COURT OF APPEAL FOR ONTARIO

CITATION: Racco v. Racco, 2014 ONCA 330

DATE: 20140428

DOCKET: C56694

Gillese, Epstein and Benotto JJ.A.

BETWEEN

Josephine Racco

Applicant (Respondent)

and

Peter Racco

Respondent (Appellant)

Jeffery Wilson and Farrah Hudani, for the appellant

Geoffrey Wells and Christine Ashbourne, for the respondent

Heard: February 6, 2014

On appeal from the judgment of Justice John C. Murray of the Superior Court of Justice, dated January 31, 2013.

Benotto J.A.:

[1] This appeal raises issues in connection with an award of lump sum spousal support. For the reasons that follow, I would dismiss the appeal.

Facts

[2] The parties were married on June 24, 1989. They separated in 2011. They have two children who were teenagers at the time of trial. When the children were young, the respondent was their primary caregiver.

[3] During their marriage the parties developed a very successful real estate business in the Oakville-Burlington area. The couple was associated with Royal LePage and marketed themselves as a team. In the later years of marriage, “Team Racco” generated annual gross real estate commissions well in excess of a million dollars. For the three years before separation, the parties’ combined gross commissions and net incomes reported on line 150 of their tax returns totalled:

Commissions

Line 150

2008:

$1,702,257

$527,211

2009:

$1,306,321

$377,286

2010:

$1,651,961

$319,696

[4] The parties also jointly owned a management company which, at the time of separation, owned seven properties with a net worth of over a million dollars. Their business success allowed them and their children to enjoy a luxurious lifestyle.

[5] Early in 2011, the appellant was charged with the sexual assault of a female employee. The parties separated shortly thereafter. The appellant immediately took steps to exclude the respondent from the home and the business. He changed the locks on the matrimonial home, redirected and cancelled their joint credit card, diverted all their joint commission cheques to himself, started his own real estate business and locked the respondent out of the client data base. The appellant paid no child or spousal support for several months.

[6] On May 4, 2011, the respondent commenced an application for divorce and corollary relief. The record reveals a high conflict divorce.

[7] The appellant’s criminal trial for sexual assault in the fall of 2011 was very public. The press attended and covered it in the local papers and online. He was convicted in October 2011.

[8] Team Racco no longer existed. In November 2011, Royal LePage ended its association with the appellant. Another company hired him in January 2012, but the impact of the conviction and the publicity remained an impediment to his financial success.

[9] The respondent did not return to real estate. She had been shut out of the business by the appellant. She was humiliated and devastated by the criminal proceedings. These circumstances made continuing in the real estate business difficult, if not impossible. She testified that she did not enjoy real estate in any event, and decided to devote her time to building a women’s clothing business that she had previously operated as a sideline.

[10] The parties settled all issues relating to their property and children. They went to trial in November 2012 on the issue of the respondent’s entitlement to spousal support.

The Trial Judgment

[11] There was little factual dispute at trial. The trial judge found that after separation, the appellant had unilaterally terminated the couple’s partnership and kept for himself the 2011 real estate commissions of $663,000. The trial judge said of the appellant:

It is not disputed that the commission income earned by the parties in 2011, in whole or in large part, was diverted to the [appellant] for his use and [he] did not treat the [respondent] fairly on the termination of the partnership.

[12] The trial judge found that the appellant will likely be less successful financially in the future as a result of his own criminal misconduct and also his unilateral termination of the partnership with the respondent. The trial judge found that “as a practical matter”, imputing significant income to the appellant for support purposes would be futile and thus a lump sum payment was the appropriate response to this “practical reality.” He imputed income after expenses to the appellant in the amount of $400,000 for 2011. The parties had previously agreed that the appellant’s income for child support purposes would be $150,000 from 2012 onwards. The trial judge found that had it not been for the criminal conduct of the appellant, his income for 2012 would have been “substantially in excess” of $150,000.

[13] With respect to the respondent’s income, the trial judge found that she had elected to leave a lucrative career in favour of one that was not yet profitable and was thus not entitled to ongoing periodic support. She was, however, entitled to spousal support for a period (which he termed “transitional”) following the termination of the partnership by the appellant. The trial judge stated:

Her income loss, and the immediate change in her standard of living, was a direct consequence of the termination of the partnership. The termination of the partnership by the [appellant] was a direct consequence of the marriage breakdown.

I agree that the [appellant] had an obligation to provide to the [respondent] spousal support immediately after termination of the partnership in order to provide her with a replacement income for a transitional period during which she could have explored other opportunities…

[14] After considering these circumstances, the trial judge awarded lump sum support in the amount of $200,000.

issues

[15] The issues raised in this appeal are as follows:

1. Was the respondent entitled to spousal support?

2. Should the award have been a lump sum?

3. Was the quantum of the lump sum excessive?

4. What is the nature of transitional support?

[16] The appellant sought to admit fresh evidence on the appeal showing that, after trial, his income did not exceed $150,000 and that the respondent returned to the real estate business.

[17] I will begin with the fresh evidence application and then consider the four issues raised.

Fresh Evidence Application

[18] The principles governing the admissibility of fresh evidence on appeal are outlined in R. v. Palmer, 1979 CanLII 8 (SCC), [1980] 1 S.C.R. 759. The Palmer test requires the applicant to satisfy four criteria: (i) the evidence could not have been adduced at trial; (ii) the evidence must be relevant in that it bears on a decisive or potentially decisive issue; (iii) the evidence must be reasonably capable of belief; and (iv) the evidence must be such that, if believed, it may have affected the result at trial.

[19] The fourth criterion of Palmer is not satisfied. The evidence is not such that the result at trial would have been affected. If the respondent returned to real estate and earned more than anticipated, it would not matter because she was not awarded ongoing support. The appellant’s income after trial, as set out in the fresh evidence application, is in the range anticipated by the trial judge. Thus, this evidence would not have affected the result.

[20] I would dismiss the fresh evidence application.

The Issues

[21] The issues in this appeal must be considered in the context of the statutory and jurisprudential framework for spousal support.

[22] The Divorce Act R.S.C 1985, c.3 (2nd Supp.), provides that an order for support should recognize, among other things, the advantages and disadvantages arising from the marriage or its breakdown and relieve any economic hardship of the spouses arising from the breakdown of the marriage. The objectives are set out in section 15.2(6):

An order made under subsection (1) or an interim order under subsection (2) that provides for the support of a spouse should

(a) recognize any economic advantages or disadvantages to the spouses arising from the marriage or its breakdown;

(b) apportion between the spouses any financial consequences arising from the care of any child of the marriage over and above any obligation for the support of any child of the marriage;

(c) relieve any economic hardship of the spouses arising from the breakdown of the marriage; and

(d) in so far as practicable, promote the economic self-sufficiency of each spouse within a reasonable period of time.

[23] The Supreme Court of Canada has directed that these four objectives must be considered together in establishing an equitable sharing of the economic consequences of marriage breakdown. The courts have been repeatedly urged to not concentrate on one factor to the exclusion of the others. The factors are cumulative, not alternative.

[24] In Moge v. Moge, 1992 CanLII 25 (SCC), [1992] 3 S.C.R. 813, the court established the compensatory model of support. This was followed by Bracklow v. Bracklow, 1999 CanLII 715 (SCC), [1999] 1 S.C.R. 420, which formally recognized compensatory, non-compensatory, and contractual entitlements to support. Generally speaking, compensatory support focuses on the advantages and disadvantages flowing from the marriage or its breakdown, while non-compensatory support focuses on need.

[25] The application of these principles makes the determination of spousal support highly individual and discretionary. As Professors Rogerson and Thompson state in their introduction to the Spousal Support Advisory Guidelines (Ottawa: Department of Justice, 2008) (SSAG):

Bracklow emphasized the highly discretionary, individualized nature of spousal support decisions. The Court was clear that the Divorce Act endorses no single theory of spousal support and must retain flexibility to allow judges to respond appropriately to the diverse forms that marital relationships can take. The Court presented spousal support determinations as first and foremost exercises of discretion by trial judges who were required to “balance” the multiple support objectives and factors under the Divorce Act and apply them in the context of the facts of particular cases.

[26] With this background, I turn to the specific issues in the appeal.

(1) Was the respondent entitled to spousal support?

[27] The trial judge found that the respondent was not entitled to ongoing spousal support because she was capable of achieving self-sufficiency at some point in the future. However, he found that she had experienced economic disadvantage as a result of the marriage and its breakdown and economic hardship that arose from the breakdown of the marriage. The trial judge considered the following evidence:

• The parties had enjoyed a lavish lifestyle;

• Their business produced annual gross commissions of over one million dollars for a number of years;

• The appellant shut the respondent out of the business after separation;

• The appellant paid nothing to the respondent for 8 months after the separation when she was most vulnerable financially;

• Thereafter the appellant paid interim support which included both child and spousal support on a without prejudice basis;

• The appellant unilaterally terminated the partnership, unfairly deprived the respondent of her share of the proceeds, repudiated the respondent’s efforts to find a way to continue the business and locked her out of the data base of clients;

• The appellant unfairly took for himself $633,000 in commission which should have been shared; and

• The appellant filed an income tax return erroneously showing that the respondent received $152,000.

[28] On the record, it was open to the trial judge to find an entitlement to spousal support which would include retroactive support, non-compensatory and compensatory support.

[29] The appellant argues that the trial judge incorrectly considered the appellant’s misconduct in awarding support. Section 15.2(5) of the Divorce Act requires that the court not take into consideration “any misconduct of a spouse in relation to the marriage.” The misconduct referred to in the section is specified as misconduct in relation to the marriage. It does not preclude a court from considering relevant misconduct outside the marriage. Consequently, I see no error in the trial judge considering the appellant’s criminal conduct which led to economic hardship for the respondent. By referring to the appellant’s conduct, the trial judge did not contravene section 15.2(5).

(2) Should the award have been a lump sum?

[30] The trial judge was required to fashion an appropriate award of spousal support within the unique circumstances of this case. He balanced the support objectives with a view to the self-sufficiency of the respondent. The award of support included elements of both compensatory support for the economic disadvantage suffered by the respondent as a result of the marriage and its breakdown, and non-compensatory support as a result of the economic hardship arising from the breakdown of the marriage

[31] This was an appropriate case for a lump sum payment. The appellant has an ability to pay. There was a high level of animosity between the parties, a history of non-payment by the appellant, the possibility that the appellant’s financial situation would continue to be precarious, the desirability of terminating personal contact, the need to effect a retroactive award of support and the need to provide capital to the respondent. These factors support a lump sum award. It was for the trial judge to consider all of them and exercise discretion in addressing the individual circumstances of the parties. This was confirmed in Davis v. Crawford, 2011 ONCA 294, 95 R.F.L. (6th) 257, at paragraph 69:

In the end, it is for the presiding judge to consider the factors relevant to making a spousal support award on the facts of the particular case and to exercise his or her discretion in determining whether a lump sump award is appropriate and the appropriate quantum of such an award.

[32] On the record, the trial judge was fully justified in exercising his discretion and ordering a lump sum payment.

(3) Was the quantum of support excessive?

[33] The appellant submits that the quantum of support cannot stand because the trial judge gave no indication of how he arrived at the amount. In addition, the appellant submits that the amount is excessive.

[34] The appellant submits that the trial judge’s reasons are deficient because he did not indicate the amount of income that he was attributing to the parties for the purpose of calculating spousal support, or indicate the duration of the support that he called transitional. Although the SSAG were argued, he did not refer to them.

[35] It would have been preferable had the trial judge referred to these matters in his reasons. However, the reasons demonstrate that he considered the objectives of section 15 of the Divorce Act. The trial judge did not misapprehend the evidence or commit an error in principle: see Hickey v. Hickey 1999 CanLII 691 (SCC), [1999] 2 S.C.R. 518. Deference is therefore accorded to the trial judge when, as here, there is a clear apprehension of the evidence, an identification of the objectives of the support award and a balancing of the factors supporting the award.

[36] I do not accept that the spousal support order is so high it warrants interference. The respondent’s share of diverted commissions alone would exceed $300,000. Even assuming the highest tax rate, the respondent would have received $150,000. She would also have been entitled to a consideration of the other elements of economic loss suffered.

[37] The amount can also be tested against the SSAG. The appellant argued that, on the basis of income for the appellant of $400,000 and the respondent of $50,000, a suggested lump sum support would be approximately $12,000 to $55,000. This however, was based on a one-year term. The appellant’s submissions that the quantum of the lump sum should be measured against a one-year term of support is not supported by the evidence or by the objectives of the Divorce Act. During the first year after the separation, the respondent could not have realistically achieved self-sufficiency: she moved homes, was prevented from working in the business, was involved in matrimonial litigation and subjected to the humiliation of the publicity of the criminal trial. I note that the SSAG suggest a lump sum payment of between $180,000 and $220,000 for a term of four years.

(4) What is the nature of “Transitional” Support?

[38] I turn now to address the trial judge’s description of the award as “transitional” support. In my view, this description does not reflect what the trial judge actually awarded. For that reason, I address the concept of transitional support and its connection to limited-term support.

[39] Transitional support is not a category of support. It is a word that is sometimes used to describe a spousal support award that is for a brief period of time, in other words, a short limited-term support award. It was the word “transitional” that appears to underlie the appellant’s submission that the amount of the award was excessive. Since the phrase “transitional support” is vernacular rather than a recognized legal term, it is generally not advisable to use it.

[40] A limited-term support award is generally designed to enable the recipient, after a short term marriage, to either achieve self-sufficiency or adjust to a lower standard of living. According to Moge, limited-term support should be rarely awarded in marriages of long duration. Where limited-term support is awarded after a long term marriage, particularly one with children, the term must be long enough to satisfy the objectives of the Divorce Act.

[41] In Fisher v. Fisher 2008 ONCA 11, the parties had been married for 19 years and had no children. At the time of separation, the wife was 41 and the husband was 42. The trial judge made a step-down support order which provided support at decreasing amounts for three years followed by a review, if requested. Since the wife had received interim support, the total term of support was four years. This court set aside the trial award and substituted a support order for an increased amount and for a term of seven years, without the possibility of a review. Although the marriage was lengthy, the court considered that after a period of seven years, the wife, who was still young, would either earn a higher income or adapt to a different lifestyle.

[42] The SSAG provide lump sum calculations for limited-term support of up to four years. In Fisher, the award was for seven years. Here the term of support must recognize a long-term marriage, with dependent children.

Conclusion

[43] The trial judge’s reasons, read as a whole, in the context of the evidence before him, support the conclusion that the lump sum award incorporated elements of compensatory, non-compensatory, and retroactive support. This accorded with the principles mandated by section 15 of the Divorce Act and jurisprudential precedent.

[44] The principles articulated in the Supreme Court of Canada in connection with the Divorce Act provide a framework within which equitable support awards are to be made. Although the SSAG offer a certain level of predictability and consistency once the basis for entitlement has been established, they are advisory only. The court cannot lose sight of the individual circumstances of a case in determining both entitlement and quantum under section 15 of the Divorce Act.

[45] This was a marriage of long duration. The parties lived a lavish lifestyle. Together they built a successful business. The consequences of the appellant’s conduct ended the financial success of the business, and disrupted the respondent’s ability to support herself financially.

[46] The reasons of the trial judge make it clear that he considered these factors in arriving at an award which recognized the advantages and disadvantages arising from the marriage and its breakdown as well as the economic hardship arising from the breakdown of the marriage.

[47] I see no basis on which to interfere with the $200,000 lump sum payment to the respondent ordered by the trial judge.

[48] The appellant has also appealed the trial judge’s award of costs. In light of these reasons, there is no basis to interfere with the award of costs.

DISPOSITION

[49] I would dismiss the appeal with costs payable to the respondent in the amount of $15,000, inclusive of disbursements and taxes.

“M.L. Benotto J.A.”

“I agree E.E. Gillese J.A.”

“I agree Gloria Epstein J.A.”

Released: April 28, 2014