that he has had no employees during 2023.
i) His business had gross income of $193,459 in 2022.
j) His business had gross income of $135,971 in 2023, calculated to the end of October.
k) His corporation has not filed tax returns since 2016 and is going to have to pay massive taxes, fines and interest once it does. He blamed his accountant for this.
l) He has not had financial statements prepared for his corporation.
m) His business is no longer sustainable, and he is contemplating other options to earn income. He does not know what he will do yet. He is thinking of filing for bankruptcy but has not spoken yet to a trustee in bankruptcy.
n) His personal income tax returns accurately reflect his earnings. The returns filed by the father show the following annual income:
2019 - $18,500
2020 - $16,300
2021 - $19,500
o) He has not filed a 2022 personal income tax return.
p) His 2022 income was lower than in previous years.
q) In 2023, he is earning half of what he previously earned.
r) He understands that he has failed to meet his child support obligations. The separation from the mother has affected him financially, physically and psychologically. He knows that he has to do better.
Part Four – The mother’s evidence and the father’s response
[20] The mother deposed that:
a) She used to do unpaid administrative work for the father’s company.
b) The father earns substantial cash income from his company that he does not report to the Canada Revenue Agency (CRA). The father used to give her envelopes with cash.
c) The father has not provided complete or timely financial disclosure for her to accurately assess his income.
d) The father’s lifestyle is not consistent with his declared income.
e) The father has paid a paltry amount of child support since the separation. This has caused her and the children financial distress. She has had to incur significant debt to make ends meet.
f) The father had a letter prepared from his corporation in 2020 in support of a housing application. The letter represented that he earned annual income of $92,000.
[21] The father initially denied earning any cash income. Then, he admitted that he has earned minor amounts of cash income. He also conceded that he has paid some employees cash income.
[22] The father said that he lied about earning annual income of $92,000 to obtain the housing unit. He said that he has never earned anywhere near that amount of income. He claimed that the mother participated in this misrepresentation. The mother denied any involvement with this scheme.
Part Five – Legal principles for imputing income
[23] Section 19 of the guidelines permits the court to impute income to a party as it considers appropriate.
[24] The jurisprudence for imputation of income sets out the following:
a) Imputing income is one method by which the court gives effect to the joint and ongoing obligation of parents to support their children. In order to meet this obligation, the parties must earn what they are capable of earning. If they fail to do so, they will be found to be intentionally under-employed. See: Drygala v. Pauli 2002 41868 (ON CA), [2002] O.J. No. 3731(Ont. C.A.).
b) The onus is on the party seeking to impute income to the other party to establish that the other party is intentionally unemployed or under-employed. The person requesting an imputation of income must establish an evidentiary basis upon which this finding can be made. See: Homsi v. Zaya, 2009 ONCA 322, [2009] O.J. No. 1552. (Ont. C.A.). However, in Graham v. Bruto, 2008 ONCA 260, the court inferred that the failure of the payor to properly disclose would mitigate the obligation of the recipient to provide an evidentiary basis to impute income.
c) Once a party seeking the imputation of income presents the evidentiary basis suggesting a prima facie case, the onus shifts to the individual seeking to defend the income position they are taking. See: Lo v. Lo, 2011 ONSC 7663; Charron v. Carriere, 2016 ONSC 4719.
d) A self-employed person has the onus of clearly demonstrating the basis of his or her net income. This includes demonstrating that the deductions from gross income should be taken into account in the calculation of income for support purposes. See Whelan v. O’Connor, 2006 13554 (ON SC), [2006] O.J. No. 1660, (Ont. Fam. Ct.). This principle also applies where the person’s employment income is derived from a corporation that he or she fully controls. See: MacKenzie v. Flynn, 2010 ONCJ 184; Yocheva v. Hristov, 2019 ONSC 1007; Poulin v. Poulin, 2017 ONSC 64.
e) The self-employed have an inherent obligation to put forward not only adequate, but comprehensive records of income and expenses, from which the recipient can draw conclusions and the amount of child support can be established. See: Meade v. Meade (2002) 2002 2806 (ON SC), 31 R.F.L. 5^th^ 88 (SCJ). This includes the obligation to present information in a user-friendly fashion. A recipient should not have to incur expense to understand it. See: Reyes v. Rollo, 2001 28260 (SCJ).
f) Where a party fails to provide full financial disclosure relating to their income, the court is entitled to draw an adverse inference and to impute income to them. See: Szitas v. Szitas, 2012 ONSC 1548; Woofenden v. Woofenden, 2018 ONSC 4583.
g) The court may impute income where it finds that a party has hidden or misrepresented relevant information respecting their income to the other party or to the authorities. This includes cases where the evidence indicates that a party earns cash income that they do not declare for income tax purposes. See: Kinsella v. Mills, 2020 ONSC 4785; Prillo v. Homer, 2023 ONCJ 8.
h) The court can also impute income where the evidence respecting income is not credible for any other reason. See: Heard v. Heard, 2014 ONCA 196 (C.A.), at paras. 33-35; Gostevskikh v. Gostevskikh, 2018 BCSC 1441 (S.C.); M.A.B. v. M.G.C., 2022 ONSC 7207.
i) The court must have regard to the payor’s capacity to earn income in light of such factors as employment history, age, education, skills, health, available employment opportunities and the standard of living enjoyed during the parties’ relationship. The court looks at the amount of income the party could earn if he or she worked to capacity. See: Lawson v. Lawson, 2006 26573 (ONCA).
j) A person’s lifestyle can provide the basis for imputing income. See: Aitken v. Aitken [2003] O.J. No. 2780 (SCJ); Jonas v. Jonas [2002] O.J. No. 2117 (SCJ); Price v. Reid, 2013 ONCJ 373; Prillo v. Homer, 2023 ONCJ 8.
Part Six – The father’s failure to provide financial disclosure and his credibility
[25] Several orders were made for the father to provide complete and updated financial disclosure to the mother. He did not comply with them.
[26] The father was ordered to file an updated financial statement for trial. He did not do this. The only financial statement he filed was sworn on December 19, 2022.
[27] The father was ordered to provide an affidavit for his evidence about his financial circumstances for the trial and to serve any documents that he intended to rely upon at trial. He did not do this.
[28] The father was ordered to provide evidence about his 2023 income. He did not do this. At trial, he read off some figures from a paper about his 2023 income. He had not served or filed this document.
[29] The father failed to produce the following important evidence that was necessary to accurately assess his income:
a) He filed no corporate tax returns. He deposed that none have been prepared or filed with the CRA.
b) He filed no financial statements from his corporation that would set out annual revenue and expenses.
c) He filed no supporting documentation from his corporation showing revenue or expenses. No business ledgers were provided. This meant there was no way to assess if the corporation was deducting his personal expenses from its income.
d) He filed no documentation showing what amounts his corporation has paid annually to its employees.
e) He filed no personal notices of assessment.
f) He did not file a 2022 income tax return.
[30] The father was given multiple opportunities to provide complete financial disclosure and was warned about an adverse inference being drawn against him if he did not do this. Yet, he chose not to produce any meaningful financial disclosure.
[31] The father’s failure to provide financial disclosure affected his credibility. An adverse inference is drawn against him.
[32] There were other reasons why the father was not a credible witness, including:
a) He admitted misrepresenting his income to obtain a housing unit.
b) He admitted that he has avoided paying income taxes by not filing corporate income tax returns with the CRA.
c) His evidence about his income kept shifting. In his financial statement filed on December 19, 2022, he represented that he was earning $51,000 in 2022. At the court appearance on January 11, 2023, he represented that he was earning $32,900 annually. A temporary support order was made on that basis. At trial, he claimed that he was earning less income in 2022 than the $19,500 he had reported earning to the CRA in 2021. He claimed that he was earning even less income in 2023.
d) The father initially stated that he had paid his two full-time employees $800 to $1,000 each week and had also paid for part-time employees (he had no documentary evidence of any of this). When it was pointed out to him that this would likely mean that he had no income to pay himself, the father changed his evidence and stated that he paid his full-time employees much less income than he had initially stated.
e) The father claimed that his corporation has never made money. It makes no sense that he would have operated it for 7 years if this was the case.
f) Based on his own evidence, the father has seriously underpaid child support. He has placed his own interests ahead of the children’s interests. A review of his financial statement is revealing. He claims to spend $900 each month on groceries, meals outside of the home and household supplies, $2,633 each month on his vehicle and $370 each month on alcohol, entertainment and gifts. Yet, he has paid, on average, $84 each month for his two young children since the parties separated.
[33] The court preferred the mother’s evidence where it conflicted with the father’s evidence.
Part Seven – Imputation of the father’s income
[34] It is very difficult to assess the father’s actual income because he has failed to provide the mother and the court with meaningful financial disclosure.
[35] The court finds that the father has deliberately done this to obscure his income assessment. It was apparent at trial that he wanted the court to just accept his word as to how much money he is earning. The court will not do this. His evidence was not credible nor reliable.
[36] The court accepts the mother’s evidence that the father has earned cash income in addition to the amounts of income that he has disclosed to her.
[37] The father’s failure to provide financial disclosure does not mean that the court can just choose any income figure for support purposes. There must be some evidentiary basis for it.
[38] The evidence indicates that the father is probably earning income ranging between $60,000 to $80,000 each year for the following reasons:
a) The court finds that the annual income amount that the mother seeks to impute to the father of over $113,000 is high for a small business of this nature.
b) The court recognizes that the letter the father prepared for his housing application, stating that he was earning annual income of $92,000, was likely puffery on his part.
c) The father’s lifestyle, as reflected in his financial statement filed on December 19, 2022, is consistent with someone who is likely earning annual income in the $60,000 to $80,000 range.
d) The father initially testified that he was paying his full-time employees $800 to $1,000 each week. This projects to annual income in the $45,000 to $50,000 range. A reasonable inference is that the father would not operate his business unless he was earning more income than these employees.
e) The father provided the mother with his annual corporate bank deposits from 2019 to 2021. They averaged about $227,000 each year, not including cash income. The father self-reported that the corporation earned gross income of $193,459 in 2022, not including cash. He self-reported that the corporation earned $135,971 to the end of October 2023. This projects to gross income of $163,652 for 2023, excluding cash.
f) Given the types of expenses described by the father at trial, his net income was likely about 33% of his gross income each year until the end of 2022. In 2023, this percentage would be higher, as the father claimed that the corporation has not paid for employees. There would be some cash income in addition to these net income figures.
[39] The court will use an annual income of $70,000 for the father as its starting point in his income analysis.
[40] However, the analysis does not end there. It is appropriate in these circumstances to gross up the father’s income, as he is declaring and paying tax on substantially less income than he is actually earning. This is done to ensure consistency of treatment where a party is found to have arranged his affairs to pay less tax on income. See: Sarafinchin v. Sarafinchin, 2000 22639 (ON SC), [2000] O.J. No. 2855 (Ont. S.C.J.); Prillo v. Homer, 2023 ONCJ 8.
[41] The court could make the assumption that the father will continue to report personal income in the range of $19,500 (his 2021 reported income), when he eventually files his 2022, and 2023, income tax returns. He has consistently underreported his taxes at this income level to the CRA. This would result in a considerable gross-up of his income – resulting in an annual income in excess of $90,000.
[42] However, the court will not make the assumption that the father will continue to misrepresent his income to the CRA to this extent. While it has no reason to believe that he will suddenly accurately report his actual income, the court will take a more moderate path and work on the assumption that the father will report income of $51,000 to the CRA, as he did to the court in his financial statement filed on December 19, 2022. This will result in a more modest gross-up of his income. If the father reports income to the CRA of less than $51,000, for either 2022 or 2023, the mother may seek a change to this order and ask that a higher gross-up amount be applied.
[43] A software analysis (this will be attached to this decision) indicates that the father’s annual income after gross-up is $77,998. This is the income that the court will use for calculating the father’s child support obligations.
[44] The guidelines table amount at this income for two children is $1,182 each month.
[45] The support order, as agreed by the parties, will start on June 1, 2022.
[46] The father is to be credited with $1,500 for support paid.
[47] This order will result in support arrears of $19,776 ($1,1182 x 18 months = $21,276 - $1,500 credit).
[48] Given the father’s abysmal payment history, and his failure to pay anything towards the $4,000 costs awarded against him on the temporary motions, he will need to negotiate payment of these arrears directly with the Family Responsibility Office (FRO).
[49] The court will make the order regarding life insurance coverage agreed to by the parties. This will be security for support and is authorized by clause 34 (1) (k) of the Act. The court finds that this order is for necessaries of life for the children. This court set out the Ontario Court of Justice’s authority to make such orders in Reid v. Fortune, 2020 ONCJ 10, at pars. 45-54.
Part Eight – Costs
[50] The mother seeks her costs of $22,366.09, in addition to the $4,000 costs order made on May 10, 2023. The father submits that he cannot afford to pay any costs. He also claims that the costs claimed are excessive because the parties had agreed to bear their own costs on the parenting issues.
[51] The Ontario Court of Appeal in Mattina v. Mattina, 2018 ONCA 867 set out that modern costs rules are designed to foster four fundamental purposes
a) to partially indemnify successful litigants;
b) to encourage settlement;
c) to discourage and sanction inappropriate behaviour by litigants and;
d) to ensure that cases are dealt with justly under subrule 2 (2) of the Family Law Rules (all references to the rules in this decision are to the Family Law Rules).
[52] Costs can be used to sanction behaviour that increases the duration and expense of litigation, or is otherwise unreasonable or vexatious. In short, it has become a routine matter for courts to employ the power to order costs as a tool in the furtherance of the efficient and orderly administration of justice. See: British Columbia (Minister of Forests) v. Okanagan Indian Band, 2003 SCC 71, 2003 S.C.C. 71, paragraph 25.
[53] Costs awards are discretionary. Two important principles in exercising discretion are reasonableness and proportionality. See: Beaver v. Hill, 2018 ONCA 840.
[54] An award of costs is subject to the factors listed in subrule 24 (12), subrule 24 (4) pertaining to unreasonable conduct of a successful party, subrule 24 (8) pertaining to bad faith, subrule 18 (14) pertaining to offers to settle, and the reasonableness of the costs sought by the successful party. See: Berta v. Berta, 2015 ONCA 918, at paragraph 94.
[55] Subrule 24 (1) creates a presumption of costs in favour of the successful party. Consideration of success is the starting point in determining costs. See: Sims-Howarth v. Bilcliffe 2000 22584 (ON SC), [2000] O.J. No. 330 (SCJ- Family Court).
[56] The mother was the successful party. The father did not rebut the presumption that she is entitled to costs.
[57] The mother made an offer to settle. It was not more favourable to the father than the trial result. However, the offer can be considered in assessing the amount of costs. The court recognizes that the mother had limited financial information to make an informed offer to settle.
[58] Subrule 24 (12) reads as follows:
24 (12) In setting the amount of costs, the court shall consider,
a) the reasonableness and proportionality of each of the following factors as it relates to the importance and complexity of the issues:
(i) each party’s behaviour,
(ii) the time spent by each party,
(iii) any written offers to settle including offers that do not meet the requirements of rule 18,
iv) any legal fees, including the number of lawyers and their rates,
v) any expert witness fees, including the number of experts and their rates,
vi) any other expenses properly paid or payable; and
(b) any other relevant matter.
[59] The court should also take into consideration the ability of a party to pay costs. See: MacDonald v. Magel (2003) 2003 18880 (ON CA), 67 O.R. (3d) 181 (Ont. C.A.). Ability to pay will be less of a mitigating factor when the impecunious party has acted unreasonably, or where their claim was illogical or without merit. See: Gobin v. Gobin, 2009 ONCJ 278; D.D. and F.D. v. H.G., 2020 ONSC 1919.
[60] Those who can least afford to litigate should be most motivated to seriously pursue settlement and avoid unnecessary proceedings. See: Mohr v. Sweeney, 2016 ONSC 3338; Balsmeier v Balsmeier, 2016 ONSC 3485.
[61] In determining the appropriate quantum, the court should consider the amount that the unsuccessful party could reasonably have expected to pay in the event of lack of success in the litigation. See: Arthur v. Arthur, 2019 ONSC 938.
[62] The case was important to the parties. It was not complex. It was made more difficult due to the father’s failure to provide meaningful financial disclosure.
[63] The mother acted reasonably. The father did not act reasonably. He has not complied with court orders and did not provide proper financial disclosure.
[64] The rates claimed by the mother’s counsel ($300 per hour for a 2006 call to the bar) are reasonable.
[65] The disbursements claimed by the mother are reasonable.
[66] The court reserved costs for the court appearances held on August 10, 2023 and September 13, 2023. The mother is entitled to her costs of those appearances because she was the successful party. Further, the father was not prepared to conduct productive conferences on both occasions, due to his lack of financial disclosure.
[67] The mother filed a bill of costs. It contained little detail – it just listed lump sum hours spent on general categories of work.
[68] The bill of costs did not delineate what costs were attributable to the support issues and what costs were attributable to the parenting issues. This is important as the parties had agreed on August 3, 2023, that they would each bear their own costs for the parenting issues.
[69] The mother was already awarded costs of $4,000 on May 10, 2023.
[70] The time claimed by the mother on the support issues was excessive. The trial only took a half-day. The material filed by the mother was straightforward. The father had given her little financial disclosure to review and process.
[71] The court finds that a reasonable and proportionate amount for costs is $10,000, inclusive of fees, disbursements and HST. This is in addition to the costs previously ordered.
[72] The court finds that the father can afford these costs and that he should have reasonably expected to pay this amount of costs if he was unsuccessful.
[73] The mother also seeks an order that this costs order and the $4,000 costs order made on May 10, 2023, be payable as support and enforced as an incident of support by FRO, pursuant to clause 1(1) (g) of the Family Responsibility and Support Arrears Enforcement Act.
[74] The court has discretion to allocate what portion of the costs are attributable to support, particularly when there are multiple issues being litigated. See: Sordi v. Sordi 2011 ONCA 665.
[75] A flexible approach has been endorsed when the court is determining what proportion of costs should be allocated to the support issues. See: Shelley v. Shelley, 2019 ONSC 2830; Blackwood v. Nichols, 2022 ONCJ 357.
[76] The costs for this trial are entirely attributable to child support and the order sought by the mother will be made.
[77] The court finds that 75% of the costs ordered on May 10, 2023, being $3,000, are attributable to support. The balance is attributable to the parenting issues. The order will reflect this.
Part Nine – Conclusion
[78] A final order shall go on the following terms:
a) Based on an annual imputed income to the father of $77,998, he shall pay child support to the mother in the amount of $1,182 each month, starting on June 1, 2022. This is the guidelines table amount for two children.
b) The father is to be credited with $1,500 for support paid since June 1, 2022.
c) The support arrears, as calculated in this order, are $19,776.
d) A support deduction order shall issue.
e) The father shall provide the mother with complete copies of his personal and corporate income tax returns, and the associated notices of assessment, by June 30^th^ each year.
f) If the father reports income to the CRA of less than $51,000, in either his 2022 or 2023 personal income tax returns, the mother has leave to bring a motion to change support, on the basis that the gross-up of the father’s income applied by the court in this decision was too low.
g) The father shall immediately irrevocably designate the mother as trustee and the children as the sole beneficiaries on his life insurance policy with Sun Life that has a face value of $150,000. He shall maintain that designation for so long as the children are eligible for support pursuant to the Act. He shall provide the mother with proof of that designation within 30 days. The father shall maintain this policy in good standing and shall provide proof of this to the mother, annually, if she requests it.
h) 75% of the $4,000 costs order, made on May 10, 2023, being $3,000, shall be payable as support and enforced as an incident of support by FRO, pursuant to clause 1 (1) (g) of the Family Responsibility and Support Arrears Enforcement Act.
i) In addition, the father shall pay the mother costs fixed at $10,000, inclusive of fees, disbursements and HST. The costs shall be payable as support and enforced as an incident of support by FRO, pursuant to clause 1 (1) (g) of the Family Responsibility and Support Arrears Enforcement Act.
Released: November 14, 2023
Justice Stanley B. Sherr