Introduction

[1] It is not unusual for a self-employed individual to minimize his or her income for tax purposes. Methods may include undeclared cash income or improper or questionable deductions of personal expenses from business income. Moreover, his or her partner or spouse will often participate in income reduction. For example, that spouse may accept income from and work in the business, or provide bookkeeping services for the business. So long as the marriage remains strong, the reduction of income serves the couple and their family well; tax liability is reduced and the couple and their children can maintain a fairly comfortable lifestyle with little declared income.

[2] When the marriage breaks down, however, there may be what can be best described as a falling out amongst thieves. The spouse operating the business may continue to attempt to minimize his or her income, this time not only because of taxes, but because he or she seeks to reduce income for support purposes. The other spouse is often removed from any role in the business, but takes exception to the income minimization methods used during marriage, and in fact is more than willing to produce evidence that the business income has been artificially reduced as it now no longer suits his or her purposes. And income imputation is sought, largely based upon the evidence provided by the spouse seeking support who may have been previously involved in previous income avoidance schemes.

[3] Whether or not a spouse participated in the income minimization, these cases are particularly difficult to settle and expensive to litigate. In reality, neither party is completely sure of what the income actually was during marriage. After separation, there is even less clarity as to what that income is, as the spouse seeking support then is shut out from the operation of the business and relies only on disclosure as received through the court process. Disclosure is well known to be an imperfect process, and in reality the only way that an accurate income figure could be arrived at would be through some sort of audit of the business, something beyond the means of most litigants in today’s family law system and not worthwhile considering the numbers involved.

[4] That appears to be the situation in the present case. Prior to separation in December, 2009, the Applicant, Piotr Sobiegraj ran a lawn irrigation business. His wife, Monika Solujan (formerly Sobiegraj) did the books for this business; she was particularly well qualified to do this as she had also assisted her father in his operation of a similar business. And Ms. Solujan says that throughout that time, there was substantial undeclared cash income and as such, she believes Mr. Sobiegraj’s representations as to his income are as fraudulent and false today as they were during the marriage. Mr. Sobiegraj, on the other hand, says that he had little to do with the books during marriage, and if anyone had acted fraudulently, it was his wife. He denies income concealment, and says that if there was, it was entirely his wife’s responsibility; he says his income tax returns filed since separation correctly (or at least almost correctly) reflect his actual present income.

[5] This matter was tried before me over two days during the 2013 November sittings. Both parties gave evidence and Mr. Sobiegraj also led expert evidence from a business valuator, James Horvath, whose qualifications were admitted. Mr. Sobiegraj says that his income is in the range of about $40,000 per year; Ms. Solujan says that her husband actually makes more than three times that amount taking into account any necessary gross-ups for income tax purposes. On the other hand, Mr. Sobiegraj also contends that his wife has failed to maximize her income. He says that this is especially so in the past two years; Ms. Sorujan has not earned income in any reasonable amount since June, 2011 and has not looked for employment but instead embarked on a largely unproductive path as a realtor.

[6] At trial, the parties agreed that I could determine child and spousal support retroactive to January 1, 2011, when the parties physically separated. Prior to that date, the parties lived separate and apart but under the same roof from the date of separation, which the parties agree took place sometime in late December, 2009.

[7] All other issues, including property and custody, have been settled. However, the parties have also asked me to determine whether Mr. Sobiegraj can arrange for his daughter Nicole, who is 10, to go to Poland to see his parents for a month this summer.

[8] For the reasons detailed below, I have determined the following:

a. I have determined Mr. Sobiegraj’s income for 2011 and 2012 to be $62,000 and $79,000 per annum respectively;

b. I have determined Mr. Sobiegraj’s 2013 and ongoing income for support purposes to be $60,000 per annum;

c. I have determined Ms. Sorujan’s income for 2011 and 2012 to be $34,241 and $35,000 respectively;

d. I have determined Ms. Sorujan’s 2013 and ongoing income for support purposes to be $35,000 per annum;

e. Arrears of child and spousal support owing by the Applicant to the Respondent for 2011, 2012 and 2013 are fixed in the amount of $23,294.

f. The Applicant shall pay the Respondent differential child support in the amount of $243 per month commencing January 1, 2013;

g. The Applicant shall pay the Respondent spousal support in the amount of $300 per month commencing January 1, 2013, for a duration of eight years from the date of this judgment after which spousal support shall no longer be payable;

h. The Applicant may arrange for the child to visit his parents in Poland on an unaccompanied basis during the month of August, 2014. The child shall be with Ms. Solujan for the month of July, 2014.

Background Facts

[9] These parties’ roots lie in Poland, where both parties were living when they met in May, 2000. Ms. Sorujan had not always lived in Poland, however. She escaped communist Poland with her parents in 1981 and has since lived in Canada for most of her life. After completing high school, she went to Humber College for journalism, but she did not complete that program. After working for several years, she returned to school, this time at York University where she obtained a Bachelor of Arts in English. She returned to Poland in 1998 to complete a Master’s Program at the University of Gdansk; unfortunately, she did not complete her thesis and failed to obtain that degree.

[10] When the Respondent met Mr. Sobiegraj, she was teaching English as a second language at a private school known as English Unlimited. She started working there in 2000, and was making, for Poland, a good income. It is her evidence that, were it not for Mr. Sobiegraj, she would have maintained her residence in Poland, and would have had a successful career there.

[11] Mr. Sobiegraj did not testify to his education; however, he was born in Poland and until meeting Ms. Sorujan, he had lived there his entire life.

[12] Ms. Sorujan says that, shortly after meeting in May, 2000, the parties moved in together in Mr. Sobiegraj’s apartment in Gdansk during the summer of 2000. Mr. Sobiegraj admits that he owned several apartments when the parties met but he denies cohabitation prior to marriage; he notes that Ms. Sorujan had provided a separate address on her marriage certificate in February, 2002. She, on the other hand, says that this was not her address and that she had not lived there since returning to Poland; in fact it was her residential address from 1981 when she left Poland with her parents. She says that any other addresses in Poland were temporary, and the address used on the marriage license was an “official address” used for official purposes such as marriage or death.

[13] If the parties did not live together prior to marriage, they certainly planned for a future together prior to that date. Mr. Sobiegraj says that he came to Canada in June, 2001 for five months, when he worked for his future father-in-law at his lawn irrigation business. The parties married soon after his return, on February 22, 2002, in Gdansk. Mr. Sobiegraj came to Canada permanently in April, 2002; Ms. Sorujan followed along in June of that year.

[14] As noted, Ms. Sorujan’s father ran a lawn irrigation business, and Mr. Sobiegraj worked in that business from the date he arrived in Canada. He received his landed immigrant status in January, 2004; prior to that date, he apparently worked illegally for his father-in-law and his income was paid to Ms. Sorujan who also did the books for her father’s business. Mr. Sobiegraj was sponsored for his immigration to Canada by Ms. Sorujan.

[15] However, Ms. Sorujan also obtained independent employment soon after arriving in Canada; she obtained a job at a firm called Accident Injury Assessment Canada where she was able to provide services to Polish speaking clients. She left this employment for a maternity leave in December, 2003; the parties’ daughter, Nicole, was born on February 4, 2004. When Ms. Sorujan returned to work in May, 2005, she worked as an administrative assistant with Pitney Bowes, which held a contract with Microsoft to service Toronto customers. Unfortunately, Pitney Bowes lost that contract and Ms. Sorujan was terminated in August, 2009.

[16] In the meantime, Mr. Sobiegraj began his own lawn irrigation business, Sprinkler Experts, in 2005. The business was incorporated in 2009 (although the corporation only appears to have become active in 2010).[1] And this business is largely the reason we are here today. Ms. Sorujan says that Mr. Sobiegraj received assistance from her father in setting up that business, and that the business was successful. She says that she also assisted him in this business. She says that she did the books for the business, using QuickBooks Software; she was also responsible for keeping track of invoices and receivables. She also scheduled Mr. Sobiegraj’s appointments.

[17] Ms. Sorujan testified that certain transactions were hidden from her, but that there was a significant cash component of the business and that, when necessary, Mr. Sobiegraj would provide her with significant sums of cash for household purchases. She says that she paid off credit cards with cash, and that she also purchased a vehicle with cash. It was her testimony that she did not know how much money he made but that he had a stash of cash from which he made significant purchases. She also testified that certain personal expenses were run through the business to avoid tax on those expenses.

[18] Mr. Sobiegraj acknowledges that there was a cash component to the business prior to separation, but that Ms. Sorujan was entirely responsible for this. He says that he had nothing to do with invoicing or with the books of the business and that, although he received cash for jobs, he gave everything to his wife to deposit and to place on the books. He says that it was only when the parties separated that he found out that much of the cash income was undeclared. He says that at that time, Ms. Sorujan threatened to expose him to the tax authorities which would result in his deportation, and that he was forced to conduct a tax amnesty disclosure with the Canada Revenue Agency through counsel.

[19] Ms. Sorujan acknowledges setting up and doing the books of the business through QuickBooks. But she denies that she was involved beyond that. She says that she made deposits when requested by her husband. She says that it was the Applicant who was responsible for receipt of cash income and that she had little to do with anything other than keeping track of receipts and invoices. She says that payroll was not done through the computer and that he had always told her that he worried about the cash component of the business. It is common ground that after 2005, Ms. Sorujan was not involved in preparing the taxes for the business; a bookkeeper named Dorothy Mars was retained by Mr. Sobiegraj to prepare the business tax returns in 2006.

[20] The parties purchased the matrimonial home as joint tenants on May 17, 2006, and there was a significant cash payment made to purchase the home. Mr. Sobiegraj says in his financial statement that part of the down payment on the home came from an apartment that he sold in Poland; however, he testified that he also provided a $20,000 cash payment, which he says was the product of a loan from his parents in Poland. Ms. Sorujan says that she was given the cash and told to “legalize this money.” Apparently she did so by making separate $10,000 deposits as the funds were used in the purchase of the home and the debt to his parents was noted on the Applicant’s financial statement.

[21] The parties separated, according to Ms. Sorujan, because they were “not getting along.” The parties agree that they separated in December, 2009, and Mr. Sobiegraj went on a seven week trip with his daughter to Poland shortly after. He says that when he returned, he found his computer wiped clean and many receipts missing. He states that the documentation that he took to the bookkeeper to prepare the taxes was deficient for 2009; in his counsel’s closing submissions (although not necessarily supported by Mr. Sobiegraj’s evidence), he blames this for his income being high for 2009. Ms. Sorujan denies having done anything to Mr. Sobiegraj’s business records when he was absent in Poland.

[22] The parties remained under the same roof for about a year after separation. Mr. Sobiegraj testified that soon after separation, Ms. Sorujan threatened to disclose to the tax authorities about the cash income that had been hidden from the Canada Revenue Agency. He says that she also threatened that this would result in his deportation. He sought assistance from Dioguardia, a tax law firm that specializes in amnesty agreements with the Canada Revenue Agency. He paid a retainer of about $10,000; $7,000 was paid in cash, while $2,800 was paid from his business account. The retainer was paid in March, 2010; Mr. Sobiegraj says that his brother loaned him the funds for the retainer. It is unknown why his brother did not provide a money order to transfer the funds from Poland, or why Mr. Sobiegraj failed to declare this loan on the financial statement sworn by him well after the fact, on March 31, 2011.

[23] As a result of the tax amnesty, Mr. Sobiegraj ended up owing the Canada Revenue Agency some $57,000 for GST and income tax accruing between 2005 and 2008. He says that he learned a valuable lesson from this re-assessment; he no longer accepts cash and has taken on more commercial customers who pay by cheque. He also says that he is scrupulous about declaring cash income received by him and depositing it into the business account.

[24] As noted, the parties remained together in the matrimonial home after separation. Ms. Sorujan says that, during this time, the parties’ “communication was not always the best.” The matrimonial home was finally sold, closing on January 10, 2011. Ms. Sorujan left the home on December 6, 2010, and moved in with her parents. The net proceeds from the sale of the home totaled $333,000; after closing, the parties agreed to an initial distribution of $75,000 to each of them. There still remains in trust some $75,000; according to the terms of the property settlement, Ms. Sorujan acknowledges owing an equalization payment of $24,000 but says that the spousal support and child support owed to her by Mr. Sobiegraj more than makes up for this.

[25] Since the parties physically separated, they have shared custody of their daughter, Nicole. The arrangement appears to have been formalized in September, 2011; since then the parties have shared care of Nicole equally. Nicole is with the Applicant Monday evening to Wednesday morning and with the Respondent Wednesday evening to Friday morning. Nicole spends every second weekend with each party; so that Nicole would be with the Applicant from Friday evening to Wednesday morning and then with the Respondent from Wednesday evening to Monday morning. After this cycle, Nicole is with the Applicant Monday evening to Wednesday morning and Respondent from Wednesday evening to Friday morning with the cycle starting again with the Applicant having from Friday night to Wednesday morning and so on. No serious issue was taken by either party that Nicole has been with each party on an equal basis since physical separation in January, 2011.

[26] Mr. Sobiegraj purchased a home at 175 Rebecca Street in Bradford in 2011 and he has lived there since. Ms. Sorujan also purchased a home in 2011; it is located at 50 Westcliffe Crescent in Richmond Hill. She did not move into this home immediately; she rented the home for a period of time and continued to live with her parents. She moved into the home in October, 2012.

[27] I was puzzled by her decision to move out of her parents’ home; other than a six month period of time between January and June, 2011, when Ms. Sorujan worked for Crestline Computer Solutions Inc., she has not worked since separation. She has taken and passed training as a real estate agent which she completed in January, 2012. She has had a desk with Century 21 in Markham since April, 2012; however, at the time of trial, she had closed only one transaction and has earned about $5,000 in commissions since losing the job at Crestline. She says that she has been living on her share of the net proceeds but has only $10,000 or so remaining in her bank account. Mr. Bakaity asked why she would move out of her parents’ residence under the circumstances, considering that she had no income, and was foregoing about $15,000 in annual net rental income for her home; she had no real answer to this question. She also had no evidence of a job search other than her testimony that she intended to work for a temporary agency in the future, making just over minimum wage. She says that she is restricting her job search to jobs in York Region.

[28] Mr. Sobiegraj continues to operate his business. He says that his income is in the range of about $40,000 per annum. He says income should be imputed to the Respondent because she has not looked for work, and she has failed to maximize her income. Ms. Sorujan states, on the other hand, that Mr. Sobiegraj has taken improper deductions from his business income, has failed to maximize income as he can work during the slow winter season, and continues to receive cash income. She suggests that his income should be as declared (generally in the range of $40,000 per annum) plus a grossed up amount of $50,000 to $60,000 per annum for improper deductions for taxes as well as $10,000 for money that Mr. Sobiegraj should be earning during the winter as a labourer. The total amount that Mr. Allan suggests be attributed to Mr. Sobiegraj is in the range of $125,000 per annum.

(The judgment continues with the Evidence at Trial, Analysis, Support Issues, and final Orders exactly as set out in the source text.)

Sobiegraj v. Sobiegraj, 2014 ONSC 2030

Case Summary

Introduction

Background Facts

Judge

Counsel

Parties

Areas of Law