CITATION: Ruffolo v. David, 2016 ONSC 754
DIVISIONAL COURT FILE NO.: DC-15-2600
DATE: 20160211
ONTARIO
SUPERIOR COURT OF JUSTICE
DIVISIONAL COURT
MOLLOY, HAMBLY, HACKLAND JJ.
BETWEEN:
FRANCO RUFFOLO
Respondent (Applicant)
– and –
MICHELLE ANNE DAVID
Appellant (Respondent)
Ines Gotal, for the Respondent (Applicant)
Jeff Rechtshaffen, for the Appellant (Respondent)
HEARD: October 19, 2015 (Brampton)
REASONS FOR JUDGMENT
C.T. HACKLAND J.
Overview
[1] This is an appeal by Michelle Anne David (“the wife”) from the order of Gray J. (the motion judge) dated February 10, 2015 granting Franco Ruffolo’s (the husband) motion to vary an earlier final order of Justice Healey dated December 6, 2011. Healey J. attributed income to the husband for child and spousal support purposes following a 5 day trial in January and March of 2011. The motion judge accepted new evidence from the husband (his income tax returns and Notices of Assessment and an accountants’ report), evidence which should have been but was not available to Justice Healey. The motion judge held that the husband had established a material change in circumstances and reduced the spousal and child support payments retroactively triggering a significant repayment obligation on the part of the wife.
[2] The wife contends that the motion judge erred in finding any material change in circumstances and in making the order to vary Justice Healey’s order retroactive in effect. For the reasons explained below, we agree with the wife’s position. There was no material change in circumstances and, in any event, the order reducing support should not have been retroactive.
The Facts
[3] The parties were married July 24th, 1999 and separated in August of 2007. There are two children of the marriage, Nicole Ruffolo born June 23rd, 2003 and Michael Ruffolo born October 29th, 2005. Nicole has been diagnosed as autistic. Since the parties’ separation, the two children have resided exclusively with the wife.
[4] On December 6, 2011 Justice Healey released her reasons for judgment following a 5 day trial. Her Honour attributed income to the husband, who was and remains a self-employed commercial real estate broker. The attribution of income was necessary because the husband had not filed his income tax returns for the years 2005-2009 and his income and expense information was unsatisfactory…in Healey J’s words “the court was left to splice together what it could from the piecemeal evidence.”
[5] In particular, Justice Healey had the husband’s unfiled and unassessed income tax returns from 2005-2009, statements of business activities and income and expense summaries and banking statements for a corporate entity through which the husband apparently carried on business, as well as personal credit card statements. The court was troubled by the extent to which much of this information was inconsistent with the husband’s trial evidence. The inconsistencies on the issue of the amount of the husband’s income caused Healey J. “to reject entirely, the reliability of Mr. Ruffolo’s sworn testimony, his unfiled tax returns, and his statements of income and business expenses.” (para. 115)
[6] Ultimately, following a careful analysis and based on detailed reasons, Justice Healey held that the husband’s income for the purposes of calculation of support, after subtracting expenses from imputed gross income was as follows:
2007 – $303,046
2008 – $135,291
2009 – $91,469
2010 – $147,631
Based on this imputed income, Healy J. ordered the husband to pay child support for the two children and spousal support as follows:
(i) $6,920 as lump sum child support for the period August 1, 2007 to March 2011;
(ii) $1,964 per month as ongoing child support from April 1, 2011 forward;
(iii) $115,628 as lump sum spousal support for the period August 1, 2007 to December 1, 2011; and
(iv) $2,100 per month as ongoing spousal support from January 2, 2012 forward.
[7] The husband appealed these awards to the Court of Appeal. The appeal was dismissed by order dated October 17, 2012. The court commented on the support award at paragraph 22 of its decision:
Based on the appellant’s historical income and in light of his failure to file income tax returns during the relevant time period, the trial judge imputed income in entirely reasonable amounts. His ability to pay is apparent from a reading of the factual findings of the trial judge. His obligation to pay spousal support is fully evident on the record. He had been the sole income earner when the family was intact, while the respondent bore primary responsibility for child care, a responsibility enhanced by Nicole’s special needs.
[8] In February of 2014, the husband brought the motion under appeal seeking a variation of the ongoing support provisions of the Order of Justice Healey. He challenged Healey J.’s imputation of income to him in the sum of $147,631 annually. He sought both an ongoing and retroactive reduction of both his child support payments and his spousal support payments. He requested that these reductions be made retroactive to January 1, 2012, over two years before the motion to vary was brought. The motion judge granted that relief.
[9] In particular, on this motion, argued by way of affidavit evidence and submissions by counsel, the motion judge made an Order reducing the husband’s child support payments such that the following amounts are now deemed to have been owing:
(a) For 2012, $956 per month based on a finding that his income was $64,329;
(b) For 2013, $1,132 per month based on a finding that his income was $76,932;
(c) For 2014 and ongoing, $841 per month on a projected income of $57,000.
As well, the order provided that any resulting overpayment of child support was to be repaid by the wife.
[10] The motion judge made an Order reducing the husband’s spousal support payments such that the following amounts are now deemed to have been owing:
(a) For 2012, $806 per month;
(b) For 2013, $1077 per month;
(c) For 2014 and on-going, $651 per month.
As well the order provided that any resulting overpayment of spousal support was to be repaid by the wife.
[11] On February 26, 2015, the motion judge made an Order that the wife pay the husband’s costs of the motion in the sum of $10,000.
[12] As stated previously, the motion judge granted the husband’s request that the support payments be reduced retroactively to January 1, 2012. This created a debt on the wife’s part to repay to the respondent the sum of $80,758, comprised of overpayments of both child and spousal support.
[13] The motions judgement stated in his endorsement:
This is a motion to vary an order for spousal and child support made by Healey J. on December 6th, 2011. She based support for 2010 and 2011 on an imputed income of $147,631. She had concerns about Applicant’s disclosure, his income tax filings, and his lack of explanation for large deposits to his bank account. Applicant claimed his income should be fixed at between $43,827.96 and $54,784.95.
The Applicant now says his support obligations should be based on his actual income for 2012, 2013 and 2014. He says his income for 2012 was $64,329; for 2013 $76,932; and is projected to be $57,000 for 2014. Thus, his child support should have been $956 per month for 2012; $1132 per month for 2013; and $841 per month for 2014. His spousal support, at the mid-range of the SSAG’s, should have been $806 per month for 2012; $1077 per month for 2013; and $651 per month for 2014.
Applicant has filed affidavit material regarding his actual income for 2012, 2013, 2014. He has also filed a report by a certified chartered accountant, which confirms his income, based on Applicant’s personal income tax returns, corporate tax returns, notices of assessment; Visa statement, business account statements, and deposits and expenses.
He [the Applicant] accepts that his income was properly attributed for 2010 and 2011, for reasons articulated by Healey J. He has addressed the factors mentioned by Healey J. He has made disclosure. He has produced income tax returns. Most significantly, he has provided a report by a chartered accountant who confirms, as much as it can be, what his income is.
I accept the calculations put forward by the Applicant. I order that child and spousal support be calculated for 2012, 2013 and 2014 as proposed by the Applicant. I order that support for 2015 be continued at the 2014 rate.
[14] The wife’s submission on this appeal is that the motion judge erred in accepting the husband’s position that because he had now filed his income tax returns and had received Notices of Assessment and had obtained an accountants’ report purporting to establish his income for support purposes, it was no longer appropriate to impute income to him.
Analysis
[15] As noted, Justice Healey’s order of December 6, 2011 (affirmed by the Court of Appeal on October 17, 2012) imputed income to the respondent for spousal and child support purposes in the sum of $147,631 for 2010 and 2011. On that basis, she ordered child support of $1964 commencing April 1, 2011 and spousal support of $2100 per month commencing January 1, 2012. Pursuant to the Order under appeal, the motion judge reduced the income attributed for the years 2012, 2013 and 2014 to his “actual income”, retroactive to January 1, 2012.
[16] Notwithstanding the respondent’s lack of success in appealing Healey J’s support order, he was able to achieve the same result in that the motions judge’s order was made retroactive to essentially the same date as Healy J’s original order. This is not only a problem of optics. The respondent, unhappy with the income imputed to him by Healey J. following a trial, in effect, has been permitted to relitigate that issue. Before the motion judge, the husband filed his tax returns for 2012-2014 supported by Notices of Assessment and an accountants’ report. A review of the accountants’ report also reveals that the report relies strictly on the income disclosed by the respondent. It does not discuss the manner he earns income as a commercial real estate agent or his billing practices. The report does not address the factual circumstances which led Healey J. to attribute income to the respondent and which led her to reject the respondent’s evidence that he was disclosing all his income. Indeed it is apparent in reading the accountants’ report that Healey’s J’s reasons for judgment were not provided nor considered in the preparation of that report. There was no information before the motion judge that did not depend entirely upon self-reporting by the husband. The motion judge accepted the husband’s reported income for the years 2012 to 2014 to be his actual income simply on the basis that he had filed income tax returns without more. This ignores the adverse finding made by Justice Healy as to the husband’s credibility.
[17] The wife relies on the decision of Pazaratz J. in Trang v. Trang (2013) 2013 ONSC 1980, 29 R.F.L. (7th) 364 (Ont. S.C.J.) for the proposition that a moving party has the burden of demonstrating why changed circumstances make it no longer necessary to impute income. The rationale for this approach was explained by Pazaratz J.:
If “declared income” automatically prevailed on a motion to change support, it would defeat the purpose of imputing income in the first place. It might even be a disincentive for payors to participate in the initial court process. They could wait to see if the court imputes income, and how much. If dissatisfied with the amount, the payor could later return to court waving their tax returns, to suggest that the original judge got it wrong.
Support claimants should not be forced to go through this two-step process. Our family court system certainly can’t afford it.
Similarly, the onus should not fall on the support recipient to establish why income should still be imputed on a motion to change. That determination has already been made. The onus is on the support payor to establish that there should be a change in the way their income is to be calculated.
[18] We respectfully agree with the court’s further observations in Trang at para. 50-52:
In most variation proceedings, it should be possible to establish why (and how) income was imputed in the original order. Those factual findings and calculations are usually set out in affidavits or transcripts (in uncontested proceedings) and written endorsements or judgments (in contested proceedings). This is relevant information which should be presented to the court on a motion to change. It is essential to an understanding of what factors the court considered when the previous order was made – and whether those factors have changed.
When a court imputes income, that’s a determination of a fact. It’s not an estimate. It’s not a guess. It’s not a provisional order awaiting better disclosure, or further review. It’s a determination that the court had to calculate a number, because it didn’t feel it was appropriate to rely on – or wait for -- representations from the payor.
A party who argues that an imputed income level is no longer appropriate must go beyond establishing their subsequent “declared” income. They must address why income had to be imputed in the first place. They must present evidence of changed circumstances which establish that either:
a. It is no longer necessary or appropriate to impute income. The payor’s representations as to income should now be accepted, even if they weren’t accepted before.
Or,
b. Even if income should still be imputed, changed circumstances suggest a different amount is more appropriate.
[19] The husband argues that there was evidence from which the motion judge could find a material change in circumstances since the date of the previous order. Further, deference is to be accorded to trial and motion judges on matters governing support orders: Hickey v. Hickey, [1999] 2 S.C.R. 518. The husband argues it was open to the motions judge to accept the respondent’s evidence of his own income when supported in the accountants’ report, notwithstanding that the income evidence was self-generated, and even though Healey J. had rejected similar evidence. The husband points out that the accountants’ report did include an analysis of the propriety of the husband’s deductions from income and in several instances grossed up claimed income for deductions not properly claimed on a support analysis. The husband also put forward certain minor family circumstances which increased his expenses but these do not appear to have been considered by the motion judge.
[20] It is difficult to identify a material change in circumstances in this case. A material change is one which, if known at the time, would likely have resulted in different terms in the original order. The corollary to this is that if the matter which is relied on as constituting a change, was known at the relevant time, it cannot be relied on as the basis for variation. (See: Willick v. Willick, [1994], 3 SCR 670).
[21] The husband continued to carry on the business of a self-employed commercial real estate broker operating out of his home. Based on his Notices of Assessment placed in evidence on the motion to vary, his average income was $44,490 over the period 2009-2012. Before Healey J. at trial it was the husband’s contention that his average income for those years was $43,827. This is not a material change even on the husband’s own view of his income levels.
[22] The contention the husband put forward to the motion judge was that income was imputed to him largely because he had not filed his income tax returns for the years leading up to the trial. He had now corrected that situation and had Notices of Assessments confirming his income, supported by an accountants’ report. The motion judge seems to have accepted this. However, on a review of Healey J.’s reasons for imputing income, it is apparent that she totally rejected the husband’s evidence as to the amount of income he earned. She found a “large and unexplained discrepancy” between deposits in his business account and his declared income. The accountants’ report filed on the motion did not analyze or audit the husband’s income but simply relied on statements and other information provided by the husband. As noted the accountants were apparently unaware of Healey J.’s conclusions and her finding that the husband’s information as to his income was unreliable.
[23] In our view, there was no material change in circumstances established on this motion and the motion judge erroneously proceeded on the basis that the husband could rely on his line 150 reported income now that he had filed his income tax returns and received his Notices of Assessment, thereby obviating the need to impute income.
[24] The motion judge exercised his discretion to make the revised support orders retroactive to January 1, 2012. While it is not necessary to decide this, we are of the view that in doing so, he was clearly in error. As noted, Healey J. had specifically ordered that spousal support was payable in the sum of $2100 per month, commencing January 1, 2012. The respondent failed to provide any evidence to the motion judge as to why he was entitled to relief retroactive to a date two years prior to commencement of the motion. This triggered a large repayment which had the predictable effect of causing hardship and prejudice to the wife in the face of no blameworthy conduct on her part.
[25] In summary, we would allow the appeal on the basis that the motion judge erred in finding a material change in circumstances and in making a retroactive reduction in the quantum of child and spousal support. We would also set aside the order of costs made in favour of the husband. The husband will continue to pay spousal and child support to the appellant in accordance with the order of Healey J. dated December 6, 2011. The Family Responsibility Office will adjust its records accordingly.
[26] The appellant will provide her submission on costs to the Court within 21 days of the release of these reasons and the respondent will provide a responding submission within 21 days of receipt of the appellant’s submission.
Hackland J.
Molloy J.
Hambly J.
Released: _________________________________
CITATION: Ruffolo v. David, 2016 ONSC 754
DIVISIONAL COURT FILE NO.: DC-15-2600
DATE: 20160211
ONTARIO
SUPERIOR COURT OF JUSTICE
DIVISIONAL COURT
MOLLOY, HAMBLY, HACKLAND JJ.
BETWEEN:
FRANCO RUFFOLO
Respondent/Applicant
– and –
MICHELLE ANNE DAVID
Appellant/Respondent
REASONS FOR JUDGMENT
Hackland J.
Molloy J.
Hambly J.
Released: February 11, 2016