ONTARIO
SUPERIOR COURT OF JUSTICE
B E T W E E N:
ANNMARIE GOODFELLOW
Pamela L. Hebner, for the Applicant
Applicant
- and -
KEVIN JOSEPH GOODFELLOW
Andre C. Hueniken, for the Respondent
Respondent
HEARD: Action tried at Guelph on May 6, 7, 8, 9, 10, 13, 14, 15, 22, 23 and 24, 2013.
REASONS FOR JUDGMENT
Belleghem J.
Introduction
1The parties were married June 12, 1993. They separated May 31, 2010. There are three children of the marriage: Kaitlyn Marie Goodfellow, born September 13, 1994, 18 years of age, and attending Mohawk College; Brooke Louise Goodfellow, born March 3, 1997, 16 years of age, and Erika Ann Goodfellow, born May 11, 1999, currently 14 years of age.
2The applicant, AnnMarie Goodfellow, was born April 26, 1972, and is presently 41 years of age. The respondent, Kevin Joseph Goodfellow, was born July 31, 1962, and is presently 51 years of age.
3The parties worked together in the respondent’s textile store from the time of their marriage in 1993, until the business closed down in 2009. Since then, the respondent has been attempting to set up another business while operating a fries’ shack and doing odd jobs. The applicant is now a financial service representative with the Toronto-Dominion Bank.
4Before getting married, the parties signed a Marriage Contract which figures prominently in the present trial. In addition to the Marriage Contract, at one point while refinancing his business, the respondent executed an Indemnity agreement in favour of the applicant which also is an important consideration in resolution of the matters raised at trial.
Issues
5The main issues that must be decided in the present case are the following:
Net family properties of each of the parties.
Pre-marriage deductions claimed pursuant to the Marriage Contract.
How to treat the “Due To Shareholder” account.
Division of household contents.
Effect of the Indemnity agreement.
Miscellaneous issues.
What income should be imputed to the respondent for child support purposes?
Background
6The applicant lives with her three daughters in premises that she rents from her parents for $1,300.00 per month. She makes $18.92 per hour, working eighteen hours a week at the T-D Bank. The children’s educations are partially provided for by a joint RESP. The parents intend for all three children to obtain post-secondary education. Both parents are actively involved in their children’s lives.
7The applicant holds a two year diploma from Sheridan College which she obtained in June of 1992. The respondent has Grade 12 and a meat cutting course. The applicant began working in the respondent’s business in 1991, when he was renting premises at the Fergus Market selling textiles. He had about ten employees. Prior to the marriage, the parties signed the Marriage Contract to which I will refer later. The applicant eventually did the bookkeeping for the business. To avoid increased lease costs the respondent purchased property on Tower Street, in Fergus, in 2003.
8The applicant described the marriage as a traditional one. The respondent worked seven days a week, 9 to 5. The applicant did the bookkeeping, and looked after household chores and raising the children.
9Rather than taking wages, the income, which otherwise would have been paid out by the company to each party, was posted to an account titled “Due To Shareholder”. This account effectively represented money owing to and from the company, and to and from the respondent, throughout the history of the business until it closed down in 2009.
10The applicant said she was not privy to much of the financial information respecting the company, despite her extensive involvement in the course of her bookkeeping duties. She also said that the respondent made all of the financial decisions in their lives, and provided money to her as requested, from time to time, to maintain the household finances. They had credit cards which they used both for personal and for business use. It is apparent from the evidence of both parties that the business finances and the personal finances were completely intermingled throughout the marriage, and the duration of the respondent’s business.
11While the applicant in her testimony tends to downplay the extent to which she was privy to the company finances, a Monthly Accounting Control List for July 2003 demonstrates that she was directly involved in the following accounting activities:
Trial Balance (General Ledger/Trial Balance)
Balance Sheet (General Ledger/Balance Sheet)
Income Statement (General Ledger/Comparative Income Statement)
Bank Reconciliation (Bank/Reports)
Bank Statement – Canadian Account
Cheques Register (Bank/Cheque Register)
Bank Statement – U.S. Account
Accounts Payable Listings (Accounts Payable/Reports)
Visa Gold Statement
Visa Areogold Statement
GM Visa Statement
Bank Loan Statement
Daily Summary Information (Excel – Cash)
Visa, Mastercard and Amex Charges
Payroll Data (Excel – Payroll & Paymate register)
12In addition to her educational training and her hands on bookkeeping of the business, she also executed a number of mortgages and other legal documents in connection with the business. For some of these she obtained independent legal advice. For example, in 1994, she signed a mortgage so she and the respondent could assist her brother to set up a restaurant. The same year, she signed another mortgage so her brother would have operating capital for the restaurant. She signed a further mortgage in 1996, and still a further one in 1999, as guarantor. For this one she obtained independent legal advice. Even though the mortgage document indicates it was to be used for business, she was well aware, because she advised the lawyer from whom she obtained the independent legal advice that such was the case, that the money was in fact being used to provide extensive renovations to a cottage she and the applicant had purchased on Belwood Lake. This is an early concrete example of the complete intermingling of personal and business finances enjoyed by both parties from the respondent’s business.
13The 1999 mortgage was with C.I.B.C. The mortgage was refinanced in 2004 with Canada Trust. This time, she also obtained independent legal advice, but from a different lawyer. This lawyer required the respondent to sign an Indemnity agreement, to which I will refer in due course. By it, the respondent was to indemnify the applicant for liabilities in connection with the respondent’s company. The mortgage proceeds in this case went into the business.
14It was shortly after this that the applicant noticed from a tax bill that her name was not on the matrimonial home. The respondent, promptly at her request, had the matrimonial home transferred to them jointly.
15In 2007, the 2004 T-D mortgage was refinanced. The 2007 refinancing once again was on the matrimonial home. It was taken out as a closed conventional mortgage. The applicant did not obtain independent legal advice before signing this mortgage. Given her involvement in the business and her history of assisting her husband in refinancing either the business or their personal property matters through mortgages, there can be no real issue either of non est factum or unconscionability.
16No further Indemnity agreement was obtained. The loan was deposited into the business, and used in large measure to pay off the prior outstanding mortgage, as well as several other debts, both of a personal and business nature.
17It is the pay down of the business debt and the prior mortgage which forms a large part of the applicant’s indemnity claim, if the Due To Shareholder account is excluded as an asset pursuant to the Marriage Contract.
18In the meantime, in 2003, as indicated earlier, in order to deal with increased rental costs, the respondent purchased property on Tower Street, in Fergus, to run his textile store. The purchase price was $238,000.00. The purchase was financed by a $237,000.00 mortgage given to his parents.
19The respondent argues that the new company set up to purchase the property for the business is covered by the Marriage Contract exclusion. The applicant claims that the respondent mishandled the application of the sale proceeds.
20In addition to the foregoing, the parties jointly obtained a personal line of credit in June of 2009. The business, as well as the parties, personally, benefited from the line of credit. The applicant also claims indemnification relative to funds transferred from the line of credit to the business.
21The applicant asserts that she had no idea how the business was faring over the years, despite her role as bookkeeper. It is difficult to fathom how she could be ignorant of the affairs of the business, given the fact that she engaged in all the refinancing transactions which I outlined above, and given the statistics respecting the decrease in sales and the growth of the Due To Shareholder, i.e. company debt, over the years. These stats are as follows:
K.G. DUVET CO. LTD.
SUMMARY OF TOTAL SALES – 1994 TO 2009
| YEAR | AMOUNT | SOURCE |
|---|---|---|
| 1994 | 4,749,433.00 | 1994 PROVINCIAL INCOME TAX RETURN |
| 1995 | 4,065,064.00 | 1995 PROVINCIAL INCOME TAX RETURN |
| 1996 | 2,699,385.00 | 1996 PROVINCIAL INCOME TAX RETURN |
| 1997 | 2,165,560.00 | 1997 PROVINCIAL INCOME TAX RETURN |
| 1998 | 1,708,576.00 | 1998 PROVINCIAL INCOME TAX RETURN |
| 1999 | 1,354,171.00 | UNAUDITED FINANCIAL STATEMENTS |
| 2000 | 1,155,590.00 | UNAUDITED FINANCIAL STATEMENTS |
| 2001 | 1,115,474.00 | UNAUDITED FINANCIAL STATEMENTS |
| 2002 | 867,944.00 | UNAUDITED FINANCIAL STATEMENTS |
| 2003 | 705,390.00 | UNAUDITED FINANCIAL STATEMENTS |
| 2004 | 571,232.00 | UNAUDITED FINANCIAL STATEMENTS |
| 2005 | 407,451.00 | UNAUDITED FINANCIAL STATEMENTS |
| 2006 | 390,409.00 | UNAUDITED FINANCIAL STATEMENTS |
| 2007 | 350,860.00 | UNAUDITED FINANCIAL STATEMENTS |
| 2008 | 251,742.00 | UNAUDITED FINANCIAL STATEMENTS |
| 2009 | 75,787.00 | UNAUDITED FINANCIAL STATEMENTS |
DUE TO SHAREHOLDER ACCOUNT (DEFICIT)
| YEAR | AMOUNT |
|---|---|
| 1998 | $ 107,496.00 |
| 1999 | $ 114,030.00 |
| 2000 | $ 100,388.00 |
| 2001 | $ 87,588.00 |
| 2002 | $ (36,101.00) |
| 2003 | $ (52,103.00) |
| 2004 | $ (105,745.00) |
| 2005 | $ (191,577.00) |
| 2006 | $ (225,441.00) |
| 2007 | $ (261,445.00) |
| 2008 | $ (295,841.00) |
| 2009 | $ (308,681.00) |
22Mr. Goodfellow testified that he had a Grade 12 education. He also took four or five night courses in the Retail Meat Cutting Course. Beyond this, he had no further education.
23He explained how he met a person who sold bedding and who assisted him setting up his textile sales business in both Bolton and Fergus, and how he was able to close the Bolton shop in a year because the Fergus business “took off”. When he married in 1993, his business was worth almost a million dollars. He arranged for the Marriage Contract to be prepared by his wife’s lawyer so that his business assets would be protected in the marriage. He also outlined the pre-marriage assets, set out in Schedule “A”, attached to the Marriage Contract, to which I will make reference again shortly, and confirmed the values as set out in the schedule.
24The respondent explained that, although the Belwood cottage only cost $70,000.00 to purchase, they spent $235,000.00 in renovations. The money for the renovations came from the business.
25Much like Mrs. Goodfellow, he went through the history of the various refinancing of the business loans in order to finance their lifestyle, which continued, despite declining sales and a growing business deficit. He also outlined the various vehicles that had been purchased and ultimately leased, as well as the move to the Tower Street property financed by his parents.
26He outlined details of various credit card accounts which demonstrated clearly that while some cards were used for business, others were used both for business and personal use, and that each of them had access to the cards. He also explained how his business paid for the renovations to the Tower Street property, which ultimately sold at a profit.
27He explained how at one point, because of the declining business, the refinancing was simply to reduce the monthly payments, in order to increase their cash flow. The business declined, as set out above, and eventually in 2009, he attempted to sell the business or the building. He was unable to sell the business but was able to sell the building for $400,000.00 in November of 2009.
28The sale arrangements were a little unusual in that he only received $10,000.00 down, although he did receive a $65,000.00 payment the following January. The balance was to be paid over 5 years, but he still had a mortgage outstanding to his parents on which $200,000.00 was owing.
29The respondent announced to his wife in May 2010 that he was leaving her because of unanswered questions respecting “trust issues” which he had raised with her. It soon became apparent that he and the applicant were going to become embroiled in matrimonial litigation, because she was not responsive to proposals he was making with respect to settling up their affairs. He moved into the matrimonial home. She stayed at the cottage.
30He had a very limited income because he was not working. She had taken a job as a teller at the T-D Bank when the business closed down in 2009. She maintained payments on the matrimonial home. It was ultimately listed. The respondent took personal issue with a real estate agent who had agreed to purchase the matrimonial home, provided the price was reduced to permit reshingling of the roof. As a result of the respondent’s refusal to comply, the deal fell through. The home was subsequently sold, a year later, for $13,000.00 less.
31In the meantime, the respondent was able to get the cottage property sold within three or four months of their separation. After some prepayments to both parties, the sale proceeds from both properties are being retained in trust.
32As the matters between the parties heated up, the respondent’s parents wanted their mortgage paid off. Ultimately, therefore, the respondent sold the remaining $325,000.00 mortgage back (which had approximately $318,000.00 still owing on it) for roughly $293,000.00 at an approximate $25,000.00 discount. This gave him enough to pay off the $204,000.00 owing to his parents, and net to himself $87,863.28. This money was paid into his company and retained by him on the basis that his company assets were excluded by the Marriage Contract.
33At the present time, subject to interest calculations, I am advised by counsel that there remains in trust from sale of the matrimonial home the sum of $48,007.30, and from the sale of the Belwood cottage property the sum of $197,077.70. The applicant received an advanced payment of $60,000.00, pursuant to an order of Justice Donohue of this court, January 3, 2013. This will affect the ultimate judgment, once equalization has been determined.
Analysis
34While the applicant steadfastly maintains that she was ignorant of the declining financial status of the business, her assertion is simply untenable. She is an experienced bookkeeper. She has had professional training in the area. She looked after the books of the business, either on a full time or part-time basis, for almost sixteen years. She participated in many financial refinancing transactions. She has received independent legal advice on a number of occasions respecting the financial implications to her. She trained another person to assist in keeping the books. She personally worked with the accountant who ultimately did the company returns. While the respondent may in fact have been responsible for making the financial decisions, given the fact that it was a business he brought into the marriage, she was nevertheless knowledgeable of, and privy to, the declining financial state of her husband’s business.
35I agree with counsel for the respondent that this is simply a case of both parties continuing to live beyond their means. They had become accustomed to a style of living. They did not wish to abandon it, despite their inability to maintain it. There were occasions in the course of refinancing when all they were doing was “borrowing from Peter to pay Paul”, such as when they refinanced to reduce the monthly payments to increase their own cash flow.
36With respect to the Marriage Contract, I accept the argument of counsel for the respondent that Schedule “A” was attached to the Marriage Contract at the time it was entered into and signed by both parties. Counsel advising the applicant at the time the Marriage Contract was signed was Mr. Wolfe. On April 5, 2011, Mr. Wolfe sent a letter with his file and a “Draft of revised Marriage Contract, revised subsequent to a letter received from the solicitor for Goodfellow…” to Mr. Hebner who was counsel in 2011, to the applicant. At the end of his letter Mr. Wolfe concludes with these words: “No doubt you have a signed copy of the Marriage Contract dated June 2, 1993”.
37It is apparent at once, from Mr. Wolfe’s letter that he, himself, did not retain a copy of the signed agreement, but since a signed agreement was produced in the affidavit of documents of the respondent, as was Schedule “A”, she obviously had Schedule “A” and the signed agreement in her possession in order to produce it and make it part of her affidavit of documents, both the signed contract and Schedule “A” not forming part of Mr. Wolfe’s file.
38Mr. Wolfe also confirms the attendances on his office of both the applicant and her parents. This note in his record contradicts the evidence of the applicant’s mother. The applicant’s mother was adamant that no Schedule “A” was attached to the document. She was just as adamant that she only attended on one occasion. I reject the evidence of the applicant’s mother.
39Both parties are unable to recall whether Schedule “A” was attached. It is also significant, as it appears from Mr. Wolfe’s account, that it was he who prepared the original draft of the agreement, as respondent’s counsel argues. I am left, therefore, with strong circumstantial evidence that Schedule “A” in fact had been attached to the copy of the Marriage Contract signed by Mrs. Goodfellow. She must, therefore, have been fully aware of, and agreed with the contents as set out in Schedule “A” at the time she signed the contract. I derive this by inference from the fact that her counsel produced an Affidavit of Documents to counsel for the respondent which contained the signed agreement along with Schedule “A”. It could only, therefore, have come from the applicant herself. She, herself, does not remember it. That does not mean, however, that she was not aware of it at the time she signed the original contract. On balance, therefore, there is strong circumstantial evidence to support the argument of Mr. Goodfellow’s counsel that Schedule “A” was attached to the agreement, and formed part of the agreement, at the time the agreement was signed.
40Finally, the Marriage Contract itself states at paragraph 18(2) as follows:
“A summary of the assets and liabilities of the husband and a statement of his income is attached to this contract and marked as Schedule “A”. The values shown on this schedule are reasonable approximations only based on the best information available without the benefit of formal appraisals or valuations.”
41Schedule “A” to the Marriage Contract, reads as follows:
Schedule “A”
| Assets | Liabilities | ||
|---|---|---|---|
| RRSP | $30,000.00 | ||
| Motor Vehicle | $20,000.00 | ||
| Home at 36 Jo Ann Crescent Elora, Ontario | $230,000.00 | Nation Trust Mortgage | $56,000.00 |
| Business Interests | $800,000.00 | ||
| Furniture | $20,000.00 | ||
| $1,100,000.00 |
42It should also be noted at this point as a matter of convenience that paragraph 18(3) of the Marriage Contract, reads as follows:
“The wife warrants that she has no substantial assets or liabilities.”
43The agreement also indicates that both parties have had independent legal advice. This is, itself, evidenced by the fact that Mr. Wolfe produced the file. From a circumstantial evidence standpoint it is extremely unlikely that any lawyer would allow his client to sign a document which incorporates by reference a schedule, without the schedule actually being attached, and brought to the attention of the client, because the schedule is the centerpiece of the agreement, i.e. it sets out the assets that are excluded by the contract.
44Before leaving the Marriage Contract itself, I should set out that the business property which by the agreement “will not be included in the net family property of the parties:” is:
“The husband’s interest in K.G. Duvet Limited which is defined to include any successor or related corporation or business whether incorporated or not carrying on a related business to that of K.G. Duvet Limited, or any business carried on by the husband solely or in concert with others from which monies or monies-worth are derived from K.G. Duvet Limited, and this exclusion from net family property shall extend to any increase in the value of the K.G. Duvet Limited, as defined, from the effective date of this contract to any time or times at which it is necessary to determine the net family property of the husband. Further, this exclusion from net family property shall extend to the proceeds of sale of all or any part of the shares or assets of K.G. Duvet Limited, as defined, provided that such proceeds shall be traceable. Notwithstanding the foregoing, the exclusion herein provided shall not extend to wages or bonuses paid to the husband by K.G. Duvet Limited, as defined.”
45There is no question that the company that the respondent set up to purchase the Tower Street property is a “related corporation or business” to “K.G. Duvet Limited”. Therefore, the exclusion in the Marriage Contract refers to both K.G. Duvet and the Tower Street numbered company.
46Both the Tower Street and K.G. Duvet companies have “Due To Shareholder” accounts. Counsel for the applicant argues that these accounts should be included as part of the respondent’s net family property. She relies on Cisecki v. Cisecki, 2011 ONSC 1343. This is a decision of Justice Gerald E. Taylor given March 1, 2011. There, the parties sent a document entitled “Direction” to their solicitors acknowledging to their solicitors that “we have mutually agreed not to have our respective businesses appraised”. They then set out their various incomes and sources through the years. Because the parties had agreed not to have the value of their businesses appraised, an issue arose at trial as to whether an outstanding shareholder loan owing was an asset. Justice Taylor stated at paragraph 41:
“In my opinion, it is not clear and obvious that it was a term of the agreement to not obtain valuations for the businesses to also exclude from his net family property the amount owing to the respondent by Waterloo Gas Products. I accept that if a valuation of Waterloo Gas Products had been obtained, the amount owing to the respondent would have been taken into account in determining that value. However, it does not follow that because no valuation of Waterloo Gas Products was obtained the amount owing to the respondent was not an asset of his at the date of the separation.”
47Cisecki is obviously distinguishable from the present case. In the present case there is no question whatsoever that it was intended to exclude any interest that the respondent had in K.G. Duvet or any related corporation. It was “clear and obvious that it was a term of the agreement”, in the present case, to exclude any interest, positive, negative or neutral.
48Counsel for the applicant also relies on the decision of Mesbur J. in Dubin v. Dubin, 2003 2103 (ON SC), 2003 CarswellOnt 534, 34 R.F.L. (5th) 227, February 19, 2003. Justice Mesbur simply sets aside a cohabitation agreement in that case, and used retained earnings and a shareholder’s loan in order to evaluate a business. This is a principle with which I have no disagreement. That case does not assist the applicant in the present case, as the agreement in that case had already been set aside. In the present case, I see no reason to set aside the Marriage Contract, nor does counsel for the applicant seriously argue that I should do so. The only issue in the present case is whether the Due To Shareholder account can be severed from the business interest in order to form part of the respondent’s net family property. In my view, it cannot. There is simply no rationale to do so. It is something of value to the respondent, and it is his remaining interest in the business excluded by the Marriage Contract.
49I am satisfied on balance that the Due To Shareholder account represents a genuine asset of the business. It is advantageous to the respondent. He can use it to set off the capital gains of his related company. This is what he is doing.
50The use of shareholder loans and retained earnings as a basis to assist in evaluating a business interest is not uncommon. It is Mr. Goodfellow’s interest in K.G. Duvet and related corporations, regardless of how that interest is evaluated, that is an issue. It is that interest which is excluded by the Marriage Contract.
51Accordingly, in my view, it is not necessary to consider the argument of the respondent that the shareholder loan represents an uncollectable debt. Even if the debt is something of value to Mr. Goodfellow personally, it is an interest in K.G. Duvet. This is something which is explicitly excluded by the Marriage Contract. Counsel have not been able to provide a case which makes a distinction between money owing from a company to an individual, as distinct from the individual’s “interest” in the company.
52This does not end the matter, however. It is presumably because of the possibility that the company could find itself in debt that counsel for the applicant, when giving her independent legal advice respecting the 2004 mortgage, required Mr. Goodfellow to sign an Indemnity agreement. By the Indemnity agreement, Mr. Goodfellow agreed to indemnify Mrs. Goodfellow “… against all accounts payable … in connection with the business known as “K.G. Duvet Co. Ltd.” … existing or accrued as of the date hereof and hereinafter into the future…” Pursuant to the Indemnity agreement, counsel for the applicant argues in her written submissions that the applicant should be entitled to receive $82,042.71 “being one-half of the proceeds of sale of the matrimonial home used to pay the mortgage, the proceeds of which have been used by the husband for his business” together with $17,276.62 “being one-half of the proceeds of sale of the matrimonial home used to satisfy that portion of the line of the credit that had been used by the husband for his business”.
53In response to this, counsel for the respondent argues that the Indemnity is property in the nature of an inter-spousal loan or guarantee. In other words, counsel argues, if the indemnity is to be given effect, it must be included as a property interest by the wife in her net family property, but that the husband may likewise claim it is a liability on his side of the ledger, such that they offset each other. See Hapichuk v. Hapichuk, [1988] O.J. No. 466, Long v. Long, [1989] O.J. No. 386 and Burke Estate v. Burke Estate, 1994 7442.
54Counsel candidly concede that there is no case directly on point that deals with an Indemnity agreement between spouses related to a company interest of one of the spouses.
55Any money, which is the property of Mr. Goodfellow, and which he puts into his excluded business interest, remains excluded from his net family property. However, any money which it can be shown was placed into his business by Mrs. Goodfellow is money which she can obviously claim back from the company. It is not her company. She is not “investing” in it. She may be “advancing” money to the company. However, it could only be done so on the basis that it is implied in the relationship between her and her husband’s company, particularly in light of the fact of the Indemnity agreement, to be a loan. In other words, if an advance by the husband to the company is treated as a loan, then an advance from funds owned by the wife to the company must also be treated as a business loan which is covered by the Indemnity.
56Counsel for Mr. Goodfellow argues that the Indemnity does not comply with the requirements of the Family Law Act. I am not persuaded that the Indemnity must be a “domestic contact” to be effective here. It evidences an agreement. It is an undertaking by way of an indemnity given as consideration for Mrs. Goodfellow agreeing to be responsible to the husband’s company for the advance of funds that she would do so if he agreed to indemnify her for any shortfall owing to her by the company. The wording of the Indemnity is relatively simple and straightforward. It obligates Mr. Goodfellow to indemnify Mrs. Goodfellow for funds which she can demonstrate were hers, which were advanced to the company, and never returned to her.
57However, this is where the accounting difficulties become insurmountable. In the course of her submissions, counsel for Mrs. Goodfellow went to great pains to attempt to extrapolate from the accounts filed in evidence evidence to show that Mrs. Goodfellow was out approximately $99,000.00 of money advanced on the mortgage to the business, and which the accounts did not show were returned to her or her husband for personal use.
58As I said early on in my reasons, in this case the business affairs and personal affairs of both parties are completely intermingled. There is merit to Mr. Hueniken’s argument that there is absolutely no way to make any meaningful appraisal of the extent to which funds, which were paid by the company, went to personal or business expenses. One need only look at the simple fact that a business loan was taken out to renovate the personal cottage, and a personal loan was taken out to cover the refinancing of the business. It would be totally unfair to both parties not to take into account the entire history of the relationship between the business and the parties’ personal finances. It would be unfair to concentrate solely on a single refinancing.
59It may be tempting to try to perform this exercise, in light of the fact that the Indemnity was only signed in reference to the 2004 mortgage, which was refinanced in 2007. However, even then, a good portion of the refinancing dealt with credit cards. Some of these were for business, and some were for mixed business and personal use. He who asserts must prove. I am simply not persuaded, on balance, that Mrs. Goodfellow somehow got “shortchanged” by her husband’s company in the refinancing process to the tune of $99,000.00.
60Counsel for the applicant also suggested that I should make a finding that a good portion of the “Due To Shareholder” account was made up of unpaid wages. Similarly, it would be a futile exercise to attempt to articulate with any degree of accuracy the extent, if any, to which the Due To Shareholder account could reasonably be impressed with an amount attributable to unpaid wages.
61Finally, if money arguably advanced by Mrs. Goodfellow to her husband’s company is to be treated as a loan, as suggested above, then rhetorically I ask why would one not also treat any money advanced to her benefit by the company, i.e. to her, be treated as a “loan” by the company to her? In other words, although neither counsel argued this, is it not just as reasonable to presume that the money paid by the business for the cottage renovations, which was clearly personal was an advance by way of loan, and is protected by the Marriage Contract? Would this not require her to repay the company her share of the cost of cottage renovations? The answer to this is obviously no, because both Mr. and Mrs. Goodfellow were treating any money advanced by the company to either of them as income being generated by the company for their mutual benefit. He had to sign the Indemnity to get the funds advanced to keep the company going for the benefit of both of them. The reality in this case is that the refinancing efforts made by both of them from time to time, including both the 2004 and 2007 refinancing, were simply vehicles used by both of them to continue to utilize the business as a means of providing income for their mutual benefit. Therefore, even though the Indemnity is a binding document, in the sense that it was part of the consideration given by Mr. Goodfellow in order for Mrs. Goodfellow to agree to become liable to the bank for funds advanced to the company, there is insufficient evidence to demonstrate the quantum which is ultimately covered by the Indemnity signed by Mr. Goodfellow.
62Sections 5(6) and 5(7) of the Family Law Act, set out the court’s jurisdiction to vary equalization payments where the effect of spousal financial intermingling of business and personal affairs creates an unconscionable injustice. As will be seen, the indemnity undertaking on the particular refinancing arrangement to which it was initially directed, must be given effect, but not at the cost of creating an unconscionable result inconsistent with the reasonable expectations of the parties during the course of their marriage. I will, therefore, deal with these issues further when I come to my conclusions.
Date of Marriage – Assets
63For reasons stated above, I have already found that Schedule “A” was attached to the Marriage Contract when it was signed by both parties. It follows, therefore, that there was no issue raised at the time the document was prepared respecting the items that were to be excluded and their values. Counsel referred me to the decision of Jacobs v. Jacobs, a decision of Justice Nolan given May 12, 2011, and reported at 5 R.F.L. (7th) 458. At paragraph 43, Justice Nolan states:
“The nature of the evidence required when one party is claiming a deduction or an exclusion is significant. The onus of proof is on the person claiming the deduction or the exclusion as set out in section 4(3) of the Family Law Act, R.S.O. 1990, c. F-3. The rules regarding the evidence are further elaborated by often-cited case law. In Traversy v. Glover (2006), 2006 24130 (ON SC), 30 R.F.L. (6th) 372 (Ont. S.C.J.) the court held that the onus of proof in a marriage deduction request includes "proof that the property existed at the date of marriage and of its value. The court may estimate value, if ownership is clearly established, and only limited evidence of value is possible" [Emphasis added]. While attempts to obtain proof of the value may be considered by the court, the court in Traversy seemed to require proof of such attempts to get the necessary evidence rather than just relying on the claimant's testimony and memory.”
64A Marriage Contract signed by both parties within two weeks of the actual date of marriage containing a schedule setting out a description of the property, its ownership and value, in my view, meets that very high standard.
65Counsel takes no issue with respect to the 1991 motor vehicle which was then valued at $20,000.00 and accordingly, it will be allowed.
66The RRSPs are shown in Schedule “A” as being worth $30,000.00. I accept the argument of counsel for Mr. Goodfellow that this should be properly discounted to reflect 18% tax and it will, therefore, be allowed as a pre-marriage deduction in the net sum of $24,600.00.
67Considerable testimony was given respecting the furnishings that Mr. Goodfellow had in the house which he provided on marriage. While there is some controversy with respect to the actual furnishings, I am satisfied that they total in the range of the $20,000.00 which is claimed according to the evidence of Mr. Goodfellow. Therefore, the $20,000.00 furnishings deduction will likewise be allowed.
Household Contents
68With respect to household contents, the position of the parties and the evidence is relatively straightforward. The applicant’s position is that using the lists prepared by the respondent, the respondent has roughly $50,000.00 worth of household contents which he retained, while the applicant has roughly $40,000.00 worth of household contents which she retained. Her position is that she is not asking for any contribution and that the household contents distribution simply remain as it is without an item on other side save for the boat and the McCarthy prints.
69With respect to the boat, she argues that the insurance appraisal of $16,500.00 should show up as an asset on the husband’s side. The husband takes the position that the boat should be valued at $8,000.00 based on a Kijiji ad for a similar boat admittedly two years older with a lesser motor. The wife also suggests that the McCarthy prints be valued in accordance with the appraisal done by the artist, Mr. McCarthy. The husband takes the position that all the property, including the prints, should have a depreciated value. He puts forward that he, himself, has attended many auctions and is sufficiently familiar with the price of used household goods that the court should accept his estimates of the current value. The current value he gives for all of the household goods together with the McCarthy prints and the boat leads to a position where he suggests that he would roughly pay somewhere between $2,000.00 and $3,000.00 difference to the applicant, and that this would resolve the entire household contents matters inclusive of the boat and McCarthy prints. He would also want the Hauser umbrella given to him because he has the rest of it, as well as a decorative weight that goes with the umbrella. No one seems to know where a Royal Doulton collection has ended up and I am, therefore, not in a position to make any order respecting it.
70At the end of the day, I am satisfied that each party has received approximately $40,000.00 worth of household contents which will not be divided further.
71I am also satisfied that the boat and motor are worth approximately $10,000.00 and should be placed on the husband’s side of the ledger in addition to his share of household contents. As well, I have added up the McCarthy appraisals and find that the husband has retained $19,875.00 worth of these which should be placed on his side of the ledger, while the wife has retained the Belwood Lake print worth $4,500.00 which should be placed on her side of the ledger.
72I reject the respondent’s argument that Bedded Down bought some of the pieces of art. It is highly unlikely that the respondent would have let the art go with the business when he sold it, but it is more likely that he would have retained the art as his own and treated it as personal rather than a business possession. I say this despite his evidence that he said his store tried to sell some McCarthy prints. Whatever he didn’t sell would likely have been retained personally by him, as well.
73Additionally, I give limited weight to his evidence respecting his expertise at valuing used household items. This is reflected in the fact that I have reduced the value of the items in his possession. However, I have not reduced this value to the extent he would suggest in his evidence it ought to have been reduced.
Occupation Rent
74The respondent remained in the matrimonial home while the applicant paid the expenses, including the mortgage, line of credit interest and insurance on the home. She would ordinarily, therefore, be entitled to occupation rent against which he could set off common expenses. In the circumstances of this case, I am satisfied that if the applicant is fully reimbursed for the expenses incurred by her while the respondent was in the matrimonial home that justice can be done between the parties. Accordingly, in addition to fixing the equalization payment between the parties, an order will issue requiring the respondent to pay the applicant $14,631.48, being the total expenses incurred by her. As counsel pointed out in her submissions, he was occupying the property and she was paying the expenses for their mutual benefit.
Reduced Sale Price of Matrimonial Home
75The applicant claims reimbursement in the sum of $6,500.00 representing 50% of the $13,000.00 alleged loss in the sale price of the home when the respondent refused to go through with the original $340,000.00 sale agreement. The property ultimately sold for $327,000.00. The respondent gave as his reason that it was a matter of principle, because he questioned the integrity of the people who were purchasing the home. He suggested the purchaser was simply trying to use the home inspection as a device to have the price already agreed upon reduced, even though the purchaser knew the roof required reshingling when the original sale price was agreed on. I am not satisfied that this is a satisfactory explanation for refusing to go through with the sale. As a result, the ultimate sale resulted from the respondent’s obstinacy, for which the applicant ought not to share the financial responsibility. Accordingly, the final order will provide that the respondent will reimburse the applicant the sum of $6,500.00 representing 50% of the reduced sale price.
Mortgage Payments From Sale of Cottage
76The applicant claims payment of $4,102.46 representing one-half of the mortgage payments made from the proceeds of the sale of the cottage on the same basis as she claimed expenses for occupation rent. As I understand it, the cottage sold in a relatively short time and while it was waiting to be sold, she was paying expenses on the matrimonial home occupied by the applicant. I have already dealt with her expenses in that regard above. Once the cottage was sold, payments were made from the cottage sale proceeds to the matrimonial home mortgage while the respondent was residing in the matrimonial home. The $4,102.46 claim is 50% of the actual payments made from the cottage sale proceeds. In my view, she is clearly entitled to reimbursement of this amount and an order will be made accordingly.
Expenses Incurred to Prepare Cottage for Sale
77Initially, the applicant claimed 50% of $4,499.40 or $2,249.70 as expenses incurred by her to get the cottage ready to sell for their mutual benefit. I am satisfied that she incurred the expenses as claimed but that against this there should be a setoff of the sum of $1,088.22 being hydro utilized solely by her while she was occupying the cottage. Accordingly, the final order will provide that she be reimbursed by the respondent for the difference between $2,249.70 and $1,088.22 being $1,161.48 referable to expenses incurred to ready the cottage for sale.
Child Support
78The respondent has been paying child support of $500.00 per month based on an income he imputes to himself based upon income from his french-fry shack, rental of some billboards and some storage trailers. The applicant points out that he has expenses claimed which suggest his income is more in the range of $75,000.00 per year rather than the $30,000.00 which the respondent imputes to himself.
79It is common ground between the applicant and respondent that the respondent is able to utilize his corporations and their Due To Shareholder accounts as well as the capital gains from the sale of the Tower Street property in order to avoid paying income tax on the income being generated from the respondent’s latest enterprises. I agree with the submissions of counsel for the respondent that the mere fact that there are a number of accounting entries among the companies cannot form the basis for assuming the respondent is receiving the corresponding amount in cash. His cash receipts, in fact, appear from what he brings in from his various employment efforts. These efforts show an income of approximately $25,400.00 which he proposes be grossed up to approximately $30,480.00 using a 20% gross up. This is an inherently not unreasonable approach.
80However, the position of the applicant is that using the respondent’s expenses of roughly $47,000.00 and grossing this up by 40%, he should have imputed to him an income of $75,000.00. In principle, this may be arguably sound except for the gross up rate which would probably be closer to 30% which could bring the imputed income up to roughly $60,000.00.
81I agree with the submissions of counsel for the respondent that it is obvious that he is encroaching on capital in order to supplement his income, and that there is no evidence to suggest that he is enjoying an income greater than he has disclosed.
82The respondent has a Grade 12 education. He has considerable experience as an entrepreneur, and he has been actively seeking a new venture as an entrepreneur rather than concentrating on obtaining employment per se. It is difficult to argue with the logic of his approach to employment given his history. However, by the same token, there is no reason why he could not be pursuing an entrepreneurial venture in his spare time while enjoying full time employment. I am sympathetic to the respondent’s plight. He obviously recognizes that he has obligations to meet. It is for this reason he has been encroaching on his capital. The sooner he is able to get into a viable entrepreneurial venture, the better it will be for all concerned. It is unfortunate that the applicant refused to consent to the $80,000.00 advance requested by the respondent. He might have used it to start a new venture. I anticipate that once the terms of the judgment have been carried out and he has money available to him, he will be able to commence a money making venture and get on with his life.
83In all of these circumstances, my view is that he could have been working full time, making at least $40,000.00 per year while at the same time pursuing possible leads for his own business. I, therefore, impute an income to him of $40,000.00.
84He was paying $500.00 per month. Based on my imputed income, he should have been paying $764.00 per month. The arrears from July 1, 2010, to July 1, 2013, i.e. 36 months at $264.00 per month, amount to $9,504.00. The judgment will therefore provide for payment of arrears of child support in the amount of $9,504.00 out of the respondent’s assets payable forthwith.
Life Insurance
85Counsel for the applicant has asked for an order that the respondent take out life insurance slightly in excess of $100,000.00 to cover the respondent’s child support obligations. While this matter was not argued at length before me, I agree that this would be perfectly appropriate in all of the circumstances. The final judgment will therefore provide an order requiring the respondent to take out a term life insurance policy with the applicant as trustee, and the children as beneficiaries, in the amount of $100,000.00.
Security for Child Support
86The applicant asks for an order that any amount that would otherwise come to the respondent from this litigation be held as security for child support. I decline to make this order. The respondent has demonstrated a caring and responsible attitude towards his children and has been reasonably diligent in paying child support according to his ability since the separation three years ago. He will soon have released to him sufficient funds to enable him to engage in a venture or employment that will provide a greater income for himself and for his children. It will severely hamper his ability to engage in an entrepreneurial venture if his money were to be tied up as security for child support. It would be completely counter-productive to his efforts to get on with his life. I, therefore, find this request to be unreasonable, and decline to make the order requested.
Equalization
87The two main features of this case are the Marriage Contract, which has enabled the respondent to exclude his business interests from his N.F.P., and the Indemnity signed by the respondent, which does not fit the definition of a “domestic contract”. The Indemnity must have been intended by the parties to have some effect beneficial to the applicant, should the business be unable to pay its debts. It is clear from the wording of the Indemnity that this was the intent from its wording. If the Indemnity is to have the effect it was intended to have by the parties then, given the complex intermingling of the financial affairs of the parties and the respondent’s businesses, the only way the court can give effect to the agreement is to resort to section 5(6) of the Family Law Act. Section 5(6) provides that:
“(6) VARIATION OF SHARE - The court may award a spouse an amount that is more or less than half the difference between the net family properties if the court is of the opinion that equalizing the net family properties would be unconscionable, having regard to,
(g) a written agreement between the spouses that is not a domestic contract; or
(h) any other circumstance relating to the acquisition, disposition, preservation, maintenance or improvement of property.”
88Before moving on to the relevant case law, it may be well to consider subsection 7 which sets out as the purpose of equalization, the following:
“(7) PURPOSE - The purpose of this section is to recognize that child care, household management and financial provision are the joint responsibilities of the spouses and that inherent in the marital relationship there is equal contribution, whether financial or otherwise, by the spouses to the assumption of these responsibilities, entitling each spouse to the equalization of the net family properties, subject only to the equitable considerations set out in subsection (6).”
89Section 51 of the Act defines “domestic contract” as a marriage contract, separation agreement, cohabitation agreement, paternity agreement or family arbitration agreement. While the Marriage Contract referred to throughout in this case is a “domestic contract”, the Indemnity clearly is not. It is, however, in my view, “a written agreement between the spouses that is not a domestic contract” as those words appear in section 5(6)(g) It is, therefore, something which I must have regard to, in determining whether or not it would be unconscionable to equalize the net family property equally or unequally.
90I am supported in my definition in this regard by the 1997 Ontario Court of Appeal decision of Crawford v. Crawford reported at 1997 1089 (ON CA), 33 R.F.L. (4th) 381. In that case, the wife only agreed to sign on to a mortgage increasing the mortgage on the matrimonial home if the respondent husband agreed that he, alone, would be responsible for the additional loan. In the presence of a lawyer, the respondent signed a document which was described as an “agreement”. The operative part read:
“Now therefore this agreement witnesseth that in consideration of "Helen" executing the said new mortgage for the said sum of $98,000.00 her said spouse "James" upon a sale of the herein property agrees and covenants that "Helen" will be entitled from the proceeds to a sum of $46,000 greater than that which "James" receives.
In witness whereof "James" of the first part has executed this Agreement this day of May, 1992.”
91The agreement was signed only by the husband and not by the wife. On the basis of it the parties executed a mortgage, and the funds were advanced. The wife in that case argued that the agreement provided a basis for an unequal division of net family property. The trial judge held that this was not a written agreement under section 5(6)(g). The Court of Appeal disagreed. At paragraph 13, after reviewing the fact that the husband had only signed the “agreement” because he was under extreme financial pressure to have the funds advanced stated:
“Accordingly, there was a basis upon which the trial judge would have been entitled to make an unequal division of property provided he was satisfied that an equal division of property was "unconscionable". In our view, when the trial judge's reasons are read as a whole it is clear that he would not have made an unequal division even if he had found that there was written agreement. The trial judge accepted the respondent's evidence that the appellant was aware of the accumulating debt. He also found that the debts were for the "benefit of the family". From the context it is clear that the trial judge included in the family not only the appellant and respondent but the adult children and the grandchildren. He concluded this part of his reasons by stating that in his opinion "equalization of the net family properties would not be unconscionable."”
92The court added at paragraph 14:
“Despite the trial judge's error respecting the written agreement, we would not interfere with his conclusion that an equal division would not be unconscionable.”
93In the present case, I find, therefore, that the Indemnity signed by the respondent was a “written agreement” which was not a domestic contract, within the definition of 5(6)(g) of the Family Law Act. It is clearly in writing. It is an agreement because it evidences the agreement by Mrs. Goodfellow to enter into the mortgage to have proceeds advanced to the company, for which she herself would be personally liable to the bank. She executed the mortgage. The funds were advanced. It was, in effect, evidence of an executory contract, sufficient to constitute a “written agreement” under the section, as was the “agreement” signed only by the husband in the Crawford case.
94In Crawford, the wife had argued that she should be given the benefit of the agreement and an unequal division made because the husband’s expenditures were, as the trial judge found, “excessive”. The central reason given for supporting the trial judge’s finding that, despite the agreement, it would not be unconscionable to divide the property equally, was that the debts were incurred for the “benefit of the family”. In the present case, the debt or shortfall claimed by the wife of approximately $99,000.00 could not be said to have been incurred for the “benefit of the family” but rather for the “benefit of the company”. At the end of the day the “company” retained almost $90,000.00, after the sale of the Tower Street property, which the respondent has been able to protect through the Marriage Contract. In my view, given the complex intermingling of the financial affairs as between the parties, and the respondent’s company, it would be manifestly unconscionable in the peculiar circumstances of this case not to give effect to the Indemnity which I find to be binding, if I am going to give effect to the Marriage Contract. The Marriage Contract is for the benefit of the Respondent. The Indemnity agreement, which I find in accordance with Crawford v. Crawford is a “signed agreement” in accordance with the section, was clearly for the benefit of the wife. In the peculiar circumstances of this case, I am satisfied, therefore, that the facts fall squarely within the ratio in Crawford v. Crawford, and are covered as contemplated by the legislature in section 5(6)(g) and (h) of the Family Law Act. It is for this reason, therefore, that I am making provision for an unequal division of net family properties.
95Attached to these reasons as Schedule “A” is a Net Family Property Statement which I have prepared in accordance with these reasons. The equalization payment which would flow from the calculations is $17,305.65, which would be payable from the applicant to the respondent. However, as indicated in the preceding paragraphs, I am satisfied that it would be unconscionable to order this equalization payment in the circumstances of this case, particularly, in view of the Indemnity agreement and the effect it was intended by the parties to have on the applicant’s right to be indemnified in respect of advances in her own name to the business. It is for this reason, therefore, that the judgment will provide that there be an unequal division and that therefore, there will be no equalization payment owing from either one party to the other.
Conclusion
96In the result, therefore, the judgment should provide for the following orders:
(1) The parties shall retain all property in their possession and there shall be no further equalization payment required by either of them to the other.
(2) The respondent will pay to the applicant $14,631.48 representing expenses incurred by her to maintain the matrimonial home while it was occupied by the respondent.
(3) The respondent will pay to the applicant the sum of $6,500.00 representing 50% of the decreased sale price of $13,000.00 from the sale of the matrimonial home.
(4) The respondent will pay to the applicant the sum of $4,102.46 representing one-half of the mortgage payments made from the proceeds of sale of the cottage on the matrimonial home while in the sole possession of the respondent.
(5) The respondent shall pay the sum of $1,161.48 for expenses incurred by the applicant to make the cottage ready for sale.
(6) The respondent shall pay child support arrears fixed at $9,504.00, forthwith.
(7) The respondent shall pay ongoing child support pursuant to the Child Support Guidelines based on an imputed income of $40,000.00 per year, for three children, together with his pro rata share of section 7 expenses.
(8) The respondent shall forthwith take out a $100,000.00 term life insurance policy payable to the applicant in trust for the children of the marriage as security for ongoing child support to be in effect so long as there are children of the marriage.
Costs
97Solicitor for the applicant will deliver written submissions with respect to costs, not to exceed five (5) pages in length, within thirty (30) days. Solicitor for the respondent shall deliver a written response within fifteen (15) days, and the solicitor for the applicant shall have five (5) days to deliver a written reply. On receipt of the written submissions, I will either give a written endorsement with respect to costs or have my secretary contact counsel to arrange an appointment for the matter of costs to be spoken to.
98If there are any other matters which have not been addressed in these reasons, counsel may deal with them by taking out an appointment to settle the form of the order.
“original signed by Belleghem J.”
___________________________
Belleghem J.
Released: August 13, 2013
SCHEDULE “A”
NET FAMILY PROPERTY STATEMENT
| ITEM | APPLICANT | RESPONDENT |
|---|---|---|
| 1. Assets | ||
| Matrimonial Home | $ 26,616.16 | $ 26,616.16 |
| Cottage | $127,090.70 | $127,090.70 |
| Household Contents (divided equally) | ||
| Car | $ 1,500.00 | |
| Boat and Motor | $ 10,000.00 | |
| McCarthy Prints | $ 4,500.00 | $ 19,875.00 |
| Royal Doulton (exclusion) | $ 10,000.00 | |
| Bank Accounts | $ 11,148.36 | $ 11,814.56 |
| Business Interests (K.G. Duvet) | $ 98,136.54 | |
| TOTAL 1. | $179,355.22 | $295,032.96 |
| 2. Debts and Liabilities | ||
| Credit Cards | $ 2,447.51 | |
| TOTAL 2. | $ 2,447.51 | |
| 3. Property Owned and Debts at Marriage | $ 64,600.00 | |
| NET TOTAL 3. | $ 64,600.00 | |
| 4. Excluded Property (K.G. Duvet and Inheritance) | $ 10,000.00 | $ 98,136.54 |
| TOTAL 4. | $ 10,000.00 | $ 98,136.54 |
| 5. Net Family Property (Total 1 minus Totals 2, 3 and 4) | $166,907.71 | $132,296.42 |
| 6. Equalization payment – Applicant pays to Respondent $17,305.65 = Ø (see Reasons for Judgment) |
GUELPH COURT FILE NO.: 147/11
DATE: 2013 08 13
ONTARIO
SUPERIOR COURT OF JUSTICE
B E T W E E N:
ANNMARIE GOODFELLOW
Applicant
- and –
KEVIN JOSEPH GOODFELLOW
Respondent
REASONS FOR JUDGMENT
Belleghem J.
Released: August 13, 2013