Court File and Parties

Ontario Court of Justice

Date: October 3, 2019

Court File No.: Toronto DFO-18-15988 A3

Between:

Natasha Wilson Applicant

— And —

Paul Andre Wilson Respondent

Before: Justice Sheilagh O'Connell

Motion heard: September 10, 2019

Endorsement released: October 3, 2019

Counsel:

• Yunjae Kim on behalf of the Applicant Natasha Wilson
• Deanna Paolucci on behalf of the Respondent Paul Andre Wilson

Endorsement

Introduction

[1] The issue in this case is whether the respondent father ("the father") should be ordered to disclose his current wife's income to the applicant mother ("the mother").

[2] The mother has brought a motion seeking copies of the unredacted 2017 and 2018 U.S. tax returns of the father and his current wife, including both federal and state portions with a complete copy of all schedules and slips attached. The mother agrees that the father may redact his wife's social security number, date of birth, phone number, and other identifiable personal information from the returns.

[3] The father and his current wife live in the United States and filed "joint married" income tax returns for 2017 and 2018.

[4] The mother submits that this information is necessary in order to determine the father's income for child support purposes, in particular, any attribution to his income for differential tax rates, pursuant to section 19(1)(c) of the Ontario Child Support Guidelines.

[5] The father and his current wife oppose this request. The father submits that this is his wife's private information which she does not wish to disclose. He further submits that the information is not necessary for the purpose of determining the tax rate assessed on his income for child support purposes.

[6] The mother, father and the father's current wife filed affidavits and exhibits for this motion. I also reviewed the father's most recent sworn financial statement and the redacted 2017 and 2018 joint married federal and Colorado state returns, which were filed as exhibits.

Brief Background

[7] The parties started living together in May of 2004 and married on March 10, 2006. They separated on February 4, 2012, although they briefly reconciled in 2013.

[8] The parties have one child together, Teagan Wilson, born in 2008 ("Teagan"). Teagan lives with the mother in Toronto, Ontario. Teagan is now 11 years old.

[9] The father started a relationship with his current wife in May of 2014 and moved to Denver, Colorado to be with her in November of 2014. They married in 2015 and continue to reside in Colorado. Teagan visits her father in Denver on holidays and summer and winter breaks.

[10] The mother commenced this custody and child support application in November of 2018. The father was personally served on November 29, 2018 and retained Ontario counsel. The parties' counsel commenced negotiations and difficulties arose regarding the father's disclosure obligations. The father did not serve and file an answer and a sworn financial statement until July 15, 2019 after the mother sought to note him in default.

[11] On June 11, 2019, at the first case conference in this matter, the parties entered into a 'without prejudice' temporary consent order in which the father agreed to pay child support in the amount of $2,360.00 per month based on his "purported" income of $297,416.00 Canadian ($224,000.00 USD @1.33 CAD). The Consent Order also contained provisions regarding filing and financial disclosure.

[12] At that time, the father was only prepared to produce his 2017 and 2018 U.S. income tax returns on a redacted basis. The matter was then adjourned to September 10, 2019 for a case conference and/or motion if the parties were not able to reach a resolution of this issue. The motion was argued on that day.

The Father's Financial Circumstances

[13] The father is currently employed with Adobe. He has been employed with Adobe since it acquired Marketo, his previous employer, in 2018. He is employed on a full-time basis and states that his annual income is $172,000.00 in addition to bonuses, which are calculated at the end of each year based on company performance. He deposes that he earned $40,920.74 in bonuses in 2018.

[14] The father's wife was self-employed as a Marketo consultant in 2017 but in June of 2017, she was offered a job with Digital Pi as a Marketo Consultant and is no longer self-employed.

[15] The father also once owned a business in Canada in which he was the sole shareholder and only director. He deposes that the business had been inactive since December of 2016 and that his wife did not earn income or claim expenses from this business. While not formally dissolved, the father has not filed taxes for this business for several years.

The Father's U.S. Tax Returns

[16] The father and his current wife file their U.S tax returns jointly as a married couple. The father does not personally file his taxes. His wife prepares and files the taxes for them. She uses a tax preparation software program.

[17] According to the father, the amounts claimed under his section of the joint return is his personal income only and not his income less a portion split with his wife. He states that his wife has a great job and works full-time, therefore they do not income split. He produced a copy of his employment contract with Adobe to verify that the amounts on his portion of the joint return correspond to the Adobe offer of employment.

[18] The father deposed that according to the tax preparation software that his wife uses to prepare their joint returns, his effective tax rate in 2018 was 17.72 percent and the tax bracket was 24 percent. According to the father, this information is all that is needed to determine the tax gross-up on his income.

[19] Further, the father deposed that he is not making an undue hardship claim, and he is not opposed to paying Guideline child support on his current income, thus making it completely unnecessary to know the income of his wife for necessary section 10 calculations under the Child Support Guidelines.

[20] The court reviewed the redacted 2017 and 2018 U.S. income tax returns produced by the father. Large portions of both joint returns were entirely redacted, presumably containing information regarding his wife's income.

[21] The father's wife deposed in her affidavit that she is a private person who does not feel that her income is the business of Teagan's mother and therefore she does not wish to disclose this private information. She does not see how her information is relevant to determining the father's income for child support purposes.

[22] The father's wife confirmed that she personally files their taxes each year as a married couple, filing jointly. She uses the "Turbo Tax" software program. She explained that she provides their earned incomes as earned by each of them individually. She confirmed that they do not split their income. When she was self-employed as a Marketo consultant, the father did not use any of her income to write off his employment income.

The Mother's Accountant

[23] The mother's counsel consulted with two financial experts to assist in the review of the father's redacted joint U.S. returns, namely, Mitchell Ornstein of Ornstein Valuations Inc. and Adam Scherer of Crowe Soberman LLP, Chartered Professional Accountants.

[24] According to the evidence filed, it was the opinion of both accountants that the father's redacted joint US tax return does not show the total household earnings or the taxes paid. In order to calculate the attribution for differential tax rates under section 19(1)(c) of the Guidelines, it would be necessary to see the total household taxes paid and the father's wife's income. Once that information is obtained, the accountants can calculate the father's pro rata tax obligation.

[25] The mother filed a letter from Adam Scherer, CPA, attached as an exhibit to the mother's affidavit. The letter was admitted on consent. Mr. Scherer is a tax accountant and partner at Crowe Soberman LLP. He has developed an expertise in personal and corporate tax planning and compliance, including international cross-border tax issues.

[26] Mr. Scherer was engaged by the mother's counsel to assist with the gross-up tax calculation as it related to the net income of the father in the United States. In his letter dated August 29, 2019, Mr. Scherer states:

"In order to assist us with this calculation, you have provided us with a redacted US 1040 joint return for Ms [G.V.] and Mr. Wilson. It appears from the limited redacted information that Mr. Wilson files his return as a joint married return. Thus, his effective tax rate is blended with that of his spouse. Therefore, in order to properly compute the relevant tax that is applicable, both Federal and State, and the potential gross-up, if any, we will need to analyze the full unredacted return."

The Law and Analysis

[27] It is well established that full and frank disclosure is a fundamental tenet of the Family Law Rules. However, disclosure obligations must be assessed in light of Rule 2(3) of the Rules and considerations of proportionality, common sense and fairness must also be considered. See Webster v. Merritt, [2018] O.J. No. 2836 (S.C.J.), para. 36, per Justice Lene Madsen.

[28] When seeking disclosure from a party's new partner, a former spouse is not entitled to the "full financial picture" of the new partner as of right. Compelling the production of personal income, asset and other financial information of new life partners can be highly invasive of personal privacy. See Politis v. Politis, [2018] O.J. No. 157; 2018 ONSC 323; 2018 CarswellOnt 328 (S.C.J.) at paragraph 17.

[29] As Justice F. Kristjanson states in Politis v. Politis, supra, at paragraph 17 of her decision:

"In the family law context, the test set out in Ballard Estate for compelling third-party documents must be supplemented to take into account two critical values, privacy and proportionality, when seeking intimate financial information from new partners who are not parties to the litigation… The privacy interests of third-party new partners must be carefully balanced against the interests of the parties to the family law proceeding, and any production order carefully scrutinized."[1]

[30] The party seeking access to the new partner's financial information must demonstrate that the interference with the privacy of the third party is necessary in the particular circumstances and the extent to which it is necessary. There must be an evidentiary basis for the request. See Kent v. Kent, 2010 NLCA 53, at paragraph 103; N.V.G. v. T.M.G., 2017 BCSC 1686, at paragraph 27.

[31] In N.V.G. v. T.M.G., 2017 BCSC 1686, the respondent father filed his income tax returns jointly with his new spouse and had redacted all information concerning her income from the returns. In denying the applicant's request for the unredacted income tax returns, Justice Saunders states the following at paragraph 27 of that decision:

"This is not like the situation in Ackerman v. Ackerman, 2016 SKQB 353 where there was a possibility of income splitting between two self-employed spouses, necessitating the disclosure of the new spouse's tax returns. The respondent in that case was ordered to provide a copy of his tax return that revealed his new spouse's income, although he was allowed to redact her social insurance number. In the present case, however, the respondent is a salaried employee. There is no evidence before me suggesting that the redacted income tax returns delivered by the respondent do not provide a sufficient basis for determining his child support obligation. I decline to make the direction the claimant seeks." [Emphasis added].

[32] However, in the case before me, there is evidence that the disclosure of the father's new wife's income is relevant and necessary to determine the father's child support obligation, for the following reasons.

[33] The determination of income for child support purposes is governed by applying sections 15 to 20 of the Child Support Guidelines. Section 16 sets out the general rule that income is calculated by using the sources of income set out under the heading "Total income" in the T1 General form issued by the Canada Revenue Agency ("line 150 income").

[34] Sections 17, 18 and 19 of the Guidelines gives the court discretion if the application of section 16 does not result in the fairest determination of income for child support purposes.

[35] Section 19 permits the court to impute income to a spouse or parent in certain circumstances. A non-exhaustive list of circumstances is set out in that section. There are a number of provisions which permits a court to impute income where a parent is exempt from paying tax, lives in a lower taxed jurisdiction, or derives income from sources that are taxed at a lower rate.

[36] This is to ensure consistent treatment of those who are in similar circumstances. The goal is to achieve consistency between payors who pay less income taxes and therefore have more funds available with which to pay child support. The fundamental principle is that the court must estimate the actual means which the parent has available for child support. If less tax is paid, more is available. See Riel v. Holland, [2003] O.J. No. 3901 (CA); Orser v. Grant, [2003] O.J. No. 1669 (SCJ); Sarafinchin v. Sarafinchin, [2000] O.J. No. 2855 (S.C.J.).

[37] Section 19(1)(c) is applicable to the facts of this case and provides the following:

(1) The court may impute such amount of income to a spouse or parent as it considers appropriate in the circumstances, which circumstances include, ...

(c) the spouse or parent lives in a country that has effective rates of income tax that are significantly lower than those in Canada;

[38] The father is living in a country that has different tax rates than Canada. It will therefore be necessary to accurately calculate the father's effective tax rates to determine his income available for child support. If the father's tax rate is lower than that in Canada, then a gross-up calculation must be completed.

[39] The evidence demonstrates that the most accurate way to determine the father's effective tax rate is by allowing the mother's accountant to examine and analyze the complete unredacted joint returns of the father and his wife, given that the father's effective tax rate is blended with that of his spouse.

[40] It is not fair or reasonable to expect the applicant mother to rely upon the calculation of the father's effective tax rate by the father's wife, who used "Turbo Tax" software, without being able to examine the unredacted returns. The father's wife is not an accountant, nor an expert in cross-border tax issues or gross-up calculations to determine child support under the Child Support Guidelines.

Order

[41] In balancing the privacy interests of the father's wife and the interests of the mother in her application for child support, I make the following order:

1. The Respondent father shall produce clean, unredacted, complete copies of his 2017 and 2018 U.S. Income Tax Returns, both federal and state portions, with complete copies of all schedules and slips attached thereto, to the Applicant mother within fifteen days of the date of this Order.

2. The Father may redact:

a. his current wife's social security number, date of birth and phone number;

b. his wife's daughter's social security number and date of birth.

3. The Applicant mother shall not share or distribute the 2017 and 2018 U.S. Income Tax Returns with any person, or in any manner whatsoever, other than with her lawyer(s) or accountants for the sole purpose of this litigation.

[42] If the parties cannot reach an agreement regarding costs, I will hear oral submissions upon the return of the case conference on October 28, 2019. Bills of costs and any offers to settle should be provided.

[43] I thank counsel for their helpful submissions.

Released: October 3, 2019

Signed: Justice Sheilagh O'Connell

[1] It should be noted that in Politis, the applicant's new partner had already voluntarily disclosed income tax returns and all applicable attachments. The respondent had brought a third-party motion seeking much more extensive production from the new partner.