Overview

[1] This is a motion by the applicant husband for:

(1) interim spousal support; and

(2) an equalization pre-payment of $200,000 to cover the applicant husband’s litigation expenses.

[2] The parties were married in August 1979 and separated in December 2009, ending a 30 year marriage. The parties are now both 59 years of age. There are two adult children.

[3] This is an unusual case. The applicant husband started, and ran, a successful art gallery business. During the marriage, for estate planning and asset protection purposes, the applicant husband organized the business as a corporation of which the respondent wife was the sole shareholder, officer and director. The principal asset of the Gallery, a commercial building on Queen Street, was transferred to the respondent wife as the sole owner. The Gallery rents the commercial premises from the respondent wife.

[4] It is common ground that:

(1) the family’s income during marriage was almost entirely derived from the Gallery business;

(2) the Gallery business was started by the applicant husband and his father and was run entirely by the applicant husband during the marriage;

(3) the respondent wife had essentially nothing to do with the operation of the Gallery during the marriage;

(4) since separation, the respondent wife has exercised considerably more control and influence over the operation of the Gallery than she did during the marriage; and

(5) the applicant husband’s ongoing day to day operation of the Gallery is, at this point in time, critical to the success of the Gallery and the ability of the business to generate ongoing income.

[5] These circumstances have resulted in the unusual situation that the Gallery, owned and controlled exclusively by the respondent wife, is being run by the applicant husband. His knowledge and contacts are critical to the success of the Gallery business and, therefore, the ability of the Gallery to generate income. It is, therefore, the applicant husband’s efforts which allow the Gallery to generate profits, which are the property of the respondent wife (as sole shareholder), from which the applicant husband says the respondent wife has the ability and obligation to pay interim spousal support.

[6] The solution to this problem is obvious. This potential solution has not been lost on the parties. However, they have been unable to come to terms. That is why the applicant husband now seeks interim spousal support and pre-funding of his litigation expenses from the respondent wife.

Interim Spousal Support

[7] The general principles which govern an award of interim spousal support are straightforward.

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

(a) the length of time the spouses cohabited;

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

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

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

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

Delay

[12] The respondent wife argues that the applicant husband delayed bringing this motion for three years after separation. This shows, she says, that the applicant husband requires no financial assistance and has no need for spousal support.

[13] The applicant husband takes the position that the parties were negotiating a solution under which he would have ended up owning the income producing assets. In that case, he says, he would have been the one obliged to pay spousal support, not the other way around. The respondent husband explains his delay in the basis that it was not until it became clear that the parties could not come to terms on the proposed ownership transfers that he felt compelled to seek interim spousal support based on the status quo.

[14] It is true that, notwithstanding the parties’ negotiations, the applicant husband could have brought a motion for interim spousal support. However, it seems clear that both parties took the early negotiations seriously and that there was, at one time, a realistic prospect of coming to terms along those lines.

[15] While the applicant husband’s delay is not an irrelevant consideration, I do not think it rises to the level of constituting a complete bar to the applicant husband’s motion. I will return to this issue later in these Reasons.

Income

[16] The main issue in dispute is each party’s income for spousal support purposes. In this regard both parties filed reports from accountants opining on what the parties’ appropriate incomes are.

[17] The respondent wife retained Mr. Sugar as a business consultant to assist her with oversight of the Gallery business post-separation. This retainer was expanded to include a calculation of the parties’ incomes based on an analysis of the Gallery’s income and various deductions and benefits etc. utilized by the parties.

[18] Mr. Sugar is not a family law income valuator by experience or training. His involvement in that capacity in this case appears to be his first income valuation project. He is, however, a qualified accountant with business experience who appears to have developed some understanding of the operations of the Gallery.

[19] In his February 2013 report, Mr. Sugar used a six-year average of gallery income data to calculate the parties’ incomes. He concluded that the applicant husband’s annualized income is $164,264 and the respondent wife’s annualized income is $154,837.

[20] Ms. White, of Duff & Phelps, was retained by the applicant husband and prepared an income valuation report in July 2013. Ms. White has a great deal of expertise and experience in preparing income valuations in family law matters.

[21] She concluded that the applicant husband’s income in 2012 was $98,000 or $109,000, depending on whether loans advanced to the applicant husband by the Gallery are, or are not, included it in his income. Ms. White concluded that the respondent wife’s income for 2012 ranged from $231,000 to $267,000, depending on whether professional fees paid to lawyers and to Mr. Sugar were business or personal expenses and whether those expenses should be grossed up for taxes.

[22] In his responding report dated September 6, 2013, Mr. Sugar advanced a critique of Ms. White’s report and offered an amended income calculation, using two scenarios. In scenario two, Mr. Sugar used the entire pre-tax income of the Gallery for his calculations. In that scenario, Mr. Sugar again concluded that the incomes of the parties were similar: $162,000 to the applicant husband and $206,000 to the respondent wife in 2012 (although, using a 2011/2012 average, he obtained imputed incomes that are virtually identical).

[23] Ms. White’s reply report is dated October 1, 2013. In that report Ms. White made certain adjustments to her income calculations, responded to a number of Mr. Sugar’s criticisms and set out her critique of Mr. Sugar’s second report. Ms. White concluded on her recalculated numbers that the applicant husband’s 2012 income was $110,020 and the respondent wife’s 2012 income was $253,095.

[24] In my view, Mr. Sugar’s six year averaging approach is not appropriate. The best evidence of income for current and ongoing interim support purposes is derived using 2012 numbers. Accordingly, although I have considered the relevance and effect of historical data, I have based my final income findings on 2012 data only.

Applicant Husband’s Income

[25] The principal causes of the disparity in these reports over the applicant husband’s income are car expenses, telecommunication expenses, club fees, advertising and promotion expenses, travel and loans from the Gallery to the applicant husband.

[26] In general, I find Ms. White’s reports more persuasive and reliable. Mr. Sugar is not an experienced income valuator. He has been learning from and responding to Ms. White’s criticisms as he goes.

[27] Also, Mr. Sugar is not in a position to offer objective, neutral advice, in part because a major swing in the calculation of the respondent wife’s income turns on the characterization of Mr. Sugar’s fees – a subject on which he is a fact witness (and has taken a clear position) on a matter of controversy in this litigation.

[28] I am also troubled by the extent to which Mr. Sugar has adopted the role of advocate in the respondent wife’s cause. While I do not think, in the context of a motion for interim support, these concerns are sufficient to render Mr. Sugar’s reports and opinions inadmissible, they are a factor (along with many others) to be taken into account in assessing the weight to be afforded his conclusions.

[29] In the context of vehicle use specifically, however, Mr. Sugar has performed some helpful factual and deductive analysis. In my view, the applicant husband’s undocumented, self-assessment of 60% business use is not, for purposes of this motion, sustainable. The figure of 33.3% business use, about $6,000, is the appropriate number.

[30] The country club fees should be treated as 50% business related. Club fees, however, in 2012, are essentially non-existent and make no material difference to the outcome. I accept Ms. White’s analysis and attribution of telecommunication expenses set out in paragraph 2.5.2 of her October 1, 2013 report. I also accept Ms. White’s conclusions on advertising and promotion and travel set out in paragraphs 2.5.4 and 2.5.5 of the same report.

[31] The loans to the applicant husband are appropriately treated as income, in accordance with the approach taken by Ms. White in paragraphs 2.6 to 2.8 of her October 2013 report. No gross up shall be imputed on the basis that tax will be payable in respect of these advances.

[32] I find the applicant husband’s income in 2012, for interim spousal support purposes, to be $114,000.

Respondent Wife’s Income

[33] The most important contributor to the different views on the respondent wife’s income is the treatment of certain legal and accounting expenses. The legal fees are the result of a threatened constructive dismissal action by the applicant husband which has not been pursued. The accounting expenses are for Mr. Sugar’s post-separation retainer to advise the respondent wife on Gallery operations.

[34] While these expenses might normally constitute legitimate business expenses, in the peculiar circumstances of this case they must be treated as personal to the respondent wife.

[35] These were not expenses incurred by the business pre-separation. They are entirely the result of the parties’ separation and matrimonial disputes. These particular professional fees have only been necessitated by the parties’ post-separation quarreling over the control, management and conduct of the Gallery business. These expenses are, in my view, functionally indistinguishable from the respondent wife’s matrimonial lawyer’s fees. The Gallery’s payment of these fees is entirely for the benefit the respondent wife. They must be grossed up for taxes in the income analysis.

[36] I agree with Ms. White’s analysis of the respondent wife’s Queen Street amortization expense and travel expense to and from Queen Street. I accept Ms. White’s conclusions on these remaining minor issues set out at pages five and six of her October 1, 2013 report.

[37] For interim spousal support purposes, I find the respondent wife’s 2012 income to be $253,000.

Interim Spousal Support Calculation

[38] A great deal of time was spent in argument debating the treatment of the Gallery’s retained earnings. At the date of separation, the retained earnings were about $350,000. Since then, they have grown to almost double that amount.

[39] It seems clear that the parties’ pre-separation lifestyle involved the expenditure of a good deal of the Gallery’s annual profits. The significant growth in retained earnings in the short time since separation supports that conclusion.

[40] It was also submitted on behalf of the respondent wife that she will need the Gallery’s retained earnings to pay the applicant husband’s equalization. She argued, therefore, that she ought not to have to utilize the Gallery’s retained earnings to pay interim spousal support.

[41] It is not all clear to me that the payment of interim spousal support based on the income findings I have made will require the respondent wife to utilize any of the existing retained earnings of the Gallery. But, even if that is the case, any depletion of retained earnings to pay support can be calculated to avoid “double dipping” by recognizing that support payments which necessitate depletion of retained earnings are a form of “prepayment” on equalization.

[42] It is also relevant, in the exercise of my discretion to determine interim spousal support payable to the applicant husband, to consider the relative assets of the parties.

[43] As the sole shareholder of the Gallery, the respondent wife is the effective owner of $658,000 of retained earnings. This includes $270,000 in cash and $188,000 in the Gallery’s brokerage accounts. Her sworn financial statement also shows that the respondent wife has personal cash and savings of over $400,000.

[44] The Queen Street property, which the respondent wife owns, is mortgage free. The matrimonial home, which the respondent wife also owns, is also mortgage free. There is some controversy about the value of these properties but, for interim purposes, it appears that both properties are likely worth in the million dollar range.

[45] The respondent wife’s last financial statement shows $2.5 million of assets, not including her disputed exclusion of a 25% interest in another property on King Street. This financial statement also contains $1.14 million of liabilities, including a disputed debt of $860,000 owed to her father. In any case, however, the respondent wife’s net assets are considerable. The applicant husband has none.

[46] Counsel for the respondent wife concedes that, on any reasonable outcome (based on the existing ownership of the family property), the respondent wife’s equalization payment to the applicant husband will likely exceed $1 million.

[47] In my view, for interim spousal support purposes, the applicant husband has proved need and that the respondent wife has the ability to pay. The applicant husband’s continued involvement in the operations of the Gallery is critical to the ongoing success of the Gallery and its ability to generate income, which will be used for the benefit of both parties.

[48] Using the 2102 incomes as found above, the mid-point of the amount produced by the application of the SSAGs is $5,068. I am not convinced that there is any reason to depart from the guidance of the SSAGs for interim purposes in this case. Accordingly, I order the respondent wife to pay interim spousal support to the applicant husband, pending trial, the monthly amount of $5,068.

Retroactivity

[49] The applicant husband’s notice of motion does not seek arrears of interim spousal support. His factum begins with a request for interim spousal support retroactive to October 5, 2012. The closing prayer for relief is silent on this issue, as is the body of the argument section of his factum.

[50] This motion has taken an inordinate amount of time to bring to hearing. Each party blames the other for these delays.

[51] The applicant husband appears to have survived without interim spousal support since separation without the accumulation of significant debt. The debts he has accumulated appear to relate to the cost of legal fees.

[52] I am not satisfied the applicant husband has made out a case for retroactive interim support. In all the circumstances, I make no order for any retroactive payments. The respondent wife’s interim spousal support obligations shall commence effective November 1, 2013.

Pre-Funding of Litigation Expenses

[53] Section 24(12) of the FLA permits the court to order a party to pay money to the other party to cover all or part of the expense of carrying on the litigation.

[54] Schedule A to the applicant husband’s October 15, 2013 affidavit sets out his anticipated legal expenses to the end of trial, totaling about $200,000. This is what he seeks by way of pre-payment. His October 5, 2012 notice of motion and initial proposal includes a request for prepayment of $100,000 on account of his litigation expenses. The reason for the increase is said to be the respondent wife’s alleged intransigence and refusal to obey court orders which have increased the cost of the litigation.

[55] The respondent wife opposes this request in any form.

[56] It is generally accepted that the party seeking interim disbursements has the onus of demonstrating that:

(1) he is impecunious to the extent that, without the order, he will be deprived of the opportunity to proceed with the case (i.e., that he is incapable of funding the requested amounts);

(2) the claim is of sufficient merit to warrant pursuit; and

(3) there are special circumstances sufficient to satisfy the court that the case is within the “narrow class” of cases where this “extraordinary” relief is appropriate.

[57] In family law cases, these requirements are generally interpreted to mean that an order for interim disbursements is only made where necessary to “level the playing field” to ensure that the parties can take meritorious issues to trial.

[58] It is true that the applicant husband has funded his own litigation to date. However, the respondent wife owns and controls the assets which enabled this couple to enjoy a comfortable lifestyle during the marriage. The respondent wife, as I have found (for interim purposes), has access to and has utilized Gallery earnings to assist in her litigation against the applicant husband. Nothing prevents her from doing so.

[59] The respondent wife concedes that a substantial equalization payment is likely to be owing to the applicant husband. She complains, however, that her ability to pay that equalization will be compromised if part of the value of the Gallery (likely in the form of the retained earnings) is used to fund the applicant husband’s litigation costs. I do not find this argument persuasive.

[60] Both parties must be taken to know that there is a limited “pot” from which to equalize the value of their assets. The more that is spent on litigation, the less that will be available to them post-equalization for their maintenance, use and enjoyment. There is no reason to think, at this stage, that one party is any more prone to ruinous litigation expenditures than the other.

[61] The respondent wife has the resources of the family assets at her disposal. She concedes an equalization payment is likely to be owing to the applicant husband. In the circumstances, an order for some interim payment on account of the applicant husband’s cost of litigation is warranted.

[62] Having said that, I am not satisfied that the applicant husband has justified the figure of $200,000, which represents twice the original estimate from October 2012. The applicant husband’s schedule of anticipated litigation expenses contains a good deal of speculation about future events.

[63] In addition, personal responsibility for costs acts as an ongoing incentive to resolve litigation expeditiously and without unnecessary expense, Picard v. Picard 2001 28214 (ON SC), 2001 CarswellOnt 1659 (S.C.J.) at para. 20. An order for interim disbursements or costs should only be given to allow a party to proceed fairly; not to provide a party with a “license to litigate.”

[64] In my view, the applicant husband should be held to his original estimate. Accordingly, an order shall issue for payment by the respondent wife to the applicant husband of $100,000 to cover part or all of his expenses of carrying on this litigation.

[65] As discussed in the context of interim spousal support earlier in these Reasons, this payment shall be considered an “advance” on the applicant husband’s expected equalization payment and shall be taken into account in the reconciliation of any final equalization amount.

Costs

[66] Counsel indicated at the conclusion of the hearing that the issue of costs was best dealt with following the disposition of the motion.

[67] Accordingly, any party seeking costs shall do so by filing a written submission (not to exceed three typed double-spaced pages) together with a Bill of Costs within two weeks of the release of these Reasons. Any responding material, subject to the same page limit, shall be delivered within a further seven days.

PENNY J.

Date: November 05, 2013

Jeffrey Fine v. Janice Fine, 2013 ONSC 6816

Case Summary

Overview

Interim Spousal Support

Delay

Income

Applicant Husband’s Income

Respondent Wife’s Income

Interim Spousal Support Calculation

Retroactivity

Pre-Funding of Litigation Expenses

Costs

Judge

Counsel

Parties

Areas of Law

Fact Patterns

Expert Witnesses

Issues

Legal Tests 1

Legislation 1