ONTARIO
SUPERIOR COURT OF JUSTICE
COURT FILE NO.: 406-10
DATE: 20120514
B E T W E E N:
LINDA DAWN ELDER
Janice Bantle, for the Applicant
Applicant
- and -
SCOTT FREDERICK DIRSTEIN
Viola Nabrotzky, for the Respondent
Respondent
HEARD: February 14 & 15, 2012
REASONS FOR JUDGMENT
Baltman J.
[ 1 ] This trial arises out of a motion brought by the applicant mother to vary child support. The dispute is over how much income should be imputed to the respondent father, who is self-employed. There is also a smaller issue concerning access to the couple’s daughter.
Factual Background
[ 2 ] Ms. Elder and Mr. Dirstein’s marriage was short-lived: they married in August 1995 and separated in July 1997. In the interim (1996) their daughter, Shania, was born. She is now 16.
[ 3 ] In 2005 the parties, through their counsel, consented to a Divorce Order by Abbey J. which also resolved most of the custody and financial issues. The Order provided for sole custody to the mother and alternate weekend and summer access to the father.
[ 4 ] The Order also provided for the father to pay Guideline child support of $299 per month commencing June 1, 2005, based on “an estimated annual income of $34,175.00…” It stipulated that the parties were to exchange income tax returns and supporting documentation annually, beginning May 1, 2006.
[ 5 ] The father is 42 years old and has remarried. He is self-employed, being the sole owner and shareholder of Dirstein Towing Inc., which consists of both a taxi and a towing business. His current wife works with him in the business.
[ 6 ] The mother is 43 years old and has also remarried. With her second husband she had a second child, Ryan, who is now 5 years old. When the parties separated she was unemployed and receiving disability benefits through ODSP. In 2009 she started driving a school bus part time. In 2011 she also began a factory job, where she now works full time earning $15.50 an hour.
[ 7 ] Although the mother complied with the disclosure ordered by Abbey J., the father did not. Eventually the mother gleaned that the father’s income had increased substantially. In October 2008 she commenced a motion to vary both the access and support terms of the Order.
[ 8 ] In June 2010 the parties consented to an Order before Wein J. resolving most of the access issues. However, they remain fundamentally divided on the father’s true income. The mother maintains that to this day he is earning far more than $34,175, and that his income tax returns are unreliable because he both understates his income and overstates his expenses.
[ 9 ] The father does not dispute that there has been a material change in circumstances justifying retroactive adjustment to 2006. While he concedes he significantly underpaid in 2007, he argues that because of the economic downtown, from 2008 onward he has suffered a severe drop in his income, and that since 2009 has been losing money or barely breaking even, with the result that he has in fact overpaid globally. Consequently the real issue here is whether, given what the father alleges has been a sharp drop in his income since 2008, he now owes money or is owed money.
[ 10 ] The father maintains that even though his business has mostly been losing money for the last several years, it’s worth sticking with because he believes things are turning around. He feels optimistic.
[ 11 ] As noted, in 2005 the parties agreed to base child support on an estimated income of $34,175. According to the father, the following represents his income since then for the purposes of child support:
2006: $33,339
2007: $78,854
2008: $21,500
2009: -$ 406
2010 $ 14,391
2011 -$ ?? (estimated at trial to be a loss of between $10-20,000)
[ 12 ] Both parents testified at trial. In addition, the father called his tax consultant, Peter Osland, as a witness.
The Legal Framework
[ 13 ] Section s.19(1)(a) of the Child support Guidelines provides:
19(1) The court may impute such amount of income to a spouse as it considers appropriate in the circumstances, which circumstances include the following:
(a) the parent or spouse is intentionally under-employed or unemployed, other than where the under-employment or unemployment is required by the needs of a child of the marriage or any child under the age of majority or by the reasonable educational or health needs of the parent or spouse…
(d) it appears that income has been diverted which would affect the level of child support to be determined under these Guidelines;
(g) the spouse unreasonably deducts expenses from income;
(h) the spouse derives a significant portion of income from dividends, capital gains or other sources that are taxed at a lower rate than employment or business income or that are exempt from tax;
[ 14 ] Section 19 is an exception to the method of calculating income set out under s. 16, which determines income according to the “total income” set out in the payor’s most recent income tax form, and under s. 17, which considers the payor’s patterns of income over the past three years.
[ 15 ] As the father is the sole shareholder of the business, s. 18 also comes into play. This section gives the court discretion to attribute some or all of the pre-tax income of a corporation to the shareholder, director or officer personally or, in the alternative, to attribute an amount less than or equal to the pre-tax corporate income that is commensurate with the services that the parent provides to the corporation. Section 18 provides:
18(1) [where] the court is of the opinion that the amount of the spouse’s annual income as determined under section 16 does not fairly reflect all the money available to the spouse for the payment of child support, the court may consider the situations described in section 17 and determine the spouse’s annual income to include:
(a) All or part of the pre-tax income of the corporation, and of any corporation that is related to that corporation, for the most recent taxation year; or
(b) An amount commensurate with the services that the spouse provides to the corporation, provided that the amount does not exceed the corporation’s pre-tax income.
(2) In determining the pre-tax income of a corporation for the purposes of subsection (1), all amounts paid by the corporation as salaries, wages or management fees, or other payments or benefits to or on behalf of persons with whom the corporation does not deal at arm’s length must be added to the pre-tax income, unless the spouse establishes that the payments were reasonable in the circumstances.
[ 16 ] Whenever s.18 comes into play the onus is on the shareholder, director or officer to show that corporate monies, whether retained earnings or pre-tax corporate income, are not available for support purposes: Nesbitt v. Nesbitt , 2001 MBCA 113 , [2001] M.J. No. 291 (C.A.), paras. 19 & 21 ; Hausmann v. Klukas , 2009 BCCA 32 , [2009] B.C.J. No. 121 (C.A.) 32, paras 51-61. That is because the payor parent knows more about the business than the recipient, and is therefore in the best position to explain why some or all of the company’s pre-tax income is not available for support.
Analysis
[ 17 ] I find it significant that although the burden is on the father to show what income is available for child support, neither he nor Mr. Osland professed any understanding as to how that should be calculated. Mr. Osland emphasized that as he is not a designated accountant but rather a “tax consultant”. His main strategy over the years has been to reduce the father’s corporate and personal income tax. He has no expertise in assisting the court in calculating income for child support purposes.
[ 18 ] The father, for his part, testified that he understood little, if anything, about how his income and expenses have been structured and reported over the years. He relies on Mr. Osland for that.
[ 19 ] Essentially, then, each of them professed to be dependent on the other for any reliable information on this case. This became evident during the cross-examination of the father, who presented confusing and contradictory explanations for many items that he should have known about, e.g. what vehicles he purchased and sold, when and for how much he sold them, what he has loaned to and borrowed from the corporation, etc. Moreover, there are many significant omissions from his financial statements, including vehicles that he purchased.
[ 20 ] I reject the father’s assertion that as the mother has not retained a forensic auditor, little weight should be given to her assault on his figures. Not only is the law clear that he bears the onus of proof, but given the mother’s modest income it is completely unrealistic for her to retain an expert in this case.
[ 21 ] The mother’s attack on the father’s alleged income runs along two lines: first, she takes issue with many of his calculations on his financial statements, particularly how income was treated and what expenses were allowed. Second, and in the alternative, she argues that if his income has declined as much as he says, he is obligated to seek other employment and therefore income should be imputed to him.
[ 22 ] Dealing first with the argument that he is earning far more than he admits, there are several examples which in my view support the mother in that regard.
[ 23 ] First, despite enjoying comparable gross sales between 2007 and 2008, the father reports a big difference in net income that cannot reasonably be accounted for.
[ 24 ] Second, I find it peculiar that in 2009, when the business was supposedly suffering, the father allegedly invested $7,000 in renovating the office and purchasing new desks and phones.
[ 25 ] Third, despite his assertion that his net income declined in 2009 because he lost a CAA contract midway through the year, his gross sales for 2009 remained comparable to 2008.
[ 26 ] Fourth, the husband purchased four new vehicles in 2009, precisely when he claims the business was at its nadir.
[ 27 ] Fifth, today he has six taxis operating and five employees on his payroll. It is completely implausible that he would go to the time and trouble to maintain such an operation if it was, as he claims, losing money year after year.
[ 28 ] Sixth, for several years the father and his second wife have been able to support themselves solely on these businesses. I can only conclude that the enterprise is reasonably profitable; otherwise they would have been forced to seek an alternate source of income long ago.
[ 29 ] Given all those inconsistencies, along with the father’s vague and incomplete evidence at trial, I conclude that the father’s income is far greater than what he admits. I find he has deliberately organized his business affairs to camouflage his income and exaggerate his expenses. He has done so to shield himself from child support obligations. The timing of his behaviour is revealing: when his income doubled compared to the amount upon which he agreed to pay child support, he enjoyed that increase while concealing it from the mother for over two years, in violation of a court order. But once he was served with this motion to change, and realized he could no longer conceal his financial statements, he declared his income had plummeted. For the reasons set out above, in my view that “decline” was manipulated by him to frustrate his child support obligation, and is only partly, if at all, attributable to the economy.
[ 30 ] Second, and in the alternative, even if I accept the father’s evidence as to what he is actually earning, it is completely unacceptable that he has persisted in a business which has performing so poorly for over five years . Acknowledging the father’s evidence that he did not complete Grade 12 and has no formal training outside of his current vocation, he nonetheless has an obligation to make serious efforts to find paid employment elsewhere. But there is no evidence that he has done so, having concluded, it appears, that it would be a waste of time. He has not applied for any job or even made inquiries. Nor has he made any effort to complete his Grade 12 and train for a new vocation. Instead he persists year after year with a losing business, “hoping” things will turn around.
[ 31 ] The father is now 42 years old. In 2008, when according to him it was clear the business was going downhill, he was only 38. He has no dependants other than Shania. There is no evidence to suggest he is physically or cognitively disabled. In fact, from my observations of him on the witness stand, he is fairly shrewd. He has clearly accumulated some business savvy running two companies. Over the past several years he has run a fleet of vehicles and employed over half a dozen people. I do not accept that he could not find a job anywhere. Even a minimum wage job would pay approximately $20,000, which is a far cry above what he claims he is now earning.
[ 32 ] On the evidence before me, there are only two possible explanations for why the father has persisted in this business instead of upgrading his skills and/or looking for a job elsewhere: either the business is doing much better than he admits, or he just cannot be bothered to look elsewhere. Neither explanation is satisfactory. Neither relieves him from doing right by his daughter.
[ 33 ] That said, some of the mother’s challenges lacked a legal or evidentiary basis. For example, as this is a vehicle dependent business, it was reasonable for the father to claim depreciation of his cars and trucks over the years. Nor do I think the salary he paid to his wife should be added back in, as his evidence as to her hours of employment and services to the corporation was uncontradicted. And the amount of retained earnings in this case was reasonable given the amounts in question and the company’s history of retained earnings.
[ 34 ] After weighing the evidence, I conclude the following income should be imputed for child support. For 2006, I impute $38,520, being the combination of his T4 figure and the management fee. For 2007, I accept his figure of $78,854. There is no reliable evidence that he did not earn a comparable amount in 2008 and 2009, and therefore I would extend that figure of $78,854 for those years.
[ 35 ] Accepting that the economic downtown may have had some impact on him from 2010 onward, I would impute the figure of $55,000 from 2010 onward. Given the history of his enterprise, the fluctuations in the economy and the evidence before me, in my view that figure is a fair estimate of what he continues to earn.
[ 36 ] The result is as follows:
2006: $38,520
2007: $78,854
2008: $78,854
2009: $78,854
2010: $55,000
2011: $55,000
[ 37 ] Based on these figures I anticipate the parties will be able to arrive at what amount is payable by the husband.
Access
[ 38 ] As noted above, in June 2010 the parties resolved most of the access issues. Their Minutes of Settlement in that regard provide that Shania shall continue to reside with her mother but that the father shall have access every other weekend.
[ 39 ] The only remaining dispute is over who should transport Shania back and forth for her access visits. The mother lives in Mt. Forest, and the father is in Listowel, approximately 40 minutes away by car. The father complains that it is unfair that he should be transporting Shania both ways. He wants the mother to bring her to a neutral location near his home, and he will then return her at the end of the weekend.
[ 40 ] I agree with the father that the parties should share the transportation, and that the mother should bring Shania to the father at the start of his weekends with her. Not only is it fairer for them to share the time and expense of transportation, but it addresses the more serious issue of the mother’s undermining the father’s access visits.
[ 41 ] In her testimony the mother stated that Shania loves her father and wants to see him, and that she supports their visits together. However, she also admitted that she allows Shania to dictate whether and when she wishes to see her father. Even more troubling, the mother allows Shania to accompany her on activities during the father’s access weekend, instead of insisting that she visit her father in accordance with Wein J.’s order. As the mother put it, “she’s always invited to join me….it’s up to her.” So, for example, when the mother had plans to visit her family out of town last year on the father’s weekend, she allowed Shania to join her instead of insisting that she go to her father’s home.
[ 42 ] I realize Shania is nearly 16 and there are limits to how much physical control a parent has at that stage. But it should not be “up to Shania” to decide where she goes. The mother should make it clear that on the father’s access weekend Shania does not have the option of going out of town with her, an event which might seem more alluring than seeing her father. Giving her the option is giving her an easy way out, or worse, effectively sabotaging the relationship with the father.
[ 43 ] I agree with the father that the clearest way for the mother to send an unequivocal message to Shania that she supports the father-daughter relationship is to personally drive her to the visit. Not only do the parties then share the cost and responsibility of driving, but Shania will see that she cannot play one parent off against the other.
Conclusion
[ 44 ] I conclude as follows:
a) the father’s income for child support purposes shall be in accordance with paragraphs 35 and 36 above;
b) the mother shall drive Shania to a neutral location close to the father on his access weekends.
[ 45 ] If the parties cannot agree on costs, they may each make written submissions no greater than five pages in length, excluding any offers to settle and the bill of costs. The five pages shall be double spaced, in 12 point font, with proper margins and paragraphs. The mother shall deliver by May 23rd and the father by May 30th. If a reply is required, the mother shall deliver same by June 4th.
Baltman J.
Released: May 14, 2012
COURT FILE NO.: 406-10
DATE: 20120514
ONTARIO SUPERIOR COURT OF JUSTICE
B E T W E E N:
LINDA DAWN ELDER
- and –
SCOTT FREDERICK DIRSTEIN
REASONS FOR JUDGMENT
Baltman J.
Released: May 14, 2012