ONTARIO

SUPERIOR COURT OF JUSTICE

COURT FILE NO.: FS-09-352141
DATE: 20120516

B E T W E E N :

K.S.W Applicant – and – S.W. Respondent

for the Applicant Avra Rosen and Lorna Yates
Gerald P. Sadvari and Melanie Battaglia for the Respondent

HEARD: at Toronto October 18, 19, 20 and 24, 2011

AMENDED REASONS FOR JUDGMENT

JENNINGS J. :

Overview

[1] This is an action for divorce and corollary relief. Filed as exhibit “1” in these proceedings was an agreed statement of facts from which the following brief overview is extracted:

The husband and the wife were married on February 16, 1991. In the fall of 2005 the wife told the husband that the marriage was over. They continued to live in the matrimonial home, announcing their “official” separation as of September 3, 2008. Thereafter the husband continued to occupy the matrimonial home with the wife until June 2009.
The husband and the wife have 3 children, P. born […], 1993, D. born […], 1997 and H. born […] 2000. The children reside primarily with the wife.

[2] From 1993 until one month before trial the husband worked for various emanations of a major presence in the software industry earning an increasingly significant income. The wife worked as a flight attendant on and off following the marriage. After H.’s birth in 2000 it was agreed that she would leave the workforce to become a full time mother and homemaker. She has not worked outside the home since that time.

[3] At the time of trial the husband was 49 and the wife 48.

[4] Much to the credit of the parties and their counsel the parties have agreed to a 13 page Parenting Plan, signed by them on September 14, 2011, and they have consented to an order being pronounced to implement that plan.

[5] The issues that were tried, apart from divorce, were:

the calculation of the parties’ respective net family property and any equalization payment owing, including any adjustments for pre-payment.
spousal support, child support including guideline s.7 expenses, and retroactivity of support payments.

Net family property and equalization payments

[6] Again to their credit, the parties have been able to agree on the valuation day values of many of their assets and effected a division of them.

[7] The principal areas of disagreement are the valuations of the matrimonial home at P[…] in Toronto, which is owned by the wife, and the farm property in Caledon which is to be treated as owned by the husband.

[8] Additionally, but of lesser significance is the wife’s position that the husband must prove valuation day value of his interest in Hipoint Cattle farm and the value of real property in the United Kingdom owned by him at the date of marriage.

valuation day real estate values

a) P[…]

[9] The property can be described as a large 1930s mansion with an outdoor tennis court, situated on a lot of a little over two acres, in the Bridle Path district of the City of Toronto. It was purchased by the parties in September 2003 for $3,600,000.

[10] Initially the parties and their counsel agreed to retain Barry Lebow, a well known and experienced appraiser, to carry out a joint appraisal. Mr. Lebow’s qualifications and reports are found in the Joint Real Properties Brief filed as exhibit 17. He initially appraised the property as of the inspection date August 27, 2010, at $5,000,000. He subsequently appraised the property at valuation day at $4,300,000 and at the time of trial at $5,500,000.

b) H[…]– Caledon

[11] This property comprises a large renovated Victorian farm house and out buildings situated on 97 acres outside the village of Caledon. Mr. Lebow initially appraised the property at $1,600,000 as of August 27, 2010. Subsequently he appraised the value at valuation day at $1,300,000. His valuation reports are contained in exhibit 17.

[12] The wife was not happy with the appraised values found by Mr. Lebow and would not accept them. She retained Suzanne Hubbard to appraise the two properties.

[13] Ms. Hubbard’s qualifications as a Canadian Residential Appraiser are to be found in exhibit 17. She appraised Park Lane at valuation day at $3,800,000 and the Caledon property at valuation day at $2,000,000.

[14] Lastly, the husband retained James Gairdner, a real estate broker, to appraise the Caledon property as at valuation day. Mr. Gairdner was for 30 years the President of Johnson and Daniel Ltd., a well known real estate agency in this province. Following his sale of that agency he opened a new agency in his name specializing in farm properties in the Caledon area. His opinion of valuation day value of the Caledon farm was that it should be listed for sale at $1,165,000 and he would have expected a sale price of $1,080,000. His report is also to be found at exhibit 17.

[15] With respect to the Park Lane property, the two experts were $500,000 apart in their opinions of value. They did both agree that because of its age and given the quality of the newer homes that had been built in the area the highest and best use for the property was to tear down the existing home and rebuild.

[16] I was troubled with some of the evidence given by Ms. Hubbard. In her testimony, she adopted an adversarial approach, particularly during cross-examination when responding to questions about her valuation. I simply did not understand her testimony that for a property of this sort, and in the extremely upscale area of the city where it was located, a two-week exposure to the market was sufficient to obtain a market value price. None of her comparables had anything close to that short a listing, except for the house next door. That house was on a similar sized lot to the subject property, was also a tear down, and sold quickly on June 29, 2007 for $5,200,000. Ms. Hubbard opined that that price was above market and she did not accept the sale as a true comparable. However, she apparently accepted the quick sale as indicative of the reasonableness of a two-week exposure.

[17] Mr. Lebow’s evidence was that a two week exposure was appropriate for a fire sale below market. He agreed that a price of $5,200,000 for the next door property was probably over market but not by the $900,000 of difference between its sale price in June 2007 and his estimate of the value of the subject property some 15 months later. Mr. Lebow’s evidence made sense, particularly on the exposure for sale issue. I accept his opinion that a two-week exposure would distort market value downwards. His comparables were more helpful to me and, in my opinion, more appropriate.

[18] In fairness I should add that the language employed by Mr. Lebow in his subsequent written critique of Ms. Hubbard’s appraisal (exhibit 17, tab 1E) was in several places inappropriately intemperate. It did not, however, in my opinion, nullify the logic of his conclusions and I prefer his evidence to that of Ms. Hubbard. It made no sense to me on the evidence that I heard that the subject property increased in value by only 1.3% in the 5 years that elapsed between its purchase and Ms. Hubbard’s appraisal, particularly in view of the rising market that was experienced in 2007/8. Ms. Hubbard considered that the parties paid too much for the property in 2003, but she carried out no market analysis to support that opinion. I therefore find that the valuation day value of the Park Lane property was $4,300,000, as found by Mr. Lebow.

[19] Turning to the Caledon property, I again had trouble with Ms. Hubbard’s evidence. She agreed the property’s proximity to an operating gravel pit could negatively affect value but gave that fact no weight in coming to her opinion of value. She agreed none of her comparables were “true” comparables. She gave no consideration of the distance of the property from Toronto.

[20] Both Mr. Lebow and Mr. Gairdner testified the distance from Toronto was an important factor in valuation as is proximity to a gravel pit. Their evidence in that regard made sense to me.

[21] Mr. Lebow’s valuation of $1,300,000 gained some support from Mr. Gairdner’s opinion as to a sale at $1,080,000 following a listing at $1,165,000. I remind myself that Mr. Gairdner sells farm properties in that area for a living and has had considerable experience in that field.

[22] In his review report to which I have previously referred (exhibit 17, tab 2 F) Mr. Lebow at p.9 defers to Mr. Gairdner’s expertise and suggests his own estimate of value might be lowered. However, I was impressed with Mr. Lebow’s opinion that Mr. Gairdner’s valuation appeared to have been influenced by subsequent sales which was not in accordance with good appraisal practice.

[23] Accordingly, I am persuaded that the Gairdner/Lebow range of values is to be preferred to the valuation of Ms. Hubbard and I find the valuation day value of the farm to be $1,300,000 as originally put forward by Mr. Lebow.

Hipoint CATTLE FARM and u.k. properties

[24] There was no evidence to contradict that given by the husband that his interest in the Hipoint business at valuation day was $14,325 and I so find.

[25] Similarly and in default of evidence to the contrary I accept the husband’s evidence that the net value of his property at marriage being real estate in the United Kingdom was $174,483.12 and I so find.

[26] The remainder of the valuations required to determine net family property appear to have been agreed to by the parties.

[27] As a result of my findings, amendments to the net family property work sheet, found at tab 1 of the husband’s Closing Argument Brief must be made.

[28] By referring to the husband’s position in that document, at p.3 H[…] Road must be increased from $1,190,000 to $1,300,000 and on p.11 disposition costs for that property increased from $61,000 to $66,500.

[29] That increases the husband’s net family property to $7,547,408.09 which will require an equalization payment of $408,878,81.

[30] There must be deducted from that payment two amounts received by the wife after separation:

a) $4,178.13 being the amount of an overpayment to the wife of $12,945.92 given to her from a consolidation of Coutts joint account (see Agreed Statement of Facts, para. 76-79); and,

b) a withdrawal of $30,000 by the wife from the parties’ joint TD Canada Trust account without the consent of the husband

for a total of $34,178.13. Deducting that from the equalization payment of $408,878.81 leaves a net equalization payment due of $374,768.

other property issues

a) The Cabin

[31] The parties jointly own shares in the Caledon Lake Company, valued by agreement at $375,000, which entitles them to use a cabin on the company’s property. The wife has had exclusive possession of the cabin. She uses it with the children. She asks that she be allowed to purchase the husband’s interest in the shares so that she will become the sole owner of the right to use the cabin.

[32] The husband acknowledges the pleasure the children get from visits to the cabin. He would like to spend time with them there both for their benefit and to assist in the re-establishment of a relationship with them. At the hearing I asked the wife why use of the cabin could not be shared so as to give each parent an opportunity to spend time there with the children. She told me that the husband had “spatial” issues by which I understood her to mean that she was unwilling to occupy space that was from time to time occupied by the husband. I was disappointed in that response because it occurred to me that in making it, she was putting her own interests ahead of those of the children. At this point it would be appropriate to observe that notwithstanding their arriving at a joint parenting agreement, the evidence that I heard suggested that the arrangements were not working as well as they might. I express the hope that the parties will make every effort to ensure that the objectives of the agreement are achieved.

[33] Notwithstanding the husband’s daily attempts to communicate with his children by voicemail and e-mail, with respect to two of the children he somewhat sadly said there was “radio silence”. It is clear that at the time of trial he did not enjoy a close relationship with his children. I have no doubt that the extraordinary and brutal work schedule to which the husband adhered throughout the marriage, and to which I will later refer, had a serious impact upon his relationship with his children. From his evidence at trial I believe the husband would agree with that assessment. My concern in imposing a regime of shared use of the cabin is that at this time it would be counter productive to his efforts to regain the affections of his children. Particularly in view of the wife’s lack of support for a shared use program, the danger is that any order I make in that regard would be interpreted by the children as coercing them to do something which at least two of them are apparently unwilling to do at this time.

[34] Accordingly, and not without some hesitation, I will grant the wife’s request to be permitted to purchase the husband’s interest in the shares in the company. She will have 30 days from the date of the release of this judgment to indicate her desire to do so. Payment may be made by a reduction from the equalization payment due to her of the purchase price of $187,500. Should the wife not elect to purchase, the shares shall be forthwith sold and the net proceeds received divided evenly between the husband and the wife.

b) Household Contents

The parties agree that:

i) the wife is entitled to the contents of the Park Lane house; and,

ii) the husband is entitled to the contents of the Caledon property but for the following articles which the wife shall arrange to remove: her grandmother’s sewing machine; her clothing and mementos; the bedside table made by her grandfather.

Support

[35] Before dealing with the issues of spousal and child support, further contextual background is required.

[36] The parties cohabited in the marriage for over 16 years. For the last 7 ½ years of cohabitation the wife did not work outside the home. Throughout the marriage she was clearly the principal homemaker and virtually solely responsible for raising the children. The reason for that is that the husband worked punishing hours (he agreed in his cross-examination that his usual work week was 80 hours) in the last years commuting weekly between Toronto and his office in Seattle. He was required throughout the marriage to frequently relocate his family as he moved up in his employer’s hierarchy, which undoubtedly added to the wife’s responsibilities in locating and establishing sequential family homes. One of the results of the husband’s extraordinary work ethic was the accumulation of considerable wealth, which, being shared both before and after this judgment will leave the wife with assets in excess of $7,000,000, perhaps $2,000,000 more than the assets of the husband.

[37] The other result, far less happy, was the death of the marriage and, tragically, the alienation from him of at least two of his three children.

[38] Various scenarios of the husband’s income for support purposes, prepared by the accountants retained by each party, are shown under tab A in exhibit 1, the Statement of Agreed Facts. In my opinion, line (C) shows the appropriate income level for the calculation of support but regardless, it is clear that up to the end of September 2011 the husband had the financial ability to make significant support payments. His employment ended on September 28, 2011, when he resigned his position under terms that would preserve his ability to seek employment following the expiration of a one year worldwide non-compete clause. The clause was demanded by his employer. There was no suggestion that both his employment contract and his severance agreement were not binding upon him. For all practical purposes his 2012 income will be limited to interest income generated on his capital, estimated at 4% per annum to throw up $150,000.

[39] I accept the husband’s testimony that his contacts with colleagues in his industry and placement agencies have both revealed that no one in his field, in which he has spent his working life, will touch him until the year of non-competition has run.

[40] The husband testified that he is extremely hopeful that he can find employment after October of this year at his former salary of $500,000 per annum. He was less certain that he would be able to obtain bonuses and stock awards anything like those he had been receiving prior to his termination. He did testify that he was reluctant to seek employment that would put him back into the international high pressure 80 hour work week that he previously performed at such a high personal cost. He testified that he would prefer to work within Canada as opposed to internationally, so as to be able to spend time with his children.

imputation of income

[41] In the light of the husband’s evidence, the wife urged me to impute income to the husband in the range he previously earned. She relies upon the line of cases interpreting s.19(1)(a) of the Federal Support Guidelines, summarized by Gillese J.A. in Drygala v. Pauli (2002), Carswell Ont. 3228.

[42] I am not prepared to do that. There is no evidence that the husband deliberately chose to earn income less than he is capable of earning. The employment he enjoyed was taken from him when he was put in a position of resigning on terms dictated by his employer or facing termination on 30 days’ notice. In order to protect his future ability to obtain employment, and incidentally to support his children, he made a considered and appropriate decision to resign. In my opinion, his situation is clearly distinguishable from the deliberate underemployment which would trigger the imputation provisions in the guidelines.

pre-trial support

[43] Following separation the husband put funds in an account accessible by the wife to enable her to continue to maintain the standard of living enjoyed by herself and the children prior to separation. The husband’s evidence was that the wife’s expenditures to do that averaged about $37,000 a month. In March 2010, the wife launched an application for interim relief including temporary support for herself of $54,300 per month and for the children of $37,600 per month (both figures rounded). On the eve of the motion she agreed to settle both claims for temporary support at $38,000 per month. That sum was not to be allocated between the wife and the children and it was to be received by the wife net of tax. That temporary support has been paid to the wife since that time. The evidence before me was that the support paid all of the expenses of the wife and the children and indeed allowed her to make substantial payments towards the costs she incurred in bringing this application. At the time of trial, the wife was debt free, but for modest outstanding credit card balances.

spousal support

[44] By reference to the wife’s amended Financial Statement filed as exhibit 11, sworn October 5, 2011, and after increasing the value of Park Lane, net of disposition costs, to $5,225,000 (as per the appraisal of Barry Lebow) and showing as an asset the full amount of the note due from her parents ($181,730) and adding in the net equalization payment owing her that I have calculated at $374,700, the wife has a net worth of at least $7,600,000.

[45] A net worth of that amount would suggest no need for spousal support, (see, e.g. Black v. Black 1988 ON SC, 66 O.R. (2d) 643). The wife is a vivacious, well spoken and obviously intelligent woman. She has a university degree and is apparently bilingual (English-French). She has not made any attempts to return to the workforce, undoubtedly because there was no economic need for her to do so. She has at the moment an investment income of about $70,000 a year. I am confident that should she choose to do so, she could easily find suitable employment. Because of the assets she will take away from the marriage, any obligation to pay compensatory support has been satisfied.

[46] The difficulty confronting me is that the major asset owned by the wife (which according to the evidence has increased in value since the valuation date, to her benefit, by $1,200,000) is the former matrimonial home. Clearly the home ought to have been sold some time ago. There was no suggestion of any attachment to it by the children, one of whom is in boarding school and another of whom has completed his high school and is enjoying a “year out”. The sale of the matrimonial could free up about $2,500,000 for investment, leaving at least that amount and probably more to purchase reasonable replacement accommodation.

[47] The wife has an obligation to generate investment income from her assets. If support is to be awarded in this case, it would have to be need based. (see Boston v. Boston, 2001 SCC 43, [2001] 2 S.C.R. 413 at paragraphs 58 and 60.) The question is, notwithstanding her decision to remain in the home since separation, should the wife be awarded some short term need based support for a few months to enable her to meet her expenses between this judgment and the sale of the house?

[48] Any such support would have to be paid by the husband out of his capital. Given the significant disparity in their assets, the ability of the debt-free wife to raise a short term loan if need be, against the security of the house, and the wife’s present income of about $70,000 a year, it does not appear to me to be fair or just to award spousal support past the release of these reasons. It must be remembered that since January 1, 2012, the husband has continued to pay support at a level that, since that time, is far beyond his ability to pay from his dramatically reduced income. Accordingly, I make no order for spousal support.

child support

[49] Guideline support for 3 children from a payor earning $150,000 a year is $2,581 a month. The husband shall begin paying that amount monthly commencing June 1, 2012.

[50] The husband and the wife have agreed that the children’s s.7 expenses should continue to be borne by the parents. The expenses to be paid are well beyond what should be paid by parties with the incomes that are available at the moment, but it is their wish that the children continue in their present lifestyle. Obviously, each of the parties will have to resort to capital. At this moment, after the equalization payment has been made and the guidelines support commenced and until the husband secures employment or the wife receives the proceeds from the sale of the house the income of the husband and the wife will be about equal. Accordingly, the following s.7 expenses will be paid equally by the husband and the wife:

a) H.’s school tuition and incidental fees

b) D.’s boarding school fees including incidental fees

c) Camp fees

d) H.’s acting tuition fees

e) The children’s Granite Club fees and skiing costs

f) The children’s dental and counselling fees in excess of $100 per child per year.

[51] I consider it essential that the level of child support and payment of s.7 expenses be reviewed when the husband obtains employment. An application may be brought for that purpose when employment is obtained, or after January 1, 2013, whichever first occurs.

retroactive support

[52] The wife submits that both spousal and child support payments should commence at separation, September 2008, and that since that date and continuing until trial the evidence of the husband’s income as settled by the accountants shows that the husband has underpaid.

[53] Accepting that obligation to provide support arises on separation, or in the case of the children, upon the date when effective notice of need has been given (see D.B.S. v. S.R.G., [2006] S.C.R. 231), that position does not assist me overly much in this case.

[54] The evidence is that from separation until the settlement of the wife’s application for temporary support, the wife’s expenditures for herself and the children of about $37,000 a month, which effectively continued the status quo, were met by the husband. In March 2010 the wife agreed to settle her claim for temporary support by accepting payments of $38,000 per month, net of tax, in satisfaction of her claim for approximately $92,000 a month. At that point the evidence was that she had not experienced shortfalls, had incurred no debt, and had apparently spent $100,000 from the monies given to her by her husband on her legal expenses. (See exhibit 8, tab 5). In other words, the evidence was that all of the usual household expenses were being met, including the private school fees, club dues, skiing expenses and the like.

[55] After settlement of the application, from April 1, 2010 until trial, the situation that I have described continued. At trial the wife was still debt free. She had been able to join and maintain membership in a golf club, and all of the children’s needs continued to be met. Any inroads into her capital were apparently caused by payment of the expenses she was incurring in this litigation.

[56] There is no question that payment of the very substantial amount of money that the wife seeks by way of retroactive support will cause severe hardship to the husband. It will in effect be a transfer of capital from him to her. It is not required to meet any accumulated deficit incurred by the wife to maintain an appropriate lifestyle for herself and the children.

[57] It should be remembered that on the basis of my findings, the husband has significantly overpaid spousal and child support since January 1, 2012.

[58] Because of the foregoing I am unable to find that there is a need for retroactive support for either the wife or the children.

pre-judgment interest

[59] The wife asks for pre-judgment interest on the equalization payment due her. At the agreed upon interest rate of 3.3%, I calculate that interest since valuation day on the equalization payment that I have found to be owing would amount to about $46,256,000.

[60] The wife has a presumptive claim to interest (see Courts of Justice Act, R.S.O. 1990, c.C.43, s.128(1)).

[61] I have a discretion under s.130 of the Act to disallow interest after taking into account the factors set out in s.130(2). I have decided to exercise my discretion to disallow interest in the circumstances that are before me, for the following reasons:

The equalization payment is to a great extent due to the inclusion in net family property of the husband of the value of stock options earned by the husband during his employment. These options were subsequently forfeited upon the termination of the husband’s employment, but remained in the net family property of the husband resulting in a requirement that he pay about $445,000, being one half of the value of an asset that had disappeared.
The matrimonial home rose in value by approximately $1,200,000 since valuation day, to the sole benefit of the wife.
The wife received a substantial pre-payment by a division between the husband and the wife of the investment accounts.
To pay interest the husband will have to further reduce his capital.

[62] Considering all of those circumstances I believe a payment of pre-judgment interest would be unjust.

conclusion

[63] 1. A judgment for Divorce will issue.

In order to accommodate the wife’s potential election under paragraph 34 of these reasons, the husband will pay to the wife within 30 days without interest the equalization payment I have calculated in these reasons. If counsel have any concerns about the accuracy of my calculation I invite them to speak to me.
The claim for spousal support is dismissed.
Guideline child support of $2,581 per month will be paid by the husband commencing June 1, 2012.
Each of the husband and the wife will equally bear the cost of the s.7 expenses listed in paragraph 50 of these reasons.
The quantum of child support and the quantum and responsibility for payment of s.7 expenses may be reviewed after January 1, 2013, or when the husband secures employment, whichever first occurs.

costs

[64] If the parties are unable to agree upon costs, three page submissions plus any written offers to settle may be filed with my assistant within 21 days of the release of these reasons.

JENNINGS J.

RELEASED: May 16, 2012