ONTARIO
SUPERIOR COURT OF JUSTICE
COURT FILE NO.: 07-FL-1421-1
DATE: 2013/02/08
BETWEEN:
Colleen Gallagher
Applicant
– and –
Bruce Gallagher
Respondent
Leonard Levencrown, for the Applicant
Steven Fried, for the Respondent
HEARD: January 10, 2013
REASONS FOR decision
ANNIS J.
Introduction
[1] The respondent husband seeks an order varying the Final Minutes of Settlement, dated November 18, 2010, as follows:
(1) An order that the spousal support provisions be varied to decrease the ongoing spousal support amount of $3,500 per month to be payable on a formula based on the respondent’s gross billings from his self-employment; and
(2) An order reducing or rescinding any and all spousal support arrears.
[2] The applicant and respondent are 61 and 63 years old, respectively. They married on July 10, 1971, in Ottawa, Ontario, and have three children together. The children are now independent.
[3] The parties separated on May 1, 2007, and were divorced by order of R. Smith J., dated December 16, 2010.
[4] The parties signed Final Minutes of Settlement, dated November 18, 2010, requiring, inter alia, the respondent to pay the applicant spousal support of $3,500 monthly. The Minutes were filed with the Court on June 2, 2012, for enforcement through the Family Responsibility Office.
[5] The respondent’s income has dropped significantly since the Minutes were signed such that he claims a material change in circumstances has occurred, as defined by the Agreement.
[6] The applicant denies that a material change has occurred that was not contemplated by the parties. Alternatively, she argues that the respondent’s motion should be denied for the failure to pay support and because of personal circumstances relating to her multiple sclerosis (“MS”) and her difficult economic situation.
Issues
[7] The issues for consideration are as follows:
(a) Whether the respondent is prevented from bringing the motion because he is in arrears of spousal support;
(b) Whether this matter is governed by the Divorce Act, R.S.C. 1985, c. 3 or the Family Law Act, R.S.O. 1990 c. F.3 (“FLA”);
(c) Whether a material change in circumstances has occurred; and
(d) Assuming a material change has occurred, what variation to the Agreement should be made.
Analysis
(a) Respondent in Arrears of Spousal Support
Should the respondent’s unilateral reduction of support payments prevent the court from varying the Agreement?
[8] The applicant seeks an order adjourning the motion until the arrears of spousal support are paid.
[9] The respondent paid spousal support of $3,500 monthly, in accordance with the Agreement, until April 1, 2011. At that point, he provided her with cheques based upon a reduced amount reflecting a portion of his gross billings, which the applicant refused to encash. His arrears of unpaid spousal support are $33,700, effective January 1, 2013.
[10] The applicant cited the cases of Brophy v. Brophy (2004), 2004 25419 (ON CA), 180 O.A.C. 389, 45 R.F.L. (5th) 56 (Ont. C.A.) and Maida v. Maida, 2007 37680 (ON SC), in support of her position.
[11] The actions of the payors in the cases cited by the applicant were wilful, which is not the situation presented here. I find that there has been a material change in the respondent’s circumstances that has affected his ability to pay. Although unilateral action to vary agreements or orders is to be discouraged, it would serve no purpose to adjourn the matter except to unnecessarily add to costs.
(b) Jurisdiction
Is this matter governed by the Divorce Act or the Family Law Act?
[12] I agree with the respondent that, by the applicant having filed the Final Minutes of Settlement, pursuant to s. 35 (2) of the FLA, the support provisions in the Agreement may be enforced or varied under s. 37 of the Act as though an order.
[13] The applicant argued that this motion fell under the Divorce Act, as a result of the parties’ divorce and the paramountcy of federal law in cases of valid conflicts of jurisdiction, as described in the s. 36 of the FLA.
[14] I disagree with the applicant. The parties did not seek to have support determined pursuant to the Divorce Act. Rather, they negotiated an Agreement and the applicant filed it with the Ontario Superior Court of Justice for purposes of its enforcement.
[15] Section 36 of the FLA has no effect other than staying an application for support that has not been adjudicated when divorce proceedings commence under the Divorce Act.
[16] Accordingly, the Family Court has jurisdiction to vary the agreement filed, pursuant to s. 35, in accordance with s. 37(2) of the FLA, subject to the court being satisfied that there has been a material change in circumstances.
[17] For the same reasons, I do not find that the principles elaborated in the decision of Miglin v. Miglin, 2003 SCC 24, [2003] 1 S.C.R. 303, apply herein, as was argued by the applicant. Miglin is limited to applications to determine support arising under s. 15.2 of the Divorce Act; it has no applicability to these circumstances, which are tantamount to varying an order for support. See L.M.P. v. L.S., 2011 SCC 64, [2011] 3 S.C.R. 775.
(c) Material Change in Circumstances
Has a material change in circumstances occurred?
[18] A “material change” generally signifies a change with some degree of continuity that, if known, would likely have resulted in different terms. Where the agreement is at issue or embodied in the judgment of the court, it will be accorded consideration depending upon its terms, as viewed in the context of any alleged material change in circumstances.
[19] In this regard, of particular relevance are the words of Abella and Rothstein JJ. of the majority judgment in L.M.P. v. L.S., supra, at para. 38, speaking to the fact that an agreement may predetermine a material circumstance: “The agreement may address future circumstances and predetermine who will bear the risk of any changes that might occur. And it may well specifically provide that a contemplated future event will or will not amount to a material change.”
[20] The respondent argues that the Minutes of Settlement define a “material change” as circumstances related to changes of income and employment. He further submits that the agreement is indicative of the parties’ intention to vary the contract when the income or employment situation of one of the parties changes in a material fashion.
[21] The Minutes of Settlement, at paras. 3 and 23, contain the following two paragraphs, that are relevant where there has been a change in circumstance:
The amount of spousal support payments as set out herein shall be varied in the event there is a material change in circumstance with respect to a part[y]’s income or employment. In the event that there are changes to the spousal support, if any, the parties shall sign an amending agreement. If the parties cannot agree on the change to spousal support, if any, either party may apply to the Court to determine the issue.
The Respondent and Applicant intend these Minutes of Settlement to be final as to all claims and hereby release all such claims arising out of their relationship. Both parties are aware and acknowledge that each of them may suffer or enjoy drastic changes in their respective income, assets and debts, in the cost of living or in their health or changes of fortune by reason of unforeseen factors. Nevertheless, the parties agree that under no circumstances will any change, direct or indirect, foreseen or unforeseen, in the circumstances of either of them, give either the right to claim any alteration of any of the terms of these Minutes of Settlement or the terms of any other agreement between them, provided always that nothing herein contained shall constitute a bar to any action or proceeding by either party against the other of them to enforce any of the terms of these Minutes of Settlement.
[emphasis added]
[22] Paragraph 3 describes a mandatory provision requiring variance in spousal support when there is a material change in circumstance; described in terms limited to changes in income and employment.
[23] In contrast, para. 23 indicates that the parties are aware and acknowledge that drastic changes of various kinds may occur, including changes to the income of the parties, whether foreseen or unforeseen, none of which under any circumstances give rise to a modification of the Agreement. It leaves open the exception of enforcement of the terms of the agreement requiring modification of the agreement.
[24] While a “notwithstanding” clause would have been helpful to resolve the ambiguity, I find that the specificity of para. 3 and its mandatory character defining material changes in circumstances as those relating to changes in a party’s income or employment prevails over the more general basket provision, against all variations, whatever the circumstances.
[25] Paragraph 3 requires a change in spousal support if material changes in income occur, suggesting that it may be enforced. A proceeding to enforce the requirement could be said to fall within the scope of the exception at the end of para. 23, such that a proceeding to change spousal support is permitted.
[26] On a more logical basis, it is also difficult to imagine how, an agreement that provides for the equalization of property, where the spousal support payable is contingent upon a stream of earnings, would not require a change in support out of necessity where a material change in income occurs.
[27] I am, therefore, satisfied that the parties foresaw, at para. 3 of their Agreement, that material changes in income and employment were to constitute a material change in circumstances requiring variance of spousal support under the Minutes of Settlement.
Change in the Respondent’s Income
[28] The respondent’s means to pay spousal support has been materially affected, as evident in the table below describing his line 150 income. I have also included in the table the respondent’s business income, earned from his self-employment as a chartered accountant for the years 2007 to 2012, which is material to this issue:
Year
Income
Gross Business Income
2007
$116,978
$122,544
2008
$193,879
$218,230
2009
$ 96,659
$114,574
2010
$127,773
$112,459
2011
$ 83,323
$ 90,448
2012
$ 54,000
$ 60,000
(approximately)
[29] It should be noted that the business income reported in 2008, included $57,600 in employment income. Conversely, the respondent’s 2010 total income included RRSP withdrawals of $21,429.
[30] The decrease in the respondent’s business income is attributable to changes in requirements of the Federal Public Service, his main source of earnings. The Government adopted procurement requirements that limited Mr. Gallagher’s eligibility to obtain contracts. Otherwise, his business expense deductions appear reasonable, although going forward I fix these at $10,000 annually. There is no basis to conclude that he has not disclosed all of his income, as his source of funds is principally with the Government of Canada.
[31] Given the significant decline in business income that explains the respondent’s corresponding decrease in reported total income, I am satisfied that, during 2012, there was a material change in the means of the respondent to pay spousal support. Such a material change requires consideration and an appropriate variance.
[32] However, I am not satisfied that the decrease of income in 2011 sufficiently meets the definition of materiality in the circumstances of this case. For the purposes of this determination, I consider the gross business income figures of the respondent, inasmuch as he relies upon the decline of revenues as the rationale underlying his request for change in spousal support.
[33] In making this determination, I also reject the gross business income total of 2008 as clearly being an exceptional year. I conclude that the gross business income of $112,459 in 2010 is an appropriate comparator.
[34] In my view, para. 23 of the Minutes of Settlement, while not a bar to changing spousal support based on changes in income, nevertheless, provides a contextual direction that materiality should be strictly construed. A 20 per cent decline in business income does not meet that threshold; whereas a 50 per cent reduction does.
(d) The Appropriate Level of Spousal Support
What variation to the Agreement should be made?
[35] Once the court has ascertained there has been a material change in circumstances, consideration must be given to the circumstances referred to in ss. 33(8) and 33(9) of the FLA, to determine the variance of the support entitlement. Due attention must be paid to the circumstances described by the Minutes of Settlement.
[36] By and large, the Minutes of Settlement were intended by the parties to reflect their mutual resolution of all of the aspects of their separation, including spousal support payments. I find that there is no reason to conclude that circumstances, other than those relating to the respondent’s means to pay spousal support, have changed since the agreement was entered into in November 2010.
[37] Despite the applicant’s submissions, the evidence does not indicate that her condition from MS has worsened appreciably in the last three years or that her needs are greater. In terms of expenses, there is even some indication that her cost of medication has decreased upon attaining the age of 60.
[38] Similarly, I am not convinced that her financial situation, since equalization of property took place in 2010, has deteriorated more as compared to the respondent. Her financial statement indicates a net worth some $100,000 less than that of the respondent.
[39] However, the respondent points out that the applicant appears to have not accounted for the equity obtained upon sale of the matrimonial home. For the purposes of the Agreement, the property was evaluated at $300,000 and sold for $470,706, netting her $170,706 from the sale proceeds. Comparison of her financial statements, completed in 2010 and 2012, suggests an amount approximating $150,000 is unaccounted for, despite being raised by the respondent.
[40] The applicant claims that the respondent can sell his cottage, which would decrease his monthly expenses by $1,896 and provide funds to continue to pay support. However, I find that the applicant and respondent have relatively similar budgets and assets. Imposing the requirement of sale of assets to meet spousal support obligations would not be appropriate in the circumstances.
Working with a Formula
[41] The respondent has requested that the court determine the amount of spousal support payable based upon a percentage of his gross billings from his business and employment income.
[42] My initial reaction to using a formula was not positive, particularly as courts are weary of tying the hands of future decision-makers. However, upon reflection and in the context of this case, where the agreement covers all aspects of the separation, with the change in the respondent’s income and employment being the only permitted variable, I am attracted to his suggestion. I also believe that a formulaic solution best avoids the necessity of returning to court for future changes in income, regardless of what may arise.
[43] When initiating discussions with the applicant, the respondent had suggested an appropriate formula, based upon a percentage of 20 per cent of gross business income. Were I to adopt such an approach, I think 35 per cent of gross business income would be more appropriate, which would also include employment income when generated.
[44] A more appropriate formula, however, would rely upon the Spousal Support Advisory Guidelines (“SSAG”), which are regularly employed to determine spousal support. According to the respondent, the SSAG was used to determine spousal support under the Minutes of Settlement.
[45] On the basis of the evidence, I find that the intention of the Minutes of Settlement was to place the parties in a position of relative equity in terms of assets and income. As no substantial changes have occurred to the asset position of the parties, providing spousal support payments that result in similar net disposable income (“NDI”) would appear congruent with the objectives of the parties.
[46] Accordingly, the parties are directed to calculate spousal support using the SSAG, abetted by DIVORCEmate calculations, with the option set to provide equal NDI of the parties to determine the value of spousal support payable.
[47] In addition to the values used in DIVORCEmate printouts already submitted to the court, I would add the following provisos: firstly, as directed above, a limit on the yearly amount of the respondent’s business expense deduction is to be set at $10,000; and secondly, the parties’ line 150 incomes should be reduced by any RRSP withdrawals attributed to income as these have already been the subject of equalization.
Order
[48] Accordingly, I order that the Minutes of Settlement be varied such that spousal support, effective January 1, 2012, be determined on the basis of the SSAG calculations producing equal NDI of the parties, subject to the direction that a maximum business expense deduction of $10,000 apply to the calculation of the respondent’s business income and that the parties’ income not include any RRSP withdrawal income.
[49] As an example, applying this order to determine spousal support for 2012, assuming the respondent’s income is $60,000, comprising $54,000 of business income after limiting business deductions to $10,000, he would pay spousal support in the amount of $1,629 monthly or $19,547 annually.
[50] Prior to issuing my final order, I direct the parties’ counsel to confirm my calculations of spousal support for 2012, which will also apply to 2013, subject to adjustments at year end. They should also calculate the arrears owing which will make up part of my order.
Costs
[51] Subject to any offers, costs are awarded to the respondent, who may provide written submissions limited to three (3) pages, plus a costs outline, within fourteen (14) days of this order. The applicant may reply in a similar fashion within seven (7) days thereafter.
Mr. Justice Peter Annis
Released: February 8, 2013
COURT FILE NO.: 07-FL-1421-1
DATE: 2013/02/08
ONTARIO
SUPERIOR COURT OF JUSTICE
BETWEEN:
Colleen Gallagher
Applicant
– and –
Bruce Gallagher
Respondent
REASONS FOR DECISION
Annis J.
Released: February 8, 2013