Court File and Parties

Court File No.: FC-11-1007-00
Date: 20120528
Superior Court of Justice - Ontario

Re: TAMMY EMMERSON, Applicant

And: TROY EMMERSON, Respondent

Before: THE HON. MR. JUSTICE G.M. MULLIGAN

Counsel:
T. Nemetz, for the Applicant
J. Craig, for the Respondent

Heard: May 23, 2012

Endorsement

[ 1 ] The applicant Tammy Emmerson brings a motion for a temporary order for child and spousal support, an order for the payment of expenses to carry on the case including legal fees and a retainer for a forensic accountant, as well as certain disclosure issues. At the commencement of the motion counsel filed a consent as to certain disclosure issues agreed upon and counsel for the applicant indicated that further issues of disclosure would be pursued on a subsequent motion if not adequately provided for in terms of the consent filed.

Background Facts

[ 2 ] The parties married on October 1, 1999 and separated on September 1, 2009. They commenced cohabitation in 1992. They have three children and their youngest child Nathan Cole Roy Emmerson (DOB: March 5, 2001) remains a child of the marriage. The parties have engaged the assistance of the Office of the Children’s Lawyer and custody and access issues were not argued at this motion. The parties entered into a separation agreement in 2009 shortly after they separated. Neither party had the benefit of independent legal advice and the applicant will be seeking to have the agreement set aside based on inadequate disclosure by the respondent. The separation agreement required the respondent to pay $400 a month child support. In fact child support has not been paid since the date of the agreement. However the respondent submits that he has provided financial support to the applicant far in excess of the amount required to be paid under the agreement. The parties sold their matrimonial home, paid off numerous family debts and divided the proceeds equally between them. Thereafter the respondent purchased a residence which was occupied by the applicant and their son until she vacated the property in the spring of 2012. Although they had a verbal agreement that she would make the monthly payments for the mortgage and related costs she discontinued making these payments in January 2011 and the payments were thereafter assumed by the respondent. The applicant in her financial statement of July 2011 indicated that she was paying approximately $1100 a month toward the mortgage and taxes. However her counsel acknowledged at the motion that this was incorrect. She had ceased making those payments in January 2011 and those payments were in fact paid by the respondent. Until she vacated the premises provided and paid for by the respondent the applicant had no rent or mortgage costs. She now indicates in her current financial statement that she had rent payments of $1200 a month.

[ 3 ] The applicant commenced this application July 26, 2011.

Income and Assets of the Applicant

[ 4 ] The applicant discloses employment income of $4425.40 per month or $53,100 per year before deductions from her employment income. She has no assets to speak of and debts of about $20,000. Her financial statement indicates that she is running her household expenses in a deficit each month.

Income and Assets of the Respondent

[ 5 ] The income of the respondent as per line 150 of his recent notices of assessment or tax returns is as follows:

2009 $86,142
2010 $42,310
2011 $37,088

[ 6 ] The applicant argues that this is not a proper reflection of his actual income and that the services of a forensic accountant are required by her in order to properly assess his actual income available for child and spousal support purposes.

[ 7 ] The respondent is a financial planner. He earns income from commissions. He along with two others are shareholders in a numbered Ontario company which provides financial planning services. This was his occupation during the course of the marriage. After separation he left the financial planning organization he was employed by and established a new numbered corporation, 1793803 Ontario Ltd., with two other shareholders. Unaudited financial statements were filed as part of his disclosure for the period to December 31, 2010, the last period for which financial statements are available. The corporation had income of $247,694. Wages in the total amount of $115,955 were withdrawn for the three shareholders and profit was retained in the amount of $59,000.

[ 8 ] In preparing his 2010 tax return Mr. Emmerson disclosed his proportionate share of these wages and made a deduction for his personal car allowance. In addition he deducted from his income the carrying costs of the house which he allowed the applicant and their son to occupy. Financial statements for the year ending December 31, 2011 are not available as yet but the evidence of Mr. Emmerson is that the shareholders attempt to take a draw of $5000 per month which is equivalent to $60,000 per year.

Other Income

[ 9 ] The applicant has reviewed the bank statements of the respondent including his personal bank statements and statements from the numbered company and suggests that he has a far greater income than he is disclosing on his tax returns. She submits that she needs the assistance of a forensic accountant to assist her in determining the respondent’s true income. She has received an estimate from a forensic accountant that a report can be done for $15,000. The respondent submits that he receives commission income as a result of his financial planning services through the numbered company. Further each of the shareholders maintains their own account related to the corporation whereby they receive their individual commissions. The respondent also submits that he receives other funds from the corporation by way of reimbursement for goods purchased by him on his credit card for the corporation. A cursory review of these bank statements indicate a co-mingling of business and personal expenses running through these accounts. Without the benefit of an expert report it is difficult to determine if the monies received by the respondent were in addition to those that he reported on his tax return as his income from the numbered company. The respondent did not provide any evidence from an accountant to assist the court with respect to these allegations.

[ 10 ] It is clear that the applicant would benefit from the services of forensic accountant. The issue for determination on this motion is whether or not the respondent should pay for this service estimated at $15,000 and in addition pay $10,000 towards the applicant’s legal fees as requested by her.

Analysis

[ 11 ] Rule 24 of the Family Law Rules provides as follows:

24(12) Payment of expenses – The court may make an order that a party pay an amount of money to another party to cover part or all of the expenses of carrying on the case, including a lawyer’s fees.

[ 12 ] As Turnbull J. noted in Biddel v. Biddel [2011] O.J. No. 1407 at para. 27 :

A moving party must satisfy certain requirements in order to obtain such an order. It is discretionary and the principles relating to the circumstances under which that discretion should be exercised have been articulated by a number of courts of our country.

[ 13 ] At para. 28 Turnbull J. reviewed the essential principles as articulated by Rogers J. in Stuart v. Stuart , 2001 28261 (ON SC) , [2001] O.J. No. 5172 as follows:

i. The ordering of interim disbursements is discretionary; Airst v. Airst [1995] O.J. No. 3005 ; Hill v. Hill (1988), 1988 4710 (ON SC) , 63 O.R. (2d) 618 (H.C.J.) and Lossing v. Dmuchowski [2000] O.J. No. 837 .

ii. A claimant must demonstrate that absent the advance of funds for interim disbursements, the claimant cannot present or analyze settlement offers or pursue entitlement; Hill v. Hill (1988), 1988 4710 (ON SC) , 63 O.R. (2d) 618 (H.C.J.) and Airst v. Airst [1995] O.J. No. 3005 .

iii. It must be shown that the particular expenses are necessary: Lossing v. Dmuchowski [2000] O.J. No. 837 .

iv. Is the claim being advanced meritorious? Lynch v. Lynch (1999), 1 R.F.L. (5 th ) 309 and Randle v. Randle (1999), 1999 ABQB 954 () , 3 R.F.L. (5 th ) 139.

v. The exercise of discretion should be limited to exceptional cases: Organ v. Barnett (1992), 1992 7433 (ON SC) , 11 O.R. (3d) 210 (Ont. Gen. Div.).

vi. Interim costs in matrimonial cases may be granted to level the playing field: Randle v. Randle (1999), 1999 ABQB 954 () , 3 R.F.L. (5 th ) 139.

vii. Monies might be advanced against an equalisation payment: Zagdanski v. Zagdanski , 2001 27981 (ON SC) , 55 O.R. (3d) 6, 2001 CarswellOnt 2517.

[ 14 ] In Gold v. Gold 2009 O.J. No. 4000 Mesbur J. provided this cautionary note when the wife was seeking a substantial amount of money pursuant to such an order. As Mesbur J. said at para. 45:

To make an order at the level the wife seeks would do more than level the playing field; it would give the wife carte blanche for the trial. Not only that, the husband has no ability to come up with a payment of this magnitude without significantly liquidating assets. That said, without some assistance from the husband, the wife, will have no ability to proceed to trial; that would cause significant injustice for both her and the children.

[ 15 ] On the facts of that case the wife sought an advance of $200,000 and the court ordered an advance of $50,000 in accordance with terms set out therein.

[ 16 ] In Sharma v. Sunak [2011] O.J. No. 5929 McGee J. noted the importance of expert evidence and stated at para. 21:

It will be the uncommon case that will not require some level of expert assistance to value income per section 18 of the Federal Child Support Guidelines and party’s own interest in an incorporated or unincorporated company.

[ 17 ] McGee J. went on to state at para. 22:

Inextricably intertwining corporate and person finances makes the venture of valuation for family law purposes all the more difficult. The effect is to open up to valuation all of one’s finances and interests – generally at considerable costs and time.

[ 18 ] On the facts before her McGee noted that the mother had substantially no income but found that her claim for equalization was not meritorious. However she did find merit to the necessity of testing the father’s income which required expert evidence to unravel. The mother sought an award of $68,000 however the court found that the mother had some ability to fund some of this cost and under the circumstances ordered that the husband loan $20,000 to the mother.

Legal Fees

[ 19 ] The applicant has not provided a budget for legal fees nor has she shown that she is unable to continue to retain counsel. Her financial statement shows that she has a debt to her previous counsel and that she has borrowed against certain assets for the assistance of the current counsel. I therefore make no order for payment of her lawyer’s fees.

Services of a Forensic Accountant

[ 20 ] Although not fully pleaded before me the applicant raises the prospect of reviewing the equalization payment if she is successful in having the separation agreement set aside. The basis of this is that the respondent sold a book of business for which he received a substantial sum. However the respondent pleads that he is being sued by his previous employer requesting the return of these funds. The statement of claim was filed as part of his exhibit. At this point I am unable to determine if there is merit to the equalization argument given the uncertainty of the respondent’s ability to retain entitlement to these proceeds.

[ 21 ] However there may be some merit to the argument that the husband has more income available to him for support purposes. The services of a forensic accountant will provide the parties with a meaningful report to assist in settlement discussions or alternatively provide evidence at trial. Should the respondent take issue with the forensic accountant’s report he is entitled to retain his own expert. The respondent has retained earnings in his corporation as per the financial statement of December 31, 2010. There is nothing to indicate that these retained earnings have not increased since that period of time. In addition the respondent had borrowed freely from the company by way of non-interest bearing notes to supplement his wages from the company.

[ 22 ] I am satisfied that the applicant requires this assistance in order to level the playing field so that a proper determination of the husband’s income for child or spousal support can be determined. Without this assistance the applicant cannot proceed on her own to unravel the complexities of the respondent’s financial position.

[ 23 ] At the same time the applicant should not be given carte blanche to pursue this matter without some contribution on her own. She has employment income and by leaving the home provided to her at the expense of the respondent has increased her expenses by $1200 a month. I am satisfied that a payment of $10,000 toward the cost of a forensic accounting report would level the playing field to allow the applicant to proceed with the case. The respondent will therefore provide the applicant with $10,000 to offset her costs to be accounted for in the final disposition at trial in the discretion of the trial judge.

Interim Child Support

[ 24 ] I have reviewed the respondent’s line 150 income for the past three years. His income should be adjusted by adding back in the housing deduction he has taken on his tax return and the deduction he is taken for his automobile. I accept his submissions that he is taking a draw of $5000 per month. Therefore, I conclude that $60,000 is an appropriate figure to base interim child support upon.

[ 25 ] Guideline support for one child based on $60,000 is $546.

[ 26 ] I therefore fix interim child support at $546 per month commencing May 1, 2012. In addition I make this interim child support retroactive to March 1, 2012. Prior to that date the respondent was subsidizing the applicant’s housing costs by providing a residence to her. The issue of whether or not there should be further retroactive child support shall be left to the trial judge once Mr. Emmerson’s income is ultimately determined.

Spousal Support

[ 27 ] On the record before me both parties have reasonably equal income. I make no order for interim spousal support. The ultimate determination of spousal support and retroactive spousal support should be left to the trial judge once Mr. Emmerson’s income is determined based on evidence at trial.

Disposition

[ 28 ] For these reasons an order will go in the following terms:

a. The respondent will pay child support of $546 commencing May 1, 2012;

b. The respondent will pay retroactive child support for the months of March and April 2012 totally $1,072 payable within 30 days of the release of this judgment; and

c. Within 30 days of the release of this judgment the respondent shall pay the wife the sum of $10,000 to offset her costs of the forensic accounting report. This sum is to be accounted for at trial and subject to the overriding discretion of the trial judge when costs are ultimately determined.

Costs

[ 29 ] The applicant has enjoyed partial success with respect to this motion. If the parties cannot agree on costs they may forward to me written submissions not exceeding two pages within 30 days of the release of this judgment.

MULLIGAN J.

Date: May 28, 2012