Walsh v. Walsh

69 O.R. (3d) 577

[2004] O.J. No. 254

Docket No. C40513

Court of Appeal for Ontario

Laskin, Goudge and Feldman JJ.A.

February 2, 2004

Family law -- Support -- Child support -- Retroactive child support -- Federal Child Support Guidelines not overriding or modifying requirement in s. 17 of Divorce Act that material change of circumstances be established before child support order will be varied and not overriding or modifying well- established principle that child support will only be varied retroactively where there is evidence of need during relevant period -- Motion judge erring in finding that Guidelines gave her inherent discretion to increase child support retroactively on basis of substantial increase in father's income since child support order was made -- In absence of contractual obligation, failure to disclose increase in income not allowing court to award retroactive increase in child support -- Divorce Act, R.S.C. 1985, c. 3 (2nd Supp.), s. 17 -- Federal Child Support Guidelines, SOR/97-175.

In 1997, the husband was ordered to pay child support in the amount of $2,021 per month, which was the Federal Child Support Guidelines table amount for his income of $175,000. The divorce judgment did not require the husband to disclose his annual income to the wife. In the spring of 2002, the wife requested copies of the husband's income tax returns since 1997. On receiving them, she learned that the husband's annual income had substantially exceeded $175,000 in each of the four intervening years. She immediately sought a variation in child support and brought a motion for an interim increase. On the return of the interim motion, the motion judge "recalculated" the child support payable under the Guidelines for the years 1998 to 2001, based on the husband's actual income for those years, and ordered the husband to pay the "shortfall". She noted that she was not being asked to make a variation order based on a material change of circumstances, and found that the discretion to recalculate the quantum of child support payable on the basis of updated information from the payor was inherent in the Guidelines. The husband appealed.

Held, the appeal should be allowed.

Under s. 17(1) of the Divorce Act, a court may vary a court order for child support where there has been a change of circumstances, as defined in the Guidelines. Typically, any increase in child support takes effect from the date of the application to vary or from the date of demand for a variation. A court may make its order retroactive to an earlier date, but only where there is evidence of need during the relevant period. In rare cases, a court may order an increase in child support on an interim motion, but only when the need for an increase is urgent or pressing. The Guidelines regime does not override or modify the statutory requirement in s. 17 of the Divorce Act for variation in child support and the established caselaw for making a variation order retroactive. The motion judge could have found a material change of circumstances under s. 14 of the Guidelines and varied the child support order effective from the date when the wife brought her motion. The substantial increases in the husband's income constituted a change of circumstances under s. 14 of the Guidelines. She could not, however, retroactively "adjust" or "recalculate" child support to reflect the husband's increase in income. Nothing in the Divorce Act, the Guidelines or the case law gives a judge a freestanding right to recalculate and then adjust child support retroactively. In the absence of any contractual duty, failure to disclose an increase in income does not allow a court to award a retroactive increase in child support. Instead, the payee must ascertain a payor's change in income, apply for a variation, [page578] establish a change of circumstances, and if seeking a retroactive order, establish ability to pay and need during the relevant period.

APPEAL from an order of Snowie J., [2003] O.J. No. 825 (QL) (S.C.J.) for retroactive child support.

Cases referred to Brett v. Brett (1999), 1999 3711 (ON CA), 44 O.R. (3d) 61, 173 D.L.R. (4th) 684, 46 R.F.L. (4th) 433 (C.A.), affg (1996), 1996 8095 (ON SC), 24 R.F.L. (4th) 224 (Ont. Gen. Div.); Contino v. Leonelli-Contino (2003), 2003 30327 (ON CA), 67 O.R. (3d) 703, 232 D.L.R. (4th) 654, 42 R.F.L. (5th) 295, [2003] O.J. No. 4128 (QL) (C.A.), revg (2002), 2002 2774 (ON SCDC), 62 O.R. (3d) 295, 30 R.F.L. (5th) 266, [2002] O.J. No. 4620 (QL) (Div. Ct.); Drygala v. Pauli (2002), 2002 41868 (ON CA), 61 O.R. (3d) 711, 219 D.L.R. (4th) 319, 29 R.F.L. (5th) 293 (C.A.); Evans v. Gravely (2000), 2000 22593 (ON SC), 14 R.F.L. (5th) 74 (Ont. S.C.J.); MacMinn v. MacMinn (1995), 1995 6247 (AB CA), 17 R.F.L. (4th) 88 (Alta. C.A.); Marinangeli v. Marinangeli (2003), 2003 27673 (ON CA), 228 D.L.R. (4th) 376, 38 R.F.L. (5th) 307, [2003] O.J. No. 2819 (QL) (C.A.), affg (2001), 2001 28062 (ON SC), 54 O.R. (3d) 179, 16 R.F.L. (5th) 326 (S.C.J.); Paras v. Paras (1970), 1970 370 (ON CA), [1971] 1 O.R. 130, 14 D.L.R. (3d) 546, 2 R.F.L. 328 (C.A.); S. (L.) v. P. (E.) (1999), 1999 BCCA 393, 67 B.C.L.R. (3d) 254, 175 D.L.R. (4th) 423, 50 R.F.L. (4th) 302 (B.C.C.A.) [Leave to appeal to S.C.C. refused (1999), 252 N.R. 194n, [1999] S.C.C.A. No. 444 (QL)]; Vipond v. Vipond (1990), 1990 6969 (ON SC), 72 O.R. (2d) 82, 25 R.F.L. (3d) 128 (S.C.) Statutes referred to Divorce Act, R.S.C. 1985, c. 3 (2nd Supp.), ss. 17, 25.1 Rules and regulations referred to Federal Child Support Guidelines, SOR/97-175, ss. 4, 14, 25

Harold Niman and Anita Volikis, for appellant. Carole Curtis, Victoria Starr and Valda Blenman, for respondent.

The judgment of the court was delivered by

LASKIN J.A.: --

A. Introduction

[1] This appeal raises an important question about retro- active child support orders. [^1]

[2] In September 1997, after an 11 1/2-year marriage, Michael Walsh and Joanne Walsh divorced. A term of their divorce judgment ordered Mr. Walsh to pay support for the parties' two children [page579] based on an imputed annual income of $175,000 and calculated in accordance with the Federal Child Support Guidelines, SOR/97-175. Mr. Walsh complied with this order.

[3] In the spring of 2002, Mrs. Walsh asked for copies of Mr. Walsh's income tax returns for the previous four years. On receiving them she learned that since 1997 her former husband's annual income had increased substantially. She immediately sought a variation in child support and brought a motion for an interim increase. Mr. Walsh consented to an increase beginning in the summer of 2002. However, on the return of the interim motion, Snowie J. "recalculated" the child support payable under the Guidelines for the years 1998 to 2001, based on Mr. Walsh's actual income for those years. She ordered him to pay the "shortfall", amounting to $42,917.88.

[4] Mr. Walsh appeals this order. The principal issue on the appeal is whether the motions judge erred in ordering a retroactive increase in child support without finding a change in circumstances and without finding that a retroactive increase was required to meet the children's needs. This is a pure question of law on which no deference is owed to the motions judge. The appropriate standard of review is correctness.

[5] A secondary issue on the appeal is whether the motions judge erred in making the order on an interim basis without finding an urgent, or at least pressing, need for the increase.

[6] For the reasons that follow, I conclude that the motions judge did err in law in ordering the retroactive increase in child support.

B. Background

(i) Relevant facts

[7] Mr. and Mrs. Walsh were married in March 1986. They adopted two children, who were aged ten and nine at the time of the hearing before the motions judge. The parties separated in 1995.

[8] Mrs. Walsh had been employed in the financial services sector, but left the workforce in 1992 to care for the children. When the parties divorced, Mr. Walsh was employed as head of business development at an investment counselling firm.

[9] On September 23, 1997, after a long trial, Clarke J. granted the parties joint custody of the children, though they were to live primarily with Mrs. Walsh. He ordered Mr. Walsh to pay spousal support of $2,800 per month, but also found that within four to six months Mrs. Walsh could get a job in her field in the Toronto/Oakville area earning between $60,000 and $100,000 annually. Of particular relevance to this appeal, Clarke J. ordered Mr. Walsh to pay child support of $2,021 per month, which was the [page580] Guidelines figure that corresponded to his annual income of $175,000. Mr. Walsh paid the support ordered by the trial judge. The divorce judgment did not require Mr. Walsh to disclose his annual income to Mrs. Walsh.

[10] In March 2002, Mrs. Walsh requested copies of Mr. Walsh's income tax returns since 1997. Mr. Walsh complied with the request. By then he was vice-president of institutional investments at a division of Manulife Financial. His income had substantially exceeded $175,000 in each of the intervening years, in 2001 dramatically so. His returns reflected the following annual income:

1998 - $223,079.12

1999 - $228,940.34

2000 - $214,916.45

2001 - $376,957.74

He had not voluntarily disclosed these increases to his former wife.

(ii) The motion

[11] In April 2002, Mrs. Walsh brought a motion to vary child support. Beginning in July 2002, Mr. Walsh consented to several orders increasing the support he was paying. By February 2003, he was paying $3,071 per month for the two children.

[12] However, in January 2003, Mrs. Walsh amended her notice of motion to ask for an increase in child support calculated in accordance with the Guidelines, retroactive to 1998, and for increased spousal support. The motion came on before Snowie J. on an interim basis on February 26, 2003. Mr. Walsh sought an adjournment to cross-examine Mrs. Walsh on her affidavit. The motions judge adjourned most of the motion but she refused to adjourn the part requesting the retroactive increase in child support. Instead, using the reported income on Mr. Walsh's tax returns, she "recalculated" child support under the Guidelines for the years 1998 to 2001, which yielded the following "shortfall" in the amounts Mr. Walsh had paid:

1998 - $6,000.24

1999 - $6,731.76

2000 - $4,981.56

2001 - $25,204.32

Total shortfall in child support payments: $42,917.88 [page581]

She ordered him to pay this total amount together with $3,000 in costs. She also ordered that child support for 2002 be recalculated "when the appropriate documents have been exchanged".

[13] The motions judge commented that she was not being asked to make a variation order based on a material change. The crux of her reasoning is found in para. 13 of her endorsement:

I find that inherent in the Federal Child Support Guidelines is the discretion of this Court to, from time to time, recalculate in accordance with the Guidelines, the quantum of child support payable on the basis of updated income information from the payor pursuant to s. 25.

[14] Mr. Walsh sought and obtained leave to appeal the motion judge's decision to the Divisional Court. The Divisional Court, however, correctly decided that the order under appeal was a final order involving over $25,000 and that, therefore, the appeal lay to this court.

C. Discussion

[15] Under s. 17(1) of the Divorce Act, R.S.C. 1985, c. 3 (2nd Supp.), a court may vary a court order for child support. Before doing so, however, it must find a "change of circumstances" as defined in the Guidelines.

[16] Typically, any increase in child support takes effect from the date of the application to vary or from the date of demand for a variation. See for example Evans v. Gravely (2000), 2000 22593 (ON SC), 14 R.F.L. (5th) 74 (Ont. S.C.J.) at para. 18. A court may make its order retroactive to an earlier date, but to do so the established jurisprudence of this court requires evidence of need during the relevant period. Gillese J.A. recently affirmed this point in Drygala v. Pauli (2002), 2002 41868 (ON CA), 61 O.R. (3d) 711, 219 D.L.R. (4th) 319, at para. 53:

The purpose of child support is to assist the custodial parent in meeting the day-to-day expenses of raising children. A party seeking retroactive child support must provide evidence that the child suffered from a lack of financial support during the period in question. Ability to pay, as well as need, must be considered by the trial judge in the exercise of his or her discretion.

See also Brett v. Brett (1999), 1999 3711 (ON CA), 44 O.R. (3d) 61, 173 D.L.R. (4th) 684 (C.A.). Retroactive support is tied to need in part to ensure that a retroactive payment does not amount to a wealth transfer to the payee disguised as child support. Need is especially relevant when a payor's income exceeds $150,000 because under s. 4 of the Guidelines the court has discretion on how much child support to order.

[17] In rare cases, a court may order an increase in child support on an interim motion but only when the need for an increase is urgent or pressing. See Vipond v. Vipond (1990), 1990 6969 (ON SC), 72 O.R. (2d) 82, 25 R.F.L. (3d) 128 (S.C.). [page582]

[18] Here, the motions judge did not find a "change of circumstances" -- indeed she said that she was not being asked to do so. She did not find that the needs of the children required a retroactive increase. And she did not find that their needs were pressing. Yet the motions judge ordered an increase in child support retroactive to four years before Mrs. Walsh began her application to vary, and she did so on an interim motion. The motions judge justified her order on a single ground: the Child Support Guidelines gave her "inherent discretion" to "recalculate" the amount of child support from time to time. She exercised this "inherent discretion" based on the increase in Mr. Walsh's income and his failure to disclose the increase.

[19] Thus, the overriding question on this appeal is whether the Guidelines regime overrides or modifies the statutory requirement in s. 17 of the Divorce Act for variation in child support and the established case law of this court for making a variation order retroactive. In my view, it does not.

[20] I have no doubt that the motions judge could reasonably have found a "change of circumstances" and varied the child support order, effective from the date when Mrs. Walsh brought her motion. The substantial increases in Mr. Walsh's income constituted a change of circumstances under s. 14 of the Guidelines. Mr. Walsh effectively recognized this change of circumstances by consenting to increase the amount of child support he was paying once Mrs. Walsh brought her application to vary.

[21] What the motions judge could not do was retroactively "adjust" or "recalculate" child support to reflect the payor's increase in income. Nothing in the Divorce Act, the Guidelines or this court's case law gives a judge a freestanding right to recalculate and then adjust child support retroactively.

[22] Parliament did not create a regime where child support varies annually with a payor's change in income. Section 25.1 of the Divorce Act does contemplate such a regime:

25.1(1) Agreements with provinces -- With the approval of the Governor in Council, the Minister of Justice may, on behalf of the Government of Canada, enter into an agreement with a province authorizing a provincial child support service designated in the agreement to

(b) recalculate, at regular intervals, in accordance with the applicable guidelines, the amount of child support orders on the basis of updated income information.

But the implementation of this regime requires a provincial agreement with the Minister of Justice, and Ontario has yet to enter into such an agreement. [page583]

[23] Neither the Divorce Act nor the Guidelines contains any provision giving the court jurisdiction to recalculate child support retroactively because of an increase in the payor's income or the non-disclosure of the payor's actual income. For example, neither the Act nor the Guidelines imposes a duty on a payor to disclose annual increases in income. The parent entitled to receive child support bears the onus of ascertaining increases in the payor's income. Section 25(1) of the Guidelines gives the recipient parent the means to do so by requesting the payor's income tax returns and obliging the payor to comply with the request:

25(1) Continuing obligation to provide income information -- Every spouse against whom an order for the support of a child has been made must, on the written request of the other spouse or the person or agency entitled to payment under the order not more than once a year after the making of the order and as long as the child is a child within the meaning of these guidelines, provide that other spouse, or the person or agency entitled to payment under the order, with,

(a) the documents referred to in subsection 21(1) for any of the three most recent taxation years for which the parent or spouse has not previously provided the documents;

(b) as applicable, any current information in writing, about the status of any expenses included in the order pursuant to subsection 7(1); and

(c) as applicable, any current information, in writing, about the circumstances relied on by the court in a determination of undue hardship.

Mrs. Walsh eventually resorted to this provision, four and a half years after the divorce judgment.

[24] Many separation agreements provide for an annual exchange of financial information and adjustment of child support in accordance with the Guidelines. The court may also imply a duty of disclosure into a separation agreement in limited circumstances, as this court recently did in Marinangeli v. Marinangeli (2003), 2003 27673 (ON CA), 38 R.F.L. (5th) 307, 228 D.L.R. (4th) 376 (C.A.). Absent such a contractual duty, however, failure to disclose an increase in income does not allow a court to award a retroactive increase in child support. Instead the payee must ascertain a payor's change in income, apply for a variation, establish a change of circumstances and, if seeking a retroactive order, establish ability to pay and need during the relevant period.

[25] Parliament could have made the policy choice to require parties to exchange financial information annually or at some other regular interval and to vary child support in accordance with the Guidelines. Indeed, I see valid grounds for such a policy choice. The right to child support is that of the child, not the custodial parent. The payor's failure to give effect to this right voluntarily and [page584] the custodial parent's failure to enforce this right should not deprive the child of the support he or she is entitled to. When child support is not automatically varied in accordance with the Guidelines as the payor's income increases, the child effectively subsidizes the payor's improved standard of living. Moreover, failing to vary child support with undisclosed increases in income rewards conduct that seems inconsistent with the Guidelines. But Parliament has not made this policy choice.

[26] Here, the divorce judgment did not impose an express duty on Mr. Walsh to disclose his annual income to Mrs. Walsh. And she could not point to any circumstances from which such a duty could be implied. Therefore, the undisclosed increases in Mr. Walsh's income, substantial as they may have been, did not, standing alone, justify a retroactive increase in child support.

[27] To warrant a retroactive increase, Mrs. Walsh had to establish and the motions judge had to find that that the children needed more support and that Mr. Walsh was able to pay more during the relevant period.

[28] Along with need and ability to pay, other factors may also affect the decision to award retroactive child support. Rowles J.A. discusses these other factors in S. (L.) v. P. (E.) (1999), 1999 BCCA 393, 50 R.F.L. (4th) 302, 175 D.L.R. (4th) 423 (B.C.C.A.), leave to appeal to S.C.C. refused [1999] S.C.C.A. No. 444 (QL). She lists as considerations in favour of a retroactive order, at pp. 320-21 R.F.L.:

(1) the need on the part of the child and a corresponding ability to pay on the part of the non-custodial parent;

(2) some blameworthy conduct on the part of the non- custodial parent such as incomplete or misleading financial disclosure at the time of the original order;

(3) necessity on the part of the custodial parent to encroach on his or her capital or incur debt to meet child rearing expenses;

(4) an excuse for a delay in bringing the application where the delay is significant; and

(5) notice to the non-custodial parent of an intention to pursue maintenance followed by negotiations to that end.

And as considerations mitigating against retroactive orders, Rowles J.A. lists:

(1) the order would cause an unreasonable or unfair burden to the non-custodial parent, especially to the extent that such a burden would interfere with ongoing support obligations;

(2) the only purpose of the award would be to redistribute capital or award spousal support in the guise of child support; and

(3) a significant, unexplained delay in bringing the application. [page585]

These considerations were approved by this court both in Marinangeli, at para. 72 and Contino v. Leonelli-Contino (2003), 2003 30327 (ON CA), 67 O.R. (3d) 703, 42 R.F.L. (5th) 295 (C.A.), at p. 733 O.R., p. 322 R.F.L.

[29] Mrs. Walsh's affidavit evidence may support a retroactive order. But this order must be justified by applying some or all of the considerations in S. (L.) v. P. (E.) to proper findings of fact. And before any factual findings are made, Mr. Walsh is entitled to test Mrs. Walsh's evidence by cross-examination. Thus, the motions judge erred both in ordering a retroactive increase, and in doing so on an interim motion.

D. Disposition

[30] I would allow the appeal and set aside paras. 2, 4 and 5 of the order of the motions judge dated February 26, 2003. The parties may make written submissions on the costs of the motion and the appeal within 15 days of the release of these reasons.

Appeal allowed.

Notes

[^1]: It is technically inaccurate to characterize a child support order as "retroactive" because, unlike a truly retroactive order, it does not create an obligation that did not exist before the order was made. The obligation to pay child support arises as soon as a child is born and continues whether or not an action is brought to enforce it. See MacMinn v. MacMinn (1995), 1995 6247 (AB CA), 17 R.F.L. (4th) 88 (Alta. C.A.) at para. 15. See also Paras v. Paras (1970), 1970 370 (ON CA), [1971] 1 O.R. 130, 14 D.L.R. (3d) 546 (C.A.). I use the word retroactive in these reasons for convenience to denote child support that pre-dated an application to vary.