Court File and Parties

Court File No.: Halton 76/16 Date: 2016-08-03 Ontario Court of Justice

Between:

Barbara Lynn Ross De Luca Applicant

— AND —

Tony De Luca Respondent

Before: Justice Marvin Kurz

Heard on: June 14, July 12, 2016

Reasons for Judgment released on: August 3, 2016

Counsel:

• Val Hemminger, counsel for the applicant
• David Russell, counsel for the respondent

Overview

[1] It is a maxim worth repeating that if you find yourself in a hole, stop digging. Had the respondent, Tony De Luca applied this adage, attributed to the American humourist, Will Rogers, to his support obligations, he would have saved both himself and the applicant, Barbara Lynn Ross De Luca, a great deal of money and trouble.

[2] Mr. De Luca could have just obeyed the advantageous spousal support terms of the separation agreement that he obtained by deliberately misrepresenting his income. Had he done so, Ms. Ross would have been none the wiser. But less than three years after signing the separation agreement between the parties and then earning many times what he claimed to be his income, he decided to stop paying any spousal support to Ms. Ross. He then came up with a new set of lies to justify his repudiation of the agreement.

[3] When Mr. De Luca then moved to terminate his support obligations while more than $75,000.00 in arrears of the agreement, he was finally forced to reveal his true income. Only then did Ms. Ross learn that he had lied to her for years about his income.

[4] While she may have grounds to move to set it aside, Ms. Ross moves instead to retroactively vary the parties' separation agreement of July 23, 2008 ("the agreement"). She seeks a lump sum retroactive payment of $191,182.75 [1]. This figure represents the difference between the payments that Ms. Ross claims that Mr. De Luca should have paid and what he actually paid between January 1, 2009 and March 31, 2014.

[5] Ms. Ross concedes that it is appropriate to reduce the lump sum figure to represent that fact that she is not required to pay tax on any lump sum figure, while Mr. De Luca will not obtain a tax deduction from his payment. She seeks a net figure of $102,787.75. [2]

[6] The agreement calls for Mr. De Luca to pay Ms. Ross $1,750.00 per month in spousal support. This figure is based on his representation that his income was $80,000.00 per year. Ms. Ross' income at the time was $23,660.00 per annum. The agreement also allows a spousal support variation in the event of a material change in circumstances, even if the change is foreseen or foreseeable.

[7] Ms. Ross argues that Mr. De Luca's true income, both before and after the agreement was signed, was far more than the $80,000.00 annual baseline figure. She argues that this higher income after the signing of the agreement constitutes a material change in circumstances, opening the door to her variation application.

[8] Ms. Ross adds that she would have moved for the variation earlier had she known of Mr. De Luca's true income. But in the years that followed the signing of the agreement, Mr. De Luca actively lied about his income to justify his refusal to pay her support. The only disclosure he offered to her was patently false. She only learned the truth about his true post-2008 income when he applied to terminate his support obligations in 2014. She finally received his 2006-8 tax returns in 2016.

[9] Mr. De Luca opposes any retroactive variation of the separation agreement. Through his counsel, he variously argues that:

• Ms. Ross knew or should have known his true income at the time she signed the agreement,
• if he lied about his income in the agreement, it is her fault, because she knew his true income,
• the diminished support was part of a bargain that included a generous and expeditiously paid equalization payment,
• the agreement was intended to offer finality to the parties,
• he had no obligation under the agreement to disclose his true income after signing the agreement,
• Ms. Ross has no claim to increases in support because she failed to prove a claim to compensatory support
• In any event, the court should refuse to entertain this application because Ms. Ross comes before the court with "unclean hands". He argues that she failed to disclose her increases of income and her cohabitation status to him.

[10] For the reasons that follow, I grant Ms. Ross' motion to change. I fix the quantum of retroactive support payable to Ms. Ross at $102,787.75, payable within 60 days.

[11] I note that the agreement contains a secondary arbitration clause that requires any variation proceeding to be brought before Richard Shields, an arbitrator. No term in the agreement deals with the eventuality of Mr. Shields being unwilling or unable to conduct the arbitration. However par. 5.6 contemplates the possibility of a court order adjusting support. Ms. Ross's uncontested assertion was that Mr. Shields refused to conduct the arbitration because of Mr. De Luca's default in support payments. Neither party contested the jurisdiction of the court to conduct this proceeding. In fact, Mr. De Luca brought an earlier variation application in this court seeking to terminate his support obligations.

Background

[12] The parties engaged in a 24 year marriage. They have two children who were independent adults at the time that the separation agreement was signed. It contains no custody or child support provisions.

[13] As Mr. De Luca's counsel has pointed out, I have been provided with no evidence from either party as to the roles that they assumed during the marriage. However I note that the agreement ascribed to Mr. De Luca an income more than three times that of Ms. Ross. We now know that at the time the agreement was signed, it was actually about 8½ times that of Ms. Ross.

[14] Ms. Ross was described in the agreement as a full time, temporary receptionist, earning $23,600.00 per annum. Mr. De Luca was described as the part or full owner of three businesses who retained his ownership stakes after the separation, earning $80,000.00 per year.

[15] The parties accumulated a number of assets during the marriage. They jointly owned a matrimonial home worth $580,000.00. It was sold and netted $395,841.02. All of those funds went to Ms. Ross. The parties also jointly owned a cottage valued at $270,000.00, which went to Mr. De Luca. The agreement refers to Mr. De Luca retaining two all-terrain vehicles and three snowmobiles, which were presumably parked at the cottage.

[16] The agreement effectively calls for Mr. De Luca to pay Ms. Ross an equalization payment of approximately $275,841.00. This figure comprises the difference in the value of the two properties that each retained (i.e. the $395,841.02 that Ms. Ross received from the matrimonial home sale against the $270,000.00 value of the cottage [3] retained by Mr. De Luca), and the equalization payment of $160,000.00. That payment consisted of a $100,000.00 cash payment and a $60,000.00 RRSP rollover from Mr. De Luca to Ms. Ross.

[17] It can be inferred from those terms that the parties enjoyed a very comfortable lifestyle during the marriage. Further, Mr. De Luca was the primary breadwinner in a relationship in which allowed the parties to accumulate a number of assets.

The Separation Agreement

[18] The parties signed an interim separation agreement on March 22, 2007 that dealt with spousal support only. They then signed the agreement, which became effective on July 23, 2008. [4]

[19] The following are the salient terms of the agreement:

(a) The statement that Mr. De Luca owned three companies

(b) His unsupported representation about his income which reads as follows:

Tony says that his income is approximately $80,000.00 per year. [emphasis added]

(c) Ms. Ross makes a similar representation about what she says to be her income. However Mr. De Luca does not argue that her claim that she earned $23,660.00 per year was untrue.

(d) Mr. De Luca will continue to pay Ms. Ross spousal support of $1,750.00 per month. This implies that that the interim agreement [5] contained the same term. The parties agree that this figure is the mid-range SSAG [6] figure based upon the parties' representations of their incomes;

(e) The support payments will end when, among other eventualities, Ms. Ross "… cohabits in a marriage like relationship for three years or more."

(f) "Spousal support may be changed if there is a material change in circumstances, even if the change was foreseen or foreseeable."

(g) Until spousal support is "…adjusted by an amending agreement, court order, or arbitration award…", Mr. De Luca will continue to make the payments called for in the most recent agreement, order or award.

(h) The spousal support figure is subject to an annual cost of living clause that begins on June 1, 2009.

(i) In the event of late payment of support, Mr. De Luca will pay interest of 5% per annum, compounded annually.

(j) He is responsible for any additional tax that Ms. Ross incurs as a result of his making a lump sum payment of arrears of support.

(k) Mr. De Luca is also responsible for Ms. Ross' substantial indemnity costs of collecting any support arrears.

(l) He is to provide her with 12 monthly support payments each year.

(m) The relevant property terms of the agreement are already set out above.

[20] The agreement contains a number of standard form terms, including:

(a) A "whole agreement" term that sets out that the agreement as it reads is the entire agreement between the parties, "…free of any representations, collateral agreements, warranties or conditions affecting this Agreement."

(b) A joint representation that the parties have made to each other full financial disclosure of their income, assets and other liabilities on the dates of marriage, separation and the agreement.

[21] It is also noteworthy to set out the terms that are absent from the agreement, they include:

(a) A statement setting out the basis for the support calculations, and in particular, whether there was a compensatory aspect to the support.

(b) A spousal support release or end-date other than Ms. Ross's death, marriage, cohabitation reaching a third anniversary, or Mr. De Luca's death without appropriate life insurance arrangements. In other words, nothing in the agreement explicitly prohibits Ms. Ross from seeking an increase in support in the event of an increase in Mr. De Luca's income.

(c) An acknowledgment that Ms. Ross knew that Mr. De Luca's income representation understated his income, or that it represented a discount from his actual income;

(d) A statement tying support to equalization; i.e. that Ms. De Luca is receiving less support that she ordinarily would because she received some other consideration for the underpayment of support (i.e. an overpayment of equalization);

(e) A sworn financial statement by Mr. De Luca. However a net family property statement was attached to the agreement.

[22] The parties agree that the only financial statement that Mr. De Luca produced before signing the agreement was one sworn on October 20, 2006. It stated that his income was $0. However Mr. De Luca's 2006 personal tax return showed that his income that year was $78,684.00. I have been provided with no explanation for the significant income misrepresentation in his October 20, 2006 financial statement.

[23] 2006 was the only one of the nine years between 2006 and 2014 that Mr. De Luca earned less than $97,000.00.

Mr. De Luca's Income

[24] It should also be noted that all of the figures that the court uses for Mr. De Luca's actual annual income represent the figures he used in line 150 ("total income") of his personal income tax return. This line 150 income is primarily money that he chose to pay himself from his businesses.

[25] Further those figures do not include a consideration of whether Mr. De Luca ran any personal expenses through his businesses [7]. Had he done so, the income should then be grossed up and added to his income for support purposes. [8]

[26] In 2008, the year that the agreement was signed, Mr. De Luca earned $202,000.00, mostly from employment income from his businesses. That is more than 2½ times the amount that he claimed in the agreement to be his annual income.

[27] The following year, 2009, he earned $380,000.00 or 4½ times more than his represented income. This is the basis of Ms. Ross' claim to a material change in circumstances.

[28] Mr. De Luca's income continued to fluctuate for every year until 2014. That is the year that the parties agree that his support obligations ended because Ms. Ross reached the three year anniversary of her cohabitation with another man.

[29] The parties agree that Mr. De Luca's true income for the years between 2009 and 2014 was:

Year	Income
2009	$380,000.00
2010	$205,725.00
2011	$97,188.00
2012	$100,950.00
2013	$133,212.00
2014	$175,000.00

Mr. De Luca's Refusal to Pay Support

[30] Despite the true state of his income as set out above, Mr. De Luca cut off Mr. Ross's support payments in December, 2010. He earned $205,725.00 that year. He would not pay her support again until May 2014, 3 ½ years later. He justified his actions by claiming that he was unable to afford to pay support.

[31] Ms. Ross had to register the agreement in Ontario [9] under s. 35(1) of the Family Law Act ("FLA"). This allowed the Family Responsibility Office ("FRO") to enforce the agreement's terms. The payments only resumed when the FRO threatened to cut off Mr. De Luca's driver's licence and passport. He did not pay off all of the arrears that he had accumulated between 2010 and 2014 until late March, 2016.

[32] In March, 2014, Mr. De Luca commenced proceedings to terminate his support obligations because of Ms. Ross' cohabitation. There is no evidence that she sought to hide her relationship or that Mr. De Luca was actually unaware of it at any material time.

[33] In fact, Ms. Ross conceded that Mr. De Luca's support obligations to her should end on March 31, 2014 because the three year anniversary of her cohabitation was April 1, 2014. However Mr. De Luca was not relieved of his previous obligations under the agreement. He was years in arrears of support.

[34] It is instructive to look at some of the email exchanges between the parties regarding the non-payment of support. In a number of emails, Ms. Ross expresses increasing anxiety about Mr. De Luca's failure to honour the agreement. She went from polite requests to virtual supplication for payment.

[35] Mr. De Luca's responses were categorical and increasingly caustic. On February 15, 2011 he stated that, "things are very tight and probably [will] be for a while its [sic] not the same as it used to be." On April 26, 2011, he claimed to be unable to pay her until that fall. On July 28, 2011 he repeated his claim of an inability to pay until the fall. He then admonished her, stating "…if you cant [sic] wait do what you must". The following day he refused Ms. Ross' request to provide a date for the promised fall payments.

[36] On August 9, 2011, Mr. De Luca sent Ms. Ross a draft balance sheet for one of his businesses. The document was one page, dark, and barely legible. It showed what he purported to be a 50% decrease in management wages. He proposed cutting her support almost in half, to $795.00 per month. Ms. Ross refused.

[37] On September 9, 2011 Ms. Ross wrote another email, complaining that she had received no payments at all from him in the past eight months [10]. She explained that she too was experiencing financial difficulties, having to borrow money just to pay her rent. She pointed out that the financial document that Mr. De Luca had sent her provided inadequate evidence of his inability to pay support. She ended by referring to the provisions of the agreement that his default was bringing into play.

[38] Mr. De Luca's biting and dismissive response suggested that she invoke the variation of support dispute resolution clause of the agreement. He offered this recommendation despite the fact that he was the one seeking the change in support. He also ignored the agreement's term that required him to continue to pay support until a new term was agreed upon or ordered.

[39] Mr. De Luca boldly proclaimed that, "… I [sic] have no money…" In fact he earned $97,188.00 that year (2011), $17,188.00 more than the figure he provided three years earlier to calculate his support obligation. It is also well to recall that Mr. De Luca terminated his support payments in December 2010. He made $205,725.00 that year.

[40] The parties agree that in March, 2014, when Mr. De Luca applied to terminate his support obligations to Ms. Ross, he was $76,125.71 in arrears. That represented about 3½ years of payments. He would not pay those arrears off for another two years.

Mr. De Luca's Further Income Misrepresentations

[41] In his financial statement of March 28, 2014, prepared in support of his application to terminate support, Mr. De Luca swore that his 2013 annual income was $93,000.00. His true income for that year was $133,213.00. Mr. De Luca further swore that his 2014 income was zero.

[42] Mr. De Luca also provided Ms. Ross with a letter from one of his business' bookkeepers, dated March 24, 2014. It too stated that he had earned no money that year. The fly in that ointment was the fact that he would actually earn $175,000.00 that year. Clearly the leopard was unable to change his spots.

[43] Mr. De Luca later offered a variety of explanations for his failure to honestly set out his income in his variation proceeding. His blamed his business bookkeeper for giving him the wrong income figures. His counsel argued that he earned most of his income near the end of the year; so his sworn financial statement on March 28, 2014 was "technically" accurate. He offers no evidence of this pattern of income.

[44] Further Mr. De Luca also claims that forgot that he earns rental income in addition to the amounts he pays himself from his business.

[45] It appears that Mr. Du Luca wants to the court to accept that he has no sense of his own financial history. He argues that he earns most of his income closer to the end of the year than the beginning; a contention unencumbered by evidence. He goes on to claim that he forgot his allegedly annually recurring income pattern when swearing his financial statement. Similarly he forgot that he earns rental income each year. For the court to accept Mr. De Luca's assertions, especially after his 2006 and 2008 fabrications, would require a leap of faith that would span the Grand Canyon.

Mr. De Luca's True Income

[46] In sum, at no time since the separation agreement was signed in 2008, did Mr. De Luca make as little as $80,000.00 per year. Between 2009 -14, Mr. De Luca averaged $182,012.50 per year, or just over 2¼ times more than he represented his income to be in the separation agreement.

[47] Admittedly there was one year that he earned just under $80,000.00 per annum. That was, perhaps coincidentally, 2006, the year the parties separated. He claimed an income of $78,684.00 in his personal tax return for that year. However in the three years before separation, he earned:

Year	Income
2003	$175,862.25
2004	$101,500.00
2005	$215,000.00

[48] If one were to average Mr. Du Luca's income in the three years prior to separation, his income would be $130,321.15 per year. If one were to include the 2006 line 150 income of $78,684.00, his annual average would be $117,411.93.

[49] There is simply no getting around the fact that Mr. De Luca consistently lied about his income to Ms. Ross.

Law

[50] The jurisdiction to bring this variation application arises from two Ontario statutes, the Interjurisdictional Support Orders Act, 2002 ("ISO") and the Family Law Act ("FLA").

[51] ISO allows applicants for support in reciprocating jurisdictions [11], to bring support variation applications in Ontario, provided that the payor resides in this jurisdiction. Under ISO s. 35(3), such an application is governed by the laws of Ontario.

[52] Ms. Ross registered the agreement in Ontario under FLA s. 35(1). FLA s. 35(2)(b) allows a registered agreement to be varied under FLA s. 37, as if it were an order of the court. ISO s. 36(1) allows a court to vary an original spousal support order. Under ISO s. 36(2), the variation application can request retroactive support.

[53] FLA s. 37(2) allows a variation of a support order:

…, if the court is satisfied that there has been a material change in the dependant's or respondent's circumstances or that evidence not available on the previous hearing has become available…"

[54] In that event, the court may:

a) discharge, vary or suspend a term of the order, prospectively or retroactively;

b) relieve the respondent from the payment of part or all of the arrears or any interest due on them; and

c) make any other order under section 34 that the court considers appropriate in the circumstances referred to in section 33.

[55] Among the orders that a court may make under FLA s. 34(1) are lump sum and periodic support payments, either indefinitely or for a limited period of time. Further, under FLA s. 34(1)(f), the court may order "…that support be paid in respect of any period before the date of the order."

[56] FLA s. 33(8) sets out the purposes of a spousal support order as follows:

(8) An order for the support of a spouse should,

a) recognize the spouse's contribution to the relationship and the economic consequences of the relationship for the spouse;

b) share the economic burden of child support equitably;

c) make fair provision to assist the spouse to become able to contribute to his or her own support; and

d) relieve financial hardship, if this has not been done by orders under Parts I (Family Property) and II (Matrimonial Home).

[57] Under FLA s. 33(9), when determining the amount and duration of spousal support, the court shall consider all the circumstances of the parties, including,

a) the dependant's and respondent's current assets and means;

b) the assets and means that the dependant and respondent are likely to have in the future;

c) the dependant's capacity to contribute to his or her own support;

d) the respondent's capacity to provide support;

e) the dependant's and respondent's age and physical and mental health;

f) the dependant's needs, in determining which the court shall have regard to the accustomed standard of living while the parties resided together;

g) the measures available for the dependant to become able to provide for his or her own support and the length of time and cost involved to enable the dependant to take those measures;

h) any legal obligation of the respondent or dependant to provide support for another person;

i) the desirability of the dependant or respondent remaining at home to care for a child;

j) a contribution by the dependant to the realization of the respondent's career potential;

k) …

l) if the dependant is a spouse,

i. the length of time the dependant and respondent cohabited,

ii. the effect on the spouse's earning capacity of the responsibilities assumed during cohabitation,

iii. whether the spouse has undertaken the care of a child who is of the age of eighteen years or over and unable by reason of illness, disability or other cause to withdraw from the charge of his or her parents,

iv. whether the spouse has undertaken to assist in the continuation of a program of education for a child eighteen years of age or over who is unable for that reason to withdraw from the charge of his or her parents,

v. any housekeeping, child care or other domestic service performed by the spouse for the family, as if the spouse were devoting the time spent in performing that service in remunerative employment and were contributing the earnings to the family's support,

vi. ...

vii. the effect on the spouse's earnings and career development of the responsibility of caring for a child; and

viii. any other legal right of the dependant to support, other than out of public money.

[58] As the Supreme Court of Canada stated in Moge v. Moge:

…the purpose of spousal support is to relieve economic hardship that results from "marriage or its breakdown". Whatever the respective advantages to the parties of a marriage in other areas, the focus of the inquiry when assessing spousal support after the marriage has ended must be the effect of the marriage in either impairing or improving each party's economic prospects.

This approach is consistent with both modern and traditional conceptions of marriage in as much as marriage is, among other things, an economic unit which generates financial benefits … The [Divorce] Act reflects the fact that in today's marital relationships, partners should expect and are entitled to share those financial benefits.

[59] In Bracklow v. Bracklow the Supreme Court of Canada recognized that there are three conceptual grounds for entitlement to spousal support: (1) compensatory; (2) contractual; and (3) non-compensatory (i.e. based on need and ability to pay). As McLachlin J., as she then was, stated on behalf of the court:

These three bases of support flow from the controlling statutory provisions and the relevant case law, and are more broadly animated by differing philosophies and theories of marriage and marital breakdown. [14]

[60] Compensatory support is premised on notion that some or all of a spouse's entitlement to support may arise out of his or her contributions to the other spouse during their relationship. That contribution may arise out the roles that the parties assumed. Those roles may confer an advantage on one party (say career enhancement) [15] and a disadvantage to the other (say a spouse giving up, delaying or impairing a career to assume a caregiving role during the relationship) [16]. Further a spouse may make a financial contribution to the other's career (such as supporting the spouse through their schooling).

[61] On the other hand, non-compensatory support, based on need and ability to pay, arises out of the relationship itself and the mutual financial interdependence that it, in itself, creates. A claim to spousal support can arise on this basis even if there is no agreement or claim to compensatory support. [17] As McLachlin J. wrote in Bracklow:

… where need is established that is not met on a compensatory or contractual basis, the fundamental marital obligation may play a vital role. Absent negating factors, it is available, in appropriate circumstances, to provide just support. [18]

[62] Both the compensatory and non-compensatory models of support "… permit individual variation by contract, and hence provide a third basis for a legal entitlement to support." [19] As Justices Rosalie Abella and Marshall Rothstein wrote for the Supreme Court of Canada in L.M.P. v. L.S.:

For sound policy reasons, family law permits and encourages separating spouses to work out their own arrangements through the use of separation agreements (Berend Hovius and Mary-Jo Maur, Hovius on Family Law: Cases, Notes and Materials (7th ed. 2009), at p. 783). Agreements are desirable because individuals should largely be free to order their lives as they wish; because "the parties themselves are in the best position to evaluate the comparative advantages of alternative arrangements"; and because a negotiated settlement avoids the significant personal and financial costs of litigation (Robert H. Mnookin, "Divorce Bargaining: The Limits on Private Ordering" (1985), 18 U. Mich. J. L. Ref. 1015, at pp. 1018-19). [20]

[63] In L.M.P., the court reiterated the following comments of Sopinka J. in Willick v. Willick:

In deciding whether the conditions for variation exist, it is common ground that the change must be a material change of circumstances. This means a change, such that, if known at the time, would likely have resulted in different terms. The corollary to this is that if the matter which is relied on as constituting a change was known at the relevant time it cannot be relied on as the basis for variation. [22]

[64] But it bears remembering, as the court stated in L.M.P.:

Parties may either contemplate that a specific type of change will or will not give rise to variation. When a given change is specified in the agreement incorporated into the order as giving rise to, or not giving rise to, variation (either expressly or by necessary implication), the answer to the Willick question may well be found in the terms of the order itself. That is, the parties, through their agreement, which has already received prior judicial approval, have provided the answer to the Willick inquiry required to determine if a material change has occurred under s. 17(4.1). [23]

[65] Further, excessive reliance on a restrictive reading of the domestic contract, particularly when it limits the right to variation in the event of a material change, should be avoided. Courts should consider the intentions of the parties at the time that the agreement is incorporated into a court order, as to whether a specific event will be a material change in circumstances. [24]

[66] In Bremer v. Bremer, the Ontario Court of Appeal sets out eight potential factors for a court to consider in regard to a claim for retroactive spousal support. They are:

i. the extent to which the claimant established past need (including any requirement to encroach on capital) and the payor's ability to pay;

ii. the underlying basis for the ongoing support obligation;

iii. the requirement that there be a reason for awarding retroactive support;

iv. the impact of a retroactive award on the payor and, in particular, whether a retroactive order will create an undue burden on the payor or effect a redistribution of capital;

v. the presence of blameworthy conduct on the part of the payor such as incomplete or misleading financial disclosure;

vi. notice of an intention to seek support and negotiations to that end;

vii. delay in proceeding and any explanation for the delay; and

viii. the appropriateness of a retroactive order pre-dating the date on which the application for divorce was issued. [25]

[67] In the seminal case of D.B.S. v. S.R.G., the Supreme Court of Canada offered four general principles that a court must consider when dealing with a claim to retroactive child support. They are:

1. Undue delay – is there a reasonable excuse for failing to seek support earlier?

2. The presence of blameworthy conduct by the payor. This is an expansive term which can generally be seen as any conduct that privileges the payor's needs at the expense of a child's entitlement to an appropriate amount of support;

3. The circumstances of the child;

4. Any hardship to the payor occasioned by a retroactive award. [26]

[68] In Kerr v. Baranow, the Supreme Court of Canada affirmed that the D.B.S. principles apply with necessary modifications to an application for retroactive spousal support. However the factors in regard to retroactive child and spousal support are different because of the presumptive entitlement of a child to support, which is not true of a separated spouse. Further, separated spouses do not have the legal obligation to look after each other's interests. Thus, as Justice Thomas Cromwell wrote for the court: "… concerns about notice, delay and misconduct generally carry more weight in relation to claims for spousal support." [28]

[69] In Reis v. Bucholt, the British Columbia Court of Appeal stated that blameworthy conduct can excuse a spouse's delay in seeking support. As the court stated at para. 78:

… where a payor parent has taken steps to hide his or her true financial situation, or has actively dissuaded the recipient parent from exercising his or her legal options, retroactive support may be ordered even where formal legal action was delayed. [29]

[70] In Gray v. Gray, the Ontario Court of Appeal found that it is appropriate to use the Spousal Support Advisory Guidelines ("SSAG") in spousal support variation cases. However in cases where the increase in support is claimed on the basis of an increase in the payor's income, "the court must conduct an analysis of the facts of the specific case to assess whether the SSAG ranges are appropriate." [30]

Analysis

[71] While Mr. De Luca clearly deceived Ms. Ross about his income when he negotiated and signed the agreement, I am not called upon to decide whether to set it aside. Rather I am called up on to consider whether to vary it based on a material change in circumstances from the time that the agreement was signed.

[72] In doing so I have to consider the following issues:

1. Does the difference between the $80,000.00 per year income that Mr. De Luca claimed in the agreement and his actual income subsequent to its signing represent a material change in circumstances as contemplated in the agreement?

2. If so, is Ms. Ross entitled to share in the increase in income?

3. If so, what should Mr. De Luca owe to Ms. Ross?

Material Change in Circumstances

[73] Mr. De Luca argues that Ms. Ross knew or should have known in 2008 that his income was more than $80,000.00 per year. He faults her for accepting his falsehood. He adds that she knew or should have known that his income in subsequent years would be greater than $80,000.00 per year.

[74] Mr. De Luca's counsel relies on the statement by Abella and Rothstein JJ. in L.M.P., cited above, that "…if the matter which is relied on as constituting a change was known at the relevant time it cannot be relied on as the basis for variation." [31]

[75] For that reason, Mr. De Luca contends that there was no material change in circumstances. He argues this even though he made $380,000.00 one year after he agreed to pay support based on an annual income of $80,000.00. He claims that his income increase met the definition of "… known at the relevant time."

[76] It bears repeating that the parties themselves contracted for no limit on their right to vary the spousal support terms of the agreement save the requirement of a material change in circumstances. While the agreement does not spell out any definition of such a change, it does explicitly state that the change need not be foreseen or foreseeable. Thus the parties themselves have answered what Abella and Rothstein JJ. describe in L.M.P. as the "Willick question".

[77] Equally important, I completely accept that Mr. De Luca's stratospheric income increases from the purported $80,000.00 annual baseline were not foreseen or reasonably foreseeable to Ms. Ross when she signed the agreement. Mr. De Luca saw to that by lying about his income.

[78] Mr. De Luca's retort appears to be that Ms. Ross should have known that he was misleading her. He even has the chutzpah [32] to blame her for the term of the agreement in which each party swears to have made full disclosure to the other. He claims that she lied about whether he made full disclosure. It takes a special kind of prevaricator to blame the victim for his own lies.

[79] I cannot ignore the fact that Mr. De Luca's behavior in the years that followed the agreement underlines a consistent pattern of deceit about his income that spanned the year of separation until the year his support obligations ended.

[80] For those reasons, it would violate one of the most fundamental underpinnings of family law – the need to make full and frank financial disclosure - to allow Mr. De Luca to benefit from so flagrant a pattern of financial deception. [33]

[81] In conclusion, the increase in Mr. De Luca's income from 2008 onward represented a material change in circumstances, whether or not Ms. Ross had to prove that such a change was foreseen or foreseeable.

[82] Finally on this point, although not argued, s.37(2) of the FLA allows a variation of a support order when evidence that was not available at the time of the court order becomes available. Here, Mr. De Luca's true income was not known when the agreement was negotiated and later, when it obtained the status of an order. He only disclosed his income from 2009 onward in 2014. He only revealed his income from 2006-08 on May 30, 2016. Even if there were no material change of circumstances, the availability of the evidence that Mr. De Luca actively suppressed allows for a variation of the agreement as registered.

Ms. Ross' Right to Share in Mr. De Luca's Increases in Income

[83] Mr. De Luca argues that Ms. Ross should not share in any income that he earned above the $80,000.00 figure set out in the agreement. He says that she has not proven any claim to compensatory support, and thus should not share in any income gains that Mr. De Luca earned for himself after they separated.

[84] Ms. Ross points out that Mr. De Luca's alleged $80,000.00 income was fictitious. Further, theirs was a long term marriage; one she left with a job paying her barely above a minimum wage. On the other hand, he left the marriage controlling three businesses that paid him a six figure salary. She argues that compensatory support should be inferred from the terms of the agreement.

[85] While there may be some justice to this argument, it is beside the point. The parties' binding domestic agreement allows Ms. Ross to apply for an increase in support provided only that there is a material change in circumstances. Foreseeability is irrelevant to the exercise of that right.

[86] As the Supreme Court of Canada has pointed out, support can be grounded on a contractual basis alone. Further, domestic agreements that parties have worked out on their own should be given great deference. I see no reason to depart from those principles in this case.

What Should Mr. De Luca Owe to Ms. Ross?

[87] Mr. De Luca argues that he should pay nothing to Ms. Ross for retroactive support. He argues that she comes to the court bereft of clean hands. He argues that she waited too long to apply. And she failed to disclose either her cohabitation or her later income increases to him. He describes this alleged non-disclosure as "blameworthy conduct", as described by Bastarache J. for the Supreme Court of Canada in D.B.S.

[88] I have been provided with no evidence that Ms. Ross engaged in blameworthy conduct. Mr. De Luca does not deny Ms. Ross' statement that their son, who was living with her, advised him of the cohabitation soon after it began. By the three year anniversary of the cohabitation, Mr. De Luca had not paid support to Ms. Ross for well over three years. With regard to both her cohabitation and her income increases, he did not overpay a nickel to her because of any purported non-disclosure. In fact Mr. De Luca cannot point to any prejudice that he suffered as a result of any element of non-disclosure by Ms. Ross.

[89] There is great irony to Mr. De Luca's references to Ms. Ross' alleged blameworthy conduct. He engaged in blameworthy conduct throughout the time following the parties' separation. I have already written at great length above about his mendacity prior to the signing of the separation agreement. Those lies did not end with that agreement. If anything, they grew even bolder in the years following its signing.

[90] Mr. De Luca deliberately lied to Ms. Ross in an attempt to bully her into taking less than her due under the separation agreement. He knew that she had trouble making ends meet. Yet he engaged in economic warfare with her. He wrongfully cut off her support to coerce her to abandon or diminish her already unfairly low support entitlement.

[91] In short, Mr. De Luca's behavior was the epitome of blameworthy conduct. It was the kind of behavior that the British Columbia Court of Appeal found in Reis v. Bucholt to entitle a support recipient to claim retroactive support. Such support should go all of the way back to 2009, when Mr. De Luca made 4½ times the income he claimed in the separation agreement.

[92] Based on the figures supplied to me, which both parties agree to be accurate [34], Mr. De Luca has underpaid spousal support, based on mid-level SSAG support, [35] by $191,182.75. That amount is based on the calculations set out below:

Year	Mr. De Luca's Income	Ms. Ross' Income	Actual Payments Including COLA	SSAG	Difference
2009	$380,000.00	$44,369.00	$21,000.00	$140,964.00	$119,964.00
2010	$205,725.00	$40,820.00	$21,000.00	$69,264.00	$48,264.00
2011	$97,188.00	$42,991.00	$21,874.00	$22,764.00	$890.00
2012	$100,950.00	$45,793.00	$22,423.00	$23,160.00	$737.00
2013	$133,212.00	$48,304.00	$22,505.25	$35,664.00	$13,158.75
2014	$175,000.00	$42,658.00	$5,727.00	$13,896.00	$8,169.00
Total					$191,182.75

[93] That raw number is not the final number. Had Mr. De Luca paid the support when he should have, that is as periodic payments under the Income Tax Act, he would have received a tax deduction. Ms. Ross would have paid taxes on the payments she received, which would have been considered income. However lump sum payments do not attract such tax consequences.

[94] I invited the parties to assist in determining what the appropriate figure should be, net of taxes. They agreed to a schedule, attached as Schedule "A" to these reasons. That schedule sets out, the "tax savings" that Mr. De Luca will lose by paying the retroactive support as a lump sum rather than as a series of period payments.

[95] That chart provides a figure of $97,395.00 as the tax savings lost by Mr. De Luca. But $9,000.00 of that figure applies to 2008, so the proper figure is $88,395.00. Deducting that figure from $191,182.75 leaves a net retroactive lump sum figure of $102,787.75.

[96] That $102,787.75 figure is somewhat generous to Mr. De Luca. In Patton-Casse v. Casse, Justice John P.L. McDermott was faced with a similar question of allocating the tax consequences of a lump sum retroactive support order. Receiving scant help from the parties, he looked to precedent, and found little binding authority. He stated:

10 The parties did not cite any authority as to how to calculate the retroactive arrears, and in fact, there is surprisingly little authority on the subject. In Vanesse v. Seguin, [2008] O.J. No. 2832 (S.C.J.), retroactive support was reduced by 30% from the face amount of the support payable; the reason given was because, "Mr. Seguin will not receive a tax deduction for paying lump sum spousal support": see para. 231 of the judgment. However, in that case, the marginal tax rate of the payor was well over 30% as his income was found to be in excess of $400,000 per annum. The recipient had no income other than the child tax credit and ongoing spousal support; her income for the period of retroactive support being ordered was similar to that of Ms. Patton-Casse. Accordingly, some allowance was given but not in the amount of the tax deduction available to the payor or the tax payable by the recipient.

[97] McDermott J. decided to take what he described as a balanced approach, finding a mid-point between the tax consequences to each party. That figure represented a 25% reduction of the gross lump sum calculation. His approach was upheld by the Ontario Court of Appeal. [37]

[98] In Hume v. Tomlinson, Justice Giovanna Toscano Roccamo of the Superior Court of Justice reviewed a number of authorities. She found that that the most common approach to the issue was to deduct a percentage from the gross retroactive lump sum payment that represented the payor's marginal tax rate. In that case Roccamo J. made a 37% deduction.

[99] However in the recent case of Meth v. Barrenechea, Justice E. Ria Tzimas of the Superior Court of Justice refused to give any tax deduction to a party for lump sum spousal arrears because he deliberately disobeyed a support order.

[100] Here I will follow the parties' lead and fix the payor's retroactive lump sum payment at $102,787.75. Had the parties not agreed to this calculation, I may have made a somewhat different order, in line with the authorities cited above. It is not clear whether Mr. De Luca has paid off all interest on the arrears of support collected by FRO. This figure is independent of that one.

[101] Mr. De Luca has non-business assets $1,826.000.00, with debt of $268,000.00. He owns a $950,000.00 home with a $260,000.00 mortgage. He owns a $350,000.00 cottage that is mortgage free. He has $100,000.00 in RRSP's. He has the ability to raise the funds to pay his debt to Ms. Ross. Accordingly, retroactive lump sum support is payable in 60 days. That will allow Mr. De Luca to make whatever arrangements are necessary to raise the funds. Interest on unpaid amounts will accrue at 5% per annum in accord with the agreement.

Costs

[102] I ask the parties to determine whether they can agree on costs. If they are unable to do so, counsel for Ms. Ross may provide me with a submission of up to three pages, exclusive of bill of costs, within 21 days of the release of these reasons. Counsel for Mr. De Luca may respond within a further 21 days. If Mr. De Luca's counsel takes issue with Ms. Ross' bill of costs, he should provide his own bill of costs.

Released: August 3, 2016

Signed: Justice Marvin Kurz