Halliwell v. Halliwell

Ontario Reports

Court of Appeal for Ontario

Gillese, Pepall and L.B. Roberts JJ.A.

May 2, 2017

138 O.R. (3d) 671 | 2017 ONCA 349

Case Summary

Family law — Property — Equalization of net family property — Valuation

Trial judge not erring in using similar multiples for both companies in which husband held majority interest on basis that both companies were in same business and had same management team and expertise — Trial judge giving compelling reasons for preferring wife's expert's valuation of assets over that of husband's expert.

Family law — Support — Spousal support

Trial judge using Spousal Support Advisory Guidelines to fix spousal support of $29,000 per month based on husband's imputed income of $1 million — Trial judge erring in failing to consider significant effect of equalization payment on wife's compensatory and non-compensatory entitlement and failing to impute investment income to wife based on her receipt of equalization payment — Spousal support varied to $21,000 per month based on imputed income of $675,000.

Facts

The parties were married for 32 years. During that time, the respondent was the primary caregiver of the parties' two children and ran the household. At the time of separation, the parties had an affluent lifestyle. The appellant's lifestyle did not change much after separation, but the respondent's income was considerably reduced. The trial judge ordered the appellant to pay the respondent $3,047,061.47 to equalize the parties' net family property. Based on an imputed annual income of $1,000,000, the trial judge ordered the appellant to pay spousal support in the amount of $28,978 per month. Finally, the trial judge ordered the appellant to pay arrears of spousal support. The appellant appealed.

Held

The appeal should be allowed in part.

It was an error for the trial judge to begin his analysis by considering the possible existence of a joint family venture. For married couples, the application of the equalization formula is the starting point for addressing inequities arising from marriage breakdown.

The trial judge did not err in his determination of equalization. It was not unreasonable for him to have used a similar multiple for two companies in which the appellant had a majority interest on the basis that both companies were in the same business and had the same management team and expertise. He gave compelling reasons for preferring the wife's expert's valuation of assets over that of the husband's expert.

The trial judge erred in his spousal support award. In applying the Spousal Support Advisory Guidelines, the trial judge recognized that for income over $350,000, an individualized, fact-specific analysis is required, but he failed to undertake this analysis. An individualized, fact-specific analysis required a consideration of the effects of the equalization payment. While the trial judge was fully justified in making an award of spousal support that was both compensatory and non-compensatory, he failed to consider the fact that the equalization payment went some considerable distance towards satisfying both bases for the award. As he failed to do so, the use of the full $1,000,000 as an income input — in other words, the choice of an income input at the highest point within the suggested income range — was an error in principle. Finally, the trial judge failed to impute investment income to the respondent based on her receipt of the equalization payment. The spousal support award should be varied to $21,000 per month based on an imputed income of $675,000.

Overview

[1] By order dated January 8, 2016 and September 26, 2016¹ (the "order"), pursuant to the Family Law Act, R.S.O. 1990, c. F.3 (the "FLA"), Martin Halliwell (the "appellant") was ordered to pay Toni Halliwell (the "respondent"):

(1) $3,047,061.47 for the equalization of net family property (net of credits for the advances already made) in equal annual installments, over five years, with interest at three percent per annum;

(2) $28,978 per month for spousal support commencing January 1, 2016, based on imputed annual income of $1,000,000 for the appellant; and

(3) arrears of retroactive spousal support in the amount of $1,106,887.85, reduced by 40 per cent for income tax, payable by January 8, 2017.

[2] The appellant challenges all three parts of the order.

[3] For the reasons that follow, I would allow the appeal in part.

Background in Brief

[4] The appellant and the respondent were married on June 18, 1983. They separated on June 7, 2009, and were divorced on January 8, 2016. Their marriage lasted 32 years. They had two children: a son born in 1986 and a daughter born in 1988.

[5] At the time of the trial, the appellant and respondent were aged 55 and 54, respectively. The parties' two children were independent adults.

[6] During the early years of their marriage, the parties lived in Newmarket. The respondent, who did not have post-secondary education, worked at a bank and later as a real estate agent and part-time waitress. The appellant, who had a degree in civil engineering, found employment as a works manager.

[7] After the children were born, the respondent became their primary caregiver and took care of the household. At one point, the appellant took a four-month leave of absence from work in order to accelerate the completion of his MBA, which he had been taking on a part-time basis. During this time, the respondent supported her husband and the children by taking a job at a restaurant. Later, the appellant began commuting to work for a construction firm in Mississauga.

[8] In 1993, the appellant moved to Kitchener to work as president of a company. The respondent and the children stayed back so that the children could finish the school year. In August of 1994, the respondent and the children moved to Kitchener and joined the appellant.

[9] In October 1994, the appellant's employment was abruptly terminated. Both the appellant and the respondent were devastated. The respondent began working again as a real estate agent in 1994, and she continued with that work until 2002.

[10] In 1994, the appellant incorporated Halliwell Associates ("HA"), although it did not operate at that time.

[11] In 1995, the appellant had surgery on his knee. He was not mobile for approximately two months. Following that, the parties became involved in various companies.

[12] The parties had a very busy life but after the major setback when the appellant lost his job in 1994, as the trial judge found, they "did not look back". Their standard of living increased as the companies they owned and operated prospered. They enjoyed an affluent lifestyle that included frequent travel abroad, a second home used for recreation, and many events and expenses that were paid for through the businesses.

[13] When the parties separated in June of 2009, their daughter had already left home, but their son continued to live with the respondent in the matrimonial home. The appellant moved to the parties' recreational home, to which he made extensive renovations. The parties' son moved out of the matrimonial home by November 2011. The respondent continued living in the matrimonial home.

[14] After separation, the appellant started various new corporations and purchased a number of commercial and residential properties.

[15] From the time the parties separated until October 2010, the respondent continued to receive about $11,500 per month, along with various benefits, as an administrator at the companies. In October 2010, the appellant abruptly relieved her of most of her responsibilities for the businesses, changed the locks on the premises and informed her that he no longer would allow her to work on the premises. Her income from the companies dropped first to $7,000, then to $5,000 per month.

[16] After these events, the respondent went to court to begin these proceedings (the "application"). Pursuant to a 2011 consent order, the appellant has since paid interim spousal support of $10,000 per month. Pursuant to a court order, he also paid $135,000 as an advance equalization payment.

[17] On the findings of the trial judge, the appellant's lifestyle did not change much after separation. He continued to enjoy golf memberships, travel extensively and enjoy the use of corporate properties. His personal assets increased. In the year before trial, on his own evidence, he received $1.3 million from his corporations, through salary, dividends or repayment of shareholder loans.

[18] The trial judge found that the respondent, on the other hand, had to significantly adjust her lifestyle after separation. She could no longer afford to travel, eat out, attend sporting events and concerts, or take vacations unless they were paid for by others. Her major asset was the matrimonial home which, the record shows, was subject to lines of credit of approximately $300,000. Approximately two-thirds of the debt owed on the lines of credit related to the appellant's business expenses.

[19] The trial judge also found that the respondent had acted responsibly in pursuing employment opportunities after separation. She worked part-time in retail clothing sales and took a course in victim services that led to a volunteer position. The respondent did not wish — and the trial judge found that it could not be expected of her — to renew her career in real estate.

[20] The parties went to trial to determine issues of spousal support, retroactive spousal support and equalization. The value of the appellant's businesses was a key issue for equalization purposes.

[21] While there was no dispute that the respondent was entitled to spousal support, the quantum of that support was hotly contested. The amount of the appellant's income was critical to that determination. Because of the complexity of the appellant's involvement in various businesses, it was very difficult to determine the appellant's income for support purposes.

[22] The appellant owned 100 per cent of the shares in HA. HA owns shares in HC Matcon Inc. ("Matcon"), an Ontario corporation, and in HCM Contractors Inc. ("HCM"), an Alberta corporation. At all material times, the appellant was the president of the corporations.

[23] For the purposes of this appeal, there is no need to go through the various other companies in which the appellant held shares and/or operated.

[24] Some further details about Matcon and HCM are, however, relevant. A man named Ron Amos, or his holding companies, had a shareholder interest in Matcon and HCM equal to that of HA. In addition, HA held a minority shareholder interest in RWH Engineering ("RWH").

[25] The appellant's income was generally earned from the operations of Matcon and HCM, which paid consulting fees and dividends to HA. Dividends to HA were converted to shareholder loans. In turn, HA paid management fees and dividends to the appellant.

[26] At the time of trial, HA held the following minority shareholder interests:

• Matcon -- 44 per cent;
• HCM -- 39.9 per cent; and
• RWH -- 30 per cent.

[27] At trial, the appellant's expert on the value of the companies was Mr. Ross. The respondent's expert was Mr. Sciannella.

The Trial Decision

The Value of the Companies and Equalization

[28] The parties' evidence about their respective roles in the business ventures conflicted. The trial judge found that the businesses were not joint family ventures. He found that the respondent did some administrative and bookkeeping work for the companies for which she was compensated. He further found that she was limited in what she could do because of the extensive role she played in caring for the two children, in managing their active extracurricular schedules and in managing the household in general.

[29] In the trial judge's view, an equitable sharing of the economic consequences of the marriage could and should be achieved through the proper calculation of the equalization payment under the FLA, and an order for spousal support "characterized by both compensatory and needs based within the context of their standard of living".

[30] The trial judge identified four main differences in the expert valuators' approaches to valuation:

(1) their approach (capitalized cash flow versus EBITDA)²;

(2) their choice of multiple;

(3) their treatment of the White Mud project; and

(4) the appellant's expert's deduction of $1.6 million in the 2008 income.

[31] The trial judge identified the main operating companies as Matcon and HCM. He noted that the values that the two experts had applied to the appellant's other companies were similar so it was not necessary to spend time on that analysis. He also noted that the largest difference between the two experts was in the values each placed on HCM.

[32] The trial judge gave extensive reasons for preferring Mr. Sciannella's approach to the valuation of Matcon and HCM over that of Mr. Ross. Those reasons included:

(1) the capitalization rate that Mr. Sciannella applied was more appropriate;

(2) Mr. Ross relied on comparables that were not proper comparables. He compared Matcon and HCM with public companies that were substantially larger, with gross income levels far in excess of those of Matcon and HCM. Further, they did not do similar work to that of Matcon and HCM;

(3) finding that Mr. Ross' choice of a multiple could not be justified on the evidence before the court; and

(4) Mr. Sciannella's analysis was far more reasonable relative to the length of time a potential investor would look to in order to get a return on investment. Mr. Sciannella chose a period of approximately two years, whereas Mr. Ross chose a period of two to four months. The trial judge found that, by choosing an unreasonable period, Mr. Ross had artificially lowered the value of the companies.

[33] The trial judge explained that it was not reasonable to use very different multiples for Matcon and HCM, as the appellant's expert had, because the two companies are in the same business, have the same management team and expertise, and use the same engineers. Matcon had developed the expertise and infrastructure and transferred that to the benefit of HCM. Further, there was no start-up period for HCM because it was able to use Matcon's experience and infrastructure. The trial judge also noted that in its first year, HCM had sales of over $15 million.

[34] When Mr. Ross calculated HCM's value using the same multiple as that which he used for Matcon, he arrived at a figure of $2.5 million. That figure was very close to Mr. Sciannella's value for HCM of between $2.6 and $2.8 million.

[35] The trial judge accepted Mr. Sciannella's opinion of the value of HCM, subject to making a necessary adjustment for the White Mud project. In his view, Mr. Sciannella improperly included a significant sum of money that HCM received for the White Mud project in 2013. The work had been completed in or about 2008. At the time of separation, there was only litigation that had been initiated by HCM, a process that took over four years. Although HCM was ultimately successful, there was no evidence before the court as to the reasonableness of success at the time of separation. The trial judge said that it was not proper to use hindsight to determine value. In his view, the White Mud income that was eventually received could not be used to determine future maintainable cash flow.

[36] With the necessary modifications, the trial judge found that HCM had a low value of $2.35 million and a high value of $2.5 million. The resulting adjustment to HA led to a low value of $5.7 million and a high value of $5.9 million. Considering the contingencies the trial judge had alluded to, relative to capitalization and changes in the market, for net family property ("NFP") purposes, he used the low value for each value and for the notional tax.

[37] The trial judge then explained why he would not use Mr. Ross' tax calculations. He accepted the tax calculations provided by the respondent.

[38] The trial judge found that the appellant's NFP was $6,491,129.11 and the respondent's NFP was $555,375.50.

Spousal Support

[39] The trial judge began by setting out the legal principles underlying spousal support in Moge v. Moge, [1992] 3 S.C.R. 813. He also noted the factors and objectives that he had to consider in determining spousal support, according to the Divorce Act, R.S.C. 1985, c. 3 (2nd Supp.).

[40] He referred to the Spousal Support Advisory Guidelines (Ottawa: Department of Justice, 2008) ("SSAGs") for the proposition that applying these principles is highly individual and discretionary.

[41] He concluded at para. 71 of his reasons by stating that he next had to determine a "fair and reasonable level of income" for the appellant, "given the fairly complex labyrinth of corporate structure that [the appellant] has created".

The Appellant's Income

[42] In assessing the amount of the appellant's income potentially available for support, the trial judge began by referring to s. 16 of the Child Support Guidelines, O. Reg. 391/97 ("CSGs") for the general rule that income is determined using the sources of income set out under the heading "Total income" in the T1 General form issued by the Canada Revenue Agency ("line 150 income"):

16. Subject to sections 17 to 20, a parent's or 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 the Canada Revenue Agency and is adjusted in accordance with Schedule III.

[43] The trial judge then invoked ss. 17(1), (2) and 19 of the CSGs to consider the appellant's income over the previous three years and to impute income in order to arrive at a fair assessment of the appellant's actual available income.

[44] The trial judge relied upon s. 19(1)(g) of the CSGs for the power to impute income to a spouse who "unreasonably deducts expenses from income". The trial judge acknowledged that a corporation's retained earnings are not necessarily money that the shareholder can take out as income. He addressed this point in some detail, noting that a failure to appreciate it might undermine the operation of the corporation and that corporations have legitimate business reasons to accumulate retained earnings.

[45] However, the trial judge noted, taking money out of a company is a matter of choice made by the directors and shareholders and the court must look at those choices, in determining income for support purposes, with a discerning eye that balances factors that include sometimes complicated considerations of business viability with a payor's duty to maximize available income for support purposes.

[46] With respect to business viability, the court must look at such things as company banking covenants, economic upturns and downturns, the degree of capitalization that a particular company requires, and future growth. He noted that the experts agree that there is often a significant element of subjectivity when determining the impact of these considerations on either income analysis or the valuation of the company.

[47] Both parties presented expert analyses of the appellant's income. The following chart summarizes the experts' positions and the trial judge's determination of the appellant's average income for the three-year period prior to trial.

The appellant's average annual income in the last three years

[Chart showing expert assessments]

[48] The trial judge did not agree with the appellant's expert that for the purpose of income analysis, the $1,600,000 of dividends paid in 2012 should be treated as a one-time non-recurring capital payment and therefore excluded from available income. He also rejected the submission that the income from only some of the companies in which the appellant had an interest should be considered.

[49] Both experts agreed that there was significant income available in 2012 and 2013. The trial judge accepted most of the respondent's expert's assessments about income but agreed with the appellant's expert that a realistic amount to fund future capital expenditures would be higher than the 20 per cent allowed for by the respondent's expert. Accordingly, he reduced the respondent's expert's assessment by an additional 20 per cent to reflect what he saw as a more reasonable retention of corporate income having regard to capitalization requirements, the appellant's minority shareholding positions and economic variables.

[50] He assessed the appellant's income as follows:

• 2009 -- $882,209.60
• 2010 -- $366,450.40
• 2011 -- $462,431.20
• 2012 -- $602,661.60
• 2013 -- $1,819,607.20

[51] The trial judge found that the average over the last three years (i.e., 2013-15) was $1,000,925.34, taking into account the respondent's expert's assessment, discounted by a further 20 per cent.

Income Over $350K

[52] The trial judge noted that for a payor spouse with an income above the SSAGs ceiling of $350,000: the ceiling does not operate as a hard "cap"; the formulas give way to discretion; the analysis is fact-specific; and the SSAGs ranges remain relevant. He quoted from jurisprudence which says that in balancing the factors in a long-term marriage, where the payor's income is above $350,000, the SSAGs recommendation is that the payment of spousal support range between 37.5 per cent and 50 per cent of the gross income difference between the spouses.

Application of the SSAGs Formula

[53] Based on the amounts the trial judge determined to be the appellant's income, and imputing no income to the respondent, the SSAGs formula generates a mid-range support figure of $35,052 per month and a low-end figure of $30,028 per month. The trial judge noted that the lower figure of $30,028 would result in a net disposable income to the respondent of 36 per cent (leaving the appellant with 64 per cent).

[54] The trial judge ordered $30,028 per month payable retroactive to the date of the application. The trial judge imputed employment income of $35,000 per year to the respondent with a start date of January 1, 2016. As of that date, he reduced the quantum of spousal support to $28,978 per month, amounting to what he said was 38.1 per cent of the net disposable income.

[55] The trial judge noted the appellant's submission that he would receive $1.2 million in net taxable capital gains (of which $321,000 would be refunded to HA) at age 65. He did not give details of the respondent's tax calculations but preferred the respondent's view that the appellant would continue his investments to take advantage of tax planning opportunities.

The Double Recovery Issue

[56] The trial judge noted the general rule against double recovery, an issue that arises most often when a pension has been equalized. In Boston v. Boston, [2001] 2 S.C.R. 413, 2001 SCC 43, the Supreme Court held, at para. 64, "To avoid double recovery, the court should, where practicable, focus on that portion of the payor's income and assets that have not been part of the equalization or division of matrimonial assets when the payee spouse's continuing need for support is shown". In Boston, that meant focusing on the portion of the pension that was earned following the date of separation and, as such, was not included in the equalization of NFP that had already occurred.

[57] This was not a case in which a pension had been equalized. The trial judge distinguished a pension from business assets that continue to produce income without devaluing the assets themselves. This is particularly true with after-acquired capital assets that continue to produce income. The pension analogy does not apply to cases in which the payor would not have to liquidate assets to pay ongoing support. The trial judge held at para. 128 that it was not proper to consider double recovery "when dealing with assets that are not liquidating assets or special assets of the nature of a pension".

[58] In his view, there was no double recovery in this case.

The Issues

[59] The appellant submits that the trial judge erred in his determination of equalization in:

(1) his acceptance of a similar multiple for HCM as Matcon in assessing the income approach to its value; and

(2) valuing the various assets in accordance with the respondent's position without any explanation.

[60] The appellant submits that the trial judge erred in his determination of the quantum of spousal support in:

(3) imputing income to him of $1 million per year;

(4) his application of the SSAGs to the extent that the appellant's income exceeded its $350,000 ceiling;

(5) taking the three-year average unadjusted for one extraordinary year (2013); and

(6) failing to apply the principle of "double dipping" to the appellant's business income, having regard to the equalization payment derived from the business.

[61] As I find that the trial judge did err in principle in his determination of the quantum of spousal support, the quantum of spousal support becomes a further issue to be decided.

Analysis

Two Preliminary Matters

[62] Before turning to these issues, two preliminary matters warrant comment: (1) the trial judge's analysis relating to "joint family venture"; and (2) the appellant's complaint about several of the trial judge's findings of fact.

1. Joint Family Venture

[63] The trial judge ultimately resolved the financial issues that divided the parties based on the provisions of the FLA. In my view, he was correct in so doing.

[64] However, before turning to those provisions, the trial judge first determined whether the businesses amounted to a joint family venture, as that term is used in Kerr v. Baranow, [2011] 1 S.C.R. 269, 2011 SCC 10. In Kerr v. Baranow, the Supreme Court used the concept of joint family venture to quantify a monetary award to remedy unjust enrichment arising from the separation of non-married couples who do not enjoy the protective provisions of Part I of the FLA.

[65] The trial judge recognized that Kerr v. Baranow was decided within the context of common-law relationships. He also knew that, in the present case, the parties had been married. Nonetheless, he understood that this court's decision in Martin v. Sansome (2014), 118 O.R. (3d) 522, 2014 ONCA 14 mandates that such an approach be followed for married couples, as well as those in common-law relationships. At para. 44 of his reasons, the trial judge states, "the first step must be the determination of whether or not the elements of a joint family venture exist and then determine whether or not there is fair compensation after reviewing the calculations in accordance with the scheme set out in the FLA for equalization of property".

[66] In my view, the trial judge erred by beginning his analysis with the question of joint family venture. He should simply have had recourse to the FLA. This court's decision in Martin does not suggest otherwise.

[67] In Martin, the trial judge concluded that the farm business was a joint family venture and awarded the wife a constructive trust interest in it. This court set aside the trial judge's determination and replaced it with a calculation of the wife's entitlement under the equalization provisions of the FLA.

[68] At para. 63 of Martin, Hoy A.C.J.O., writing for the court, explains that s. 5(7) of the FLA makes it clear that the express purpose of the FLA equalization provisions is to address the unjust enrichment that would otherwise arise on marriage breakdown.

[69] She then refers to para. 64 of McNamee v. McNamee (2011), 106 O.R. (3d) 401, 2011 ONCA 533, in which this court stated that, "in the vast majority of cases, any unjust enrichment that arises as the result of a marriage will be fully addressed through the operation of the equalization provisions under the [FLA]".

[70] At para. 66 of Martin, Hoy A.C.J.O. concludes:

. . . if unjust enrichment as the result of a marriage has been found, and it has been determined that monetary damages can suffice, the aggrieved party's entitlement under the equalization provisions of the FLA should first be calculated.

[71] For these reasons, it was an error for the trial judge to begin his analysis by considering the possible existence of a joint family venture. For married couples, application of the FLA equalization provisions is the starting point for addressing inequities arising from marriage breakdown.

2. Impugned Findings of Fact

[72] The appellant takes issue with several of the trial judge's findings, including that the appellant's credibility fell when he failed to disclose certain companies and property during his direct examination and to his own valuation expert before the trial began; post-separation, the appellant continued to enjoy a lavish lifestyle; and the appellant's attitude post-separation was that he alone could dictate his wife's lifestyle during separation.

[73] It is trite law that this court owes deference to a trial judge's factual findings and is not to disturb them absent palpable and overriding error. Despite having questioned the validity of these findings, at para. 124 of his factum, the appellant states that the findings were not relevant to any of the issues decided on the application below. In light of that concession, such findings cannot be overriding. An overriding error is an error that is sufficiently significant to vitiate the challenged finding of fact. The appellant must demonstrate that the error goes to the root of the challenged finding of fact such that the fact cannot safely stand in the face of that error: Waxman v. Waxman, [2004] O.J. No. 1765, at para. 297, citing Schwartz v. Canada, [1996] 1 S.C.R. 254, at p. 281 S.C.R. Consequently, nothing more need be said about the impugned findings.

Issue 1: Did the Trial Judge Err in his Determination of Equalization?

[74] The appellant takes issue with the equalization order based on two alleged errors. First, he says that it was unreasonable for the trial judge to have used a similar multiple for HCM as for Matcon when assessing HCM's value. Second, he says that the trial judge erred by valuing the various assets in accordance with the respondent's position without any explanation.

[75] I do not agree.

1. Using a Similar Multiple

[76] The appellant's complaint that it was unreasonable for the trial judge to have used a similar multiple for HCM as for Matcon is simply not borne out.

[77] The trial judge rejected Mr. Ross' choice of a multiple because it could not be justified on the evidence before the court. The trial judge found that Mr. Ross had not provided a reasonable explanation for the multiple that he chose. He noted that Mr. Ross chose a multiple based on companies which the trial judge resoundingly rejected as being comparable to Matcon and HCM. I will not repeat the reasons given by the trial judge on that matter. Suffice to say, the so-called comparables were public companies, substantially larger than HCM and Matcon, and that they perform different work than HCM and Matcon, which are very specialized excavating shoring operations.

[78] Further, as the trial judge explained at paras. 52-53 of his reasons, it was not reasonable to use "very different" multiples for HCM and Matcon, as Mr. Ross did in his valuation. Matcon and HCM were in the same business, had the same management team and expertise, and used the same engineers. Matcon developed the experience, expertise and infrastructure and transferred all of that to the benefit of HCM, with the result that there was no start-up period for HCM. This is borne out, as the trial judge noted, by the fact that in its first year, HCM had sales of over $15 million.

[79] Far from being unreasonable, the trial judge's reasons for using a similar multiple for HCM as for Matcon are compelling.

2. Valuing Assets

[80] The appellant also complains that the trial judge erred by valuing various assets based on the respondent's position without explanation.

[81] Again, this complaint is unfounded. It is essentially an attack on the trial judge's acceptance of the respondent's expert valuation and his rejection of the valuation prepared by the appellant's expert. This was not, as the appellant contends, a situation in which the trial judge faced conflicting evidence and merely adopted the position of the respondent without explanation. The trial judge gave compelling reasons for preferring Mr. Sciannella's valuation of the assets and for rejecting that of Mr. Ross.

[82] I begin by noting, as the trial judge did at para. 47 of his reasons, that the values given by the two experts in respect of all of the companies except HCM and Matcon were similar. In light of that, there can be no quarrel with the values attributed to the companies apart from HCM and Matcon.

[83] The biggest difference between the experts was in respect of the value each placed on HCM. I will not repeat the explanation I have just given as to why the trial judge valued HCM using a similar multiple as for Matcon.

[84] Moreover, the trial judge gave reasons for rejecting the EBITDA approach that Mr. Ross had followed, explaining that it was not reliable. As discussed above, the trial judge also rejected Mr. Ross' reliance on what he had offered as comparables. Again, I will not repeat the many convincing reasons given by the trial judge for why the comparables were not, in fact, comparable to HCM and Matcon. In addition to rejecting the capitalization rate that Mr. Ross used and accepting that which Mr. Sciannella had used because it was more appropriate, the trial judge found that Mr. Sciannella had chosen a "far more reasonable" length of time of two years as the period that a potential investor would look to in order to get a return on investment. Mr. Ross had chosen a substantially lower period, approaching as few as two months, which the trial judge found was not only unreasonable but also resulted in an artificial lowering of the value of the companies.

[85] I would simply conclude by noting that the trial judge did not blindly adopt Mr. Sciannella's approach. In this regard, it will be recalled that the trial judge found that Mr. Sciannella's value of HCM improperly included, in his calculation of maintainable cash flow, a significant amount of money that HCM received for the White Mud project. He deducted the White Mud cash from the calculation of value.

[86] Accordingly, I would dismiss the appeal as against the equalization order.

Issue 2: Did the Trial Judge Err in the Spousal Support Award?

[87] The appellant contests virtually every aspect of the trial judge's approach to determining the quantum of spousal support. Before turning to the specific issues that he raises, it is important to recall the standard of appellate review on support issues and the relevant provisions for determining income for spousal support purposes.

1. Standard of Review

[88] The standard of review on all matters relating to support is highly deferential. Appellate courts should not interfere with support orders unless the reasons disclose an error in principle, a significant misapprehension of the evidence or the award is clearly wrong: Hickey v. Hickey, [1999] 2 S.C.R. 518, at paras. 11-12.

[89] In this case, it is undisputed that the respondent is entitled to continuing spousal support. The dispute between the parties is limited to the assessment of the quantum of that support. Specifically, the dispute turns on what is a fair assessment of the appellant's means for the purposes of support, the proper approach to quantifying the amount of support based on those means, and a fair assessment of the respondent's means.

2. The Relevant Provisions for Determining Income

[90] The starting point for determining income under the SSAGs is the definition of income under the Federal Child Support Guidelines, SOR/97-175 (SSAGs, s. 3.3.2). Those guidelines and the CSGs are virtually identical: see Mason v. Mason (2016), 132 O.R. (3d) 641, 2016 ONCA 725, at para. 53.

[91] Section 16 of the CSGs sets out the general rule that income is determined using the sources of income set out under the heading "Total income" in the T1 General form issued by the Canada Revenue Agency ("line 150 income"):

16. Subject to sections 17 to 20, a parent's or 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 the Canada Revenue Agency and is adjusted in accordance with Schedule III.

[92] Sections 17 and 18 permit a court to depart from line 150 income where the court is of the opinion that the determination of the spouse's line 150 income would not be the fairest determination of income.

[93] Section 17(1) allows a court to consider patterns or fluctuations in a spouse's income over the last three years:

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.

[94] Section 18 allows the court to add all or part of the pre-tax corporate income for the most recent taxation year to a corporation of which a spouse is a shareholder to that spouse's income:

18(1) Where a . . . spouse is a shareholder, director or officer of a corporation and the court is of the opinion that the amount of the . . . spouse's annual income as determined under section 16 does not fairly reflect all the money available to the . . . spouse for the payment of child support, the court may consider the situations described in section 17 and determine the . . . spouse's annual income to include,

(a) all or part of the pre-tax income of the corporation, and of any corporation that is related to that corporation, for the most recent taxation year.

[95] Section 19 addresses imputing income to a spouse and sets out a non-exhaustive list of circumstances in which income may be imputed:

19(1) The court may impute such amount of income to a . . . spouse as it considers appropriate in the circumstances, which circumstances include,

(g) the . . . spouse unreasonably deducts expenses from income.

3. The Amount of Income Imputed to the Appellant

[96] The appellant argues that the trial judge unreasonably imputed income to him of $1 million for each of 2014 and 2015 because the trial judge failed to explain how he applied certain factors and because, while appearing to acknowledge other constraints (e.g., banking covenants, cash flow, the cyclical nature of HCM's business), he failed to "give any express weight to any of these or other factors". He says that it was unreasonable for the trial judge to have relied on the respondent's expert's evidence in light of:

(1) the respondent's expert's assumption that the appellant had "significant influence or control over distribution of retained earnings" without regard to the wishes of the majority shareholders;

(2) the fact that the respondent's expert's approach would place both operating companies in breach of their banking covenants yearly (except for HCM in 2013);

(3) the respondent's expert's significant understatement of the cost to replace capital equipment when compared with actual expenditures; and

(4) the evidence of historic, negative bank balances for the companies that had drawn down into their line of credit.

[97] The appellant further contends that it was an error in principle to apply an "entirely subjective and arbitrary" 20 per cent global reduction to the respondent's expert's income estimate and to fail to give weight to uncontradicted evidence of other significant factors limiting the money actually available.

[98] I would not give effect to this ground of appeal. In essence, the appellant is attempting to reargue, on appeal, his position at trial. The expert evidence that the appellant put forward at trial emphasized the various factors he now relies upon in support of his contention that less money should be imputed to him. The trial judge rejected that expert evidence, which he was entitled to do.

[99] Where the court considers that s. 16 income (line 150 income) under the CSGs does not provide the fairest determination of income, s. 17 of the CSGs allows the court to consider the pattern of income of the payor over the last three years. Section 19(1)(g) of the CSGs permits the court to impute "such amount of income to a parent or spouse as it considers appropriate" where "the parent or spouse unreasonably deducts expenses from income". As the trial judge noted, s. 19(1)(g) does not require establishing that the spouse acted improperly or outside the norm in deducting expenses. Such deductions may be permissible from a tax perspective.

[100] There was ample evidence at trial that the appellant had personal expenses that were paid by his businesses, including for vehicles, travel, renovations to his property, credit cards and legal fees. There is no question that the trial judge was entitled to impute some additional income to the appellant pursuant to s. 19(1)(g). The only question was how much.

[101] The trial judge preferred much of the respondent's expert's evidence and gave reasons for that preference. He explained that the major difference between the two experts' approaches to income analysis was that the respondent's expert attributed income from each of the companies to HA and then attributed the income from HA to the appellant. The appellant's expert, on the other hand, attributed income to the appellant only from a subset of the companies — he did not attribute any income from Matcon, HCM or RWH. As the appellant's expert put it, he attributed income only from "majority companies". The trial judge rejected this approach.

[102] The trial judge accepted the respondent's expert's evidence that the businesses were profitable and growing — Matcon and HCM had increased in value significantly since separation. He also noted that the appellant was able to continue to fund an extravagant lifestyle and had sufficient monies to purchase additional properties within his corporations and to expand his new business ventures.

[103] The trial judge noted that both experts agreed that there was significant income available in 2012 and 2013 and that the appellant himself gave evidence that he had access to $1.3 million in 2013. He found that evidence to be more consistent with the respondent's expert opinion as expressed in his evidence and his report.

[104] And while the trial judge accepted most of the respondent's expert's assumptions, he took the appellant's expert's point that more money should be allowed for capital requirements and growth in a competitive and fluctuating market. To this end, he applied a discount of 20 per cent to the respondent's expert's estimate and arrived at a number that was squarely between the two expert's assessments.

[105] In my view, the trial judge's approach to imputing income cannot be faulted.

4. Application of the SSAGs Formula to Income Above the Ceiling

[106] The appellant contests the trial judge's use of the SSAGs formula to fix a spousal support amount of $29,000–30,000 per month based on his imputed income of $1 million. He argues that while the trial judge recognized that for income above $350,000, an "individualized, fact-specific analysis" is required, he failed to undertake such an analysis.

[107] I agree. An individualized, fact-specific analysis requires a consideration of the effects of the equalization payment. The trial judge failed to fully consider the effects of the equalization payment, beginning with the question of entitlement. In so doing, he erred in principle.

Entitlement

[108] The application of the SSAGs formulas, whether under or above the ceiling, requires a preliminary consideration of entitlement. The entitlement question then informs the approach to be taken in applying the SSAGs.

[109] As stated at s. 3.2.2 of the SSAGs:

The Advisory Guidelines do not deal with entitlement. . . . The Advisory Guidelines were drafted on the assumption that the current law of spousal support, post-Bracklow, continues to offer a very expansive basis for entitlement to spousal support. Effectively any significant income disparity generates an entitlement to some support, leaving amount and duration as the main issues to be determined in spousal support cases. . . . The basis of entitlement is important, not only as a threshold issue, but also to determine location within the formula ranges or to justify departure from the ranges as an exception.

(Emphasis in original)

[110] It is important to note that s. 3.2.2 recognizes that entitlement plays two different important roles in determining spousal support. First, entitlement is a threshold issue. Second, entitlement determines location within the formula ranges or to justify departure from the ranges.

Entitlement — The Threshold Question

[111] In the present case, the trial judge addressed entitlement as a threshold issue, at para. 45 of his reasons. After concluding that the businesses did not qualify as joint family ventures, the trial judge stated:

An equitable sharing of the economic consequences of this long term marriage should be achieved in this case. I am of the view that such an equitable distribution can be achieved by the proper calculation of the equalization payment and by an order of spousal support characterized by both compensatory and needs based within the context of their standard of living.

[112] Reading this paragraph in conjunction with the balance of the trial judge's reasons, it is clear that he addressed the threshold question of entitlement and concluded that despite the sizeable equalization payment, the respondent was entitled to spousal support.

[113] Residual entitlement to spousal support in this case could be compensatory, non-compensatory or some combination of the two (there was no issue of contractual entitlement here): Bracklow v. Bracklow, [1999] 1 S.C.R. 420, at para. 49.

[114] On the findings of the trial judge, I understand him to have determined that entitlement to a spousal support order, in addition to the equalization order, was both compensatory and non-compensatory. The trial judge found that the respondent had a strong claim to compensation based on the role she played in the marriage and in supporting the appellant's advancement. They were equal partners, he pursuing his business and she managing the home and the businesses thrived. She was clearly entitled to share in that success after the marriage was over, not just through equalization but also by means of spousal support. The trial judge also found that the appellant had the means to pay spousal support; the respondent's lifestyle had significantly decreased after separation; and there was a great disparity in the standards of living that each enjoyed post-separation.

Entitlement Application of the SSAGs Formula

[115] However, as I have noted, entitlement considerations must also inform the application of the SSAGs formula. The trial judge did not do this. After quoting relevant case law and legislative provisions about entitlement to spousal support, the trial judge determined the appellant's imputed income. He addressed certain issues raised by the parties — such as double dipping — but he undertook no analysis of entitlement in this section of his reasons. After acknowledging the existence of the $350,000 ceiling, the trial judge chose to apply the SSAGs formula based on the full amount of the appellant's imputed income.

[116] The effects of the equalization payment had to inform the trial judge's approach to income levels in this case. Above the $350,000 ceiling, an additional formula range is created: appropriate income inputs range anywhere from $350,000 to the full income amount. Entitlement is important to determine location within that range.

[117] The SSAGs provide at s. 11.1 that after the payor's gross income reaches the ceiling of $350,000, the formulas can no longer be applied automatically. At the same time, they make clear that $350,000 is not a "cap" and spousal support can, and often will, increase for income above that ceiling. The SSAGs provide the following example, at s. 11.3:

If the payor earned more, say $500,000, a court could leave spousal support in that same range [the one for $350,000] or, in its discretion, a court might go higher, but no formula would push the court or the parties to do so and it would be an individualized decision. If the formula were to be applied for an income of $500,000, the support would rise to $15,625 to $20,833 . . . monthly. Or the court or the parties might settle upon an amount somewhere in between these two ranges. These are large numbers for support in this case, but keep in mind that this is the very top end of the formula, with a long marriage, a high payor income and no income for the recipient.

[118] I note that the SSAGs example uses an income of $500,000, half the amount attributed to the payor in this case, and still suggests that spousal support might be left in the same range as for an income of $350,000.

[119] In a recent decision of this court, Slongo v. Slongo, 2017 ONCA 272, [2017] O.J. No. 1634, this court did apply the SSAGs formula to the full amount of a payor's income that exceeded $350,000. However, it is important to appreciate the facts in Slongo. In that case, the payor husband resigned from his employment and elected to receive the commuted value of his pension, totalling $1.9 million, payable in six installments. Soon afterwards, the husband began working as a consultant for his former employer. As I have noted, this court held that the SSAGs formula should apply, based on the full amount that the payor was to receive. However, at para. 134 of the reasons, the court explains, "Given the lump-sum nature of this pension payout, intended to compensate the husband for what would otherwise have been smaller annual payments, it seems appropriate here for the wife to benefit from the application of the formula to the full amount."

[120] As stated at s. 11.3 of the SSAGs, "What is clear is that the larger stakes at these income levels [above $350,000] and the complexities of the individual cases mean that the Advisory Guidelines will have less significance to the outcomes above the ceiling, whether negotiated or litigated."

[121] The presence of a ceiling is also meant to address circumstances of high property awards. At s. 12.6.2, the SSAGs state that "the Advisory Guidelines can already accommodate these 'high property' concerns" since "many high property cases are also high-income cases, bringing into play the ceiling above which the formula will not necessarily apply".

[122] Thus, while the trial judge was fully justified in making an award of spousal support that was both compensatory and non-compensatory, in setting the quantum, he needed to take into consideration the fact that the equalization payment went some considerable distance towards satisfying both bases for the award. As he did not, in my view, the use of the full $1 million as an income input — in other words, the choice of an income input at the highest point within the suggested income range — was an error in principle. I will say more about this below, when determining an appropriate spousal support order.

5. Taking the Three-Year Average

[123] In the appellant's view, the trial judge's application of a three-year average to produce an annual income of $1 million unfairly overstated his income. As articulated by his expert, there was a single lucrative contract in 2013 that resulted in non-recurring income of $1,600,000. The appellant says that including this amount in the average resulted in unfairness.

[124] I would not agree.

[125] Section 17(1) of the CSGs allows a court to consider patterns or fluctuations in a spouse's income over the last three years. Where the spouse is a corporate shareholder, s. 18(1)(a) permits the court to consider whether all or part of the pre-tax income of the corporation should be included in the spouse's annual income. In Mason, at paras. 159-69, this court held that the three-year review of a spouse's income is not limited to line 150 income but can also capture corporate income.

[126] Since it was open to the trial judge to consider income over the last three years, the question then becomes whether the trial judge erred in doing so in this case.

[127] I am not at all persuaded that he did. It is true that the appellant's expert's evidence was that the income from 2013 was unrepresentative. However, the trial judge accepted the respondent's expert's evidence that the businesses were profitable and growing. There was no evidence that large jobs such as the one that made 2013 a success would not continue to arise.

[128] Where a spouse's income fluctuates significantly due to the inherent unpredictability of income from business interests, the averaging approach can certainly be appropriate. In Mason, this court concluded that it would be appropriate to average the husband's income over the last three years.

[129] In all of the circumstances, I see no error in the trial judge having averaged the appellant's last three years of income.

6. Double "Dipping" (Recovery)

[130] Lastly, the appellant argues that given the equalization award of over $3 million, any income attributed to already-equalized assets should be excluded from income for the purpose of calculating spousal support. Relatedly, he argues that potential investment income available on the $3 million equalization payment should be attributed to the respondent over and above the imputed income of $35,000 from 2016 onwards.

[131] I would give effect to this ground of appeal only as it relates to imputing investment income on the equalization payment once it is received.

[132] The trial judge considered the issue of "so-called" double dipping and the Supreme Court's statement in Boston v. Boston, supra, that where practicable, the court should focus on the portion of the payor's income and assets which have not been a part of the equalization or division of matrimonial assets when the payee spouse's continuing need for support is shown. In Boston, that meant focusing on the portion of the pension that was earned following the date of separation and not included in the equalization of net family property (at para. 64).

[133] However, as the trial judge noted, at para. 57 of Boston, the Supreme Court differentiates pension income from business income or income from an investment:

Pension income is obviously different from business income or income from an investment. See T. Walker, "Double Dipping: Can a Pension Be Both Property and Income?", in Best of Money & Family Law, vol. 9, No. 12, 1994, in which the author argues that pensions should not be treated as other assets subject to equalization consideration. When a pension produces income the asset is being liquidated. The same capital that was equalized is being converted into an income stream. By contrast, when a business or investment is producing income, that income can be spent without affecting the asset itself. In fact, the business or asset may continue to increase in value. The value of the business or investment can be equalized, but neither is depleted solely by producing income.

[134] In my view, the trial judge correctly held that double recovery of the kind contemplated in Boston is not a concern in a case such as this where the assets involved in the equalization are not liquidating assets or special assets of the nature of a pension.

[135] At the same time, I agree with the appellant that investment income on the equalization payment of $3 million should be attributed to the respondent once it is in her hands.

[136] The trial judge did not attribute such investment income up to the date of the trial because, with the exception of the small advances used for legal and accounting fees, none of the equalization payment had been paid to her. I understand that this state of affairs has continued. It is self-evident that the appellant cannot get the benefit of attributing investment income to the respondent when the equalization monies are still in his hands.

[137] However, since the trial judge's order provides for equalization payments to be made from 2016–2020, investment income on the equalization payments should be attributed to the respondent in assessing the appropriate quantum of support.

[138] I turn to consider what rate of return should be applied for imputing investment income to the respondent in the context of a determination of spousal support. In Greenglass v. Greenglass, 2010 ONCA 675, [2010] O.J. No. 4409, when asked to determine such a rate, this court stated, at para. 60, that it should look at what is "a reasonable rate a prudent investor might be able to earn at the relevant time". Greenglass was decided in 2010. In it, this court applied a 2 per cent rate of return to both the payor and support recipient. In Converti v. Escobedo, 2011 ONCJ 627, [2011] O.J. No. 5482, at para. 27, the court accepted evidence in support of applying an annual interest rate of 3 per cent to a capital asset of $500,000.

[139] In ordering the appellant to make the equalization payment over five years, the trial judge required the appellant to pay post-judgment interest at the rate of 3 per cent per annum. In my view, 3 per cent is also a reasonable rate of return to attribute to the equalization payments.

Issue 3: Determining Spousal Support Afresh

[140] As I have explained, in my view, the trial judge committed two errors in principle in determining the quantum of spousal support, both of which relate to the effect of the equalization payment. First, he failed to consider the significant effect that the equalization payment will have on the respondent's entitlement, both compensatory and non-compensatory (namely, means and needs). Second, he failed to impute investment income to the respondent based on her receipt of the equalization payment.

The Equalization Payment

[141] In my view, the equalization payment which exceeds $3 million should be viewed as going some distance towards addressing the respondent's compensatory basis for entitlement. Further, the respondent's needs and means must also be viewed in light of the equalization payment.

[142] The trial judge focussed on the respondent's significantly diminished standard of living after marriage breakdown. However, that reflected her financial status before any payment of equalization. After receipt of the equalization payment, the respondent's means will be substantially increased and her need will be substantially decreased.

[143] And, while the appellant's means are considerable, they will be affected both by the requirement that he make the equalization payment (over five years) and also by the fact that significant additional income has been imputed to him.

Investment Income

[144] There are two types of income that must be attributed to the respondent, in addition to her imputed employment income: post-judgment interest on the unpaid equalization payments, and investment income on the equalization payments as the respondent receives them. As has been noted, the trial judge recognized the former but erred by failing to take into consideration the latter.

Calculating Spousal Support

[145] When calculating spousal support, one possible approach to dealing with these sources of additional income to the respondent would be to adjust the spousal support amount for each of the five years of the phased payout. Such an approach could take into account changes in investment rates, the increasing amounts of capital in the respondent's hands and, arguably, questions such as whether and how to treat the compounding of interest. In my view, the complexities of such an approach tell against it. It would virtually inevitably invite more litigation.

[146] Instead, I would establish a flat spousal support rate that itself takes into consideration the various effects of the equalization payment. This approach promotes finality for the parties, a value that cannot be overstated, particularly at this stage of intense and protracted litigation.

[147] It is not possible to precisely assess the effects of any of these factors. However, they can and must be accounted for in the quantum of spousal support awarded. In my view, the preferable approach for doing that is to depart from the strict application of the SSAGs to the full $1 million of imputed income to the appellant.

[148] I would account for the effects of the equalization payment on entitlement, as well as the necessary attribution of investment income to the respondent, by applying the SSAGs formula instead to an income of $675,000. This amount is half-way between the ceiling and the imputed income of $1 million: an approach suggested as a reasonable mid-point by the SSAGs, in discussing incomes over $350,000.

[149] In my view, attributing income of $675,000 — a figure at the mid-point between the $350,000 ceiling and the full imputed income amount — and maintaining the low point of the range generated by this income (as the trial judge did), fairly achieves the desired effect of providing both compensatory and non-compensatory aspects of support.

[150] The SSAGs range for support outputs is based on 1.5–2 per cent of the difference between the spouses' gross income for each year to a maximum range of 37.5–50 per cent for marriages of 25 years or longer. I would apply the low end of this range, namely, 37.5 per cent, to the gross income difference from January 2016 forward, when the trial judge imputed $35,000 of employment income to the respondent. This results in 37.5 per cent x $640,000 = $240,000 annually, or $20,000/month. As I have explained above, the respondent will have additional interest income from the date of the order forward. However, for the reasons already given, I consider these additional income sources to have been accounted for in the application of the SSAGs to a reduced income of $675,000, rather than the full $1 million of income imputed to the appellant.

[151] From the date of the application until January 2016, the trial judge did not impute any employment income to the respondent. Applying 37.5 per cent to a gross income difference of $675,000 results in a figure of $253,125 per year, or $21,094/month of spousal support. As the foregoing explains, all of the figures used are approximations, for this reason, I would round the figure to $21,000/month.

Disposition

[152] Accordingly, I would allow the appeal in part and vary the order as follows:

(1) para. 2 shall be varied to provide that the first equalization payment shall be made on May 31, 2017 and the remaining four equalization payments shall be made on January 1 of each of the following four years, commencing January 1, 2018;

(2) para. 4 shall be varied by substituting the figure of $20,000 per month for spousal support commencing January 1, 2016;

(3) para. 5 shall be varied by substituting the figure of $21,000 per month for retroactive spousal support from the date of commencement of the application. The resulting arrears from the date of commencement of the application (March 4, 2011) to January 1, 2016, shall be calculated accordingly and substituted for the figure of $1,106,887.85, which currently appears in para. 5. I would also order that the date fixed in para. 5 by which the resulting arrears are to be paid be varied to May 31, 2017. I would leave unchanged the other terms of para. 5.

[153] In terms of costs, it is necessary to consider not only costs of the appeal but also because the appellant has achieved some success on the appeal the costs award below, which is reflected in para. 8 of the order. If the parties are unable to resolve the matter of costs both on appeal and below, they may make brief written submissions to a maximum of four pages, such submissions to be filed within 14 days of the date of release of these reasons.

Appeal allowed in part.

Notes

¹ The original order was dated January 8, 2016. A cross-appeal was brought in this matter but the trial judge resolved the issues it raised before the appeal was heard. The resolution of the cross-appeal is reflected in the order. This explains why the order has two dates.

² Earnings before interest, taxes, depreciation and amortization.