Thompson v. Thompson, 2013 ONSC 5500

Court File No.: D 374/11 Date: 2013-08-30 Ontario Superior Court of Justice

Between:

Petra Annabel Thompson Applicant

– and –

Dale William Thompson Respondent

Counsel: Lauren Bale, for the Applicant John Spears, for the Respondent

Heard: August 13, 2012; April 16, 17, 18, 19, 23, 24, 25, 26, 2013

Before: The Honourable Madam Justice Deborah L. Chappel

JUDGMENT

PART I: INTRODUCTION

[1] The Applicant Petra Annabel Thompson (“the Applicant”) and the Respondent Dale William Thompson (“the Respondent”) separated on June 6, 2009 after a seventeen year relationship. There are two children of their marriage, namely fifteen year old Paige Savannah Thompson born July 24, 1998 (“Paige”) and twelve year old Jessie Erin Thompson born March 8, 2001 (“Jessie”). The parties had been separated for a period of almost two years before the Applicant commenced the application that was the subject of this trial on March 9, 2011. They were able to resolve the custody, time-sharing and property issues between them prior to trial. The outstanding issues in dispute were child support and spousal support.

[2] The issues to be determined in this case are as follows:

a) Have the grounds for divorce been established?

b) Is the Respondent entitled to advance claims for retroactive child and spousal support in relation to the period from the parties’ separation in June 2009 until March, 2011, when the application was issued, despite the fact that he did not specifically request retroactive support in his Answer and Claim?

c) If the Respondent is permitted to pursue retroactive support claims, has he satisfied the test for advancing such claims, and is there any retroactive support owing by the Applicant?

d) Where has the child Paige resided since the parties’ separation, and what impact has the child’s residential situation had on the parties’ respective child support and spousal claims?

e) What have the parties’ respective incomes been since the separation for the purposes of the child and spousal support calculations? With respect to income calculation, there are two specific issues to be determined, as follows:

(i) Should all or a part of the pre-tax income of the corporation which the Applicant established, Harmony Dental Arts Inc. (“Harmony”), be included in her income for the years from 2009 to 2012?

(ii) Should the Applicant be imputed income in addition to the income which she has reported for income tax purposes?

5. Is either party liable to the other party for child support, and if so, what amount of child support is payable?

6. With respect to spousal support, there are three issues, as follows:

a. What is the basis of the Respondent’s entitlement to spousal support?

b. In considering the Applicant’s income as a factor relevant to quantum, should the court focus exclusively on her income at the time of separation, or is the Respondent entitled to benefit from any post-separation increases in her income? and

(iii) What quantum and duration of spousal support are appropriate?

PART II: BACKGROUND AND HISTORY OF COURT PROCEEDINGS

A. Personal Background

[3] I make the findings set out in this section based on the evidence of the parties and the documents contained in the Trial Record.

[4] The Applicant was born on April 28, 1967, and is therefore 45 years of age. The Respondent was born on July 26, 1966. He is 46 years old. The parties met each other in Secondary School. They began cohabiting in 1991, and were married on October 3, 1992. As noted above, there are two children of their relationship, namely Paige, who is now fifteen years old, and Jessie, who is twelve years old. The parties separated on June 6, 2009. The total period of their cohabitation was approximately seventeen years.

[5] Following the separation, the Respondent continued to live in the matrimonial home located at 65 Martin Road, Hamilton. He has remained in the home to date. The Applicant and the children went to live with the Applicant’s mother (“the maternal grandmother”) in the maternal grandmother’s apartment located at 380 Cochrane Road, Hamilton. The Applicant continued to reside with the maternal grandmother until February 2010, when she relocated to another apartment in the same apartment building where the maternal grandmother’s unit is located. Neither of the parties has cohabited with a partner since the separation.

[6] The parties both acknowledge that Jessie has continued to reside primarily with the Applicant since the parties separated. By contrast, Paige’s residential situation has been inconsistent. The parties advanced very different versions of the history of Paige’s residence since the separation, and this is a significant issue with respect to the child and spousal support claims. I address Paige’s residential situation in further detail later in these Reasons for Judgment.

B. The Parties’ Educational and Employment Backgrounds

[7] The Respondent completed training at Mohawk College to be an automotive mechanic. After his apprenticeship in this field, he decided to pursue employment as a machinist. He secured a machinist position with John Crane in January 1987, and he has remained at John Crane to date. For at least the past twenty six years, he has held the position of CNC setup operator.

[8] The Applicant attended George Brown College after High School and completed her three year diploma in Dental Technology in 1989. She has worked steadily in this field since her graduation from college. Following graduation, she worked for a number of years at Contour Dental Laboratory (“Contour”) in Hamilton. She also worked on a part time basis at a restaurant for approximately two years after the parties were married in order to earn extra income. After completing her diploma, the Applicant obtained specialized training to become a Registered Dental Technologist, which is a designation required in order to open a private Dental Technology laboratory. She completed this training and obtained the licence required to open her own laboratory in 1994.

[9] The Applicant left Contour in approximately 1996 to assume a specialized Dental Technologist position as a ceramist with Aurum Prosthetics (“Aurum”) at that company’s Stoney Creek location. Aurum is owned by Frank Molon and Gino Marino. The Applicant chose to take this position partly because she was unhappy with her superior at Contour, but also because the role of ceramist is her favourite line of work. She continued to work as a ceramist at Aurum until 2005.

[10] In approximately January 2005, Mr. Molon and Mr. Marino approached the Applicant about the possibility of joining them in forming a new company which would provide dental technology services, including production of high quality crowns, bridges and cosmetic restoration services. The Applicant advised them at that time that she was not interested in this business proposition. Mr. Molon and Mr. Marino nonetheless continued to approach her about this proposed venture, and the Applicant eventually agreed to open a new business with them. Mr. Molon, Mr. Marino and the Applicant established Harmony later in 2005. They obtained a location for the company’s operations in Burlington in July 2005 and began construction on the site at that time. Harmony opened for business in approximately October 2005. The Applicant assumed a 50% interest in the company and held common shares in the corporation, and Mr. Molon and Mr. Marino each assumed a 25% interest. The Applicant drew a salary from Harmony. She did some managerial work, including taking calls, communicating with dentists, sales work and general oversight of the operations. In addition, she provided services as a ceramist for the company.

[11] The Applicant continued to operate Harmony following the parties’ separation. However, she testified that she found it difficult to manage her work commitments when she became a single parent. In early 2012, the Applicant told Mr. Molon and Mr. Marino that she was “done” with Harmony, meaning that she did not want to have an ownership role any longer. Mr. Molon and Mr. Marino responded to this development by opening a new company in 2012, Solaris Dental Solutions Canada Inc. (“Solaris”) and transferring 89,000 Class D shares of Solaris to the Applicant in compensation for her interest in Harmony. The transfer of The Applicant’s interest in Harmony to Solaris occurred on May 31, 2012. Following this transaction, the Applicant became an employee of Solaris, working on a full time basis as a ceramist. She has remained in this position to date.

C. Overview of Court Proceedings

[12] As previously noted, neither party commenced court proceedings for a period of one year and nine months following the separation. The Applicant eventually commenced these proceedings on March 10, 2011. She claimed a divorce, sole custody of Paige and Jessie, child support, equalization of net family properties, and medical and life insurance coverage for herself and the children.

[13] The Respondent served an Answer and Claim dated April 18, 2011 in which he counter-claimed for custody of the children, child support, spousal support, equalization of net family properties and benefits and life insurance coverage.

[14] On July 23, 2012, the parties reached a final settlement respecting the issues of custody and time-sharing respecting the children. A final order was made on that date in accordance with the terms of this agreement. The pertinent specifics of that order for the purposes of this trial are as follows:

a) The parties were granted joint custody of Paige and Jessie.

b) Paige was to reside equally with both parties, on a two week rotating schedule.

c) Jessie was to reside primarily with the Applicant, and was to spend time with the Respondent at minimum on alternate weekends and one week night each week. The order provided that the mid-week visit could be overnight if the Respondent could accommodate this based on his work schedule. With respect to weekend time, the order provided that when the Respondent was on afternoon shift on Friday, his time with Jessie was to be from 11:00 a.m. on Saturday until Monday morning. When he was on day shift on Friday, his time with Jessie was specified to be from Friday after school until 8:00 p.m. on Sunday.

d) The parties were to share holiday periods with the children on an equal basis.

[15] Neither of the parties specifically claimed retroactive support in their respective pleadings, and when this matter was initially called to trial on August 13, 2012, counsel for the Respondent indicated that the Respondent was not claiming any support in relation to the period preceding the application.

[16] This matter proceeded to trial before me on August 13, 2012. On that date, the parties reached a final resolution of the property related claims and issues respecting life insurance designations and health benefits coverage. I granted a final order on August 13, 2012 in accordance with the terms of this agreement. The order required the Respondent to make an equalization payment to the Applicant in the amount of $73,000.00. It also directed the Applicant to transfer her interest in the matrimonial home to the Respondent, and for the Respondent to refinance and discharge the existing joint Line of Credit registered on title against the matrimonial home at his own expense. On August 13, 2012, I also granted a temporary, without prejudice order on consent of the parties requiring the Applicant to pay the Respondent spousal support in the amount of $400.00 per month, commencing September 1, 2013.

[17] The issues of child and spousal support remained to be determined as of August 13, 2012. The trial as it related to those issues was adjourned, and it eventually resumed before me on April 16, 2013.

PART III: CLAIM FOR DIVORCE

[18] Based on the evidence of the parties, I am satisfied that there has been a breakdown of their marriage within the meaning of section 8(2)(a) of the Divorce Act.[^1] The parties have been separated, without any attempts at reconciliation, since June 6, 2009, and I find that there is no reasonable prospect that they will reconcile. There is no evidence of collusion or condonation in relation to the divorce request, and my judgment will address the issue of child support. Accordingly, a divorce order shall issue in the usual form.

PART IV: CHILD AND SPOUSAL SUPPORT CLAIMS- POSITIONS OF THE PARTIES AND THE LAW

A. POSITIONS OF THE PARTIES

1. The Applicant’s Position

[19] The Applicant seeks an order that there is no spousal support or child support owed by either party up to and including April 30, 2013. With respect to the Respondent’s claims for retroactive child support and spousal support, her position is that the Respondent is not entitled to pursue these claims since they were not included in his Answer and Claim. She argued that even if the Respondent were permitted to pursue retroactive support claims, any liability which she would have to the Respondent for child and spousal support since the date of separation would be more than off-set by the Respondent’s liability to her for periodic child support and his proportionate contribution to the children’s section 7 expenses which she has incurred since the separation.

[20] The Applicant’s position that neither of the parties is liable for child or spousal support up to April 30, 2013 is based to a large extent on her position respecting the child Paige’s residential situation since the parties separated. The positions of the Applicant and the Respondent on this issue are as follows:

a) Both parties agree that in June, 2009, both children resided primarily with the Applicant.

b) Both parties also agree that from July 2009 until approximately the end of January 2010, and again from January 2012 until May 2012, Paige resided primarily with the Respondent.

c) There is a dispute between the parties regarding Paige’s residence during the periods from February 2010 until late December 2011, and from early June 2012 until December 2012. The Applicant submits that Paige resided primarily with her and spent limited amounts of time with her father. The Respondent states that Paige shared her time equally between both parties during those periods.

d) Both parties agree that a hybrid custodial arrangement should be assumed for the purposes of ongoing child and spousal support commencing January 2013, although the Applicant states that Paige has been primarily with her since that time.

[21] The Applicant’s position with respect to her income is that the child and spousal support calculations should be based solely on her salary from Harmony and Solaris, benefits which she received as an employee from these companies and an appropriate tax benefit gross-up for the latter item.

[22] The Applicant submits that it is not appropriate to attribute all or a portion of Harmony’s pre-tax corporate income to her for the years 2009 to 2012. She also argues that it is not appropriate to impute income to her. She states that her decision to sell her interest in Harmony to Solaris in 2012 was necessary for her emotional well-being. Furthermore, she submits that even if a higher income should be attributed or imputed to her, this is not a case in which the Respondent should derive the benefit of post-separation increases in her income for the purposes of the spousal support analysis.

[23] The Applicant acknowledges that there is entitlement to spousal support, but states that entitlement is based solely on the Respondent’s need and not on compensatory grounds. She submits that this is an important factor in determining the issues of quantum of support and whether the Respondent should be permitted to benefit from any post- separation increases in her income. With respect to ongoing spousal support, the Applicant submits that spousal support in the mid-range under the Spousal Support Advisory Guidelines[^2] (“SSAG”) is appropriate, based on an estimated 2013 income of $83,013.00 for herself and $56,000.00 for the Respondent. She states that the mid-range based on these incomes is $293.00 per month.

[24] In regard to ongoing child support, the Applicant accepts that the child support calculation should be based on the equal time-sharing arrangements respecting Paige set out in the July 23, 2012 order, despite the fact that Paige is presently living primarily with her. She adopts this position in recognition of the inconsistency in Paige’s residence since the separation. With a shared care arrangement in place respecting Paige, and the Applicant having primary residence of Jessie, the Applicant states that her child support obligation to the Respondent is $86.00 per month. Her position is that the mid-range spousal support figure should be reduced to $200.00 per month, and that there should be no monthly child support payable to the Respondent. With respect to duration of spousal support, her position is that a limited time award of eleven years is appropriate. The Applicant also requests an order requiring the Respondent to contribute to the children’s section 7 expenses on a proportionate-to-income basis.

2. The Respondent’s Position

[25] The Respondent requests spousal and child support from the Applicant on both a retroactive and ongoing basis. He seeks retroactive relief from June 2009, when the parties separated. In the alternative, he claims retroactive relief effective from August, 2010, when his counsel sent correspondence to the Applicant’s counsel indicating that support was a live issue between the parties.

[26] On the issue of the Applicant’s income since the separation, the Respondent submits that the Applicant should be attributed an income of $121,000.00 for the purposes of the child and spousal support calculations since the date of separation. He relies on the income analysis report of his expert, Mr. Bruce Horsley, in support of his argument that a portion of Harmony’s pre-tax corporate income should be attributed to the Applicant from 2009 until 2012. The proposed income figure of $121,000.00 is the average of the income amounts which Mr. Horsley concluded were appropriate for the Applicant for the years 2009 to 2011, after including portions of Harmony’s pre-tax income.

[27] The Respondent’s position is that an income of at least $121,000.00 should continue to be imputed to the Applicant for 2012 and onward, despite the sale of the Applicant’s interest in Harmony in May 2012, for three reasons. First, he argues that Harmony was a profitable business with positive prospects for growth in the future, and that it was therefore unreasonable for the Applicant to sell her interest in the business. He asserts that the Applicant should continue to be imputed an income of at least $121,000.00 on the basis that she could have reasonably earned this amount if she had retained her interest in Harmony. Second, he states that the Applicant should have sought repayment from Harmony of a shareholder loan which she had made to the company, in the amount of $35,757.00, which could have been repaid to the Applicant on a tax free basis. Finally, he argues that the Applicant did not receive adequate compensation from Solaris for the transfer of her interest in Harmony. His position is that in addition to the compensation which the Applicant received for the value of her shares in the company, she should have received compensation in relation to the company’s cash in existence at the time of the transfer and its accounts receivables. He alleges that since Harmony is not yet formally dissolved, the Applicant has a right to pursue compensation from her Harmony partners for these items in the form of dividends or bonus payments.

[28] With respect to his entitlement to spousal support, the Respondent states that his entitlement is based on both need and compensatory grounds. He asserts that the compensatory element of his claim is based on the contributions which he made to the care of the children and the household during the relationship, and his assistance and support in the development and promotion of Harmony from the time of its inception until the date of separation. In his view, the contributions and sacrifices which he made were such that spousal support in the higher range under the SSAG is appropriate. In addition, he urged me to adopt a spousal support analysis that would permit him to benefit from any post-separation increases in the Applicant’s income, having regard for the nature and extent of his contributions. He seeks an order for ongoing spousal support based on an income of $121,000.00 for the Applicant, and an income of $52,000.00 for him, in the amount of at least $1,172.00 per month. In addition, he requests an order for child support based on those incomes in the amount of $272.00 per month, as well as an order that the parties to contribute to the children’s section 7 expenses on a proportionate-to-income basis.

B. LEGAL PRINCIPLES RELATING TO CHILD SUPPORT

1. General Legislative Framework

[29] The applicable legislation respecting both the child and spousal support claims in this case is the Divorce Act (“the Act”). With respect to child support, section 15.1 of the Act stipulates that a court may on application by either or both spouses make an order requiring a spouse to pay for the support of any or all “children of the marriage.” Entitlement to child support is dependent on the child in question coming within the definition of “child of the marriage,” which is set out in section 2 of the Act as follows:

“child of the marriage”

“child of the marriage” means a child of two spouses or former spouses who, at the material time,

a) is under the age of majority and who has not withdrawn from their charge, or

b) is the age of majority or over and under their charge but unable, by reason of illness, disability or other cause, to withdraw from their charge or to obtain the necessaries of life

[30] Section 15.1(4) of the Act provides that in deciding a child support application, the court may make an order for a definite or indefinite period, or until a specified event occurs, and may impose terms, conditions or restrictions in connection with the order as it thinks fit and just.

[31] In making a child support order under the Act, the court is presumptively required to do so in accordance with the Federal Child Support Guidelines[^3] (the “Guidelines”). This presumption is subject to the court’s discretion to award a different amount pursuant to sections 15.1(5) and (7) of the Act in cases where special provisions have been made for the direct or indirect benefit of the child, or the parties have consented to an order that includes reasonable terms respecting the support of the child.

2. Presumptive Rules Relating to Child Support Determinations

[32] The starting point for the determination of the amount of child support under the Guidelines is section 3, which establishes the following presumptive rules respecting the amount of child support, depending on whether the child in question is under or over the age of majority:

Presumptive rule

3. (1) Unless otherwise provided under these Guidelines, the amount of a child support order for children under the age of majority is

(a) the amount set out in the applicable table, according to the number of children under the age of majority to whom the order relates and the income of the spouse against whom the order is sought; and

(b) the amount, if any, determined under section 7.

Child the age of majority or over

(2) Unless otherwise provided under these Guidelines, where a child to whom a child support order relates is the age of majority or over, the amount of the child support order is

(a) the amount determined by applying these Guidelines as if the child were under the age of majority; or

(b) if the court considers that approach to be inappropriate, the amount that it considers appropriate, having regard to the condition, means, needs and other circumstances of the child and the financial ability of each spouse to contribute to the support of the child.

[33] Section 3(1) refers to section 7, which deals with special and extraordinary expenses as follows:

Special or extraordinary expenses

a) (1) In a child support order the court may, on either spouse’s request, provide for an amount to cover all or any portion of the following expenses, which expenses may be estimated, taking into account the necessity of the expense in relation to the child’s best interests and the reasonableness of the expense in relation to the means of the spouses and those of the child and to the family’s spending pattern prior to the separation:

(a) child care expenses incurred as a result of the custodial parent’s employment, illness, disability or education or training for employment;

(b) that portion of the medical and dental insurance premiums attributable to the child;

(c) health-related expenses that exceed insurance reimbursement by at least $100 annually, including orthodontic treatment, professional counselling provided by a psychologist, social worker, psychiatrist or any other person, physiotherapy, occupational therapy, speech therapy and prescription drugs, hearing aids, glasses and contact lenses;

(d) extraordinary expenses for primary or secondary school education or for any other educational programs that meet the child’s particular needs;

(e) expenses for post-secondary education; and

(f) extraordinary expenses for extracurricular activities.

[34] The phrase “extraordinary expenses” is defined in section 7(1.1) of the Guidelines as follows:

7(1.1) For the purposes of paragraphs (1)(d) and (f), the term “extraordinary expenses” means

(a) expenses that exceed those that the spouse requesting an amount for the extraordinary expenses can reasonably cover, taking into account that spouse’s income and the amount that the spouse would receive under the applicable table or, where the court has determined that the table amount is inappropriate, the amount that the court has otherwise determined is appropriate; or

(b) where paragraph (a) is not applicable, expenses that the court considers are extraordinary taking into account

(i) the amount of the expense in relation to the income of the spouse requesting the amount, including the amount that the spouse would receive under the applicable table or, where the court has determined that the table amount is inappropriate, the amount that the court has otherwise determined is appropriate,

(ii) the nature and number of the educational programs and extracurricular activities,

(iii) any special needs and talents of the child or children,

(iv) the overall cost of the programs and activities, and

(v) any other similar factor that the court considers relevant.

[35] Section 7(2) of the Guidelines provides that the guiding principle in determining the amount of an expense set out in section 7(1) is that it is shared by the parents in proportion to their respective incomes after deducting from the expense the contribution, if any, from the child. In determining the amount of an expense referred to in section 7(1), the court must also pursuant to section 7(3) of the Guidelines take into account any subsidies, benefits or income tax deductions or credits relating to the expense, and any eligibility to claim a subsidy, benefit or income tax deduction or credit.

[36] In Titova v. Titov,[^4] the Ontario Court of Appeal set out the following steps for determining whether to make an award for section 7 special or extraordinary expenses:

a) Calculate each party’s income for child support purposes.

b) Determine whether the expense in question falls within one of the enumerated categories set out in section 7 of the Guidelines.

c) Determine whether the expense is necessary in relation to the child’s best interests and is reasonable in relation to the means of the spouses and to those of the child and to the spending pattern prior to separation.

d) If the expense falls under section 7(1)(d) or (f), determine if the expense meets the definition of “extraordinary.”

e) Consider what amount, if any, the child should reasonably contribute to the payment of the expense, and then apply any tax deductions or credits.

3. General Principles Relating to Shared Parenting, Split Custody and “Hybrid” Child Care Arrangements

[37] In this case, the parties agree that there have been periods since their separation when Jessie has been primarily with the Applicant and Paige has been primarily with the Respondent (a “split custody” arrangement). In split custody cases, section 8 of the Guidelines directs that child support shall be the difference between the amounts that each spouse would otherwise have to pay if a child support order were sought against each of the spouses.

[38] As previously noted, the Respondent alleges that Paige spent equal amounts of time with the parties from February 2010 until late December 2011, and has also been spending roughly equal time with the parties since June 2012. Jessie was primarily with the Applicant during these periods. This type of custodial arrangement is referred to in the case-law as a “hybrid” case. The Guidelines do not specifically address how child support should be calculated in these cases, and to date there is no appellate authority on the issue. The case-law relating to this question has drawn largely from the law that has developed around the application of section 9 of the Guidelines, which directs how child support should be calculated in “shared custody” situations. An appreciation of the law relating to section 9 is therefore necessary. The phrase “shared custody,” encompasses situations where a spouse has a right of access to, or has physical custody of, the child for not less than 40% of the time over the course of a year.[^5] In shared custody cases, section 9 provides as follows:

Shared custody

9. Where a parent or spouse exercises a right of access to, or has physical custody of, a child for not less than 40 per cent of the time over the course of a year, the amount of the order for the support of a child must be determined by taking into account,

(a) the amounts set out in the applicable tables for each of the parents or spouses;

(b) the increased costs of shared custody arrangements; and

(c) the condition, means, needs and other circumstances of each parent or spouse and of any child for whom support is sought.

[39] The Supreme Court of Canada addressed the issue of how child support calculations should be approached in shared custody situations in Contino v. Leonelli-Contino.[^6] In that case, the court made the following significant comments regarding the interpretation of section 9 and the manner in which child support calculations should be approached in shared parenting scenarios:

a) In shared parenting arrangements, there is no presumption in favour of the parent who has less time with the child paying the Table amount of child support. Similarly, a finding that a shared parenting arrangement exists does not automatically dictate a deviation from the Table amount of child support. The court emphasized that in some cases, a careful review of all of the factors set out in section 9 may lead the court to conclude that the Table amount remains the appropriate figure.

b) None of the three factors listed in section 9 prevail over the others. In reaching an appropriate child support figure, the court must consider the overall situation of shared custody, the costs to each parent of the arrangement and the overall needs, resources and situation of each parent and child. The weight to be accorded to each of the three factors set out in section 9 will vary according to the particular facts of each case.

c) The purpose of section 9 is to ensure a fair and reasonable amount of child support. In adopting section 9 of the Guidelines, Parliament made a clear choice to emphasize the need for fairness, flexibility and the actual condition, means, needs and circumstances of each parent and the child, even if this meant sacrificing to some degree the values of predictability, consistency and efficiency.

d) The calculation of child support pursuant to section 9 involves a two-step process. First, the court must determine whether the 40% threshold has been met; second, if the threshold has been met, the court must consider the factors outlined in section 9 to determine the appropriate quantum of support.

e) The simple set-off approach outlined in section 8 of the Guidelines may be a useful starting point for the section 9 analysis, as a means of bringing consistency and objectivity to the child support determination. This is particularly so in cases where the parties have provided limited information and the incomes of the parties are not widely different. However, the court emphasized that the simple set-off approach has no presumptive value in carrying out the support calculation. It cautioned against a rigid application of the set-off approach, noting that the set-off figure may not be appropriate when a careful examination of the respective financial situations of the parties and their household standards of living raises concerns about the fairness of a drastic reduction in child support to the recipient.

f) The court has the discretion to modify the simple set-off amount where “considering the financial realities of the parents, it would lead to a significant variation in the standard of living experienced by the children as they move from one household to another, something which Parliament did not intend.”[^7] In crafting a child support award, the court should insofar as possible strive for a result that avoids the child experiencing a noticeable decline in their standard of living as they move between households.

g) The court highlighted as one consideration in carrying out the section 9 analysis whether one parent is actually incurring a higher share of the child’s costs than the other, such as costs relating to clothing and activities.

h) With respect to subsection 9(b), the court emphasized that this section does not refer only to the increased expenses which the payor parent has assumed as compared to the expenses that they would be incurring if they had the child less than 40% of the time. This subsection recognizes that the total global cost of raising the child in a shared custody arrangement may be higher than in a primary residence arrangement. It requires the court to consider the total additional costs attributable to the situation of shared custody. In carrying out this analysis, evidence of necessary duplication of fixed costs arising due to the shared child care arrangement may be important.

i) The court recognized that not every dollar spent by a parent who has the child over the 40% threshold is a dollar saved by the recipient parent. It stated that in the absence of evidence to the contrary, it is possible to presume that the recipient parent’s fixed costs have remained the same, and that their variable costs have only marginally decreased by the other parent’s increase in time with the child. The court stated that where no evidence respecting the increased cost of shared custody is adduced, the court should recognize the status quo regarding the recipient parent.

j) Financial statements and /or child expense budgets are necessary in order for the court to properly carry out the child support analysis pursuant to section 9. The judge should not make assumptions regarding additional costs attributable to a shared parenting arrangement, but must apply the evidence relating to the additional costs.

k) The court’s discretion under section 9 is sufficiently broad to bring a parent’s claim for section 7 expenses into the analysis under that section, taking into consideration all of the factors outlined in section 9.

[40] The onus is on the parent who is relying on section 9 of the Guidelines to establish that the 40% threshold has been met.[^8] The phrase “over the course of the year” in section 9 is not defined in the Guidelines. However, in situations where retroactive relief is claimed and it is alleged that the income of one or both parties has changed, it has been held that the appropriate time for the calculation of time spent with each parent is the calendar year.[^9]

[41] In Contino v. Leonelli-Contino, the Supreme Court of Canada was not required to address the issue of how the threshold 40% time period referred to in section 9 of the Guidelines should be calculated. In Froom v. Froom,[^10] the Ontario Court of Appeal held that there is no universally accepted method of deciding the 40% threshold issue, and that rigid calculations of time are not necessarily appropriate. The court endorsed the comments of the trial judge in that case that the court should focus on determining whether physical custody is truly shared by the parents. In Maultsaid v. Blair,[^11] the British Columbia Court of Appeal provided guidance on how the issue of time calculation should be addressed in cases where the parent exercises mid-week overnight access. The court concluded that school time in these situations should not be credited to the parent relying on section 9 unless the parent has the child both before and after school on a particular day.

[42] Turning to the principles that apply in hybrid child care arrangements, a review of the current case-law reveals broad support for the approach which Zisman, J. adopted in the case of Sadkowski v. Harrison-Sadkowski.[^12] In that case, the court described two possible approaches to hybrid claims, namely the “two-step” analysis and the “economies of scale” analysis. The former approach involves first calculating the child support owing relating to the children whose custody is not shared, based on section 3 of the Guidelines, then separately calculating the support owed for the child in a shared custody arrangement using a straight set-off amount, and adding the two sums. The latter “economies of scale” involves calculating the full Table amount owed by the parent with shared care of children for the total number of children in the care of the parent who has both primary and shared care of children, and setting that amount off by the full Table amount payable by the parent with both primary and shared care for the total number of children with the parent who has shared care. Zisman, J. held that the set-off calculation using the “economies of scale” approach is the proper starting point for the analysis of hybrid claims. She concluded that this set-off calculation serves only as a starting point for the child support analysis, and is not presumptive. The second step in determining hybrid claims is to carry out a Contino inquiry to determine whether adjustments are necessary in order to achieve the goal of establishing fair levels of support for the children from both parents. This step involves the court examining the budgets and actual expenditures of each parent to determine whether adjustments are necessary in order to ensure that the children enjoy relatively comparable standards of living in each household. The approach which Zisman, J. described in this case has since been followed in subsequent cases, including Murphy v. Murphy[^13] and Lalonde v. Potier.[^14] I conclude that this approach is the appropriate one to follow, as it recognizes the economies involved when fixed costs are shared between more than one child, and accords with the general principles which the Supreme Court of Canada adopted in Contino in the case of shared custody arrangements.

C. LEGAL PRINCIPLES RELATING TO SPOUSAL SUPPORT

1. Legislative Framework

i. Statutory Factors: [Section 15.2(4)](https://www.canlii.org/en/ca/laws/stat/rsc-1985-c-3-2nd-supp/latest/rsc-1985-c-3-2nd-supp.html) of the [Divorce Act](https://www.canlii.org/en/ca/laws/stat/rsc-1985-c-3-2nd-supp/latest/rsc-1985-c-3-2nd-supp.html)

[43] Sections 15.2(1) and (2) of the Act set out the court’s jurisdiction to make either an interim or final order requiring a spouse to pay such spousal support as the court considers reasonable. Section 15.2(4) of the Act directs the court hearing a spousal support claim to take into consideration “the condition, means, needs and other circumstances of each spouse,” including:

a) The length of time the spouses cohabited;

b) The functions performed by each spouse during cohabitation; and

c) Any order, agreement or arrangements relating to support of either spouse.

[44] Section 15.2(5) establishes the principle that misconduct of a spouse in relation to the marriage is not a relevant consideration in a spousal support proceeding under the Act.

[45] Section 15.3 of the Act addresses situations where the court is considering claims for both spousal support and child support, and there is concern regarding a party’s ability to pay both at the appropriate levels. In these circumstances, section 15.3 directs the court to give priority to child support in determining the application.

[46] The court’s duty pursuant to section 15.2(4) of the Act to consider the parties’ “condition, means, needs or other circumstances” in carrying out the spousal support analysis is very broad and involves the exercise of a considerable amount of discretion. However, not every circumstance of the spouses will be relevant to the support analysis. The factors referred to must be interpreted in the context of the purpose of the spousal support provisions of the Act as articulated by the Supreme Court of Canada in Moge v. Moge,[^15] and are circumscribed by that purpose. As L’Heureux-Dube, J. emphasized in Moge, although marriage and the family provide an emotional and economic support system for family members, spousal support in the context of divorce “is not about the emotional and social benefits of marriage. Rather, the purpose of spousal support is to relieve economic hardship that results from the marriage or its breakdown,”[^16] and the focus of the analysis is therefore “the effect of the marriage in either impairing or improving each party’s economic prospects.”[^17] The condition, means, needs and other circumstances relied upon for the purposes of the support analysis must be relevant in some way to this purpose and focus.

[47] The “condition” of a spouse includes such factors as their age, health, needs, obligations, dependents and their station in life.[^18] A spouse’s “means” encompasses all financial resources, capital assets, income from employment and any other source from which the spouse derives gains or benefits.[^19] The assessment of the “needs” of a spouse should take into consideration the accustomed lifestyle of the spouse, subject to ability to pay. As the Ontario Court of Appeal stated in Rioux v. Rioux,[^20] “self-sufficiency is a relative concept; it relates to achieving a reasonable standard of living having regard to the lifestyle the couple enjoyed during their marriage.” In considering the extent of a spouse’s need from this perspective, the court should take into account the joint income which the parties anticipated they would be able to enjoy as of the time of their separation.[^21]

ii. Statutory Objectives: [Section 15.2(6)](https://www.canlii.org/en/ca/laws/stat/rsc-1985-c-3-2nd-supp/latest/rsc-1985-c-3-2nd-supp.html) of the [Divorce Act](https://www.canlii.org/en/ca/laws/stat/rsc-1985-c-3-2nd-supp/latest/rsc-1985-c-3-2nd-supp.html)

[48] Section 15.2(6) of the Act sets out the objectives of a spousal support order as follows:

15.2(6) Objectives of Spousal Support Order- An order made under subsection (1) or an interim order under subsection (2) that provides for the support of a spouse should:

a) recognize any economic advantages or disadvantages to the spouses arising from the marriage or its breakdown;

(b) apportion between the spouses any financial consequences arising from the care of any child of the marriage over and above any obligation for the support of any child of the marriage;

(c) relieve any economic hardship of the spouses arising from the breakdown of the marriage; and

(d) in so far as practicable, promote the economic self-sufficiency of each spouse within a reasonable period of time.

[49] The Supreme Court of Canada has held that all of the statutory objectives set out in section 15.2(6) of the Act must be considered, since no single objective is paramount.[^22] However, trial judges have a significant amount of discretion to determine the weight that should be placed on each objective, based on the particular circumstances of the parties.[^23] With respect to the objective of promoting self-sufficiency, set out in section 15.2(6)(d) of the Act, the Supreme Court of Canada commented in general terms on the extent of a former spouse’s obligation to work towards self-sufficiency in Moge v. Moge, Leskun v. Leskun[^24] and L.M.P. v. L.S.[^25] It noted that although one of the objectives of the spousal support provisions of the Act is to promote the economic self-sufficiency of the spouses within a reasonable time, the Act stipulates that this goal only applies “in so far as practicable.” The Court held that there is no presumed duty on former spouses to achieve financial independence, and the extent to which they are expected to do so depends on the circumstances of the parties and the dynamics of the marital relationship in each particular case. It concluded that the wording of sections 15.2(6)(d) and 17(7)(d) (relating to variation proceedings) reflects a recognition that self-sufficiency may not be possible or practicable in some circumstances.

[50] In considering the objective of self-sufficiency, the court must also recognize that this concept is a relative one which must take into consideration the parties’ standard of living during the marriage.[^26] The Ontario Court of Appeal emphasized in Fisher v. Fisher[^27] and Allaire v. Allaire[^28] that self-sufficiency is not necessarily established when a former spouse is able to meet their basic needs; rather, it refers to a spouse’s ability to maintain a reasonable standard of living taking into account the lifestyle which the parties enjoyed during their relationship. Where one spouse has suffered economic disadvantage as a result of the marriage or its breakdown, the court must consider whether the other party can financially assist them so that the spouse can enjoy a lifestyle closer to that which they enjoyed during the marriage. As the court stated in Fisher v. Fisher, self-sufficiency must be assessed “in relation to the economic partnership the parties enjoyed and could sustain during cohabitation, and that they can reasonably anticipate after separation.”[^29]

[51] The extent to which the court will consider the accustomed standard of living during the marriage in setting the benchmark for self-sufficiency post-separation will depend on the particulars of the marital relationship. L’Heureux-Dubé, J. made this point in Moge v. Moge, where she stated that “the longer the relationship endures, the closer the economic union, the greater will be the presumptive claim to equal standards of living upon its dissolution.”[^30]

[52] The statutory objectives and factors referred to above inform the issues of entitlement, quantum and duration of spousal support. The issue of entitlement is the preliminary issue to determine in any spousal support claim.

2. General Principles Respecting Entitlement

i. Overview of the Grounds For Entitlement

[53] As noted above, the parties both acknowledge that the Respondent is entitled to spousal support, but disagree respecting the basis of this entitlement. This issue is important to the determination of quantum and duration of spousal support, and also to the question of whether the Respondent should be able to benefit from any post-separation increases in the Applicant’s income.

[54] The Supreme Court of Canada articulated the fundamental principles respecting entitlement to spousal support in the cases of Moge v. Moge and Bracklow v. Bracklow.[^31] In Moge v. Moge, the court summarized the overall goal of spousal support as being to ensure an equitable sharing of the economic consequences for both parties of the marriage or its breakdown. However, it also emphasized that the entire burden of these consequences should not necessarily fall on the shoulders of one party. The Supreme Court held in both Moge v. Moge and Bracklow v. Bracklow that entitlement to spousal support must be determined in accordance with the terms of the governing legislation, but that the issue should be considered keeping in mind the following three conceptual models upon which entitlement to spousal support may arise: (1) compensatory support, which primarily relates to the first two objectives of the Act; (2) non-compensatory support, which primarily relates to the third and fourth objectives; and (3) contractual support. As the British Columbia Court of Appeal emphasized in Chutter v. Chutter,[^32] the court is not required to apply one conceptual model of entitlement over the other. In many cases, entitlement may be established on more than one ground.

ii. Compensatory Support

[55] The compensatory basis for spousal support entitlement recognizes that upon marriage breakdown, there should be an equitable distribution between the parties of the economic consequences of the marriage. The objective of a compensatory award is to provide some degree of compensation for the sacrifices and contributions which a spouse made during the marriage, for economic losses which they experienced and may continue to experience as a result of the marriage, as well as the benefits which the other spouse has received as a result of these sacrifices and contributions.[^33] A compensatory award recognizes that such sacrifices, contributions and benefits conferred often lead to interdependency between the spouses and merger of their economic lives.[^34]

[56] Compensatory support claims arise most typically in situations where one spouse has suffered economic disadvantage and contributed to the other spouse’s income earning potential as a result of assuming primary responsibility for child care and/or home management obligations. However, a compensatory claim can also be founded on other forms of contribution to the other party’s career, such as supporting the family while the other party obtained or upgraded their education,[^35] selling assets or a business for the benefit of the family unit,[^36] or assisting a party in establishing and operating a business that is the source of that party’s income.[^37]

[57] In considering whether a compensatory claim exists, the court must undertake a broad and expansive analysis of advantages and disadvantages which each party experienced throughout the relationship as a result of the marital union. In some situations, a compensatory claim may be defeated or weakened by the fact that disadvantage suffered by the claimant spouse is offset by disadvantage of a different type experienced by the other spouse.[^38]

[58] A compensatory claim for spousal support may be established even where the recipient spouse is employed and reasonably self-supporting at the time of the parties’ separation. This situation can arise where, despite that spouse’s ability to meet their own needs, their financial advancement has been impaired as a result of subordinating their career to that of the other spouse, or from adopting a less lucrative career path in order to accommodate the needs of the family.[^39]

iii. Non-Compensatory Support

[59] Spousal support entitlement can also arise on a non-compensatory basis, as a result of the needs of a spouse. The Supreme Court of Canada discussed this basis of entitlement in Bracklow v. Bracklow. It emphasized in that case that a spouse may be obliged to pay support based on the other spouse’s economic need alone, even if that need does not arise as a result of the roles adopted or sacrifices made during the marriage. Rowles, J.A. of the British Columbia Court of Appeal summarized the general concepts underlying this basis of entitlement in Chutter v. Chutter[^40] as follows:

Non-compensatory support is grounded in the “social obligation model” of marriage, in which marriage is seen as an interdependent union. It embraces the idea that upon dissolution of a marriage, the primary burden of meeting the needs of the disadvantaged spouse falls on his or her former partner, rather than the state (Bracklow, at para. 23). Non-compensatory support aims to narrow the gap between the needs and means of the spouses upon marital breakdown, and as such, it is often referred to as the “means and needs” approach to spousal support.

3. General Principles Regarding Quantum and Duration of Spousal Support

[60] The issues of quantum and duration of spousal support must be determined taking into consideration the purposes and factors set out in section 15.2 of the Act. The advent of the SSAG has provided considerable assistance in addressing questions relating to quantum and duration of spousal support. As the authors of the SSAG emphasize, the guidelines do not address the issue of entitlement to spousal support, and therefore they should only be considered after the preliminary issue of entitlement has been established. In Fisher v. Fisher, the Ontario Court of Appeal held that although the SSAG are not legislated or binding, they are a useful tool, provided that “the reasonableness of an award produced by the Guidelines must be balanced in light of the circumstances of the individual case, including the particular financial history of the parties during the marriage and their likely future circumstances.”[^41] While the SSAG are not binding, they provide a valuable litmus test for assessing the range within which spousal support should be ordered based on traditional principles, and the duration of spousal support.

[61] The SSAG formulas generate suggested ranges for both quantum and duration of spousal support. The ranges allow for accommodations for the specific circumstances of each case, taking into consideration the support factors and objectives set out in the applicable legislation.[^42] The SSAG and the case-law that has considered the guidelines outline a number of factors which the court may wish to consider in deciding the appropriate quantum and duration of support within the ranges. These include the following:

a) The strength of any compensatory claim for support. A strong compensatory claim may be a factor that favours a spousal support award at the higher end of the ranges both in terms of quantum and duration. By contrast, a weaker compensatory claim, where the economic advantage or disadvantage to one of the spouses is limited in duration or effect, may militate in favour of a lower amount of spousal support and/or a shorter duration.[^43]

b) The recipient’s needs. Where the recipient has limited income and/or earning capacity, the level of their needs may call for an award at the higher end of the quantum and duration ranges.

c) The age, number, needs and standard of living of the children.

d) The payor spouse’s needs and ability to pay.

e) The need to preserve work incentives for the payor.

f) Property division and debts. An absence of property to divide may render an award in the higher range appropriate. On the other hand, a significant property award to the recipient may cause the judge to determine that an award in the lower range is appropriate.

g) Self-sufficiency incentives in relation to the recipient spouse.

[62] The SSAG were developed around two basic formulas, namely the Without Child Support formula, which applies when the recipient spouse is not receiving any child support, and the With Child Support formula, which comes into play when there are dependent children of the relationship who are eligible for child support. As the authors of the guidelines emphasize in their User’s Guide to the Final Version of the SSAG, the With Child Support formula is actually “a family of formulas, adjusted for different parenting arrangements.[^44] This case raises important issues about the appropriate formula to be used depending on various custodial arrangements, and therefore an analysis of this issue is necessary.

[63] The two basic formulas, Without Child Support and With Child Support, involve very different approaches to calculating the spousal support ranges. As the authors of the SSAG indicate, the dividing line between the two formulas is the absence or presence of dependent children and a corresponding child support obligation at the time that spousal support is determined.[^45] The Without Child Support formula is built around the gross income difference between the spouses and the length of the marriage. The gross income difference calculation is intended to measure the parties’ differential loss of the marital standard of living at the end of the relationship, and the formulas for quantum and duration encapsulate the notion that the longer the marriage, the more the recipient spouse should be protected against that differential loss.[^46]

[64] Where there are dependent children and associated child support obligations, the With Child Support formula comes into play. This formula addresses a number of special considerations that arise where dependent children are involved, including the fact that priority must be given to child support, that there is usually reduced ability to pay as a result of child support obligations, and that there are special tax and benefit issues relating to the children.[^47] In addition, the objectives of and rationale for spousal support, as well as quantum and duration considerations, are typically different where children are involved. As the authors of SAAG emphasize, in these cases, spousal support is driven not only by the length of the marriage, marital interdependency, and merger of the parties’ economic lives over time, but also by the need to provide care and financial support for the children.[^48] The authors highlight that what they refer to as the “parental partnership” rationale for spousal support considers not only past loss, but also the potential for ongoing financial disadvantage arising as a result of current and future child care responsibilities.[^49]

[65] The basic With Child Support formula is different from the Without Child Support formula in the following ways:

a) It takes into account the child support obligations of the parties.

b) It takes into account the differential tax treatment between child support and spousal support.

c) It is based on the net incomes of the spouses, rather than their gross incomes. This is because different tax treatment between spousal and child support requires more detailed after-tax calculations, and a more detailed ability to pay analysis is required.

d) It divides the pool of combined net incomes between the two spouses, and not just the difference between the parties’ gross incomes as occurs under the Without Child Support formula.

e) Under the With Child Support formula, the upper and lower percentage limits for net income division do not change with the length of the marriage.[^50]

[66] As indicated above, there are a number of “sub-formulas” which form part of the general With Child Support formula, to deal with varying custodial arrangements. These sub-formulas are as follows:

a) The basic With Child Support formula, which applies where the spouse receiving spousal support has all of the children in their primary care and is receiving the full Table amount of child support for the children.

b) The With Child Support- split custody formula, which applies where one party has primary residence of one or more children and the other has primary residence of one or more children. In this situation, section 8 of the Guidelines requires a set-off calculation of the Table amounts. This formula adjusts the basic With Child Support formula by applying a notional deduction for the full Table amount from the income of each party for the child in their care, and not just from the income of the recipient spouse. In these situations, there are no economies of scale with respect to child support. As a result, a larger portion of each party’s income is devoted to child support, and there is a smaller pool of the parties’ individual net disposable incomes (“INDI”) to be divided for the purposes of spousal support.[^51]

c) The With Child Support- shared custody formula, which applies where all of the children have a shared custody arrangement within the meaning of section 9 of the Guidelines. The shared custody formula makes adjustments to the basic formula by deducting the full Table amount and section 7 contributions from the payor spouse’s net disposable income, as well as deducting the full notional Table amount and section 7 contributions from the recipient’s net disposable income in order to calculate the INDI of the respective parties.[^52] This formula assumes that the payor spouse is paying the straight set-off amount, without any further adjustments pursuant to a Contino analysis.

d) The Custodial Payor formula. This formula applies in cases where the payor of spousal support also has primary care of the children, and the recipient is therefore not receiving child support. In this situation, a different, hybrid formula applies, since child support flows from the spousal support recipient to the payor. The formula uses the Without Child Support formula as the starting point, since the recipient’s situation more closely resembles the recipient in the Without Child Support scenario. The formula is modified to back out grossed up amounts of child support from each spouse’s gross income and to take into account tax considerations. The Without Child Support formula is then applied.[^53]

e) The With Child Support- adult child formula, which applies where child support for an adult child is fixed under section 3(2)(b) of the Guidelines.

f) The With Child Support- mixed custody formula. This formula is not specifically referred to in the SSAG, but is discussed in the New and Improved User’s Guide to the Final Version. The formula applies where there is a “hybrid” custody arrangement, with one or more children residing primarily with one spouse and at least one other child having a shared custody arrangement as defined in section 9 of the Guidelines. This formula makes adjustments from the basic With Child Support formula to take into account actual and notional child support amounts payable by each party. It assumes that a set-off child support analysis is applied using an economies of scale approach without any further adjustments to the set-off amount. In order to properly apply this formula using the Divorcemate software, it is necessary to select “With Child Support” as the proper formula, and to input the specifics of the hybrid arrangement in the “Children” section under the subheading “Lives With.” The software will then make the necessary income adjustments and take into account any relevant government benefits before generating appropriate ranges of spousal support.

[67] The issue that arises in this case is which formula applies where the spousal support payor is the parent who has primary residence of one child and shared residence respecting the other child: does the With Child Support- mixed custody formula apply, or is the Custodial Payor formula the appropriate approach? The Divorcemate software automatically defaults to the With Child Support- mixed custody formula after the information respecting the litigants and the children’s living situations is inputted. I conclude that this is the correct formula to apply. The situation respecting the parties in this scenario is more analogous to the shared custody situation than the custodial payor situation, since both parties have notional and actual child support obligations as well as child care responsibilities. In addition, as in the shared custody and basic formula scenarios, the spousal support recipient spouse has the benefit of child support flowing to them. Furthermore, the With Child Support- mixed custody formula takes into account the differential tax treatment between child support and spousal support.

[68] In applying any of the With Child Support sub-formulas, it is critical that the parties’ respective contributions to the children’s section 7 expenses be inputted, since these contributions can have a significant impact on the spousal support ranges generated.

D. LEGAL PRINCIPLES RESPECTING RETROACTIVE SUPPORT CLAIMS

1. Retroactive Child Support Claims

[69] As previously noted in Part I above, the Respondent has advanced claims for retroactive child and spousal support. In MacKinnon v. MacKinnon,[^54] the Ontario Court of Appeal clarified that the phrase “retroactive support” and legal principles relating to retroactive relief relate to claims for support for the period predating the commencement date of the legal pleading in which support is claimed. A claim for support from the date of the pleading onward is properly characterized as prospective support.

[70] The Supreme Court of Canada settled the principles that apply with respect to both initial claims for retroactive child support and claims for a retroactive increase of child support in D.B.S. v. S.R.G.; L.J.W. v. T.A.R; Henry v. Henry; Hiemstra v. Hiemstra[^55] (“D.B.S.”). It held that such claims must be considered keeping in mind the following fundamental principles that apply to all child support claims:

a) Child support is the right of the child that arises upon the child’s birth and exists independent of any statute or court order. It survives the breakdown of the parents’ relationship.

b) Child support should, as much as possible, provide children with the same standard of living they enjoyed when their parents were together. The amount of child support owed will vary based upon the income of the payor parent.

c) The provincial power to regulate child support matters in contexts not involving divorce remains unfettered. Accordingly, when retroactive child support is sought, the court must analyze the statutory scheme in which the application is brought.

d) The child support analysis must not lose sight of the fact that child support is the right of the child. Accordingly, the child should not be left to suffer if one or both parents fail to monitor child support payments vigilantly.

e) Ultimately, the goal in addressing child support issues is to ensure that children benefit from the support they are owed when they are owed it, and any incentives for payor parents to be deficient in meeting their child support obligations should be eliminated.

f) The specific amounts of child support owed will vary based upon the income of the payor parent. As income levels increase or decrease, so will the parents’ contributions to the needs of the child.

[71] The Court concluded in D.B.S. that retroactive child support claims can be advanced pursuant to the Act despite the absence of a reference to retroactive relief in section 15.1 of the Act, provided that the child support obligation existed during the period encompassed by the retroactive claim. It canvassed in detail the various considerations that come into play in these cases, including the child’s and custodial parent’s need for financial support, the need for flexibility in order to ensure a just result, and the competing needs of ensuring certainty and predictability when obligations appear to be settled. The court ultimately adopted a highly discretionary approach to retroactive child support claims, and outlined the following general factors which the court should consider in such cases:

a) Whether there was a reasonable excuse for why the claimant did not pursue child support or increased child support earlier.

b) The conduct of the payor parent. The court characterized “blameworthy conduct” as “anything that privileges the payor parent’s own interests over his/her child’s right to an appropriate amount of support”. It emphasized that a payor cannot simply hide their income increases from the recipient parent in the hopes of avoiding larger child support payments.

c) Consideration of the present circumstances of the child.

d) Any hardship that may be occasioned by a retroactive order.

[72] The court in D.B.S. also outlined general principles regarding the appropriate effective date for retroactive relief. It established that generally, a retroactive child support order should commence as of the date of effective notice that a request is being made for child support or an adjustment to child support. It further held that in most cases, it will be inappropriate to make a support award retroactive to a date more than three years before the date when formal legal notice was given to the payor parent.

2. Retroactive Spousal Support Claims

[73] The Supreme Court of Canada tackled the issue of retroactive spousal support in its subsequent decision in Kerr v. Baranow.[^56] In that case, the court touched on the issue of the semantics around the word “retroactive,” and emphasized that the principles which the court established in D.B.S. were articulated in the context of claims for child support for periods predating the commencement of the legal proceedings. The court referred to the Ontario Court of Appeal decision in MacKinnon v. MacKinnon, where the court held that the date of the initiation of court proceedings for spousal support is the usual commencement date for the support order, unless there is a reason for making the order commence on a different date.[^57] With respect to retroactive spousal support claims, the court held that the four general considerations which it had articulated in D.B.S. are also relevant in deciding the suitability of a retroactive spousal support order. However, it emphasized that retroactive spousal support cases must be analyzed within the framework of the unique legal principles and objectives that underlie the right to spousal support, which are very different from those which apply to child support. Specifically, it highlighted that the duty of both parents to support a child arises at birth, whereas there is no automatic entitlement to spousal support or obligation on the part of a spouse to look out for the other spouse’s legal interests. In addition, it noted that child support is the right of the child rather than that of one of the litigants, and that the Guidelines have simplified the calculation of a parent’s support obligation. Accordingly, the prejudice where retroactive relief is denied flows to the child rather than to the custodial parent. The court’s analysis indicates that because of these different principles and objectives, concerns about a spousal support claimant’s notice of the claim and delay in pursuing it, and about misconduct, will generally carry more weight in retroactive spousal support cases.

[74] With respect to the concern of payor spouses in retroactive claim cases about the recipient’s delay in pursuing relief, the Supreme Court noted in Kerr v. Baranow that there are two important underlying interests at stake. First, there is the payor’s interest in having certainty regarding their legal obligations. Second, there is a general interest in creating appropriate incentives for spousal support claimants to advance their claims promptly. In regard to the issue of conduct, the court clarified that the focus must be on “conduct broadly relevant to the support obligation, such as concealing assets or failing to make appropriate disclosure.”[^58] Consideration of the circumstances of the spousal support claimant must focus on that spouse’s needs both at the time the spousal support should have been paid and at present.

[75] With respect to quantification of retroactive spousal support, the ranges generated by the SSAG must be adjusted because those ranges are based upon periodic ongoing payments which are presumed to be taxable in the hands of the recipient and tax deductible by the payor. A retroactive award must be “netted down” to account for its non-taxable status in the recipient’s hands, and its non-tax deductible status in the payor’s hands.[^59]

3. Is It Necessary to Specifically Plead for Retroactive Child and Spousal Support?

[76] The Respondent’s Answer and Claim issued on April 18, 2011 did not include a specific claim for child or spousal support for the period predating the date of the application. Similarly, the application did not include a specific claim for child support predating the date when the application was issued on March 10, 2011. Neither party brought a motion either prior to or at the outset of trial to amend their pleadings to specifically include retroactive support claims. This case therefore raises the very important legal question of whether it is necessary to specifically plead for retroactive relief, or whether general claims for child and spousal are sufficient to encompass claims for retroactive relief. Judicial approach to this issue is inconsistent.

[77] I conclude that if a party who wishes to advance a claim for child or spousal support for a period predating the date when proceedings were commenced, they must specifically include a claim for retroactive relief in their pleading. In reaching this decision, I have considered the competing interests which the Supreme Court of Canada discussed in D.B.S. as well as the general principles relating to pleadings. I have carefully considered the Supreme Court of Canada’s comments about parental responsibility for child support being automatic from the time of the child’s birth, child support being the right of the child, and the court’s role in ensuring that the proper amount of child support is paid. I have weighed these considerations along with the court’s endorsement of the need to place clear controls and limitations on the right to pursue retroactive relief in the interests of certainty, fairness to the payor, and also from an administration of justice standpoint. The court recognized that claims for retroactive relief have the potential to create tremendous hardship for payors, and it established very specific factors and guidelines relating to these claims in an attempt to achieve a result that appropriately balances the interests and concerns of payors, support recipients and the child.

[78] Allowing a litigant to advance retroactive support claims at trial without having included a specific request for such relief in their pleading would significantly disrupt the delicate balance which the Supreme Court of Canada strove to create in D.B.S. between certainty and flexibility in this area of the law. The payor party’s concerns about certainty, ability to plan their affairs and unexpected hardship would be magnified exponentially. Procedural fairness for the payor would be seriously undermined, since they would be placed in the untenable situation of not knowing the full specifics of the case which they have to meet, and being unable to effectively prepare their response. A claim for retroactive support involves legal principles that are distinct in certain respects from prospective support claims, and requires both parties to lead specific evidence addressing the factors which the Supreme Court outlined in D.B.S.

[79] Allowing retroactive claims in the absence of a specific pleading would also create problems from an administration of justice perspective, since situations could emerge where the first clear indication that retroactive claims are being pursued is given at the commencement of trial. Indeed, this is exactly what occurred in this case. This was the precise situation which the British Columbia Supreme Court faced in the case of Nielsen v. Nielsen,[^60] where the court concluded that a claim for retroactive spousal support must be specifically pled. An unexpected claim for retroactive relief at the outset of a hearing typically results in last minute motions to amend pleadings or requests that the hearing be adjourned altogether. The fundamental principle that litigation must be decided within the boundaries of the pleadings developed as a result of precisely these types of difficulties and challenges.[^61]

[80] My conclusion regarding the need to specifically plead retroactive for relief highlights the need to amend the existing standard form Family Law Application in such a way as to ensure that litigants are required to address their minds to this issue. Separate headings should be included dealing specifically with retroactive child and spousal support claims, and directing the parties to indicate the commencement date for their claims. This is particularly important having regard for the high percentage of Family Law cases that involve self-represented parties, who may not appreciate the intricacies of the law relating to retroactive support.

[81] In cases where a litigant has failed to plead claims for retroactive support and wishes to advance such claims, they should either seek consent to amend their pleading at an early stage in the proceeding or bring a motion to request leave to amend in advance of trial. Rule 11(3) of the Family Law Rules provides that on such a motion, the court shall give permission to the party to amend their claim unless the amendment would disadvantage the other party in a way for which costs or an adjournment could not compensate.

E. LEGAL PRINCIPLES RELATING TO INCOME DETERMINATION

1. General Principles

[82] A determination of the incomes of the parties is critical to both the child support and spousal support analyses. This case raises a number of issues respecting income determination in the context of child and spousal support proceedings.

[83] Sections 15 to 20 of the Guidelines are the starting point for the calculation of a party’s income for child and spousal support purposes. Section 15(1) provides that subject to section 15(2), a spouse’s annual income is determined by the court in accordance with sections 16 to 20. Section 15(2) stipulates that where both spouses agree in writing on the annual income of a spouse, the court may consider that amount to be the spouse’s income for the purposes of the Guidelines if it thinks that the amount is reasonable.

[84] Section 16 of the Guidelines provides that subject to sections 17 to 20, a spouse’s annual income is determined using the sources of income set out under the heading “total income” (line 150) in the T1 General Form issued by the Canada Revenue Agency, and by then making the adjustments provided for in Schedule III to the Guidelines. Federal Child Tax Benefits and GST/HST Tax Credits for children are not included in the calculation of income for the purposes of child support.[^62] Section 16 does not require the court to blindly use the previous year’s total income as reported by the party in the T1 General Form for the previous year as a basis for determining ongoing child support. Rather, the goal is to ascertain current income based on the sources set out in the T1 form.[^63] Where a party’s prior year’s income is not predictive of what they are likely to earn in the upcoming year, the court should determine the party’s Guidelines income for the upcoming twelve months from when child support will be paid.[^64]

[85] The determination of income for the purposes of applying the SSAG differs than for child support cases in that social assistance is not treated as income for the purposes of the SSAG, but the Child Tax Benefit and other government child benefits are included in income under the “With Child Support” formula.[^65]

[86] By virtue of section 2(3) of the Guidelines, the court is required to determine issues relating to income based on the most current information available.

2. Attribution of Corporate Pre-Tax Income: [Section 18](https://www.canlii.org/en/ca/laws/regu/sor-97-175/latest/sor-97-175.html) of the [Guidelines](https://www.canlii.org/en/ca/laws/regu/sor-97-175/latest/sor-97-175.html)

[87] As previously noted, the Respondent has requested that I attribute corporate pre-tax income of Harmony to the Applicant for the years 2009 to 2012 for the purposes of calculating the retroactive and prospective child and spousal support claims. He relied on section 18 of the Guidelines in support of these arguments. That section allows the court to attribute to a party all or a portion of the pre-tax income of a corporation that is owned by the party in circumstances where the court is satisfied that the determination of the party’s income pursuant to section 16 does not fairly reflect all of the money available to the party for the payment of child support. It provides as follows:

Shareholder, director or officer

18. (1) Where a spouse is a shareholder, director or officer of a corporation and the court is of the opinion that the amount of the spouse’s annual income as determined under section 16 does not fairly reflect all the money available to the spouse for the payment of child support, the court may consider the situations described in section 17 and determine the spouse’s annual income to include

(a) all or part of the pre-tax income of the corporation, and of any corporation that is related to that corporation, for the most recent taxation year; or

(b) an amount commensurate with the services that the spouse provides to the corporation, provided that the amount does not exceed the corporation’s pre-tax income.

Adjustment to corporation’s pre-tax income

(2) In determining the pre-tax income of a corporation for the purposes of subsection (1), all amounts paid by the corporation as salaries, wages or management fees, or other payments or benefits, to or on behalf of persons with whom the corporation does not deal at arm’s length must be added to the pre-tax income, unless the spouse establishes that the payments were reasonable in the circumstances.

[88] The Ontario Court of Appeal stated in Wildman v. Wildman[^66] that the purpose of section 18 is “to enable the courts to conduct a fair accounting of the money available for the payment of child support.” In Kowalewich v. Kowalewich,[^67] the British Columbia Court of Appeal noted that section 18 requires “that a payor spouse’s allocation of pre-tax corporate income between business and family purposes be assessed for fairness by an impartial tribunal…” In Koester v. Koester,[^68] Stayshyn, J. elaborated upon the purpose of section 18, explaining that the section is in part “designed to address the unfairness which would result if a spouse was to artificially manipulate his income through a corporate structure for the purpose of avoiding child support obligations.” While manipulation of corporate income may provide a basis for invoking section 18, evidence of manipulation, bad faith or intentional avoidance of support obligations is not a prerequisite to relying on the section.[^69]

[89] It is important to emphasize that section 18(1) refers to the corporation’s “pre-tax income” for the most recent year only, and not to the company’s “retained earnings.” As MacDonald, J. highlighted in Bembridge v. Bembridge,[^70] this is a very important distinction. Retained earnings are the cumulative net earnings of the corporation since the inception of the company less dividends paid out to shareholders since that time.[^71] They are the shareholders’ equity in the company, and do not necessarily represent cash in the bank that shareholders can take out as income.[^72] In some circumstances, the accumulation of retained earnings in a company may result in the court imputing income to a party pursuant to section 19 of the Guidelines, on the basis that the party is not properly using their property to generate income by failing to declare dividends from the company.[^73]

[90] As the court emphasized in Bembridge v. Bembridge, it is critical for a court dealing with a section 18 argument to have a clear understanding of where and how additional money can be found from a corporation’s pre-tax income so as to increase a party’s income for the purpose of support calculations. To use the words of MacDonald, J. in that case, failure to properly understand this issue “can lead to an incorrect result and ultimately, if the parent cannot find the expected additional money, may undermine the operation of the corporation and eventually kill the goose that lays the golden egg.”[^74]

[91] The party proposing that corporate pre-tax income be attributed to the other party has the onus of demonstrating some basis upon which section 18 should be engaged. The fact that retained earnings remain in the corporation does not in and of itself require the party with the interest in the company to justify the business reasons for not withdrawing corporate pre-tax income or retained earnings.[^75] Once the party advancing the section 18 argument has met this onus, the party who has the interest in the corporation has the onus of explaining why the decision to add the corporate pre-tax income to the company’s retained earnings rather than withdrawing a portion of the earnings was reasonable from a business perspective. The rationale for this is that the shareowner will in all likelihood have a much greater appreciation of the workings and needs of the company, or will be best able to identify individuals who can be called as witnesses to address the issue.[^76]

[92] A review of the case-law relating to section 18 indicates that courts have considered the following factors in determining whether all or a portion of a corporation’s pre-tax income should be included in a party’s income:

a) The historical pattern of the corporation for retained earnings.[^77]

b) The restrictions on the corporation’s business, including the amount and cost of capital equipment that the company requires.[^78]

c) The type of industry the corporation is involved in, and the environment in which it operates.[^79]

d) The potential for business growth or contraction.[^80]

e) Whether the company is still in its early development stage and needs to establish a capital structure to survive and growth.[^81]

f) Whether there are plans for expansion and growth, and whether the company has in the past funded such expansion by means of retained earnings or through financing.[^82]

g) The level of the company’s debt.[^83]

h) How the company obtains it financing and whether there are banking or financing restrictions.[^84]

i) The degree of control exercised by the party over the corporation, and the extent if any to which the availability of access to pre-tax corporate income is restricted by the ownership structure.[^85]

j) Whether the company’s pre-tax corporate income and retained earnings levels are a reflection of the fact that it is sustained primarily by contributions from another related company.[^86]

k) Whether the amounts taken out of the company by way of salary or otherwise are commensurate with industry standards.[^87]

l) Whether there are legitimate business reasons for retaining earnings in the company. Monies which are required to maintain the value of the business as a going concern will not be considered available for support purposes.[^88] Examples of business reasons which the courts have accepted as legitimate include the following:[^89]

(i) The need to acquire or replace inventory;

(ii) Debt-financing requirements;

(iii) Carrying accounts receivable for a significant period of time;

(iv) Cyclical peaks or valleys in cash flow;

(v) Allowances for bad debts;

(vi) Allowances for anticipated business losses or extraordinary expenditures; and

(vii) Capital acquisitions.

[93] If the court determines that it is appropriate to attribute a portion of corporate pre-tax earnings to a party, the question arises as to what portion of that income should be attributed. In deciding this question, one of the factors to consider is the nature of the party’s interest in the corporation. It has been found to be unreasonable to attribute and amount of income that is disproportionate with the payor party’s ownership interest in the company.[^90]

3. Imputation of Income: [Section 19](https://www.canlii.org/en/ca/laws/regu/sor-97-175/latest/sor-97-175.html) of the [Guidelines](https://www.canlii.org/en/ca/laws/regu/sor-97-175/latest/sor-97-175.html)

i. General Principles

[94] The Respondent has also invited me to impute income to the Applicant from 2012 onward. The courts have held that the principles that apply in determining whether to impute income are the same in both child support and spousal support cases.[^91] The Guidelines grant the court the discretion to impute income to a party in situations where the court is of the view that the income reported in a party’s tax returns is not an accurate reflection of what the party is or could be earning. The relevant section of the Guidelines is section 19, which provides as follows:

Imputing income

19. (1) The court may impute such amount of income to a spouse as it considers appropriate in the circumstances, which circumstances include the following:

(a) the spouse is intentionally under-employed or unemployed, other than where the under-employment or unemployment is required by the needs of a child of the marriage or any child under the age of majority or by the reasonable educational or health needs of the spouse;

(b) the spouse is exempt from paying federal or provincial income tax;

(c) the spouse lives in a country that has effective rates of income tax that are significantly lower than those in Canada;

(d) it appears that income has been diverted which would affect the level of child support to be determined under these Guidelines;

(e) the spouse’s property is not reasonably utilized to generate income;

(f) the spouse has failed to provide income information when under a legal obligation to do so;

(g) the spouse unreasonably deducts expenses from income;

(h) the spouse derives a significant portion of income from dividends, capital gains or other sources that are taxed at a lower rate than employment or business income or that are exempt from tax; and

(i) the spouse is a beneficiary under a trust and is or will be in receipt of income or other benefits from the trust.

[95] Sections 19 and 18 are “inextricably linked, designed to work in tandem, and are not mutually exclusive means of ascertaining [that] income.”[^92] The list of circumstances set out in section 19 is not exhaustive, and therefore it does not circumscribe the court’s general discretion to impute income in other situations where it considers it appropriate to do so. These other situations need not be analogous to the circumstances listed in section 19 in order to provide a foundation for imputation of income.[^93]

[96] Regardless of the basis upon which income is imputed, the amount of income that the court imputes to a party is a matter of discretion. The only limitation on the discretion of the court in this regard is that there must be some basis in the evidence for the amount that the court has chosen to impute.[^94]

[97] The question of onus with respect to imputation of income is an important one. In original proceedings, the onus is on the party requesting the court to impute income to establish the grounds for this request.[^95] However, the support payor has an obligation to disclose all information that is relevant to their position respecting their income, which includes full and frank disclosure of all information required to properly assess their earnings, their income earning potential and efforts which they have made to maximize their income.

ii. Intentional Unemployment or Underemployment

[98] The Ontario Court of Appeal has held that in determining whether to impute income on the basis that a party is intentionally underemployed or unemployed pursuant to section 19(1)(a) of the Guidelines, it is not necessary to establish bad faith or an attempt to thwart support obligations. A parent is intentionally underemployed within the meaning of this section if they earn less than they are capable of earning having regard for all of the circumstances.[^96] In determining whether to impute income on this basis, the court must consider what is reasonable in the circumstances. The factors that the court is required to consider include the age, education, experience, skills and health of the party, the party’s past earning history and the amount of income that the party could reasonably earn if they worked to capacity.[^97]

[99] In determining a party’s capacity to earn income, some of the principles which the court should consider and which are relevant to this case include the following:

a) There is a duty on the part of the payor to actively seek out reasonable employment opportunities that will maximize their income potential so as to meet the needs of their children.[^98]

b) The court will not excuse a party from their child support obligations or reduce these obligations where the party has persisted in un-remunerative employment, or where they have pursued unrealistic or unproductive career aspirations. A self-induced reduction of income is not a basis upon which to avoid or reduce child support payments.[^99]

c) If a party chooses to pursue self-employment or an alternative income earning path, the court will examine whether this choice was a reasonable one in all of the circumstances, and may impute an income if it determines that the decision was not appropriate having regard for the parent’s child support obligations.[^100]

d) A party may be imputed income if their unemployment or under-employment are self-induced. Examples include where the payor quits their employment for selfish or bad faith reasons,[^101] or engages in reckless behaviour which affects their income earning capacity.[^102]

4. The Treatment of Post-Separation Increases in a Payor’s Income in Spousal Support Cases

[100] The Respondent’s position respecting spousal support is premised on the assumption that he should be permitted to benefit from alleged increases in the Applicant’s income since the parties’ separation in June 2009. This position raises difficult questions regarding the relevant timing for income determination in spousal support cases, and the circumstances in which a recipient spouse should be permitted to reap the benefits of the payor’s post- separation income increases.

[101] In addressing this issue, it is helpful to compare the approaches which the Ontario Court of Appeal adopted in two cases. In the 2003 decision of Marinangeli v. Marinangeli,[^103] where the facts indicate that the Respondent wife had a compensatory spousal support claim, the court made the following comments respecting need and ability to pay:

“In determining need, the court is to be guided by the principle that the spouse receiving support is entitled to receive the support that would allow her to maintain the standard of living to which she was accustomed at the time cohabitation ceased. In addition, there is jurisprudence to the effect that a spouse is entitled to an increase in the standard of living such as would have occurred in normal course of cohabitation. See MacDougall v. MacDougall (1973), 1973 ONSC 1940, 11 R.F.L. 266, 1973 CarswellOnt 130 (Ont. S.C.) per Henry, J. See also Linton v. Linton (1990) 1990 ONCA 2597, 1 O.R. 3d 1 (Ont. C.A.). At the same time the court must guard against redistributing the payor’s capital in the guise of support.”[^104]

[102] By contrast, in Fisher v. Fisher,[^105] where the Court of Appeal was dealing with a non-compensatory support claim, Lang, J.A. did not consider the payor spouse’s post-separation income in determining the spousal support claim. Rather, she averaged out the spouses’ respective incomes during the three years prior to separation and in the year of separation. These two cases provide a backdrop against which to analyse the issue of post-separation increases in a payor’s income, and they suggest that a fundamental consideration in determining how to treat such increases is whether the spousal support claim is based on compensatory or non-compensatory grounds.

[103] The authors of the SSAG and the cases decided since the guidelines were introduced have established that the treatment of post-separation increases in a payor’s earnings in spousal support cases is ultimately a matter of discretion for the court, to be undertaken having regard for the unique circumstances of each case and the general factors and objectives underlying spousal support. Upon considering these factors and objectives and the relevant case-law, I conclude that the following general principles should guide and inform the court’s exercise of discretion on this issue:

a) A spouse is not automatically entitled to increased spousal support when a spouse’s post–separation income increases.[^106]

b) The right to share in post-separation income increases does not typically arise in cases involving non-compensatory claims, since the primary focus of such claims is the standard of living enjoyed during the relationship.[^107]

c) Compensatory support claims may provide a foundation for entitlement to share in post-separation income increases in certain circumstances. The strength of the compensatory claim and the nature of the recipient’s contributions appear to be the major factors which may tip the balance either for or against an entitlement to share in the increased income.[^108]

d) The recipient spouse may be permitted to share in post-separation increases in earnings if they can demonstrate that they made contributions that can be directly linked to the payor’s post-separation success. The nature of the contributions does not have to be explicit, such as contribution to the payor’s education or training. The question of whether the contributions made by the recipient specifically influenced the payor’s post-separation success will depend on the unique facts of every case.[^109]

e) A spousal support award is more likely to take into account post-separation income increases where the relationship was long-term, the parties’ personal and financial affairs became completely integrated during the course of the marriage and the recipient’s sacrifices and contributions for the sake of the family and resulting benefits to the payor have been longstanding and significant.[^110] When this type of long history of contribution and sacrifice by a recipient spouse exists, the court will be more likely to find a connection between the recipient spouse’s role in the relationship and the payor’s ability to achieve higher earnings following the separation.

f) In determining whether the contributions of the recipient were sufficient, the court should consider such factors as whether the parties divided their family responsibilities in a manner that indicated they were making a joint investment in one career, and whether there was a temporal link between the marriage and the income increase with no intervening change in the payor’s career.[^111]

g) If the skills and credentials that led to the post-separation income increase were obtained and developed during the relationship while the recipient spouse was subordinating their career for the sake of the family, there is a greater likelihood of the recipient deriving the benefit of post-separation income increases.[^112]

h) By contrast, the likelihood of sharing in such increases lessens if the evidence indicates that the payor spouse acquired and developed the skills and credentials that led to the increase in income during the post-separation period, or if the income increase is related to an event that occurred during the post separation period.[^113]

i) Assuming primary responsibility for child care and household duties, without any evidence of having sacrificed personal educational or career plans, will likely not be sufficient to ground an entitlement to benefit from post-separation income increases.[^114]

j) Evidence that the post-separation income increase has evolved as a result of a different type of job acquired post-separation, a reorganization of the payor’s employment arrangement with new responsibilities, or that the increase is a result of significant lifestyle changes which the payor has made since the separation may militate against a finding that the recipient should share in the increase.[^115]

k) Where the payor’s post-separation advancement is related primarily to luck or connections which they made on his own, rather than on contributions from the recipient, the claim for a share in post-separation income increases will be more difficult.[^116]

l) The court may also consider the amount of time that has elapsed since separation as an indicator of whether the recipient’s contributions during the marriage are causally related to the post–separation income increases.[^117]

m) Evidence that the payor also made contributions to the recipient’s career advancement, or that the recipient has not made reasonable steps towards achieving self-sufficiency are also factors that may preclude an award that takes into account post separation income increases.[^118]

PART V: ANALYSIS OF THE CHILD AND SPOUSAL SUPPORT CLAIMS

ISSUE #1: IS THE RESPONDENT ENTITLED TO PURSUE CLAIMS FOR RETROACTIVE CHILD AND SPOUSAL SUPPORT FOR THE PERIOD FROM JUNE 2009 UNTIL APRIL 2011?

[104] My conclusion that as a matter of law, a request for retroactive child support or spousal support must be specifically pled is determinative of the Respondent’s child and spousal support claims relating to the period preceding April 2011. The facts relating to the manner in which the Applicant learned that the Respondent was in fact seeking retroactive relief are helpful in providing insight as to why retroactive relief must be specifically pled. My findings regarding this issue are as follows:

a) The Respondent did not at any point up until the trial formally put the Applicant on notice that he was seeking retroactive child and spousal support for the period of almost two years from the date of separation up until the time he issued his Answer and Claim.

b) In his Trial Management Conference Brief dated January 10, 2012, the Respondent identified at page 2 the issues to be determined at trial as custody, access, child support, equalization and possession of the matrimonial home. The box relating to spousal support was not checked off.

c) When this matter was originally called to trial before me on August 31, 2012, counsel for the Respondent confirmed that his client was not pursuing claims for support for the period preceding the date of the Application.

d) The trial was adjourned on August 31, 2012. When the matter returned to trial before me on April 16, 2013, counsel for the Respondent initially stated in his opening submissions that the Respondent was only seeking spousal and child support from the date of the Application. He then clarified with respect to child support that the issue of whether a retroactive child support claim would be advanced was still to be determined. Later in his opening submissions, after consulting further with his client, he confirmed that the Respondent would be pursuing both retroactive child support and retroactive spousal support for the period spanning from June 2009 to March 2011, when the Application was issued.

e) At no point prior to or at the commencement of trial did the Respondent bring a motion to amend his Answer and Claim to include a request for retroactive child or spousal support. No such motion was brought at the commencement of or during the trial, even after counsel for the Applicant noted her objection on the record that the Respondent had not included claims for retroactive relief in his pleading.

[105] I conclude that right up until the time of trial, the Respondent and his counsel were both uncertain themselves as to whether retroactive relief would be pursued. As I have emphasized earlier in these Reasons, the test for establishing a claim for retroactive child and spousal support is detailed and somewhat onerous, and requires the parties to marshal very specific evidence. As a result of the Respondent’s failure to give the Applicant notice of his retroactive claims, the Applicant had no idea right up to the date of trial as to whether or not she would have to call evidence to defend claims for retroactive relief.

[106] While the failure to plead for retroactive relief is in my view fatal to the Respondent’s claim, I conclude that quite apart from this problem, the Respondent has not satisfied the test for advancing retroactive support claims. I did not receive any evidence which satisfied me that there was a reasonable excuse for his failure to formally pursue child or spousal support earlier. His counsel suggested that there were significant problems obtaining critical financial disclosure from the Applicant. The evidence does not convince me that the Applicant was unresponsive to requests for disclosure. With respect to this issue, I make the following findings:

a) I did not receive any evidence indicating that there were any requests from the Respondent for financial disclosure prior to August 18, 2010, when counsel for the Respondent requested that the Applicant’s counsel produce corporate tax returns and financial statements for Harmony.

b) In response to the correspondence from Respondent’s counsel dated August 18, 2010, the Applicant’s counsel sent correspondence to Mr. Spears on October 21, 2010 enclosing the Applicant’s Financial Statement sworn October 13, 2010, her Notices of Assessment for 2007 to 2009 and the 2009 (year ending July 31, 2009) Income Tax Return and Financial Statements pertaining to Harmony.

c) On January 26, 2011, the Applicant’s counsel confirmed in writing that the valuation of Harmony was complete, and advised that she was awaiting receipt of the Respondent’s pension valuation.

d) There was no evidence adduced of any request having been made by counsel for the Respondent for financial disclosure respecting Harmony for 2010, but counsel for the Applicant nonetheless forwarded Harmony’s 2010 (year ending July 31, 2010) Financial Statement and corporate Income Tax Return on July 11, 2011.

e) By August 25, 2011, counsel for the Applicant had still not received the Respondent’s pension valuation, and was requesting same so that she could properly prepare for the Settlement Conference scheduled for October 12, 2011.

f) The Respondent did not produce his pension valuation or the appraisal respecting the matrimonial home, which he wished to retain, until October 3, 2011, approximately fourteen months after he retained his counsel.

g) On June 27, 2012, counsel for the Applicant produced the Applicant’s 2011 T4. In addition, she again produced Harmony’s 2010 Financial Statements and Corporate Income Tax Return. She also produced Harmony’s 2011 Financial Statements (year ending July 31, 2011), which were not completed by the accountants until January 26, 2012.

h) Although 2010 was the year when Harmony had the highest revenues, and disclosure of the company’s Financial Statements was made on July 11, 2011, the Respondent did not retain Mr. Bruce Horsley to complete his Income for Spousal and Child Support Purposes report until June 2012. He did not serve the report until August 8, 2012, five days before this matter was initially called to trial. The explanation of his counsel for the delay in retaining Mr. Horsley was that the Respondent did not learn about the sale of Harmony or receive any documentation relating to the sale until approximately July 2012.

i) By June 27, 2012, counsel for the Applicant had still not received the Respondent’s 2009 to 2011 Income Tax Returns or Notices of Assessment, despite the fact that Respondent’s counsel confirmed in his correspondence dated August 18, 2010 that he had asked his client to provide this information.

j) On August 13, 2012, counsel for the Respondent sent correspondence to Ms. Bale including an extensive list of disclosure requested. Ms. Bale responded to almost all of these items in correspondence to the Respondent’s counsel dated December 12, 2012, and confirmed that S.B. Partners had been instructed to release any information that they had in their possession which may be requested by the Respondent’s counsel. There was no evidence before me of any further requests for disclosure from Respondent’s counsel after December 12, 2012.

[107] Based on these findings, I am satisfied that the Applicant responded diligently to all requests by the Respondent for disclosure. This conclusion is relevant to the second factor which the Supreme Court of Canada outlined in D.B.S. as being pertinent to a claim for retroactive relief. I find that there is no evidence of any blameworthy conduct on the part of the Applicant in this case. There is no evidence that the Applicant attempted to mislead the Respondent in any way about her financial situation either prior to the date of the issuance of the Respondent’s Answer and Claim or after that time. There is no evidence of any conduct on the part of the Applicant which would raise concerns that the Respondent was intimidated in any way about seeking child or spousal support at any point prior to trial. The evidence which I heard suggests that the Applicant acted fairly and reasonably following the separation. She allowed the Respondent to remain in the matrimonial home while she resided initially with her mother and then in her own apartment. She did not seek compensation from the Respondent in the form of occupation rent, and as will be discussed later, she did not seek reimbursement for amounts which were withdrawn from her account in relation to the line of credit secured against the matrimonial home, despite the fact that the Respondent had undertaken to make those payments. In addition, as will be discussed in greater depth later in these Reasons, I find that she assumed responsibility for the children’s section 7 expenses following the separation.

[108] I have also considered the present circumstances of the children and any hardship that would be occasioned by a retroactive order. While a more detailed analysis of the Applicant’s income and overall condition, means, needs and other circumstances is set out later in these Reasons, I conclude by way of summary at this point that both the children and the Applicant would suffer hardship if a retroactive order were granted. I accept the Applicant’s evidence that she has been unable to purchase a home for herself and the children out of concern that she would not be able to manage financially if a retroactive order were granted. Although her Financial Statement sworn January 21, 2013 shows a monthly surplus of $1,419.00, her housing expenses are extremely modest, totalling only $809.00 per month including rent and all utilities. Those expenses will increase significantly when she purchases a home for herself and the children, which she intends to do. Furthermore, this monthly surplus does not take into account any spousal support which the Applicant may be required to pay. Her only significant asset is the shares which she has in Solaris, valued at $89,000.00, which she cannot redeem until 2014. Although she received a property settlement of $73,000.00, this included her 50% interest in the matrimonial home, and she has debts totalling $27,700.00. She requires the property settlement funds to purchase a home. I am satisfied that the Applicant would be unable to purchase a decent home for herself and the children at this point if a significant award for retroactive child and spousal support were made in the Respondent’s favour.

[109] In considering the issue of hardship, I have also taken into account the evidence relating to the manner in which the parties addressed their financial affairs, including the expenses relating to the children, during the two year period prior to the commencement of these proceedings. The parties conducted their affairs during that time in the absence of legal proceedings, and the Applicant had no notice that significant retroactive claims would be advanced. The question that must be considered is whether she would have made different decisions had she been made aware that retroactive relief would be pursued. By way of example only, I find that from July 2009 until the date of trial, the Applicant had incurred at least $15,047.82 on dance and theatre related fees and necessities relating to the children without contribution from the Respondent. In addition, she did not seek reimbursement from the Respondent for amounts withdrawn from her account to pay the line of credit secured against the matrimonial home where the Respondent was residing. These two examples alone highlight the enormous difficulties involved in trying to go back in time and assess the concept of hardship where so many financial decisions have been made over the course of many years in the absence of notice of retroactive support claims.

[110] Finally, even if the Respondent had satisfied the test for advancing claims for retroactive child and spousal support from the separation date until March 2011, I conclude that the Applicant would have had a full defence on the basis of set-off amounts which the Respondent would have owed her on account of child support and contribution to section 7 expenses over that same time period. In order to address this aspect of my decision on the issue of retroactive relief, I have dealt below with the issues of Paige’s residence and the parties’ respective incomes from the time of the parties’ separation in June 2009 until March 2011, and have also later in these Reasons undertaken an analysis of the amounts which each party would have owed each other for support in relation to that time period.

ISSUE # 2: PAIGE’S RESIDENTIAL SITUATION SINCE JUNE 2009

[111] The residential situation respecting the children is a critical issue both for the determination of child support pursuant to the Guidelines and to the issue of spousal support. Determining the appropriate formula to apply and the issues of quantum and duration of support under the SSAG is contingent upon making the correct decision regarding the children’s living arrangements.

[112] Both parties acknowledge that Jessie has been in the primary care of the Applicant since the separation in June 2009. However, Paige’s residential situation since June 2009 was a significant issue in this trial. The dispute between the parties on this issue related to the periods from February 2010 until December 2011 and from June to December 2012. The Applicant alleges that Paige resided primarily with her during these timeframes, whereas the Respondent states that Paige resided equally with both parties in a shared custody arrangement. The parties’ evidence respecting this issue was irreconcilable, and it was therefore necessary for me to undertake an assessment of their credibility on this question.

[113] I conclude that Applicant’s evidence on the issue of Paige’s residence should be preferred over that of the Respondent, based on the level of detail which the Applicant was able to provide regarding Paige’s residence changes and status at various points in time as compared to the amount of information which the Respondent was able to provide. The Applicant was very confident about her testimony on this issue. She acknowledged points that were not to her benefit. For instance, she admitted that there were periods when she rarely saw Paige at all, and that she told Paige in late 2010 that she could not return to her care until she resolved her issues with her father. Furthermore, she was able to provide specific details about dates when Paige’s residential situation changed and the amounts of time which Paige spent with each parent at any given point in time. Her recollection of the periods when Paige was with each party was much more detailed and precise than the Respondent’s evidence. She also provided clear explanations as to why the changes in Paige’s residence occurred.

[114] By contrast, the Respondent was vague about the amount of time which Paige spent with each parent at various times. With respect to the disputed time frame of February 2010 until December 2011, he asserted simply that Paige “went back and forth” between the parties’ two households, and that the balance leaned slightly more towards the Applicant in terms of the amount of time which Paige spent with the parties. He felt that Paige spent most weekends with him during this time. It was only on cross examination that he acknowledged that when he worked an afternoon shift on Fridays (3:00 p.m. until 11:00 p.m.), weekend time began late Saturday morning. He acknowledged that his work schedule consists of two weeks of morning shift and two weeks of afternoon shifts. His evidence respecting Paige’s residential situation since June 2012 was also vague as compared to the detail which the Applicant was able to provide. While both parties agree that Paige complied with the two week-about arrangement ordered on July 23, 2012 for a brief period of time, the Applicant was able to provide details as to when this occurred whereas the Respondent could not provide the same detail as to when this occurred or for how long this arrangement lasted.

[115] Based on the evidence adduced at trial and my conclusions respecting the parties’ credibility respecting Paige’s residential situation, I make the following findings respecting Paige’s residential status since June 2009:

a) Both parties agree and I find that Paige resided primarily with the Applicant from June 6, 2009 until July 2009.

b) From early July 2009 until December 2009, Paige lived primarily with the Respondent. The arrangement was therefore a “split custody” situation for the purposes of the Guidelines and the SSAG during that time frame.

c) For 2010, I find that Paige lived with her father in January 2010 and rarely saw her mother that month. However, I find that from February 2010 until December 2010, Paige resided primarily with the Applicant. She typically spent at least alternate weekends with the Respondent. However, she sometimes spent more time than that with the Respondent and at other times spent less time. With respect to weekends, sometimes Paige went on Friday night, but at other times she went to her father’s on Saturday morning because the Respondent was working afternoon shift on the Friday. Having considered Paige’s residential situation over the course of the entire year in 2010, I am not satisfied that the Respondent has met the onus of showing that Paige resided with him for at least 40% of the time over the course of the year. Accordingly, I conclude that child and spousal support for 2010 should be calculated on the basis of both children being in the primary residence of the Applicant in that year.

d) With respect to 2011, I find that the situation respecting Paige remained the same as described in subsection (c) above from January 2011 until approximately December 22, 2011, when Paige went to live primarily with her father. Again, I am not satisfied that the Respondent met the onus of demonstrating that Paige resided with him for at least 40% of the time over the course of the entire year. Accordingly, I conclude that the child and spousal support analysis for the year 2011 should be undertaken on the basis that both children resided primarily with the Applicant in 2011.

e) With respect to 2012, I find as follows:

(i) From January 2012 until May 2012, the parties agree and I find that Paige resided primarily with the Respondent, and only saw her mother for a few weekends.

(ii) From June 2012 until the beginning of September 2012, Paige lived with her mother, and had very limited time with the Respondent. I accept the Applicant’s evidence that Paige spent most weekdays and weekends with her.

(iii) From September until mid-October 2012, Paige alternated between the parties’ residences on a two week rotating basis.

(iv) From mid-October until the end of December 2012, Paige lived with her mother and saw her father for approximately one week in November and one week in December.

[116] The above noted summary of Paige’s residential situation in 2012 highlights the inherent difficulties of attempting to determine whether the 40% threshold referred to in section 9 of the Guidelines has been met in situations where a child has jumped from household to household with no clear pattern of residence. In determining this issue, I am mindful of the Ontario Court of Appeal’s comments in Froom v. Froom that rigid calculations of time are not necessarily appropriate. This is a case which clearly highlights the wisdom of such an approach. On the basis of my findings outlined and considering Paige’s residential situation over the course of the entire year, I conclude that there was a shared custody situation, with Paige spending slightly more time with the Applicant but at least 40% of the time with the Respondent. Accordingly, the child and spousal support analyses for 2012 should be undertaken on the basis of the children’s residential situation being a hybrid one, ie. primary residence of Jessie with the Applicant and shared residence respecting Paige.

[117] With respect to 2013, I accept the Applicant’s evidence that Paige has been in her care with the exception of the following periods, when she was with her father:

a) one weekend and one Saturday night in January;

b) alternate weekends in February until February 23rd;

c) the week of February 23rd until February 29th; and

d) One Sunday night in April.

[118] Based on these findings, I find that Paige had been primarily in her mother’s care up until the time of trial. However, both parties acknowledged that Paige’s residential situation has been extremely fluid and that it is impossible to predict whether she will comply in future with the two week-about arrangement that was ordered on July 23, 2012. It is not possible to determine at this point what Paige’s residential situation will be over the course of the 2013 year. Accordingly, I conclude that for the purposes of the child and spousal support analyses commencing January 2013 and on an ongoing basis, the calculations should occur on the basis of a hybrid custody situation, ie. primary residence of Jessie with the Applicant mother and a shared custody arrangement respecting Paige.

ISSUE # 3: DETERMINATION OF THE APPLICANT’S INCOME

A. The Applicant’s Employment Income, Interest Income and Taxable Benefits

[119] As previously stated, one of the major issues in dispute in this case was whether income should be attributed or imputed to the Applicant. The Respondent’s position regarding the Applicant’s income is based largely on the expert report and evidence of Mr. Bruce Horsley, who was qualified as an expert for the purpose of giving opinion evidence on the calculation of income for child and spousal support purposes. There was agreement between the parties respecting four components of the Applicant’s income from 2009 to 2011, specifically, her gross income from employment with Harmony, her interest income for the year 2011, the value of the benefit of a vehicle provided by Harmony for personal use and the income tax gross-up in relation to that benefit. The parties accepted Mr. Horsley’s conclusions respecting these items for the years 2009 to 2011. Based on the Applicant’s Income Tax records, the evidence of Mr. Horsley and the agreement of the parties, I make the following findings respecting these four components of the Applicant’s income for the period from 2009 to 2011:

2009

Employment Income $70,720.00

Benefit of Vehicle available For Personal Use $ 6,902.00

Income Tax Gross Up on Vehicle Benefit $ 3,396.00

TOTAL $81,018.00

2010

Employment Income $70,720.00

Benefit of Vehicle available For Personal Use $ 9,686.00

Income Tax Gross-Up on Vehicle Benefit $ 4,766.00

TOTAL $85,172.00

2011

Employment Income $70,720.00

Interest Income $ 53.00

Benefit of Vehicle available For Personal Use $ 9,686.00

Income Tax Gross Up on Vehicle Benefit $ 4,766.00

TOTAL $85,225.00

[120] With respect to the year 2012, the Applicant drew an income from Harmony until she sold her interest in the company on May 31, 2012. Commencing June 2012, she became an employee of Solaris. I find based on her 2012 Income Tax Return and her evidence at trial that her total income from her base salary from these two sources in 2012 was $71,355.00. This was the only income which she included on her 2012 Income Tax Return. However, I find based on her testimony and her Financial Statement sworn July 12, 2012 that from January to May 2012, when Harmony was still operational, she received additional non-cash benefits from her employment of $500.00 per month relating to the lease on her vehicle, and gas reimbursement in the amount of $140.00 per month. Based on her testimony and her Financial Statement sworn January 21, 2013, I find that once she became employed by Solaris in June 2012, her non-cash benefits included $690.00 per month relating to the lease of her vehicle, $140.00 per month for gas and $187.00 monthly on account of vehicle insurance. The total value of her employment benefits in 2012 was therefore $10,319.00. The tax gross up on this amount is $5,819.00. Based on the foregoing, I find that the Applicant’s 2012 income from employment and non-cash employment benefits was as follows:

2012

Employment Income $71,355.00

Benefits from Employment $10,319.00

Income Tax Gross Up on Benefits $ 5,819.00

TOTAL: $87,493.00

[121] Since January 2013, the Applicant has been employed full time as a ceramist with Solaris. Based on her testimony and her Financial Statement sworn January 21, 2013, I find that her annual base income from employment is $70,719.00. In addition, she continues to receive non-cash benefits from employment of $690.00 per month relating to the lease of her vehicle, gas reimbursement of $140.00 per month and car insurance payments with a value of $187.00 per month. I note that this Financial Statement refers to a portion of the benefits amounts being for company purposes, but no evidence was adduced to clarify this point and counsel for the Applicant did not address the issue in her closing submissions. Accordingly, I have relied on the Applicant’s testimony and the figures set out in her Financial Statement sworn January 21, 2013 in determining the amount of the taxable benefits which she receives. I note, however, that the Financial Statement had a mathematical error for the total annual amount of the value of the car insurance benefit, which should have been $2,240.00 rather than $2,440.00. Based on the foregoing, I find the Applicant’s estimated 2013 income from employment and non-cash employment benefits to be as follows:

2013

Income from Employment $70,719.00

Benefits from Employment $12,200.00

Income Tax Gross-Up on Benefits $ 7,124.00

TOTAL: $90,043.00

[122] In his calculations of the Applicant’s income for 2009 to 2011, Mr. Horsley deducted amounts on account of professional dues which the Applicant deducted on her Income Tax Returns. However, the Applicant acknowledged that Harmony reimbursed her for those dues, that they should have been declared as taxable benefits, but that she did not declare them as such on her Income Tax Returns. If they had been included in her income, they would have then been deducted for the purposes of calculating her Guidelines income pursuant to section 1(g) of Schedule III of the Guidelines. I have therefore not reduced the Applicant’s income for the years 2009 to 2011 on account of those professional dues. Similarly, the Applicant did not include these dues as a taxable benefit in her 2012 Income Tax Return. I have therefore treated the dues in the same manner for the years 2012 and 2013.

[123] I also note that I have not included an amount for the value of medical insurance coverage provided through employment for either the Applicant or the Respondent in my income findings, as I did not receive any reliable evidence respecting these values.

B. Whether Pre-Tax Corporate Income of Harmony Should be Attributed to the Applicant

1. Evidence of Mr. Bruce Horsley

[124] The Respondent’s position respecting the Applicant’s income is based largely on the expert evidence of Mr. Horsley in support of his position.

[125] Mr. Horsley produced a report and testified on the issue of the Applicant’s income for spousal and child support purposes for the years 2009 to 2011. At the outset of his report dated August 7, 2012, he listed items of information which he requested but which he stated that he did not receive, and indicated that his opinion may change if this additional information was provided to him. With respect to items (a), (b), (c), and (f), I find that counsel for the Applicant addressed these items by way of correspondence to counsel for the Respondent dated December 12, 2012. Furthermore, with respect to item (h), I find that counsel for the Applicant provided the Respondent’s counsel with the Applicant’s Notices of Assessment for 2007 to 2009 by way of correspondence dated October 21, 2010. This information could therefore have been made available to Mr. Horsley prior to testifying at trial. However, Mr. Horsley stated that he never received the information from the Respondent.

[126] Mr. Horsley testified that Harmony’s pre-tax corporate income for the years 2009 to 2011, and the Applicant’s 50% share of these earnings were as follows:

2009: Total: $31,563.00 Applicant’s Share: $15,782.00

2010: Total: $125,295.00 Applicant’s Share: $62,648.00

2011: Total: $83,288.00 Applicant’s Share: $41,644.00

[127] Mr. Horsley stated that in his view, these figures were conservative because they do not take into consideration any cash sales. However, there was no evidence adduced to suggest that any such cash sales ever occurred with Harmony. Mr. Horsley concluded that Harmony had the financial resources to pay out all of its pre-tax income for the years 2009 to 2011. He therefore included the full amount of the Applicant’s share of this income for those years in her personal income. He added these amounts to the Applicant’s employment income, interest income, taxable benefits and the income tax gross up on those benefits for the years 2009 to 2011, and deducted from the annual totals the amount which the Applicant paid for professional dues. However, as noted above, the total figures which he reached must be adjusted to reverse the deduction for professional dues. Taking that adjustment into consideration, Mr. Horsley’s conclusions respecting the Applicant’s income available for spousal and child support purposes for the years 2009 to 2011 were as follows:

2009: $ 96,800.00

2010: $147,820.00

2011: $126,869.00

[128] The figure which the Respondent is seeking to rely upon as the appropriate income for the Applicant for these years is the three year average of these amounts. Taking into consideration the reversal of the deduction for professional dues, the average is $123,829.66.

[129] Mr. Horsley’s conclusion that Harmony could have paid out all of its pre-tax corporate income for the years 2009 to 2011 to its shareholders without endangering the financial capacity of the corporation was based on the following considerations:

a) He noted that the total non-cash expense of amortization for 2009, 2010 and 2011 was $37,312.00, and that this amount would provide most of the cash flow to pay off the bank loan shown on the July 31, 2008 Balance Sheet of $48,223.00.

b) He observed that there was no significant bank financing of Harmony.

c) He also noted that Harmony had assets such as equipment that he felt could be leased so as to alleviate any cash flow issues.

d) He indicated that there were accounts receivable that he felt could reasonably be borrowed against to fund the payouts. He noted that this opinion extended to the year 2009, even though there was no cash reported in the year-end Financial Statements for that year.

[130] Mr. Horsley testified that the pre-tax corporate income from the years 2009 to 2011 could have been paid out to the shareholders in the form of repayment of shareholder loans, which would be a tax free transaction, payment of management bonuses, which would be taxable, or by declaring dividends out of the company’s retained earnings.

[131] Mr. Horsley did not have the benefit of reviewing Harmony’s Financial Statements respecting the year 2012, when the company was sold to Solaris. However, he estimated based on the company’s cash flow as of the 2011 year end ($77,351.00) and the cash of $130,527.00 that was in the company as of that year end that there could have been cash of approximately $207,878.00 in the company by the year ending July 31, 2012 if the company had remained operational until that time. He also estimated that the company could have had cash in the amount of approximately $266,000.00 as of April 30, 2013.

[132] I found Mr. Horsley to be a very credible witness. He demonstrated a great deal of knowledge and skill in the area of income calculation, and he provided sound reasons behind his conclusions respecting the Applicant’s income for spousal and child support purposes. However, he did not have the benefit of hearing all of the evidence that was adduced at trial regarding the management and operations of Harmony, and the challenges which developed in connection with the business following the parties’ separation. The evidence of the Applicant’s business partner, Mr. Molon, was particularly valuable in providing a more comprehensive picture of the overall functioning of the company from 2009 onward.

2. Ruling on Attribution of Corporate Income

[133] I found Mr. Molon to be a very credible witness. He was calm, responsive and organized in answering questions, even when under vigorous cross examination by counsel for the Respondent. He presented as honest and forthright, and was even-handed in his comments about both parties. He acknowledged shortcomings on his part in terms of managing Harmony’s financial affairs. Although he was unable to explain some aspects of Harmony’s financial statements, this did not cause me to be concerned about his credibility having regard for the detailed questions that were put to him and the fact that the company’s accountants prepared the financial statements. I have considered the evidence and conclusions of Mr. Horsley regarding the Applicant’s income in conjunction with Mr. Molon’s evidence, and I have concluded for the reasons that follow that it would be inappropriate to attribute any of Harmony’s pre-tax corporate income for the years 2009 to 2012 to the Applicant. The factors which I have considered are as follows:

1. Harmony’s Corporate Structure and Historical Approaches to Income and Retained Earnings

[134] In reaching my decision regarding Harmony’s pre-tax income, I have considered the corporation’s organizational structure, the degree of control which the Applicant had over decisions about how the company’s income and retained earnings should be managed, and the evidence of Mr. Molon regarding the approach which he and Gino Marino, the other shareholder of Harmony, adopted on these issues. The Applicant did not have a controlling interest in the corporation. She owned 50% of the shares of Harmony, and Mr. Molon and Mr. Marino each had a 25% interest. The Applicant did not have the ability on her own to declare dividends or to decide whether bonuses would be paid out. I find based on Mr. Molon’s testimony that he and Mr. Marino shared the view that income should be kept in the company so that there would be opportunities for growth of the business. The historical evidence regarding Mr. Molon’s and Mr. Marino’s treatment of corporate income and retained earnings indicates that this was in fact their business approach. Neither dividends nor bonuses were ever paid out to Harmony’s shareholders. Mr. Molon and Mr. Marino had a consistent approach to these issues with respect to the other dental laboratory which they owned in Stoney Creek, Aurum. I find based on Mr. Molon’s evidence that no dividends or bonuses were ever paid out by Aurum. In fact, Mr. Molon testified that he never received a raise from Aurum. Having regard for the approach of the Applicant’s business partners, I find that the Applicant would have been unable to take monies out of Harmony even if she had wanted to, unless she engaged in litigation against her business partners. I conclude that this would not have been a reasonable course of action given the true state of Harmony’s business operations and the extensive unpaid support which Mr. Molon and his other company, Aurum, provided to Harmony following the parties’ separation in 2009, as detailed below.

ii. The True State of Harmony’s Business Operations

[135] I have considered whether Harmony’s Financial Statements for the period following the parties’ separation provided an accurate picture of the corporation’s overall functioning. I accept the evidence adduced through Mr. Molon that they did not, and that Harmony would have potentially not survived as a company had it not been for the extensive unpaid services which Mr. Molon provided to the business and the significant financial support which Harmony received from Aurum. I am satisfied that Harmony would not have shown any significant pre-tax income or retained earnings on the books if Mr. Molon had invoiced the company for his services and if Aurum had not taken the financial hit which it did from 2009 onward to keep Harmony afloat. I have reached these conclusions as a result of the following findings which I have made based on the evidence of the Applicant and Mr. Molon:

a) Mr. Molon and Mr. Marino were shareholders of Aurum as well as Harmony. Aurum and Harmony were closely associated with each other in that they provided each other with services to support each other’s client bases.

b) Mr. Molon described Harmony as a “satellite lab” for Aurum. After Harmony was established, Mr. Marino assumed primary responsibility for overseeing Aurum, and Mr. Molon took on the role of assisting the Applicant in overseeing Harmony. Prior to the parties’ separation in 2009, the Applicant had a number of management-related responsibilities at Harmony, including sales work, communicating with doctors, and overseeing the company’s daily functioning and financial affairs. However, both Mr. Molon and the Applicant testified that following the separation, the Applicant experienced a great deal of emotional turmoil and became unable to cope with her managerial responsibilities at Harmony. The Applicant testified, and I find, that she became increasingly depressed, to the point that she began to lose her hair and eventually obtained prescription medication from her family doctor to assist in managing her mental health.

c) As a result of the Applicant’s inability to cope with her responsibilities, Mr. Molon took on most of the managerial duties relating to Harmony. The Applicant began to focus primarily on her work as a ceramist, and Mr. Molon assumed her other responsibilities including marketing related work, communications with dentists, scheduling and generally overseeing the operations. His other company, Aurum, suffered from the loss of his attention to its operations, and Harmony benefitted. Mr. Molon never received any remuneration for these services.

d) Prior to the parties’ separation and the decline in the Applicant’s mental health, Harmony ordered and paid for all of its necessary supplies directly. This changed when the Applicant could no longer carry out her administrative and managerial duties. Mr. Molon assumed responsibility for these tasks. He testified, and I find, that at that point his primary goal was to keep Harmony operational, and he began to order and pay for many supplies for Harmony through his other company, Aurum. In addition, Aurum paid for many other bills for Harmony, including the costs associated with a number of leases on equipment such as scanners and furnaces, and the capital expenditure on a milling machine valued at $120,000.00 which was necessary to complete Harmony-related work.

e) The Applicant’s emotional state following the separation was such that she did not want to work alone at the Harmony premises in Burlington. Accordingly, Mr. Molon accommodated her by allowing her to spend significant amounts of work time at the Aurum location in Stoney Creek, which was closer to her home and where she would be in the company of other staff. This had a negative effect on Harmony’s business, because the Applicant was not present to take telephone calls or attend appointments, and the laboratory was often closed with the result that existing or potential customers could not drop in to receive services. Mr. Molon attempted to alleviate these problems by having all calls re-directed from Harmony to a staff person at Aurum, and by sending another Aurum staff member, Nadine, to Burlington for many appointments. Aurum did not invoice Harmony for these services.

f) During the early period of Harmony’s operations, Harmony did not do the model, metal and wax work for the dental prosthetics, but rather farmed that work out to Aurum. When Harmony employed Terry, she began to do model work. Prior to the separation, the Applicant and Terry had been doing more of the Harmony-related work on their own rather than sending the work to Aurum. However, after the separation, the Applicant could not cope with the additional work which she had taken on. She could no longer work long hours and stay at the laboratory late to complete work that required equipment to finish. Although her speciality was the ceramic work, she could no longer do all of this work either. As a result, Harmony began to use and pay for the services of Aurum and another lab to assist in these aspects of the work.

g) Counsel for the Respondent cross examined Mr. Molon about the increase in the expense for outside services and supplies starting in 2009, and questioned whether that increase could be related to amounts which Harmony paid to Aurum for the services provided by Mr. Molon and other Aurum staff and the supplies and equipment referred to in subparagraphs (c) to (e) above. Mr. Molon was not certain about the reasons for the increase in the expense for outside services and supplies, and explained that this question could be answered by Harmony’s accountants. However, he was adamant that he did not invoice Harmony for many dental supplies and other expenses or services. Based on my findings set out in subparagraph (f), I conclude that the Applicant’s decision to farm out a significant amount of Harmony’s model, metal, wax and ceramic work provides an explanation for the increase in this expense.

[136] The picture that emerged from the evidence of the Applicant and Mr. Molon regarding the overall functioning of Harmony after the parties’ separation was that of a ship without a captain, which would have not survived but for the intervention of Mr. Molon and Aurum. Mr. Molon described Aurum as the “Big Brother” to Harmony and as essentially footing the bill for a significant part of Harmony’s operations. He testified that he would not have considered declaring dividends, paying out bonuses from Harmony’s income, or repaying shareholder loans because this would have essentially resulted in a windfall for the Applicant and a financial blow to himself, Mr. Marino and Aurum after all of the support which had been provided to Harmony and the Applicant. Furthermore, he stated that he would have insisted on being compensated personally for all of the unpaid work which he had done on behalf of Harmony before any other money was paid out. Based on my findings set out above, I agree entirely with Mr. Molon’s position on this issue.

iii. The State of the Economy and the Need for Changes to Business Approaches and Models

[137] One of the factors which the court must consider in deciding whether corporate income should be attributed to a shareholder spouse is the economic environment in which the business is operating, and whether that environment is such that a financial cushion is required to ensure that the business remains viable. Mr. Molon gave evidence regarding the challenges which his dental technology businesses were facing during the period leading up to the sale of Harmony to Solaris in May 2012. He explained that his companies faced difficulties due to the recession and changes in the nature of market demand for dental prosthetics. Specifically, there was a decrease in demand for high quality products, which his companies produced, and an increase in demand for lower quality items which would be covered by insurance benefits. I accept Mr. Molon’s evidence that as a result of these dynamics, he and his business partners were compelled to re-think the way they were doing business, and embark upon a plan to streamline administrative and operational processes so as to reduce expenses and increase business efficiency. The period from 2009 until 2012 was therefore a challenging one for Aurum, Harmony and Mr. Molon’s other business interests during which it became apparent that major changes to business approaches and models would be necessary. In fact, Mr. Molon and his business partners put these new approaches and business models into effect with the creation of Solaris, which was an amalgamation of five dental laboratory businesses.

[138] I also find that from 2009 onward, Harmony carried significant accounts receivable. From 2008 to 2009, accounts receivable increased by approximately 61%. Accounts receivable increased significantly again by 49% from 2009 to 2010. In the type of economic environment described above, I conclude that it was reasonable and in fact prudent for the owners of both Harmony and Aurum to ensure that there were sufficient financial resources within the companies to plan and take the necessary steps to adapt their business approaches so as to ride the storm and maximize their potential for success in the long term.

iv. Whether the Amounts Taken Out of Harmony as Salary Were Commensurate with Industry Standards

[139] I have also considered the amounts which the Applicant drew from Harmony as a salary from 2009 to 2013, and the evidence as to whether those amounts were reasonable having regard for the roles which the Applicant carried out. Based on the evidence of Mr. Molon and the Applicant, I find that the salary which the Applicant drew was reasonable during those periods, particularly in light of the significant decrease in her duties. The Applicant’s salary from Harmony remained the same from 2007 to 2011, despite the virtual elimination of her managerial duties and the decrease in her hands-on work from 2009 onward. In addition, she received generous non-cash benefits from her employment. Her current base salary with Solaris is approximately the same as it was when Harmony was operational. The Applicant testified that this is a very generous salary for a ceramist, and she stated that Solaris could easily hire a ceramist for a much lower wage. The Respondent did not challenge this evidence, and I did not hear any evidence that caused me to conclude that the Applicant should have drawn a higher salary for her services from Harmony.

C. Whether Income Should be Imputed to the Applicant

[140] The final issue which must be addressed in connection with the Applicant’s income is whether it is appropriate to impute income to her over and above the salary which she earned from Harmony and Solaris and the value of the non-cash benefits which she received from her employment with these companies. There are several angles to the Respondent’s imputation of income argument. I address each one below.

1. The Failure to Declare Dividends or Pay Out Bonuses from 2009 to 2012

[141] As I understand the Respondent’s position, his argument that income should be imputed to the Respondent is based in part on the notion that the Applicant could have received dividends or bonuses from Harmony from 2009 to 2012. My reasoning respecting the attribution of corporate income argument applies equally to this position, and leads me to conclude that income should not be imputed to the Applicant on this basis.

2. The Argument that the Applicant Failed to Pursue All of Her Rights in Relation to the Transfer of Harmony

[142] The Respondent’s imputation of income position is also based in part on the argument that the Applicant was negligent in negotiating the sale of her interest in Harmony, and that her business partners, Mr. Molon and Mr. Marino, took advantage of her in regard to the sale. Specifically, counsel for the Respondent asked me to accept the following:

a) That Harmony had not yet been formally dissolved as of the date of trial, and that the cash which Harmony had on the books as of the date of transfer, the company’s accounts receivable and the shareholder loans made to the company all still had to be dealt with;

b) That in addition to the $89,000.00 worth of Solaris shares which the Applicant received as compensation for her interest in Harmony, she had and still retains the right to receive a portion of the cash in the company and the accounts receivable owing at the date of transfer, and she should have been repaid the shareholder loan of $35,757.00 which she had made to the company;

c) That the Applicant should pursue her rights referred to in subparagraph (b) as against her former business partners, through litigation if necessary; and

d) That income should be imputed to the Applicant on the basis that she could have received significant dividends or bonus payouts, as well as repayment of her shareholder loan, if she had pursued these rights, or on the basis that she has not reasonably utilized her assets to generate income.

[143] I do not accept the Respondent’s position that income should be imputed to the Applicant on the basis that she had the right to additional sources of compensation relating to the sale of Harmony that she could have pursued. In order to address this argument, a review of the evidence relating to the sale of Harmony to Solaris is necessary. I heard evidence regarding the details of the sale from the Applicant, Mr. Molon and Mr. Michael McHugh, the lawyer who handled the sale transaction. I make the following findings regarding the sale of Harmony to Solaris based on their evidence:

a) On May 31, 2012, the Applicant executed a Share Transfer Agreement by which she transferred her 50 common shares of Harmony to Solaris. The original Share Transfer Agreement stipulated that the Applicant would receive 48,000 class D preference shares in Solaris in consideration of the transfer of her interest in Harmony to Solaris. The agreement was made pursuant to section 85 of the Income Tax Act, so that the transfer could be carried out on a tax deferred basis. The agreement specified that the Applicant could not redeem her shares in Solaris for a period of at least two years, until June 1, 2014, and that the redemption value would be $1.00 per share.

b) The formula which Mr. Molon and his business partners used in reaching a proposed value for Harmony was 40% of the company’s gross revenues for the most recent fiscal year. I find on the basis of Mr. Molon’s evidence that this formula was used based on valuations which he had received from the accounting firm BDO for other laboratories which he and his business partners wished to include in the Solaris amalgamation, which had led consistently to the value being approximately 40% of the laboratories’ gross revenues for the most recent fiscal year.

c) Following the execution of the Share Transfer Agreement, counsel for the Applicant recognized that there had been an error in calculating the consideration which the Applicant was to receive for her shares. In particular, it was determined that the Applicant should have received 89,000.00 shares, with a redemption value of $1.00 per share. This error was corrected by way of amendments to the Share Transfer Agreement which were executed by all of the relevant parties sometime in early 2013. Mr. Molon and his business partners readily acknowledged that this calculation error had been made by the accounting firm that had been involved in the transaction, and they cooperated fully in executing the necessary amending documents.

d) The sum of $89,000.00 represents the Applicant’s 50% share of 40% of Harmony’s gross revenues in 2011.

e) The clear intention of the Applicant, Mr. Molon and his business partners was that the $89,000.00 worth of class D preference shares in Solaris was to be the entire consideration to the Applicant for the sale of her shares in Harmony. Specifically, Mr. Molon and the Applicant both testified that:

(i) There was no expectation that the Applicant would be entitled to receive any portion of the cash in the company as of the date of transfer;

(ii) There was no expectation that the Applicant would in addition to the $89,000.00 consideration receive repayment of the $35,757.00 loan which she had made to the company at the time the company was formed; and

(iii) There was never any intention that the Applicant would receive a share of the accounts receivable that were on Harmony’s books as of the transfer date.

f) Paragraph 1(c) of the Share Transfer Agreement defined “consideration” for the purposes of the agreement as consisting solely of the new shares received by the Applicant in Solaris. Furthermore, paragraph 13 of the agreement stipulated that the agreement constituted the entire agreement between the parties with respect to the sale of Harmony and superseded all prior negotiations and understandings. Paragraph 12 provided that the parties would “execute and deliver, or cause to be executed and delivered to the other, such documents, transfers, assignments, bills of sale and further or other assurances as may be necessary or advisable in the reasonable opinion of counsel for the other, to give effect to this Agreement, from time to time both before and after the Effective Date.”

[144] Both the Applicant and Mr. Molon testified that their understanding was that Harmony had been formally dissolved as of the time of trial. However, Mr. McHugh clarified that the company had not in fact been wound up yet as of the date of trial. He explained that following the execution of the Share Transfer Agreement, Harmony continued to exist as a wholly owned subsidiary of Solaris. He stated that the intention is to eventually wind Harmony up.

[145] Counsel for the Respondent questioned Mr. McHugh and Mr. Horsley about that status of shareholder loans which Harmony owed as of the date of transfer, the cash that was on Harmony’s books at that time and the accounts receivable of the company. Mr. McHugh and Mr. Horsley both testified that these assets and liabilities would still remain on the books of Harmony after the transfer, until Harmony was officially dissolved. Mr. McHugh testified, and I find, that the loans which Harmony owed to its shareholders could remain owing to its shareholders after the transfer if Harmony had executed a promissory note in favour of the shareholders. If there was no such promissory note, the handling of the shareholder loans would depend on the circumstances of each case. He indicated that in some situations, the purchaser may have the right to retain the monies which the shareholders had loaned to the company. Mr. McHugh confirmed that he never received any instructions about how Harmony’s shareholder loans should be dealt with, and that he was not aware of any promissory notes which Harmony had made in favour of its shareholders regarding loans which they had advanced to the company.

[146] With respect to any cash in Harmony or accounts receivables owing to the company as of the time of transfer, Mr. McHugh testified and I find that unless otherwise agreed to between the parties, a share transfer such as the one that occurred in this case gives the purchasing company “the good, the bad and the ugly.” By this he meant that unless otherwise agreed to, the purchaser would become entitled to the accounts receivable and the cash in the company, and would be responsible for paying the company’s debts and liabilities.

[147] The Respondent’s imputation of income argument begins with the assumption that the Applicant had and still retains the right to insist on receiving a portion of the cash in Harmony and the accounts receivable owing to the company as of the time of transfer. Counsel for the Respondent argued that the Applicant has an obligation to enforce those rights, and suggested that she has been negligent in failing to do so. I do not accept this position. Although Harmony’s assets and liabilities may still exist on Harmony’s books until the company is dissolved, this issue is distinct from the nature and extent of the Applicant’s rights in connection with the share transfer transaction. The Share Transfer Agreement was very clear that the only consideration for the transfer of the Applicant’s interest was the transfer of $89,000.00 worth of shares in Solaris. The agreement also clearly stipulated that its terms constituted the entire agreement between the parties relating to the sale of Harmony. I find based on the evidence of the Applicant and Mr. Molon that the negotiations regarding the transfer of the Applicant’s interest in Harmony also resulted in her being given a position as a ceramist with Solaris which offers her long term job security and remuneration that is much higher than is typical for this type of employment. The clear understanding of both Mr. Molon and the Applicant was that there would be no further consideration flowing to the Applicant for the sale of her shares in Harmony. Both presented as genuinely shocked by the suggestion of Respondent’s counsel that the Applicant had additional rights that she could pursue in relation to the transfer of Harmony. I found them both very credible on this issue. The fact that both of them had the same understanding on this point is important, because section 12 of the agreement requires them to take any further steps including executing any necessary documents which either of their counsel may consider necessary to give effect to the agreement, even after the effective date of the agreement. Based on this term and the parties’ understanding, I find that even if the terms of the agreement regarding the consideration owing were not clear, the Applicant would be required if requested by Solaris’ counsel to execute correcting documentation clarifying that the consideration was limited to the Solaris shares valued at $89,000.00.

[148] The Respondent’s alternative argument is that if the Applicant does not in fact have a right to claim a portion of Harmony’s accounts receivable and cash on the books at the time of the transfer, she was negligent in failing to address these issues as part of the negotiations and should be imputed income on that basis. The essence of this argument is the terms of the Share Transfer Agreement were very unfavourable to the Applicant, and that the Applicant’s business partners took advantage of her. The evidence does not in my view support these propositions.

[149] I agree with the Respondent that the Applicant did not take an active role in negotiating the terms of the sale of her interest in Harmony or in ensuring that her interests were protected. In fact, I find that she simply accepted the offer which Solaris made to her, without analyzing or seriously considering the terms and without receiving independent legal consultation. Her lackadaisical approach to the transaction contributed to a serious error being made respecting the compensation which she was to receive for her shares, which went un-noticed until her counsel scrutinized the terms of the Share Transfer Agreement. However, I am satisfied that the shareholders of Solaris did not have any part in this error, and that there was no bad faith on their part with respect to the miscalculation.

[150] Furthermore, the evidence does not in my view support a finding that the terms of the transfer of the Applicant’s interest in Harmony to Solaris were unfair to the Applicant. The Respondent’s argument on this issue is based largely on the existence of cash and retained earnings in the company as of the end of the 2011 fiscal year, the evidence of Mr. Horsley regarding the amount of cash which could conceivably have been in the company as of the date of the transfer, and the fact that there were significant accounts receivable on the books as of the transfer date. However, as I have concluded in relation to the attribution of corporate income argument, the numbers on the company’s financial records painted an inaccurate picture of the overall success and functioning of the company. With respect to the accounts receivable, Mr. Molon testified and I find that collection on accounts receivable has been a major problem since he took over the general oversight of Harmony in late 2009. The extent to which this factor would have contributed to the value of the business is highly questionable.

[151] The Respondent’s submission that the consideration of $89,000 worth of shares in Solaris was unreasonable is also based on the fact that the Applicant had made a shareholder loan to the company which Harmony has not paid back to her. However, any repayment from Harmony to the Applicant on account of this shareholder loan would not be considered as income for the purposes of the child and spousal support calculation. The court can impute income to a party pursuant to section 19(1)(e) of the Guidelines on the basis that they have not reasonably utilized their property to generate income. However, I find that there is no basis in this case to impute income to the Applicant on the ground that repayment of the shareholder loan to her would have allowed her to generate increased income for herself. I find based on the Applicant’s testimony that $20,000.00 of the $35,757.00 that she loaned to Harmony was acquired by way of a loan from her mother which she has still not paid back, and that she owed her mother an additional $4,000.00 on account of money which her mother lent her for a roof repair. I find that her total debt as of January 21, 2013, including the amounts owing to her mother, was $27,700.00. The Respondent did not dispute this issue. If the shareholder loan had been repaid to her, most of the funds would have been required to pay off this debt, leaving very little money for her to invest for the purpose of generating additional income.

[152] The Respondent did not adduce any expert evidence regarding the value of Harmony as of the date when the Applicant transferred her interest in the company to Solaris. The only evidence which I received regarding the value of Harmony was from Mr. Molon and the valuation report of Mr. Trevor Hood of SB Partners Corporate Finance Ltd. dated December 22, 2010. As previously stated, Mr. Molon testified that the formula which he and his Solaris business partners used to come to a proposed purchase price for the Applicant’s interest in Harmony was based on expert opinions which they had previously obtained in relation to the purchase of other similar laboratories. Mr. Hood’s opinion was that the high range value for Harmony as of December 2010 was $22,000.00. He specifically noted in his valuation report that the range of values which he proposed did not include the amount of the shareholder loan due to the Applicant in the amount of $35,757.00, which represented additional value over and above the valuation figures which he provided. The parties used Mr. Hood’s mid-range value of $20,000.00 for the purpose of the property settlement. Even if the high range value which Mr. Hood proposed is accepted as appropriate, this figure when added to the amount of the shareholder loan yields a value of $57,757.00 as of December 2010. The consideration of $89,000.00 which the Applicant received for her interest in Harmony represents a 54% increase from the high range value which Mr. Hood concluded was appropriate in 2010. Furthermore, I find based on the evidence of the Applicant and Mr. Molon that the negotiations regarding the transfer of the Applicant’s interest in Harmony also resulted in the Applicant being given a position as a ceramist with Solaris which offers her long-term job security and remuneration that is much higher than is typical for this type of employment. These are additional factors which I have considered in concluding that the terms of the sale of the Applicant’s interest in Harmony were reasonable.

3. The Argument that the Applicant’s Decision to Sell Harmony was Reckless and Resulted in an Intentional Reduction of her Income Earning Capacity

[153] The Respondent’s final argument relating to imputation of income to the Applicant is that the Applicant’s decision to sell her interest in Harmony was reckless, given that in his view, the company was on an upward slope in terms of its success and income generating capacity. His position is that this decision has resulted in the Applicant being deliberately underemployed within the meaning of section 19(1)(a) of the Guidelines, and that the court should impute income to her pursuant to that section.

[154] The Respondent’s argument based on section 19(1)(a) is founded on the premise that Harmony was a highly profitable company that was on an upward trend in terms of its income earning potential. My findings and conclusions respecting Harmony’s true financial status as set out above in my analysis of the attribution of corporate income argument provide a full answer to the Respondent’s position based on section 19(1)(a) of the Guidelines. I have found that without the financial backing of Aurum and the unpaid services of Mr. Molon and Aurum staff, Harmony would have in fact been struggling to survive as a company.

[155] There is a second reason why I do not accept the Respondent’s argument that income should be imputed to the Applicant on the basis of section 19(1)(a) of the Guidelines. That section includes an important proviso. It allows for income to be imputed on the basis of under-employment other than in certain enumerated circumstances, including where the under-employment is “required by the needs of a child of the marriage” or by “the reasonable educational or health needs of the spouse.” Even if I had accepted the argument that the sale of Harmony resulted in a decrease in the Applicant’s income earning capacity, I would not have imputed additional income to the Applicant because I find that the sale of the business was necessary for both the needs of the children and the Applicant’s own health needs.

[156] The Applicant testified at great length about the high stress which she experienced in attempting to carry out her work responsibilities after Harmony opened, and how her stress levels increased drastically after the parties separated to the point that she became depressed and could no longer cope with her duties at work. I found her very credible in giving her testimony on these issues. She was spontaneous and showed genuine distress when discussing the challenges which she faced in attempting to juggle her work and family responsibilities and the decline in her mental health status following the separation. Mr. Molon’s evidence corroborated the Applicant’s testimony on these issues in many respects. Based on the evidence of the Applicant and Mr. Molon I find as follows:

a) Although the Applicant eventually agreed after much encouragement from the Respondent and Mr. Molon to open Harmony, she was never comfortable in her role as a business owner. Mr. Molon described her in this role as being akin to “a square peg in a round hole.” She had tremendous difficulty carrying out tasks of a managerial nature, and preferred to simply focus on her work as a ceramist. She readily acknowledged that she had no business savvy or understanding of any of the financial aspects of the business, and that she left those aspects of the operation primarily to her business partners.

b) The Applicant improved in her managerial abilities to a certain extent prior to the parties’ separation in June 2009. However, even prior to the parties’ separation, she found her responsibilities at Harmony to be overwhelmingly stressful. She testified that she began having to work considerable amounts of overtime when the Respondent worked the day shift in order to keep up on her work. The Respondent agreed that the Applicant’s work hours increased significantly after Harmony opened. The Applicant also spoke about the increase in her stress levels causing her hair to begin to fall out. The Respondent acknowledged that he recalled the Applicant talking to him about this concern during the latter part of the marriage.

c) As I have previously indicated in these Reasons, I find that the Applicant suffered a serious decline in her mental health and coping abilities following the separation. I have noted earlier in these Reasons that Mr. Molon took over most managerial responsibilities relating to Harmony from June 2009 onward as a result of the Applicant’s inability to cope with her work-related obligations, and that the Applicant began to spend significant amounts of time at the Aurum laboratory in Stoney Creek so that she would have emotional support from other staff.

d) The Applicant’s mental and physical wellbeing deteriorated to the point that she began having problems sleeping, her hair continued to fall out and she became depressed. Her family physician prescribed medication to help her sleep, and eventually prescribed her cipralex for her depression. The Applicant was gradually able to taper off these medications, and is now taking a health food alternative to regulate her mood and a homeopathic remedy to help her sleep.

e) The Applicant’s mental health problems seriously affected the operations and success of Harmony. Because of her inability to handle her responsibilities, the Applicant began to send increasing amounts of work to Aurum and another lab, and she lost several accounts with dentists because she could not complete the work on time.

f) The Applicant also experienced difficulty juggling her responsibilities at work with her child care responsibilities following the separation. Jessie has been primarily with her since June 2009, and Paige has often been in her care as well. She was no longer able to work overtime like she had in the past, and this contributed to her being unable to keep on top of the work and losing valuable clients. As a result of her problems coping with her responsibilities, the Applicant approached Mr. Molon and Mr. Marino several times prior to 2012 about “getting out of” Harmony. By 2012, she told then that she could no longer continue as an owner of Harmony and insisted that plans be implemented to allow her to terminate her ownership interest. By that time, the Applicant felt that she would become a “broken mother,” to use her words, if she had continued with Harmony.

[157] Based on the foregoing findings, I conclude that the Applicant’s decision to end her involvement with Harmony was necessary in order to preserve her mental health and to allow her to cope with her responsibilities at home as a single mother. I accept her evidence that if she had continued with Harmony, her mental health would have continued to deteriorate to the point that she would have become ineffective as a parent. I am also satisfied that she would have become increasingly overwhelmed and unable to cope with her work commitments, and that this would have resulted in ongoing challenges for the business and for Aurum, which had already been propping the company up financially and with staffing support for approximately three years. Having regard for these findings, I conclude that it would have been unreasonable to expect the Applicant to persevere with her ownership of Harmony.

ISSUE # 4: DETERMINATION OF THE RESPONDENT’S INCOME

[158] A determination of the Respondent’s income since 2009 is also necessary in order to address both the child support and spousal support issues. I make the following findings regarding the Respondent’s income for the years 2009 to 2012:

2009:

Employment Income: $47,516.00

Adjustment pursuant to Guidelines Schedule III for dues related to performance of duties: ($748.00)

TOTAL: $46,768.00

2010:

Employment Income: $47,673.00

Adjustment pursuant to Guidelines Schedule III for dues related to performance of duties: ($776.00)

TOTAL: $46,897.00

2011:

Employment Income: $ 10,600.00

Workers’ Compensation Benefits: $ 27,508.00

Tax Gross-up on Workers’ Compensation Benefits: $ 4,226.00

Adjustment pursuant to Guidelines Schedule III for dues related to performance of duties ($ 173.96)

TOTAL: $42,160.00

2012:

Employment Income: $51,207.00

Adjustment Pursuant to Guidelines Schedule III for dues related to performance of duties: ($821.00)

TOTAL: $50,386.00

[159] With respect to the year 2013, the Respondent produced a pay statement from John Crane for the pay period ending March 24, 2013. That pay statement indicated that as of that time, the Respondent had earned gross employment income of $13,614.61, and that this was the seventh pay statement of twenty six that would be issued during the year. Based on this information, I find that the Respondent’s average gross pay per pay period as of that time was $1,945.00, and that the Respondent will earn at minimum $50,569.00 in 2013. However, I note that the pay statement does not include overtime pay. The Respondent testified that he has not accepted any overtime yet in 2013, but that overtime is available to him and that he does do overtime when possible. His regular rate of pay is $26.77 per hour. He testified that when overtime is available, it occurs on Saturdays and is only offered to employees who have not done the afternoon shift. He did not provide any satisfactory explanation as to why he has not accepted any overtime in 2013 on weekends when the children have not been with him. I am satisfied that the Respondent should be able to do at least six overtime shifts per year, with the result that he could increase his income by approximately $1,285.00 per year. I did not receive any evidence respecting the Respondent’s anticipated annual union dues, and I will therefore rely on the amount which he paid for these dues in 2012. Based on the foregoing, I find that the Respondent’s estimated 2013 income will be as follows:

2013:

Employment Income: $51,854.00

Adjustment Pursuant to Guidelines Schedule III for dues related to performance of duties: ($821.00)

TOTAL: $51,033.00

ISSUE # 5: CALCULATION OF CHILD SUPPORT

[160] As previously stated, I have concluded that the Respondent is not entitled to pursue his claim for retroactive child and spousal support for the period from the parties’ separation until the commencement of these proceedings in March, 2011. However, I have determined that even if he had been able to pursue these claims, the Applicant would not have owed the Respondent any retroactive child or spousal support. I have calculated the amounts of child and spousal support that would have been payable from June 2009 until March 2011 in order to address this alternative conclusion. I make the findings set out below as to what the parties’ respective monthly child support obligations would have been since their separation in 2009.

2009:

[161] I have concluded that for the month of June 2009, Paige and Jessie were both residing primarily with the Applicant. Based on the Respondent’s 2009 income of $46,768.00, his child support liability pursuant to the Tables in effect at that time for two children was $707.00.

[162] From July 1, 2009 until December 21, 2009, there was a split custody situation in effect, with Paige living primarily with her father and Jessie residing primarily with her mother. The straight set-off formula applies by virtue of section 8 of the Guidelines. Based on the Applicant’s 2009 income of $81,018.00 and the Respondent’s 2009 income of $46,768.00, the monthly set-off amount which the Applicant would have owed to the Respondent in accordance with the Tables in effect at that time would have been $295.00. The total amount which she would have owed for the six month period would have therefore been $1,770.00.

[163] With respect to section 7 expenses, the calculation of income for the purposes of determining the parties’ proportionate shares involves deducting from the spousal support payor’s income the amounts paid to the recipient for spousal support and including spousal support received as part of the recipient’s income. Based on my conclusions set out below regarding the amount of spousal support which would have been payable by the Applicant in 2009, I find that the Applicant’s income for the purposes of calculating section 7 expense contributions was as follows:

Total 2009 income for child support purposes: $81,018.00

Total 2009 spousal support that would have been payable to Respondent: ($ 2,481.00)

Total: $78,537.00

[164] The Respondent’s income for the purposes of calculating section 7 contributions for 2009 was as follows:

Total 2009 income for child support purposes: $46,768.00

Total 2009 spousal support that would have been payable to Respondent: $ 2,481.00

Total: $49,249.00

[165] Based on the foregoing, the parties’ proportionate shares with respect to section 7 expenses for 2009 would have been 61% for the Applicant and 39% for the Respondent. I have considered the issue of dance fees which the Applicant paid for Jessie and Paige in 2009 in the amount of $720.00, covering the months of September to December 2009. I am satisfied that this expense qualifies as an extraordinary expense towards which the Respondent should have contributed. The evidence indicates that Jessie and Paige had both been participating in dance prior to the separation, and that this was an expense which both parties had agreed to incur before June 2009. I find that this was an activity that was important to both children, and that it was in their best interests to continue with this activity given their previous involvement in dance and the challenges which they experienced at the time as a result of their parents’ separation. I am also satisfied that the expense was beyond what the Applicant could reasonably cover. She was living in an apartment to minimize her expenses at that time, since the Respondent was residing in the matrimonial home. Her net worth was only approximately $25,000.00, the majority of which consisted of her interest in Harmony. Taking into consideration the parties’ combined incomes in 2009, I conclude that the children’s dance expense was reasonable. The net amount of the dance expense after taking into consideration the child fitness tax credit was $612.00. The Respondent should have contributed $238.00 to this expense.

2010:

[166] I have found that both children were primarily with the Applicant during the year 2010. Further to this finding, the Respondent’s child support liability to the Applicant for two children in accordance with the Tables, based on his 2010 income of $46,897.00, was in the amount of $709.00 per month. The total Table amount which he would have owed the Applicant for 2010 would have therefore been $8,508.00.

[167] With respect the section 7 expenses for 2010, the parties’ incomes for the purposes of section 7 apportionment must be determined. For reasons outlined later in these Reasons, I conclude that the Applicant’s spousal support liability for 2010 onward would have been based on her 2009 income of $81,018.00, and would have been at the mid-range level under the SSAG. Her total spousal liability for 2010 based on that income would have been $5,955.00. This figure is based on apportioning of section 7 expenses using the Applicant’s 2009 income. As discussed in further detail below, the final spousal support liability for 2010 has been adjusted to reflect that section 7 contribution calculations were based on the Applicant’s actual annual income for 2010. The Applicant’s income for the purposes of calculating contributions to section 7 expenses in 2010 would have been as follows:

Total 2010 income for child support purposes: $85,172.00

Total 2010 spousal support that would have been payable to the Respondent based on Applicant’s 2009 income: ($ 5,955.00)

Total: $79,217.00

[168] The Respondent’s income for the purposes of calculating the parties’ respective contributions to section 7 expenses would have been as follows:

Total 2010 income for child support purposes: $46,897.00

Total 2010 spousal support that would have been payable to the Respondent: $ 5,955.00

TOTAL: $52,852.00

[169] The parties’ proportionate shares with respect to section 7 expenses for 2010 would have therefore been 60% for the Applicant and 40% for the Respondent. The Applicant incurred expenses relating to dance registration fees and dance supplies for Jessie and Paige in the amount of $2,757.22 in 2010. I am satisfied that these expenses are s. 7 extraordinary expenses, for the same reasons as I have outlined above with respect to dance expenses in 2009. In addition, Paige and Jessie were involved in a theater program through Theatre Aquarius in 2010. The Applicant incurred fees totalling $790.00 for both children in 2010. I find that the Respondent was aware of the children’s participation in this program and did not have any objection to their involvement in this extracurricular activity. The children were only involved in two activities, and the fees involved were in my view reasonable. I find that the children very much enjoyed their involvement in the theatre program, and that it was in their best interests that they be involved in theater. Having regard for these factors and the combined incomes of the parties in 2010, I conclude that these expenses fall within the definition of section 7 extraordinary extracurricular expenses. The total amount of section 7 expenses which the Applicant incurred in 2010 for dance and theater was approximately $3,500.00. The net amount of the expenses after taking into consideration the child fitness tax credit was $3,350.00. The Respondent’s proportionate-to-income share would therefore have been $1,340.00.

2011:

[170] I have also found that both children resided primarily with the Applicant during the year 2011. Further to this finding, the Respondent’s child support liability to the Applicant for two children in accordance with the Tables, based on his 2011 income of $42,160.00, was in the amount of $639.00 per month. The total Table amount which he would have owed the Applicant for 2011 would have therefore been $7,668.00.

[171] Based on my conclusions regarding the spousal support that would have been payable by the Applicant in 2011, with section 7 expenses apportioned according to the Applicant’s 2009 income, I conclude that the Applicant’s income for the purposes of section 7 expenses in 2011 would have been as follows:

Total 2011 income for child support purposes: $85,225.00

Total 2011 spousal support that would have been payable to the Respondent based on Applicant’s 2009 income: ($ 6,978.00)

Total: $78,247.00

[172] The Respondent’s income for the purposes of calculating the parties’ respective contributions to section 7 expenses would have been as follows:

Total 2011 income for child support purposes $42,160.00

Total 2011 spousal support that would have been payable to the Respondent $ 6,978.00

TOTAL: $49,138.00

[173] The parties’ proportionate shares with respect to section 7 expenses for 2011 would have therefore been 61% for the Applicant and 39% for the Respondent. The Applicant incurred expenses relating to dance and theater in the amount of $4,712.54 in 2011. The increase in the cost of these activities was attributable to the children moving to competitive dance. The parties both testified that they struggled financially following the separation. I have reviewed the Applicant’s Financial Statement sworn July 12, 2012 and the Respondent’s Financial Statements sworn April 18, 2011 and December 20, 2012 to obtain an understanding of their respective financial positions. The Applicant’s Financial Statement sworn July 12, 2012 did not include the children’s dance and theater related expenses. If the expenses had been included, she would have shown a monthly surplus of approximately $1,280.00. However, her housing expenses were extremely low as she was living in a small apartment and attempting to save up for a house. The Respondent showed a monthly deficit of approximately $1,180.00 in his Financial Statement sworn December 20, 2012. Having regard for the parties’ respective financial situations in 2011, I conclude that it was not reasonable to expect the Respondent to contribute to the additional expenses related to competitive dance. I find that the amount of $3,500.00 which the Applicant incurred for extracurricular activities in 2010 was the upper limit of what was reasonable having regard for the parties’ respective financial situations, and I have therefore used that figure for the purposes of the section 7 calculation. The net amount of this expense after applying the child fitness tax credit was $3,350.00. The Respondent’s proportionate share would therefore have been $1,306.00.

2012:

[174] I have concluded that there was a hybrid child care arrangement in effect for the year 2012, with Jessie living primarily with her mother and Paige spending equal amounts of time with each parent. The starting point for determining the child support that would have been payable under this arrangement is to do a set-off Guidelines calculation based on two children being primarily with the Applicant and one child being primarily with the Respondent. This calculation yields the following result:

Table amount for one child based on Applicant’s income of $87,493.00:

$781.00 x 12 months: $9,372.00

Table amount for two children based on Respondent’s Income of $50,386.00:

$749.00 x 12 months: ($8,988.00)

Total Owed by Applicant to Respondent: $384.00

[175] I have considered the principles which the Supreme Court of Canada set out in Contino and Sadkowski respecting the situations in which it may be appropriate for the court to make adjustments to the set off amount in shared custody arrangements. I am not satisfied that the set-off amount would have been appropriate in this case, based on the evidence which I received regarding the amounts which each party spent on the children for necessities other than food and housing-related expenses, such as clothing, footwear, hair and cosmetic supplies, school supplies and bus passes.

[176] The Applicant entered as evidence receipts and a summary of the extensive amounts which she spent for the children on these categories of essential items. She testified that she recalls the Respondent on one occasion taking Paige to purchase some supplementary school supplies after she purchased the majority of the supplies. She recalled the Respondent purchasing one item of clothing for Jessie since the parties’ separation, and only a handful of clothing items for Paige since the separation. The Respondent testified that he spent money on both children for items such as clothing, footwear, school supplies and transportation. However, I did not find him credible in his testimony on this issue. He acknowledged that he received a brief from the Applicant in 2012 which included copies of all of the receipts which she had been collecting regarding her expenditures on the children. However, he did not produce a single receipt himself regarding any expenses which he incurred on the children for these types of necessities. With respect to the year 2012, in his Financial Statement sworn December 20, 2012 he did not list any expenses under the headings “Transportation” or “School Fees and Supplies” and under “Hair and Beauty” he noted that he only spent $25.00 per month. Under the heading for “Clothing for Children” he noted that he spent $150.00 per month. However, when he was cross examined on his bank records for the period from December 2012 to April 2013, he was unable to identify a single item which related specifically to children’s clothing. His explanation was that he would withdraw cash from his bank account during the latter parts of the month in order to ensure that he did not go into overdraft when using his debit card, and that he would use some of the cash funds for expenses relating to the children such as clothing. However, in the month of December 2012, he only made one withdrawal from his bank account totalling $100.00. Moreover, I found him to be flustered and anxious in giving his testimony regarding the extent to which he contributed to the children’s basic needs apart from his housing and food expenses for the children. He was unable to provide specifics of the types of items that he had purchased other than stating that he had given Paige $80.00 in April 2013. The Applicant acknowledged in her testimony that the Respondent had given Paige money in April to purchase clothing. Overall, I found the Applicant very credible regarding the amounts which she spent on the children’s basic necessities other than housing and food related expenses, and I found the Respondent not credible. I conclude that the Applicant has paid the vast majority of the children’s basic expenses since the separation. With respect specifically to the year 2012, I find that she incurred the following amounts on the children’s basic necessities apart from housing and food related expenses:

Clothing and Footwear: $2,131.79

Books and School Supplies: $ 147.94

Hair and Cosmetic Supplies: $ 22.92

Bus Passes: $ 284.00

TOTAL: $2,586.65

[177] This total is a conservative figure, as the Applicant produced a number of receipts for clothing, hair and cosmetic supplies which were not dated, and which I have therefore not included in the 2012 calculation. I have therefore rounded the figure up to $2,600.00. I have not considered certain other items which the Applicant stated that she purchased for the children, such as telephone expenses and home décor, as I do not consider these to be basic necessities. Based on the Applicant’s evidence, I am satisfied that approximately 50% of this amount ($1,300.00) was attributable to Paige, who was in the Respondent’s care for half of the time in 2012.

[178] This case highlights the inherent difficulties with the straight set-off approach in shared custody and hybrid child care arrangements where one parent assumes primary responsibility for the payment of basic necessities for the children apart from food and housing related expenses. in the other parent’s home. The set-off formula assumes that each parent is contributing to these types of expenses on a reasonably equitable basis having regard for their respective financial situations. In cases such as this one, where it is evident that one parent has been assuming the lion’s share of the load respecting these expenses, adjustments will often be necessary in order to ensure that the parent who is not paying their share does not receive a windfall. The manner in which the court makes such adjustments will ultimately be a matter of discretion having regard for the evidence adduced in each particular case.

[179] In determining the appropriate adjustment which should be made to the basic economies of scale set-off calculation, I have started by apportioning the sum of approximately $1,300.00 which the Applicant incurred on Paige for the basic necessities under discussion as between the parties on a proportionate-to-income basis, using the same approach as I have used with respect to section 7 expenses. Based on my conclusions regarding the spousal support that would have been payable by the Applicant in 2012, I conclude that the Applicant’s adjusted income for the purposes of section 7 expenses in 2012 would have been as follows:

Total 2012 income for child support purposes: $87,493.00

Total 2012 spousal support that would have been payable to Respondent based on Applicant’s 2009 income: ($ 3,390.00)

Total: $84,103.00

[180] The Respondent’s income for the purposes of calculating the parties’ respective contributions to section 7 expenses would have been as follows:

Total 2012 income for child support purposes $50,386.00

Total 2012 spousal support that would have been payable to Respondent $ 3,390.00

TOTAL: $53,776.00

[181] Based on the Applicant’s 2012 adjusted income of $84,103.00 and the Respondent’s 2012 adjusted income of $53,776.00, the parties’ respective proportionate shares to the amount of $1,300.00 which the Applicant incurred on behalf of Paige would have been Applicant 60% and Respondent 40%. The Respondent’s 40% share would have been $520.00. I have reduced this amount slightly, based on the Applicant’s evidence that the Respondent purchased some school supplies for Paige and a handful of clothing articles since the separation. I have concluded that the sum of $300.00 ($25.00 per month) is a reasonable amount to apply as a credit in favour of the Applicant with respect to her 2012 child support liability. This analysis yields the following final results regarding the child support calculation for 2012:

Total owed by Applicant to Respondent Based on straight economies of scale set-off analysis: $384.00

Credit due to Applicant for overpayment respecting Paige’s basic expenses other than food and housing expenses ($300.00)

Total Owed by Applicant to Respondent: $ 84.00

[182] Turning to section 7 expenses, I find that the Applicant incurred $6,573.95 in relation to dance and theater classes in 2012. The further increase in the cost of these activities was attributable to the children continuing with competitive dance. For the same reasons which I outlined above in relation to the section 7 expenses for 2011, I conclude that the sum of $3,500.00 was the upper limit for extracurricular expenses which the parties could reasonably afford, and I have therefore used that amount for the 2012 section 7 calculation. The net amount of this expense after applying the child fitness tax credit would have been $3,350.00. The Respondent’s proportionate 40% contribution would have been $1,340.00.

2013

[183] As I have previously indicated, the child and spousal support calculations will also be undertaken on the basis of a hybrid child care arrangement for 2013 and onward. The economies of scale straight set-off approach results in the Applicant owing the Respondent child support for one child in the amount of $801.00 per month based on her annual income of $90,043.00, and the Respondent owing the Applicant $759.00 per month for two children based on his income of $51,033.00. The set-off amount is therefore $42.00 per month owed by the Applicant to the Respondent.

[184] I find that adjustments to the straight set-off approach should continue to be made for 2013 and onward on account of the Applicant continuing to assume most of Paige’s expenses for basic necessities other than housing and food expenses. Furthermore, as I have previously noted, although a hybrid child care arrangement is being assumed for 2013, the evidence indicates that to date, Paige has been residing primarily with the Applicant. I accept the Applicant’s evidence that she continues to pay for almost all of Paige’s necessities. A review of the Applicant’s evidence regarding the expenses which she has already incurred in relation to the children’s necessities other than housing and food related items from January to April 2013 reveals the following amounts:

Clothing and Footwear: $690.34

Books and School Supplies: $80.62

Transportation: $284.00

TOTAL: $1,054.96

[185] Based on this spending in the first quarter, I find that the Applicant’s spending on the children’s basic necessities apart from housing and food costs has increased this year. Considering this evidence of increased expenditure by the Applicant, I have concluded that an annual credit to the Applicant of $500.00, or approximately $42.00 per month, is reasonable on a go-forward basis commencing January 2013. This analysis yields the result that the Applicant does not have any liability for child support for 2013 and onward, since the monthly child support that would be payable by the Applicant according to the straight economies of scale set-off approach is offset by the monthly credit that would be due to her on account of overpayment for Paige’s daily necessities. Accordingly, an order shall issue that there be no monthly child support payable by either party commencing May 1, 2013.

[186] With respect to section 7 expenses in 2013, the Applicant testified that she incurred a total of $280.00 per month for dance for both children up to May, 2013. She stated that Paige had quit dance, and that this monthly amount would therefore go down as of June 2013. The total amount which she incurred with respect to dance up to May 2013 was $1,400.00. The Applicant also testified that Paige will be starting singing lessons in the near future. She was still in the process of exploring the options for voice lessons. I find that it is reasonable to conclude that the Applicant will continue to incur at least $3,500.00 annually for the children’s extracurricular activities. However, the exact amount of the costs which the Applicant will incur is uncertain at this point. I have decided that the most appropriate course of action is to take these extracurricular activity expenses into account as part of the spousal support analysis, rather than making an order for contribution by the Respondent to the expenses. There is a tremendous amount of conflict between the parties, and to require them to regularly reconcile accounts for these types of expenses and address any disputes that may arise will simply add fuel to an already raging fire. Taking s. 7 extracurricular expenses into account as part of the spousal support analysis will minimize opportunities for future conflict.

[187] With respect to section 7 expenses other than extracurricular activities, the Applicant’s adjusted income is as follows:

Total 2013 income for child support purposes: $90,043.00

Total 2013 spousal support payable to Respondent based on Applicant’s 2009 income: ($ 2,796.00)

Total: $87,247.00

[188] The Respondent’s income for the purposes of calculating the parties’ respective contributions to section 7 expenses is as follows:

Total 2013 income for child support purposes $51,033.00

Total 2013 spousal support payable to Respondent based on Applicant’s 2009 income: $ 2,796.00

TOTAL: $53,829.00

[189] The parties’ proportionate contributions for section 7 expenses other than extracurricular activities are therefore 62% for the Applicant and 38% for the Respondent.

ISSUE # 6: WHAT IS THE BASIS OF THE RESPONDENT’S ENTITLEMENT TO SPOUSAL SUPPORT

[190] The Applicant acknowledges that the Respondent has established a needs-based claim for spousal support, having regard for the parties’ cohabitation for a period of approximately seventeen years, the fact that they merged their financial affairs during the relationship, and the disparity between the parties’ respective incomes. There is disagreement between the parties, however, as to whether the Respondent has established a compensatory basis for entitlement to spousal support. The Applicant denies that a compensatory claim has been established, whereas the Respondent bases his claim on both non-compensatory and compensatory grounds. A determination of the basis for the spousal support entitlement is critical as the starting point for the spousal support analysis, as it will inform the issues of whether the Respondent should be entitled to share in any of the Applicant’s post-separation income increases, quantum of spousal support and duration of the spousal support award. For the reasons that follow, I am not satisfied that the Respondent has proven on a balance of probabilities that he has a compensatory basis for his spousal support claim.

[191] The Respondent founds his argument respecting a compensatory claim on the contributions which he made to the care of the children both before the Applicant opened Harmony and afterwards, contributions to general household responsibilities during the parties’ cohabitation, and the support and assistance which he provided to the Applicant with respect to the establishment, development and growth of Harmony. In determining the basis for the Respondent’s spousal support claim, I have considered first whether the Respondent made any contributions which assisted the Applicant in obtaining her Registered Dental Technologist designation. I conclude that he did not. The Applicant acquired this certification in 1994, two years after the parties married and before the parties had children. There is no evidence that the Respondent financed this specialized training or assumed any additional household responsibilities while the Applicant acquired her training. On the basis of the evidence adduced at trial, I find that both parties continued to work while the Applicant completed her courses and examinations. I am not satisfied that the Respondent made any personal or career sacrifices during the first two years of the parties’ marriage to assist the Applicant in upgrading her skills and qualifications, or that he provided any other tangible contributions to the Applicant achieving her designation.

[192] I have also considered the evidence respecting the parties’ respective contributions to household and child care responsibilities, and the extent of their personal and professional sacrifices for the benefit of the family following the birth of Paige in 1998. The parties both acknowledged and I find that the Applicant took six months off for maternity leave after Paige was born, and that she also took a six month maternity leave following Jessie’s birth. The Applicant alleges that she was the primary caregiver for the children during the course of the parties’ relationship. She stated that when the children were young, she was the parent who almost always fed them, changed their diapers and took care of their basic needs. The Applicant stated that once she returned to work, she was primarily responsible for the children every morning, and was the only parent at home in the evenings when the Respondent was working the afternoon shift from 3:00 p.m. until 11:00 p.m. She recalls that she was always the parent who arranged the children’s activities and who set up and attended their medical, dental and other health related appointments. She described the work involved with the children’s dance activities, including obtaining the costumes and other necessities for recitals and competitions and getting the children ready for these events, and she stated that she was the parent who carried out these tasks. With respect to school, she stated that she attended parent teacher interviews, and that she recalled the Respondent attending only one such interview in an intoxicated state.

[193] The Applicant acknowledged that the Respondent sometimes took the children to their activities or picked them up, but insisted that she was the one who usually did so. She provided details regarding the children’s day-care and school arrangements after she returned to work, and alleged that she did the majority of the drop off and pick-up of the children to and from day-care.

[194] The Applicant also acknowledged that she worked longer hours after Harmony opened in 2005. She explained that she would arrange to work overtime to complete her work during the weeks when the Respondent worked the day shift, from 7:00 a.m. until 3:00 p.m., so that the Respondent could be with the children at night. However, she emphasized that on those days, she had primary responsibility for the children in the morning since the Respondent had to leave for work very early in the morning. She also described the household situation as chaotic when she returned home at night, because in her opinion the Respondent would not have completed any household chores and would not ensure that the home was tidy in time for her return. In addition, she indicated that when the Respondent worked the afternoon shift, from 3:00 p.m. until 11:00 p.m., she was with the children at night.

[195] The Applicant alleged that she was also responsible for general household chores such as cooking, cleaning the home and laundry. She stated that the Respondent rarely assisted in those areas. She acknowledged that the Respondent did some renovation and yard work around the home, but stated that she contributed equally to the yard work. She also admitted that the Respondent was responsible for paying the household bills, but stated that she did this for the first three years of the marriage.

[196] According to the Applicant, the Respondent had alcohol issues which undermined his attention and commitment to household and childcare responsibilities. She testified that she began to notice that the Applicant had problems with alcohol during her maternity leave after the birth of Paige. She explained that the Respondent often went out drinking rather than returning home after work, and described him as being verbally aggressive and very intimidating when he was intoxicated.

[197] The Respondent adamantly denied that he has ever had any issues with alcohol, and he painted a very different picture of his contributions to the care of the children and household chores during the parties’ relationship. He stated that he participated in carrying out basic child care tasks such as feeding, dressing and changing diapers when the children were infants. He described various activities which he would do with the children as they got older, and stated that he often took the children to and from their activities. He recalled that when Jessie was born, he became even more involved with Paige because the Applicant was busy with the challenges of caring for an infant. He stated that when the Applicant returned to work after her maternity leaves, he would often pick the children up from daycare or school when he worked the day shift from 7:00 a.m. until 3:00 p.m. He indicated that when Jessie was in half days for school, he would also pick her up from school and take her to daycare when he was on afternoon shift. With respect to indoor household chores, he stated that he often cooked when he was on day shift, and that he participated in cleaning the house.

[198] The Respondent stated that his primary responsibilities at home revolved around household improvements, yard work and tasks relating to the parties’ vehicles. He described a number of home renovations which he worked on or coordinated with contractors and tradespeople. He acknowledged that the Applicant assisted with some of the upgrading work on the home such as wood stripping, staining and painting. He explained that the yard work for the matrimonial home is intensive because of the number and size of the gardens and hedges.

[199] The parties’ clearly had very different versions of their respective contributions to household and child-related responsibilities. Credibility was therefore an important consideration with respect to this issue. With both parties, I found them to be very credible on some points and less so with respect to other aspects of their testimony in this area. Focussing first on the Applicant’s testimony, she presented as extremely hostile, resistant and angry in her responses to questions about the Respondent’s role during the marriage. She avoided questions, was sarcastic in her answers and cut off the Respondent’s counsel many times when he attempted to put questions to her. Her attitude was so problematic that it was necessary for me to caution and re-direct her a number of times. It eventually became necessary for me to take a break so that she could compose herself. When she acknowledged contributions by the Respondent to household chores, she did so reluctantly and typically only after emphasizing her role with respect to the tasks that she was being asked about.

[200] With respect to the Applicant’s testimony regarding the Respondent’s use of alcohol, I found her credible in her descriptions of situations when alcohol appeared to have impacted on the Respondent’s conduct and the parties’ relationship. She acknowledged that she did not have any concerns about the Respondent’s consumption of alcohol until after the birth of Paige. She was able to recall specific incidents when the Respondent returned home for work intoxicated, and details about the conflict that ensued between the parties when this occurred. She was also able to provide very specific details about the Respondent’s drinking patterns. The Applicant was extremely emotional and teary when discussing the Respondent’s issues with alcohol. She presented as genuinely distressed and regretful that this was a problem during her marriage, and described attending Alcoholics Anonymous for support when she first separated briefly from the Respondent in 2002. Her testimony was free-flowing and spontaneous and did not appear at all to be rehearsed. During her description of events, she was at times fair to the Respondent in describing his conduct. For instance, during the most emotional portion of her testimony, she explained that the Respondent did not always behave inappropriately when he returned home from work, and that problems only arose when he had been drinking.

[201] As noted above, the Respondent denied that he experienced any issues whatsoever with alcohol. He stated that he only went out drinking occasionally, and that any conflict between the parties was primarily attributable to the Applicant’s moods. Given the detail which the Applicant was able to provide on the issue of his alcohol use during the marriage, I did not find him to be credible on this point. I accept the Applicant’s evidence that his excessive consumption of alcohol was a problem during the relationship, and that this did at times impact on the level of his contribution to child care and household chores.

[202] I find, however, that the Respondent was on the whole credible regarding the types of contributions which he made to household and child-related responsibilities during the marriage. He freely acknowledged areas where his role was limited, such as cooking, cleaning, laundry and putting the children to bed at night. He was fair in acknowledging the role which the Applicant had in home renovation work that the parties carried out on the home. With respect to yard work and the work that he carried out on the parties’ vehicles, he was able to provide detailed descriptions of the tasks that he was responsible for.

[203] Upon carefully considering the parties’ evidence and assessing their overall credibility regarding their contributions in the areas of child care and household management, I conclude that both made different but generally equal contributions for the benefit of the family. Specifically, I find as follows:

a) The Applicant carried out most tasks relating to the children, but the Respondent assisted in this area.

b) The Respondent carried out most tasks relating to yard work and maintenance on the family vehicles, but the Applicant assisted with yard maintenance.

c) The Respondent was primarily responsible for carrying out a number of renovations and upgrades on the home, but the Applicant assisted him on a number of projects.

d) The Applicant both worked throughout the marriage, and each of them watched the children when the other parent had work commitments. The Applicant was primarily responsible for the children in the mornings, and was the only parent at home at night when the Respondent worked the afternoon shift. I find that prior to the opening of Harmony in 2005, the Applicant’s child care role in the evenings was greater than the Respondent’s, as she worked regular days and did not have overtime work responsibilities. However, the Respondent’s role became relatively equal to the Applicant’s in this area after Harmony became busier from 2006 onward, because the Applicant would sometimes work overtime to catch up on her work when the Respondent was on day shift.

e) Both parties were involved in transporting the children to and from activities, daycare and school. I find that they worked cooperatively with each other in this area based on their respective work schedules and commitments.

[204] The Respondent’s compensatory spousal support claim is also based on his contributions to the development and success of Harmony. I accept that the Respondent assisted and supported the Applicant with respect to Harmony. However, for the reasons that follow, I find that he did not make the types of contributions or personal sacrifices that would provide a foundation for a compensatory support claim.

[205] Both of the parties as well as one of Harmony’s owners, Frank Molon, provided evidence respecting the Respondent’s involvement with Harmony. I find based on the evidence of both parties and Mr. Molon that Mr. Molon and his business partner at Aurum, Gino Marino, approached the Applicant several times starting in approximately 2004 about the possibility of partnering to open a new dental laboratory, but that the Applicant initially resisted these overtures because she did not feel that she had the necessary business experience or savvy to succeed in such a venture. I find that although the Applicant initially had some reservations about becoming a business owner, the Respondent encouraged her to pursue this venture, and she eventually voluntarily embraced the opportunity of setting up Harmony with knowledge that she would receive assistance and support from both the Respondent and her business partners.

[206] The evidence of both parties and Mr. Molon was in certain respects consistent regarding the Respondent’s involvement in getting Harmony up and running. Based on their evidence, I find as follows:

a) Frank Molon and Gino Marino initially attempted to facilitate a partnership between the Applicant and two brothers to open a dental laboratory in Burlington. The Respondent was involved in a number of meetings and discussions about this possible business venture, but the parties did not pursue that partnership because the Respondent did not feel comfortable with the proposed partners.

b) The Respondent was involved in many meetings relating to the planning and development of Harmony starting in approximately early 2005. The Applicant was involved in some of these meetings.

c) Gino Marino and Frank Molon obtained information regarding various possible locations to establish the laboratory. They scouted out several possible locations, and the Respondent accompanied them to those sites.

[207] There was inconsistency in the evidence of the Applicant and Mr. Molon on the one hand, and that of the Respondent regarding the extent of the Respondent’s involvement in the building of the Harmony premises. I find that once the Harvester Road location in Burlington was chosen for the business, extensive construction work was required over a five month period from the spring of 2005 until October 2005 to create the laboratory. I also find that the Applicant had very limited involvement in this part of the development of the business. The Respondent suggested that he had primary responsibility for overseeing this work, and described himself as “the general contractor.” He acknowledged, however, that he continued to work full time with John Crane during this five month period. The Applicant acknowledged that the Respondent was involved in the building phase, but testified that the construction project was a group effort that was managed and overseen by a general contractor named Carmen, whose last name she believed to be either Figliola or Figlioli. Mr. Molon also testified that he was at the job site most of the time, and that a general contractor was hired to oversee the construction of the laboratory. Considering the evidence as a whole, I find that the Respondent overstated his role in connection with the construction of the Harmony premises. Although he had some involvement in the planning and construction of the site, he did not assume primary responsibility for designing and overseeing the building of the laboratory.

[208] The Respondent alleged that he also made contributions to the operation of Harmony once the business was operational. His evidence regarding the extent of this contribution was generally consistent with that of the Applicant and Mr. Molon. Based on the evidence of the parties and Mr. Molon, I find that the Respondent initially helped occasionally with pick-up and deliveries of products, did computer backups and completed month end accounting statements. When Harmony hired another employee in 2006, that person took over the pick-up and delivery role and the task of completing month end statements. The Respondent’s role after that point became much more limited. It involved participating in occasional meetings with Mr. Molon and Mr. Marino about the business, backing up the computer systems, and reviewing the company’s financial statements once they were completed.

[209] I have considered the nature and extent of the parties’ respective contributions for the benefit of the family and Harmony. The evidence supports a conclusion that overall, over the course of the marriage, both parties contributed relatively equally to the success and advancement of the other party’s career and income earning potential. While the Respondent assisted and supported the Applicant in the development and operation of Harmony, the Applicant made more significant contributions overall to child care and household responsibilities. She took maternity leaves after Paige and Jessie were born and assumed a far greater proportion of the child care responsibilities prior to the opening of Harmony in October 2005 as a result of the Respondent’s work schedule.

[210] While the Respondent’s assistance with Harmony was valuable and should not be minimized, it was not in my view sufficient in and of itself to support a compensatory support claim. In reaching this conclusion, I have considered the limited time period over which he contributed to the business, from 2005 until 2009, and the degree of effort and time that he expended on the company. Although his efforts were more concerted in 2005 and early 2006, he was nonetheless able