Court of Appeal for Ontario

Date: February 3, 2017 Docket: C61349

Judges: Weiler, Rouleau and Roberts JJ.A.

Between

Campbell Karl Schulstad Respondent (Applicant)

and

Diann Borden Schulstad Appellant (Respondent)

Counsel

Pam MacEachern, for the appellant

Ron Paritzky, for the respondent

Heard

November 7, 2016

On Appeal

On appeal from the order of Justice L. Lacelle of the Superior Court of Justice, dated October 23, 2015.

Roberts J.A.

[1] Introduction

[1] The appellant wife appeals the order terminating the respondent husband's obligations to continue to pay spousal support and maintain life insurance for her benefit, past the respondent's retirement date of June 1, 2016.

Background

[2] The appellant is 69 years old and the respondent is 70. They were married for over 24 years when they separated in 1990. They have one child who is now an independent adult.

[3] The appellant resides in Ontario and has not worked outside the home since before their separation. The respondent resides in Kentucky, in the United States, where he has enjoyed a very successful and well-remunerated career as a general surgeon.

[4] On July 30, 1996, Byers J. ordered the respondent to pay spousal support of $7,500 CAD per month, indexed each year based on the Consumer Price Index for Canada, and to maintain insurance policies in favour of the appellant. The support order was based on both compensation and need, recognizing the parties' long marriage, the appellant's sacrifices in supporting her husband while he completed medical school, and the appellant's physical and psychological difficulties at that time.

[5] At the time of Byers J.'s order, the respondent was working as a general surgeon earning an income of $275,000 CAD. His income over the years has been well in excess of $200,000 USD. For example, his 2014 income was $288,836 USD.

[6] In January 2014, the respondent brought an application to terminate his spousal support and life insurance obligations effective June 1, 2016, on the basis that he was planning to retire in June 2016. He also sought to reduce these obligations leading up to his retirement date.

[7] At the time of the respondent's application, he was paying the appellant over $10,000 CAD per month in spousal support and maintaining life insurance policies at a monthly cost of about $300 USD.

The Application Judge's Decision

[8] The application judge heard the matter in August 2015, ten months before the respondent intended to retire.

[9] The application judge accepted that the respondent was going to retire from employment in June 2016 and held that he was acting in good faith in seeking to retire. She stated at para. 28 of her reasons: "I do not find the motion is premature, and rather, find that the Applicant's timing in bringing it was a responsible approach to the issue."

[10] She also accepted the respondent's evidence that his income would be reduced from an annual salary of over $250,000 USD to an annual income from pensions and investments of about $35,000 to $40,000 USD. During his oral testimony, the respondent estimated his annual pension income would be about $30,000 USD, plus a small amount of income from savings, for a total of about $35,000 to $40,000 USD per year.

[11] The application judge concluded that the respondent's approaching retirement, and consequent reduction in income, was a material change in circumstances since Byers J.'s order.

[12] The application judge determined that the parties' respective assets and income would be about equal after the respondent's retirement. Therefore, the application judge terminated the respondent's spousal support and insurance obligations, effective on the anticipated date of his retirement in June 2016.

Standard of Review

[13] An application judge's order for spousal support is entitled to significant deference on appeal. An appeal court is not entitled to interfere with a spousal support order simply because it would have balanced the relevant factors differently or arrived at a different conclusion: Hickey v. Hickey, [1999] 2 S.C.R. 518, at paras. 10-12. However, an appeal court must intervene where the application judge's reasons disclose an error in principle, a significant misapprehension of the evidence, or if the award is clearly wrong: Hickey, at para. 11.

Discussion of the Issues

[14] The appellant raises the following issues:

(a) Did the application judge err in considering the respondent's application because it was premature?

(b) Did the application judge err in finding that the respondent's retirement and reduction in income were a material change in circumstances?

(c) Did the application judge err in finding that the parties would be in financially similar circumstances after the respondent's retirement?

[15] For the reasons that follow, I would not give effect to the appellant's submissions on the first two issues, but agree with her on the final issue. In my view, the application judge erred in finding that the parties would be in financially similar circumstances after the respondent's retirement.

Analytical Framework

[16] It is helpful to consider the issues on this appeal in the context of the relevant legislation and jurisprudence.

[17] Section 17(a) of the Divorce Act, R.S.C. 1985, c. 3 (2nd Supp.) provides that a court of competent jurisdiction may make an order varying, rescinding or suspending, prospectively or retroactively a support order or any provision thereof on application by either or both former spouses.

[18] Before a variation order in respect of spousal support order can be made, s. 17(4.1) of the Divorce Act requires that: "the court shall satisfy itself that change in the condition, means, needs or other circumstances of either former spouse has occurred since the making of the spousal support order or the last variation order made in respect of that order, and, in making the variation order, the court shall take that change into consideration".

[19] The Supreme Court of Canada established the analysis to be applied by the court in considering a variation application in Willick v. Willick, [1994] 3 S.C.R. 670, at p. 688, as follows:

The approach which a court should take is to determine first, whether the conditions for variation exist and if they do exist what variation of the existing order ought to be made in light of the change in circumstances. In deciding whether the conditions for variation exist, it is common ground that the change must be a material change of circumstances.

[20] With these general principles in mind, I turn to consider each of the issues in turn.

(a) Did the application judge err in considering the respondent's application because it was premature?

[21] The issue of prematurity is an issue at the first stage of the Willick analysis. In other words, prematurity is an issue impacting the threshold question of whether or not there has been a material change in circumstances. It is well-established that any decision to vary must not be made in accordance with events which may or may not occur: Messier v. Delage, [1983] 2 S.C.R. 401, at p. 416. An application to vary will be premature if based on speculative or uncertain changes in circumstances: Dufresne v. Dufresne, 2009 ONCA 682.

[22] The appellant submits that the application judge erred in considering the respondent's application because it was premature; the respondent had not yet retired and was unlikely to retire given that his monthly expenses well exceeded his projected monthly income. The appellant relies on Vaughan v. Vaughan, 2014 NBCA 6, 415 N.B.R. (2d) 286, for this submission.

[23] I do not agree. In the particular and fact-specific circumstances of this case, it was open to the application judge to decide that the respondent's application was not premature. This distinguishes the present case from Vaughan.

[24] In Vaughan, the payor was 61 years old and his retirement was merely speculative. The New Brunswick Court of Appeal set aside an order varying the payor's spousal support obligation if and when he retired.

[25] In the present case, the application judge was satisfied on the evidence before her that the husband's retirement was a certainty. There was sufficient evidence available to the application judge at the time of the hearing to find that the respondent would retire in June 2016 at age 70 as planned. The respondent had given notice to his employer, and his employer was proceeding with a process to replace him.

[26] The application judge was also of the opinion that there was sufficient evidence regarding the parties' respective assets and incomes upon the husband's retirement to enable her to reach a decision as to whether the application was premature. This was a finding that was available to her on the evidence. Although her interpretation of this evidence was in error (to which issue I return later in these reasons), there is no basis to interfere with her conclusion that the respondent's application was not premature.

[27] That said, I would not endorse as a general principle the application judge's encouragement of the early timing of the respondent's application because of the potential problems created by premature applications to vary. This case is exceptional in that there was evidence to support the application judge's conclusion that the respondent would, indeed, retire, that the change in income of the respondent and support payments following his retirement would be very significant, and that there was sufficient financial information to permit the application judge to determine that his retirement would be a material change in circumstances.

[28] In most cases, such an application so far in advance of the alleged material change in circumstances will run counter to the fundamental principle articulated in both legislation and jurisprudence that a material change must have already occurred in order for a court to have jurisdiction to vary a final order. This is because there is a real likelihood that the financial disclosure and other evidence in support of an alleged material change in circumstances will be speculative due to its prematurity. Encouraging premature, speculative applications to vary, which lack the necessary solid and certain evidentiary foundation, will simply increase the already extremely high costs of litigation in family law proceedings.

(b) Did the application judge err in finding that the respondent's retirement and reduction in income were a material change in circumstances?

[29] The appellant submits that the respondent's proposed retirement could not constitute a material change in circumstances because it was within the contemplation of the parties and Byers J. when the original spousal support order was made. The appellant refers to Byers J.'s statement that the appellant is "entitled to spousal support forever."

[30] She also submits that, regardless of whether or not the respondent was acting in bad faith by trying to frustrate his support obligations, his decision to retire was unreasonable. The respondent still has the capacity to work, and has failed to financially prepare for retirement. By this point in his life, the respondent ought to have amassed significantly more assets to provide better post-retirement income. The respondent's retirement constitutes voluntary unreasonable unemployment, as in Bullock v. Bullock, 48 R.F.L. (5th) 253 and Innes v. Innes, 2013 ONSC 2254.

[31] I would not accept these submissions. While the respondent's retirement was within Byers J.'s contemplation, the effect of that retirement was not considered in fixing the amount of support nor was there any evidence in the record to permit him to assess the financial impact of retirement. Byers J.'s determination that the appellant was entitled to spousal support "forever" could not foreclose the respondent's future application to reduce or terminate his support obligations upon the material change in his financial circumstances caused by his complete retirement from remunerative employment. Indeed, Byers J. appears to have alluded to this possibility when he cautioned the parties that if the respondent stops working, "the money stops."

[32] Further, the application judge's findings that the respondent was sincere in his proposed retirement and intended to live frugally within his reduced means were available to her on the record.

[33] While the respondent's financial planning certainly could have been better, it was within the application judge's discretion to find that the respondent's retirement at age 70, after a long and stress-filled career as a surgeon, was reasonable in the circumstances. This is not a case like Bullock or Innes where the payors voluntarily took early retirement at age 62.

(c) Did the application judge err in finding that the parties would be in financially similar circumstances after the respondent's retirement?

[34] The appellant submits that the application judge erred in concluding that the parties' present financial circumstances were relatively equal, such that spousal support should be terminated.

[35] I agree. The application judge erred in finding that the factors that resulted in economic disadvantage to the appellant during the marriage and after its breakdown no longer existed and that the lost advantage had been recovered by the appellant.

[36] In paras. 41-42 and 44-45 of her reasons, the application judge set out her conclusions on this issue:

In this instance, I find that the [respondent] and [appellant] are in substantially different positions than at the time the original order was made. They are now in similar financial positions. The [appellant] claims a net worth of ... $942,618.42. In addition to this asset base, the [appellant] receives Canada Pension Plan benefits. While currently her entitlement to Old Age Security is clawed back, those funds will be available to her if support payments cease.

The [respondent's] most recent financial statement of July 2015 indicates he has a net worth of $819,873.88 in U.S. funds. Since he will be living his retirement in the United States, … the value of those funds in Canadian dollars is irrelevant to this analysis. …

… I accept the [respondent's] projection of his retirement income as being in the range of $35,000.00 to $40,000.00 per year. Manifestly, … he cannot make monthly support payments in excess of $10,000.00 in Canadian funds.

… I find that maintaining this level of support will result in an inequitable sharing of the economic impact of the marriage and its breakdown. While the [appellant] is entitled to maintain a reasonable standard of living in retirement, her capital assets and government pensions will permit her to have a similar income to that of the [respondent] if the spousal support order is terminated upon the [respondent's] retirement.

[37] The application judge appears to have unduly focussed on the parties' respective net worth. In doing this, she made a significant error by failing to appreciate the material disparity between the parties' expected incomes.

[38] More specifically, the following errors led the application judge to mistakenly believe that the appellant's assets and government pensions would permit her to have a similar income to that of the respondent.

[39] First, the application judge did not consider the value of the respondent's net worth and anticipated retirement income in Canadian dollars. The application judge held that the Canadian dollar value was irrelevant because the respondent lived in the United States. This was an error. By failing to convert the respondent's net worth and anticipated retirement income into Canadian dollars, the application judge could not fairly compare them to those of the appellant and thereby assess whether the parties were in similar financial positions.

[40] Second, the application judge miscalculated the respondent's potential investment income from his assets and treated the parties' assets differently. As stated above, she accepted the respondent's evidence that his annual pension income would be about $30,000 USD and his other income would be about $5,000 to $10,000 USD, for a total of $35,000 to $40,000 USD.

[41] The respondent's estimate of an expected return on his investments of between about 1 to 2% appears to be inconsistent with the evidence of what, in the absence of any other explanation, seems to be his actual return on investments in the record. For example, the respondent's IRA Account grew from $416,274.70 in 2014 to $467,185.00 in 2015, reflecting an increase of over 10% in that year. There is no indication in the respondent's statement of his expenses that he contributed anything to his IRA Account, suggesting, in the absence of any other explanation, that the increase must largely represent a return on investment. If a 10% return on investment is applied, it would result in the respondent having notional investment income of over $50,000.00 USD, rather than $5,000 to $10,000 as the respondent estimated. Accepting the appellant's application of a USD/CAD currency conversion rate of 1.3, the respondent's potential retirement income of $50,000 USD would convert to $65,000 in Canadian dollars.

[42] I also note that the respondent's modest estimated annual rate of return on his investments has not been adopted in recent case law. For example, in Berta v. Berta, 2016 ONSC 5723, a 6% interest rate was used; this court in Mason v. Mason, 2016 ONCA 725, 403 D.L.R. (4th) 64, attributed a 4.5% interest rate; and the British Columbia Court of Appeal in Parrett v. Parrett, 2016 BCCA 151, 78 R.F.L. (7th) 1, applied a 4% interest rate.

[43] Further, in accepting the respondent's estimate, the application judge erroneously excluded the potential income that could be generated from the notional investment of the equity from the respondent's house. However, in contrast, the application judge included the value of the appellant's house while assessing her income potential.

[44] As identified by the application judge at para. 42, the respondent's net worth is $819,874 USD, including the value of his house. This figure is based on his 2015 financial statement, showing that his assets of $918,869 USD minus his debts of $98,995 USD are equal to $819,874 USD. The respondent's net worth of $819,874 USD includes non-income producing assets totalling $46,950 USD (paintings, sculptures, a computer, and cars). After subtracting these non-income producing assets from the respondent's net worth, the value of his income-producing assets is $772,924 USD. Again accepting the appellant's application of a USD/CAD currency conversion rate of 1.3, the respondent's net worth of $819,874 USD would be equivalent to $1,065,836 CAD. His income-producing assets of $772,924 USD would have a value of about $1,004,801 CAD.

[45] The appellant's net worth is $942,618 CAD, including her house. Her 2015 financial statement shows that her assets of $893,695 CAD minus her debts of $51,077 CAD are equal to $842,618 CAD. At the time of the hearing before the application judge, the appellant's net worth was closer to $942,618 CAD, because the value of her home had increased by $100,000 CAD. The appellant's net worth of $942,618 includes non-income producing assets totalling $10,500 (furniture and a tractor). After subtracting these non-income producing assets, the value of the appellant's income-producing assets would be $932,118 CAD.

[46] The difference of $72,683 between the appellant's and the respondent's respective net income-producing assets is material. The application judge erred in not taking this material difference into account in her analysis of whether spousal support and insurance should be reduced or terminated.

[47] Third, the application judge did not recognize that the respondent's yearly pension income of $30,000 USD is significantly greater than the appellant's annual Canada Pension Plan ("CPP") of about $3,500 CAD or any potential Old Age Security ("OAS") income, and that the disparity is even greater once the $30,000 USD is converted into Canadian dollars, which amount, using a 1.3 conversion rate, becomes $39,000 CAD.

[48] Given the respondent's materially larger assets and potential income, it was an error for the application judge not to assess whether the spousal support and insurance should be reduced rather than terminated.

[49] As I earlier indicated, I would not interfere with the application judge's findings that the respondent's retirement and dramatic reduction in income will result in a material change in circumstances. The respondent's material change in circumstances must necessarily affect the amount of spousal support and insurance that the respondent should be required to pay. The question is what should the reduction be?

Spousal Support

[50] Based on the evidence before her, the application judge erred in failing to conclude whether the respondent's obligations for spousal support should be reduced rather than terminated. However, to be fair to the application judge, the appellant's steadfast position on the application, as on appeal, was that the application for termination or reduction of spousal support was premature and should be dismissed.

[51] In my view, the evidence establishes that the initial compensatory and need bases for the appellant's entitlement to support continue to exist. The disparity in the parties' potential incomes and income-producing assets is indicative of the appellant suffering economic disadvantage arising from her role during the parties' long-term marriage and its breakdown. In contrast, the respondent gained a significant economic advantage from the marriage that has not been affected by the marriage breakdown. A finding that the appellant is no longer entitled to support would undermine the objectives under s. 17(7) of the Divorce Act.

[52] The Spousal Support Advisory Guidelines (Ottawa: Department of Justice Canada, 2008) (the "SSAGs") by Carol Rogerson and Rollie Thompson are a useful tool in calculating spousal support on a variation application: Gray v. Gray, 2014 ONCA 659, 122 O.R. (3d) 337.

[53] The SSAGs provide a number of factors to consider in determining the appropriate quantum of support within the ranges. The three most relevant factors in this case are the strength of the appellant's compensatory claim; her need; and the respondent's needs and ability to pay.

[54] Section 9.1 of the SSAGs states, "[a] strong compensatory claim will be a factor that favours a support award at the higher end of the ranges both for amount and duration." In accordance with compensatory principles, the more the recipient gave up in the paid labour market, the higher support should be.

[55] The appellant has a very strong compensatory claim. This was a long-term traditional marriage where she made significant sacrifices for the respondent. During the marriage, she worked to support the family while he finished medical school. The family then relocated to Ottawa where the respondent completed his residency in general surgery. As Byers J. stated, "[t]ogether … they made him a doctor." The respondent thereafter continued to further his career working as a surgeon while the appellant stayed home to care for their child.

[56] The issue of need is measured against the parties' marital standard of living: Mason, at para. 201. Section 9.2 of the SSAGs states, "[i]n a case where the recipient has limited income and/or earning capacity, because of age or other circumstances, the recipient's needs may push an award to the higher end of the ranges for amount and duration."

[57] The appellant has a continuing need for support relative to the parties' marital standard of living. As Byers J. stated, "[w]e are not talking about subsistence living here. This woman was married to a high-earning medical practitioner". Further, the appellant continues to have limited earning capacity.

[58] Section 9.4 of the SSAGs addresses the payor's needs and ability to pay. Need and limited ability to pay on the part of the payor may push an award to the lower ends of the range.

[59] The respondent's income and ability to pay will significantly decrease post-retirement. The respondent's 2015 financial statement shows annual expenses greater than his estimated post-retirement income. However, he submitted that he will adjust to his reduced income by living more frugally.

[60] A payor's retirement also has a particular impact on the SSAG analysis. Recognizing this impact, Rogerson and Thompson state the following in s. 19(e) of the Spousal Support Advisory Guidelines: the Revised User's Guide (Ottawa: Department of Justice Canada, 2016):

Eventually, as we get old enough, we all have to "live off our capital", to draw down our capital resources to pay for our current needs, especially those without pensions. RRSPs have to be converted into RRIFs (Registered Retirement Income Funds) or annuities. Businesses and farms have to be sold. Interest from investments becomes insufficient to fund daily needs.

[61] Respondent's counsel submits that if this court were to find that the spousal support should be reduced, the matter should not be sent back for determination but that this court should recalculate the appropriate reduction. Appellant's counsel was concerned that this court did not have sufficient information to make that calculation because the respondent's post-retirement net worth and income are undetermined.

[62] While the evidence in the record demonstrates that the amount of spousal support should be reduced and not terminated, there is insufficient information in the record to permit this court to calculate the appropriate reduction in spousal support in accordance with the factors required to be applied under s. 17 of the Divorce Act and under the SSAGs.

[63] For example, the absence of evidence respecting the respondent's actual investment income, return on his investments, and expenses precludes a meaningful calculation of his income for the purposes of determining his needs and ability to pay spousal support.

[64] Moreover, additional evidence concerning the appellant's income is needed. At the time of the hearing before the application judge, the appellant's Old Age Security ("OAS") income was being fully clawed back due to her spousal support. On appeal, respondent's counsel submitted that the appellant would begin receiving OAS when support is terminated, raising her combined annual CPP and OAS income to at most $12,000. However, the appellant did not agree with that figure and there was no evidence as to what the appellant's OAS income actually is. Further, the appellant's August 14, 2015 financial statement shows monthly income from investments of $94.27 and monthly RRSP/RESP withdrawals of $1,863.67. It is uncertain, for the purposes of calculating the appellant's need for spousal support, what her return on investment is with respect to her investments within and outside her RRSP account.

[65] As a result, the question of the appropriate reduction in spousal support, having regard to the long-term, traditional marriage, and the appellant's compensatory and need-based entitlement to support, must be remitted back to another application judge of the Superior Court of Justice.

Life Insurance

[66] The application judge terminated the respondent's obligation to continue the approximate $300 USD of monthly insurance premiums because of his material change in circumstances. For the reasons already given, she erred in failing to consider whether the respondent's insurance obligations should be reduced, rather than terminated.

[67] According to the summary of benefits provided by the respondent's insurer, on November 4, 2013, if not terminated beforehand, the respondent's term life insurance could have continued to 2024, without a change in the monthly premiums of $278.30 USD. As the application judge noted, the respondent also maintained another policy for accidental death and dismemberment at "a modest monthly premium". According to the respondent's application, this policy was carried at a monthly cost of $18.95 USD.[1]

[68] Byers J. originally ordered the maintenance of insurance because of his concern about the respondent "not paying because of his track record". However, given his material change in circumstances, the respondent's ability to pay monthly insurance premiums has changed.

[69] As I earlier noted with respect to the issue of spousal support, on this record, I am unable to determine whether the respondent would be able to continue or should be ordered to maintain the monthly insurance premiums for the life insurance and accidental death and dismemberment policies.

[70] As a result, I would leave the question of whether the respondent's insurance obligations should be reduced or terminated to the next application judge who hears this matter.

Disposition

[71] Accordingly, I would allow the appeal and set aside the application judge's termination of spousal support and insurance.

[72] The issues of the amount of the appropriate reduction to be made and the amount of spousal support to be paid, retroactive to June 1, 2016, as well as whether the respondent's insurance obligations should be reduced or terminated, are remitted back to another application judge of the Superior Court of Justice for determination.

[73] Pending this determination, the respondent shall pay spousal support to the appellant in the amount of $1,000.00 per month, retroactive to June 1, 2016. This figure shall be adjusted retroactively to June 1, 2016, for any overpayment or underpayment, upon the final determination of this issue by the Superior Court of Justice.

[74] If the respondent has not yet cancelled them, unless the appellant advises in writing that she does not wish the respondent to continue to maintain the insurance policies, he shall continue them until the final determination of this issue by the Superior Court of Justice. On providing proof of their payment to the appellant, the respondent's monthly insurance costs shall be deducted from the monthly amount of spousal support of $1,000.00 otherwise payable to the appellant in accordance with these reasons.

[75] The appeal is otherwise dismissed.

[76] With respect to the issue of costs on appeal and below, if the parties cannot agree on their disposition, they shall make written submissions of no more than two pages, plus costs outlines, as follows: the appellant shall deliver her submissions by February 13, 2017; the respondent shall deliver his submissions by February 23, 2017. There shall be no reply submissions.

Released: February 3, 2017

"L.B. Roberts J.A."

"I agree K.M. Weiler J.A."

"I agree Paul Rouleau J.A."

Footnote

[1] Exhibit D to the affidavit of Jennifer James, sworn August 18, 2015, in support of the respondent's application to vary.