COURT FILE NO.: FS-11-371657

DATE: 20120709

SUPERIOR COURT OF JUSTICE - ONTARIO

RE: Rosa Bensky, Applicant

AND:

Gary Bensky, Respondent

BEFORE: Penny J.

COUNSEL:
Harold Niman and Daniel Bernstein , for the Applicant
Jaret Moldaver , for the Respondent

HEARD: May 24, 2012

ENDORSEMENT

[ 1 ] This is a motion for interim spousal support. The main issue is the respondent husband’s income. The applicant wife seeks to base interim spousal support on the average of the respondent’s 2009, 2010 and 2011 income, calculated as $2,204,667. The respondent argues that the best evidence of his current income is his projected income for 2011 of $214,000.

Background

[ 2 ] The parties began cohabiting in 1987 and were married in May 1990. They separated on February 1, 2011 (thus, they lived together for 24 years). There are no children of the marriage. The applicant and respondent each have two children from previous marriages who are now adults.

[ 3 ] Prior to the marriage and during the early years, the applicant was a successful real estate broker earning approximately $80,000 per year. She has been out of the workforce for close to eight years. She is 61 years old and no longer holds a real estate license. She suffers from arthritis. The applicant maintains that she is completely dependent on the respondent and relies on him to meet her daily expenses. She is incapable, she argues, by her own means, of achieving any approximation of the standard of living to which she was accustomed during the marriage.

[ 4 ] The respondent is the owner of of a successful real estate development business which I will refer to as “Grand.” He is also the principal and vice president of another real estate development business which I will refer to as “Wycliffe.”

[ 5 ] The respondent’s tax returns reveal that his historical line 150 income since 1999 has been as follows:

1999 $216,705.27
2000 $993,925.86
2001 $249,849.62
2002 $327,021.05
2003 $711,319.71
2004 $718,167.48
2005 $900,177.16
2006 $142,368.69
2007 $502,724.06
2008 $2,177,798.38
2009 $5,018,683.16
2010 $668,458.75

The Parties’ Positions on the Respondent’s Income

[ 6 ] The respondent claims that his income has gone down in 2010 and 2011, and is expected to continue at a depressed level for at least 2012, as a result of the loss of his principal business partners, market conditions and the lifecycle of the development projects currently in his company’s inventory. He claims his income, for support purposes, for 2010 and 2011 is $287,000 and $214,000, respectively.

[ 7 ] Both parties filed income valuations prepared by experts.

[ 8 ] Linda Brent, of Brent Valuations, prepared the respondent’s income valuation for the respondent. In order to prepare the respondent’s adjusted income for 2010 and 2011 for support purposes, Ms. Brent started with his line 150 income and made various adjustments, including adjustments for taxable eligible dividends, eligible cash dividends, nonrecurring capital gains, carrying charges and interest expense, gross up for tax on eligible dividends, salary paid to the applicant, salary from Grand relating to prior years, personal expenses paid by the business, a gross up on personal expenses and attribution of pretax corporate income. Her analysis produced the above figures of $287,000 for 2010 and $214,000 for 2011.

[ 9 ] Andrew Freedman, of Duff & Phelps, prepared the respondent’s income valuation for the applicant. Mr. Freedman, like Ms. Brent, started with the respondent’s line 150 income. He replaced the taxable dividends and capital gains with the actual amount of dividend and capital gain income, included in income tax gross ups associated with the lower tax rate applicable to dividends and capital gains, deducted carrying charges and interest expense as reflected on the respondent’s tax returns, added employment income paid by Grand to the applicant plus the related income tax gross up where applicable, and added discretionary expenses paid by Grand and Wycliffe on behalf of the respondent and the applicant, plus associated income tax gross ups. Mr. Freedman concluded, on the basis of his adjustments, that the respondent’s income, for support purposes, was, for 2010 - $902,000 and for 2011 - $407,000.

[ 10 ] However, Mr. Freedman also reviewed the respondent’s income for Guideline purposes for the period 2000 to 2009. In this regard, he said:

In our view, Mr. Bensky’s current income for support purposes should not be based entirely on the amounts earned for 2010 and 2011. Rather, current income should consider the historical pattern of Mr. Bensky’s income as reflected in Table 1 given the nature of his business and the revenue cycles of the real estate projects for which he participates.

[ 11 ] Under the heading “Pattern of Income,” Mr. Freedman said:

The Brent Report analyzed Mr. Bensky’s income for the years 2010 and 2011. For reasons noted in our report, it is our view that this is not a reliable benchmark to establish Mr. Bensky’s income for support purposes, rather Mr. Bensky’s historical pattern of income should be considered in the calculation of his Guideline income. Joint venture and partnership income is cyclical and fluctuates in relationship with the joint venture activity having regard to the

(i) number of joint venture and partnership interests held;

(ii) participating interest;

(iii) size of the project; and

(iv) stage of project development.

[ 12 ] This difference is approach is the single most significant difference between the two reports, as Ms. Brent’s analysis excluded consideration of 2007 ($692,000) 2008 ($2,400,000) and 2009 ($5,305,000) incomes.

[ 13 ] There were three other major differences between the Brent and the Freedman Reports. First, the Brent Report deducted salaries paid in 2010 and 2011 of $750,000 and $150,000 respectively, based on the assumption that these amounts were “earned” in the prior year, and replaced this income with $150,000 and $130,000 for 2010 and 2011 respectively. Mr. Freedman was critical of this adjustment on the basis that, regardless of when the income is earned, the amounts are included in an individual’s income tax return in the year in which they are paid and included in Guideline income for that year. As a result of this adjustment, Mr. Freedman was of the view that Mr. Bensky’s income for 2010 and 2011, as set out in the Brent Report, was understated.

[ 14 ] Second, information for the assessment of 2011 income in the Brent Report was provided directly by Mr. Bensky, information not available to the applicant and not otherwise disclosed in the record. The Brent Report’s calculation for 2011 deducts a capital gain on the basis that it is “non-recurring.” According to Mr. Freedman, no analysis or rationale was provided to substantiate the non-recurring nature of this payment. Mr. Freedman said:

We understand that whether to include/exclude a non-recurring amount is at the discretion of the Court, however, in our review of Mr. Bensky’s tax returns for the period 2000 through 2011, capital gains were earned in 9 out of 11 years. Therefore, the 2011 capital gain does not appear to be a non-recurring event.

[ 15 ] Third, the Brent Report added back certain personal expenses of approximately $21,000 in 2010 and $16,000 in 2011 and included a related income tax gross up. These amounts appear to have been calculated based on estimates provided by Mr. Bensky. Mr. Freedman reviewed general ledger detail of both Grand and Wycliffe for the fiscal years 2008 through 2011 as well as the applicant’s and the respondent’s credit card statements. As a result of this analysis, Mr. Freedman identified additional personal expenses paid for by Grand during the years 2008 to 2011 which came to, with gross up:

2008 $29,841
2009 $55,614
2010 $33,004 and
2011 28,395

[ 16 ] Mr. Freedman also examined the construction/development projects in which Grand and Wycliffe were involved during the period 2000 through 2011. Based on this review, he categorized these projects into three phases. As of the end of 2011, of the 33 project in total, 11 are in phase 1. Mr. Freedman also indicates that five new projects have entered his company’s inventory since the parties separated and that the respondent has invested $5 million in new projects. Both of these circumstances are indicative, he says, of the likelihood of Grand’s current projects earning future revenue more in keeping with the historical pattern.

[ 17 ] In addition to relying on the report of Mr. Freedman, Mr. Niman also points to the respondent’s spending habits and expenses. The respondent’s first financial statement sworn in November 2010, indicates that his monthly expenses, net of taxes, were approximately $35,000 per month. His next financial statement, sworn January 17, 2012, indicates expenses of some $32,000 per month, net of taxes. His most recent financial statement, sworn May 3, 2012, again indicates total monthly expenses, net, of $31,238. This includes gifts to his adult children of $3,000 per month and donations of another $3,000 per month. To cover these expenses, Mr. Niman argues, the respondent would need income in excess of $700,000 per year. The respondent’s own spending habits and expenses, it is therefore argued, are completely inconsistent with his claims to a current income of little more than $200,000 per year.

[ 18 ] Further, the respondent admits that his income has historically included a significant undeclared cash component, not disclosed in his sworn financial statements either. The respondent states that he had “no idea” how much cash was received but agreed that he left “large amounts of cash” at the cottage.

[ 19 ] Mr. Niman also argues that the respondent has purposely delayed providing disclosure of his income and that he has not yet provided disclosure valuing his business interests at all. Mr. Niman seeks retroactive support to the date of the commencement of this application.

[ 20 ] Mr. Bensky, rather than Ms. Brent, filed an affidavit responding to the Freedman Report. The respondent argued that capital gains should be excluded because they are, in fact, non-recurring.

[ 21 ] Mr. Bensky also argued that it is incorrect to take a historical view to represent future income in this case because the main source of income in 2008 and 2009 was from a project called Kleinberg Humberplex which was an anomaly. Extraordinary distributions from this project resulted from litigation, in the course of which the Court ordered an immediate sale of all inventory in that project. Income that would have been realized over a number of years into the future had to be realized, as a result of the court-ordered sale, over a much shorter period of time. Inventory like the Kleinberg Humberplex project, he says, no longer exists.

[ 22 ] The respondent agreed, however, that he expects his income to return to its usual pattern by 2013 or 2014, based on the life cycle of his current development projects.

[ 23 ] In addition, the respondent argued that the adjustments to income paid from Grand to the respondent and the applicant (the $750,000 and $150,000 adjustments) was done because it was an unusually high bonus paid, again, because of the anomalous Kleinberg Humberplex distributions which are non-recurring.

[ 24 ] Finally, he argues that Mr. Freedman’s increases of personal benefits paid by the business are based on an arbitrary 50% assessment, which is neither justified nor explained.

[ 25 ] In essence, Mr. Moldaver argues, on the respondent’s behalf, that the respondent has limited cash flow at this stage of the lifecycle of his business. Any interim support based on an income in excess of $214,000 will require him to dip into capital (i.e., to sell projects) which the law does not require him to do.

[ 26 ] Further, Mr. Moldaver argues that the anomalous Kleinberg Humberplex distributions were received into this family unit in years predating separation. Accordingly, he submits, the applicant already received the benefit of those distributions, as reflected in the parties’ lifestyle during those years. Any spousal support award incorporating those amounts into the calculation of ongoing support now, he argues, would result in a form of “double dipping.”

[ 27 ] The respondent’s position is that he has made full and timely disclosure of his income. He explains the delays in doing so on the need to retain an expert and the complexity of his business arrangements, which simply took time to process, explain and analyze. He says the valuation of the business itself is even more complex but it is being done by Ms. Brent and is nearing completion. The respondent opposes the need for, or appropriateness of, retroactive support.

Analysis

[ 28 ] The general principles which govern an award of interim spousal support are not in serious controversy.

[ 29 ] The role of the court on a motion for interim spousal support is a limited one. On an interim motion, the court does not usually have all of the available evidence and must fix such amount as the court thinks reasonable, having regard to the factors set out in section 15.2 of the Divorce Act . Those factors include;

(a) the length of time the spouses cohabited;

(b) the functions performed by each spouse during cohabitation; and

(c) any order or agreement or arrangement relating to support of either spouse.

An order made under this section should recognize any economic advantages or disadvantages to the spouses arising from the marriage or its breakdown; relieve any economic hardship of the spouses arising from the breakdown of the marriage; and insofar as practicable promote the economic self-sufficiency of each spouse within a reasonable period of time.

[ 30 ] The court should try to award interim support that is fair and reasonable and meets the needs of the disadvantaged spouse as best as possible based on the apparent ability to pay of the other spouse.

[ 31 ] As well, generally speaking, the spouse receiving spousal support is entitled to receive support that would allow him/her to maintain the standard of living to which he/she was accustomed at the time cohabitation ceased.

[ 32 ] The obligation to pay support commences from the date of separation. On an interim motion, the court may provide retroactive support to compensate for any deficit. The factors to be considered are: the reasonableness of any delay in seeking support, the conduct of the payor, the circumstances of the payee spouse and any hardship occasioned by a retroactive award.

[ 33 ] This was a lengthy relationship of some 24 years. The applicant, although once employed as a real estate broker, is 61 years of age, has not worked for eight years and no longer holds a valid real estate license.

[ 34 ] The parties had a very comfortable lifestyle during their marriage. They acquired a lovely home in Forest Hill and a number of vacation/recreational properties. They drove expensive cars, dined out at good restaurants and travelled extensively.

[ 35 ] The respondent’s income varied quite significantly from one year to the next. The evidence generally supports the conclusion that their lifestyle did not change dramatically through these ups and downs, however. Rather, their lifestyle was financed to some extent through debt in the lower earning years, which was paid off in the higher earning years.

[ 36 ] Since separation, while the applicant has assets, she has been forced to dip into capital to pay her expenses.

[ 37 ] In my view, the applicant is clearly entitled to interim spousal support. Whatever the prospects for her financial self-sufficiency in the future, I am not prepared to conclude that the applicant must immediately find a job, given the history of their relationship and her role during the marriage.

[ 38 ] The real and only issue in this case is the question of the respondent’s income. In a case, like this, where the payor spouse’s income has fluctuated significantly over the years, what is the fair and reasonable way to assess income for interim spousal support purposes?

[ 39 ] Mr. Niman says I should take an average of the last three years, based on Mr. Freedman’s analysis. That produces an income of $2.2 million.

[ 40 ] Mr. Moldaver says averaging is only warranted in cases involving child support, not spousal support. He says taking capital gains into account in calculating the respondent’s income (which Mr. Freedman does) will result in “double dipping.”

[ 41 ] I am prepared to accept, and the earnings history supports this, that the income earned in 2008 and 2009 is somewhat anomalous, resulting, as it did, from a court-ordered partition and sale of the Kleinberg Humberplex properties. Accordingly, I reject the applicants request for interim support, based on income of over $2.2 million, of $77,000 per month.

[ 42 ] I do not think, however, for interim support purposes, that it is appropriate to exclude all capital gains, since the earnings history, again, reflects capital gains realized by the respondent in 9 out of the last 11 years. In my view, the realization of capital gains is simply one feature of the way in which the respondent realizes financial benefit out of the development projects he invests in. To the extent the potential for “double dipping” is a problem, that can be accounted for at trial.

[ 43 ] Nor do I thing a consideration of the historical pattern of income is precluded from the list of considerations the court may take into account when determining the appropriate level of spousal support. It is in my view, properly considered as one factor in the overall assessment, where circumstances warrant.

[ 44 ] It also seems to me, for interim support purposes, that Ms. Brent’s adjustments for income “earned” in the prior year are not appropriate. In the exercise of my discretion, I accept Mr. Freedman's conclusion that, regardless of when the income is earned, the amounts should be included in an individual’s income tax return in the year in which they are paid and included in Guideline income for that particular year.

[ 45 ] In addition, I cannot ignore the fact that the respondent’s own sworn financial statements indicate annual spending at a level in excess of $360,000, which, as the applicant points out, would require income well in excess of $700,000 to support. It is not reasonable to expect that an experienced businessman like the respondent would maintain spending at a level so far in excess of his actual income. In any event, while it may be that encroachment on capital by the respondent is required to support this lifestyle, this level of spending is entirely consistent with the pattern of spending during the marriage and the lifestyle enjoyed by both parties during the marriage.

[ 46 ] I find that the catastrophic business setbacks alleged, which would have the respondent’s annual income plummet, post-separation, to the lowest level (excepting 2006) that it has ever been since 1999, has not been adequately justified.

[ 47 ] Taking all this into account, as well as the factors set out in the Divorce Act , in my view, for interim spousal support purposes only, the amount of support should be fixed at $25,000 per month. I justify this figure principally on the basis that it generally reflects the current and, to some extent past, spending habits of both parties. I have also considered the SSAG’s and the fact that this amount of support falls within a range produced by a $700,000-$800,000 income which is, generally, in the range I would have found appropriate to impute to the respondent for interim spousal support purposes.

[ 48 ] The motion for interim support was issued in December 2011. The parties each have their complaints about, and justifications for, any delays in the prosecution of the applicant’s claim for interim spousal support. The first order was made, on consent by Czutrin J., on December 15, 2011. I would make the support order retroactive, without prejudice to a final accounting at trial, to January 1, 2012, subject to a credit for all amounts properly characterized as spousal support already paid to the applicant by the respondent since that time.

[ 49 ] I strongly encourage the parties to reach an accommodation on the question of costs of this motion. In the unlikely event that the parties are not able to agree on costs, brief written submissions, not to exceed two typed double-spaced pages, may be filed together with a Bill of Costs and any supporting material. Any party seeking costs shall do so by filing their submission within two weeks of the release of these Reasons. Any party responding to a request for costs shall do so within a further two weeks

Penny J.

Date: July 9, 2012