Court File and Parties
COURT FILE NO.: FC-16-1063-0 DATE: 2017/07/10 SUPERIOR COURT OF JUSTICE - ONTARIO
RE: James Andrew Van Haren, Applicant AND: Brenda Lee Janet Stewart, Respondent
BEFORE: Mr. Justice Calum MacLeod
COUNSEL: Any Mayer, for the Applicant, Responding Party Jennifer C. Johnston, for the Respondent, Moving Party
HEARD: July 6, 2017
Endorsement
[1] This was a motion for interim spousal support. Entitlement is not in issue. The only question is the amount.
[2] The respondent asks the court to impute income of $210,000.00 per year to the applicant and to accept that the respondent has no income. She argues that the appropriate amount of support would be $7,656.00 per month. For his part, the applicant argues that interim support should be based on his declared salary of $84,900.00 per year and $20,000.00 per year of income should be imputed to the respondent. He argues that support of $3,000.00 per month (which is the amount he is paying voluntarily) is appropriate and adequate on an interim basis.
[3] For the reasons that follow, for the purposes of a motion for temporary relief, it is not appropriate to impute income in the full amount of the retained earnings of a business partially owned by the applicant. But it is reasonable to recognize that the real income of the applicant is higher than his salary. On the other hand a modest amount of income should be imputed to the respondent because despite a court order to do so she has failed to adduce evidence showing inability to work.
[4] I have fixed the amount of temporary spousal support at $3,800.00 per month as detailed below.
Background
[5] The parties were married on July 28th, 1984 and they have been separated since June 28th, 2015. Since that time the respondent wife has been co-habiting with a new partner and the applicant husband has continued to live in the former matrimonial home. The home is located on the husband’s family farm.
[6] The issue of the applicant’s income is complicated because he is an employee of his family’s farm. In fact both parties are from a farming background. During the marriage they both lived on the farm where they raised their children. Both husband and wife worked on the farm. The respondent asserts that the house was built by the parties on land belonging to the farm. Both the property and support claims appear relatively complex.
[7] The farm is owned and operated by a corporation which was originally owned by the applicant’s parents and is now owned by him and his brother. His brother owns two thirds of the shares and he owns one third. The share structure is reasonably sophisticated and there are different classes of shares with different rights. Moreover some of the shares owned by the applicant were gifted to him by his parents and other shares were purchased by him by way of a promissory note which remains outstanding. This means that among other things it is possible that the respondent has very limited rights to equalization. It is also unclear whether or not the applicant has any ability to adjust his income. The evidence before me on this motion is to the effect that his brother controls the corporation and the approval of his brother would be required in order to change his level of compensation.
Evidence in Support of Imputing Income to the Applicant
[8] The evidence before the court is somewhat unusual. At an early stage in the litigation, the applicant asked the farm’s accountant to prepare a document analysing the financial statements for the corporation and indicating his income for support purposes. This document was disclosed to the respondent and forms an exhibit to her affidavit. It is the basis for her argument that the applicant has an effective income of $210,000 per year.
[9] The only affidavit by the accountant herself is an affidavit filed by the applicant in which the accountant states that she is not truly qualified to do business valuations and that she simply used the financial statements of the farm and a template provided by a colleague in order to assist the applicant. She deposes that she had never intended this document to be used in court and would not have prepared it had she known that it was for that purpose. It was a preliminary report with only tentative conclusions concerning a matter in which she would not have attempted to qualify herself as an expert. In short this report is not an expert report admissible under Rule 20.1 (11) as it does not comply with Rule 20.1 (10) nor was it intended for that purpose.
[10] That does not mean the report is not useful. It was part of the disclosure made by the applicant and while the opinion or conclusion is challenged and may not be admissible as such, there is no suggestion in the evidence that the numbers drawn from the financial statements of the corporation are misstated. So the report is useful in so far as it demonstrates the complexity of the issues and the basis for arguing that a significant amount of income should be attributed to the applicant.
[11] It is evident that if the matter goes to trial, both parties will require expert evidence on this issue by an accountant qualified to give the necessary evidence and who is familiar with farm finances. The report available to the court at this moment can at best be used to show the possibility that the applicant has real income significantly higher than his salary. This evidence does not allow such income to be calculated with precision.
[12] What the figures show is the corporation has significant retained earnings. Retained earnings of course are an accounting concept which demonstrates that over time the corporation has chosen to keep most of its earnings in the business rather than paying them out to the shareholders. Although the evidence shows that the corporation has occasionally paid dividends to the shareholders, the primary method of paying income to the shareholders has been by means of fixed annual salaries. When the parties were together, this was accomplished by paying approximately $60,000 to the applicant and $20,000 to the respondent. Since separation, when the respondent ceased working on the farm, the applicant’s salary has been increased by $20,000 per year.
[13] Retained earnings cannot be equated with cash or available profits. Retained earnings are a cumulative number and while it does represent profits retained in the business since its inception, the capital represented by the retained earnings is reflected in the assets of the corporation. In the case of the farm in question, the financial statements show the extent of capital tied up in buildings, machinery, livestock and other inventory. The corporation does have upwards of $300,000 in the bank and a similar amount in investments but of course it requires working capital. As an example, it must shortly invest in a new combine which will cost upwards of $500,000.
[14] I have no doubt that a trial judge can readily conclude the real income of the applicant is higher than his salary but it is preposterous to suggest that a business, particularly a farming business which is not controlled by the applicant, is not legitimately entitled to retain some of its earnings as working capital. In short, the issue is complicated. The amount that should be imputed as income cannot be determined without detailed scrutiny of the business records and far more evidence than is available on the motion.
[15] Of course retained earnings will not be the only consideration. Besides the question of what benefit accrues to the applicant by the retention of profits in the corporation, there will also be the usual question of what benefits he receives in the form of expenses paid by the corporation as business expenses. The only specific evidence available at this point relates to the fact that he lives in a house belonging to the corporation and apparently pays rent of $600.00 per month which is said by the respondent to be well below market rates. There is no evidence to show what the market rate would be other than the accountant’s guess that it would be at least $1,300.00 per month.
[16] The evidence is sufficient to demonstrate that there is substance to the argument that income should be imputed to the applicant but there is far too little evidence to accept the figure proposed by the respondent.
Imputing Income to the Respondent
[17] The respondent worked substantial hours on the farm and at one point worked doing rural deliveries for Canada Post. While she was paid a salary of almost $20,000.00 per year for her work on the farm while the parties co-habited, as the subsequent increase in pay to the applicant demonstrates, this was primarily an income splitting device. It is therefore not clear what would have been the market value of the respondent’s labour on the farm. Of course she also had homemaking and child care responsibilities during the marriage. The parties have been separated for over two years and there is no evidence that the respondent has made any effort to obtain remunerative employment. She was ordered to produce a record of all searches for employment but has produced nothing.
[18] The respondent asserts that she is 55 and has certain medical conditions such as problems with her feet and shoulder and has no formal education. She has produced no medical documentation that she is unable to work and so the applicant argues that some income should be imputed to her even if it is only minimum wage. The applicant argues that income of $20,000.00 be imputed to her for purposes of an interim support order. Clearly if the respondent is relying on a medical condition she will have to prove it. See Rea v. Rea, 2013 ONSC 7548 (Div.Ct.). Still $20,000.00 assumes full time work with an arms-length employer at minimum wage and she has never had that kind of employment before. There is no evidence that such employment is available and has been declined.
Analysis
[19] This motion is governed by s. 15.2 of the Divorce Act. This means that the court may make such order as the court deems reasonable for the support of the spouse pending the determination of the application for support. Although the court is to apply the same factors whether the order is for temporary or final relief, there are limits on the factual determinations the court ought to make on an interim basis.
[20] The respondent has been receiving $3,000.00 per month which has been paid voluntarily without the benefit of an agreement or an order. As such this amount has neither been taxable nor deductible. The wife’s financial statement shows a monthly deficit of $3,100.00 without taking support into account. Of course counsel for the applicant takes issue with the budget and whether or not the expenses have been properly allocated between the respondent and her new partner. Nevertheless it is suggested that this sworn statement does not demonstrate a significant need to increase the amount of the voluntary support.
[21] Even if I make an order simply maintaining the amount of support the applicant has unilaterally decided to pay, it would have to be grossed up to take into account the income tax implications of an order. The applicant argues against this on the basis that he has been overpaying. The SSA Guidelines if the court were to accept his income at $84,940.00 and impute income to the respondent of $20,000.00 would support this as the high end of the range would be $2,599.00 in part because if those figures are used, this would be exactly 50% of NDI.
[22] In Biddle v. Biddle (2005) 13 R.F.L. (6th) 63 (SCJ), Blishen J. expressed reluctance to impute income based on the argument that retained earnings of a corporation should be attributed to the husband on an interim basis and before full financial disclosure and a detailed review of the books by an expert retained by the wife. That decision was in the context of a motion to vary a consent order and in circumstances in which there had already been an attribution of income for child support purposes. She based the temporary order on a means and needs analysis rather than by application of the SSAG to imputed income that may or may not be found to be justified at trial. And in Biddle, unlike the case at bar, Mr. Biddle was the controlling mind of the corporation.
[23] A similar approach was taken by this court in Driscoll v. Driscoll, [2009] O.J. No. 5056 (Quicklaw). Lemon J. concluded that on a motion for interim spousal support, the court could not enter into a detailed analysis of the business controlled by the husband. Rather she was prepared to use the facts of which she was certain to come to an approximation of his income. She also adopted a useful analysis by one of the Masters in British Columbia set out in Robles v. Kuhn, 2009 BCSC 1163, [2009] B.C.J. No. 1699 (Quicklaw). Those principles are set out at paragraph 14 of the Driscoll decision and I will not repeat them at length but I also adopt them as useful.
[24] Of particular significance are the following observations. On a motion for interim support, need and ability to pay assume greater significance. An interim support order should be sufficient to allow the applicant to continue living at the same standard of living enjoyed prior to separation if the payor has the ability to pay. On interim support applications the court does not embark on an in-depth analysis of the parties’ circumstances which is better left to trial. The court achieves “rough justice at best.” On interim applications the need to achieve economic self-sufficiency is often of less significance. There are other principles that are not applicable here such as the idea that the court should be particularly cautious if entitlement is in dispute. Both Driscoll and Robles were also approved in Drouillard v. Drouillard, 2012 ONSC 4495 (SCJ).
[25] I have reviewed the other jurisprudence cited by both counsel and I think it is fair to say that each case depends upon its individual circumstances. There is no bar to imputing income for interim support purposes but the court should be cautious about making extreme orders on vague and uncertain evidence. There is a pragmatic reason for this. Temporary support orders are ordinarily without prejudice to different findings at trial. Findings made without the benefit of cross examination and on an incomplete evidentiary record cannot be binding on a trial judge who will have the benefit of both. Setting temporary support at a level which turns out to be artificially high or low will simply result in large claims for retroactive adjustments and may force the parties to trial by impeding settlement. On the other hand in situations of economic dependency it is unjust to allow one party to retain all of the fruits of the marriage while forcing the other party to persist in relative poverty.
[26] There is no evidence that post-separation the applicant has artificially reduced his income or that the business has artificially taken steps to do so. To the contrary and to his credit, he has requested his salary be increased to reflect the amount previously paid directly to the respondent. I conclude that it is premature to determine whether significant amounts of the retained earnings of the corporation should be imputed as income. But it is reasonable to assume there are benefits to the husband from his part ownership of the corporation. At the very least there is some subsidy of living expenses through below market rent even if the exact amount of that subsidy is in question. For the purpose of establishing interim support, I am prepared to calculate support on the basis of an annual income of $105,000.00 including his salary and a modest amount of imputed income.
[27] On the other side of the ledger, the respondent has failed to provide any evidence that she has been looking for work and has not supported her allegation of medical disability. This engages s. 19 of the Guidelines and allows for imputation of income. On the other hand, having regard to the principles enunciated above, her limited education, age and work experience it is premature to expect her to have obtained full time employment. I recognize the frustration expressed by the applicant that he is continuing to work full time while he draws the inference from her social media pages that she is living a life of travel and leisure with her new partner. She disputes those inferences of course. In light of her own failure to make disclosure however, I am prepared to impute income to her of $5,000.00 per year.
[28] If the SSAG is applied to these numbers they would appear to generate a range of support roughly between $3,125 and $4,013 though of course there are variables that could alter these numbers. Of course the guidelines are not binding and particularly on an interim basis, the court must make an order that seems reasonable in all of the circumstances. In my view temporary support of $3,800.00 which will be taxable and deductible is appropriate. This is slightly above the mid-range in recognition of the vast disparity of the financial resources of the parties.
Conclusion
[29] In conclusion the motion is granted but not in the amount requested. There will be an order for temporary spousal support fixed at $3,800.00 per month commencing January 1st, 2017 to be taxable in the hands of the support recipient and deductible by the support payor.
[30] This order will continue until further order or agreement. It is without prejudice to findings ultimately made at trial on the basis of more detailed evidence. It is also without prejudice to the claims for retroactivity.
[31] If counsel cannot agree on costs, they may make arrangements to speak to the matter on a date to be fixed by the trial co-ordinator.