SUPERIOR COURT OF JUSTICE - ONTARIO

Howe v. Howe, CITATION: 2014 ONSC 2649

COURT FILE NO.: 163/12

DATE: 2014-04-28

RE: Michael Joseph Howe, Applicant

AND: Coral Howe, Respondent

BEFORE: Mr Justice Ramsay

COUNSEL:
Malte von Anrep QC for the Applicant

Steven Nagy for the Respondent

HEARD: April 23-28, 2014 at St Catharines

ENDORSEMENT

[1] The parties separated on January 3, 2011 after 16 years of marriage. The Applicant husband applied for a divorce in March 2012. I granted a divorce at the outset of the trial. The Respondent wife in her answer filed March 30, 2012 asks for equalization and spousal support based on 18 years cohabitation. The husband has voluntarily paid $500 a month since December 2012.

[2] The husband is 53 years old. The wife is 51. She brought two pre-teen children into the marriage. They are now grown and independent. While they were being raised they spent 60% of their time with the parties and 40% with their father.

[3] The wife was a housekeeper at a hospital. After four years of marriage she quit work and stayed home to take care of the family while the husband supported the family from the earnings of his business (Niagara Tents and Events) and proceeds from a family trust established by his late father for the benefit of the husband and his five siblings. During the marriage the wife took a course in floral arrangement. Since separation she has done a small amount of work in retail sales. She could work in a retail store as long as the job does not involve heavy lifting. She now has disc problems and an unresolved drinking problem. She is confident that she can find work in retail. I think that she is overconfident. I doubt her ability to earn more than the $22,000 that she says should be imputed to her. I include in that amount the rent she earns from letting out the basement apartment in her house.

[4] Since separation the wife has survived by drawing $36,000 a year on her RRSP. She will not be able to do that much longer, given the value of the principal. She should not have to do so in any event, given the family’s pre-separation lifestyle and post-separation means. At age 51 she should be contributing to her RRSP, not drawing on it. I impute $22,000 annual income to her.

[5] Between his $12,000 a year salary as a director of family companies and the earnings of his business, Niagara Tent and Events, the husband has generally earned about $50,000 a year in income. Until the separation the husband was attributing his income to the wife by paying her $40,000 a year as office manager when she did not in fact work for the company. He is doing the same now for his new partner. He testified that the new partner is actually managing the company, along with another manager. I do not believe him. I think it more plausible that he would carry on as he did before.

[6] The tent company has two managers, six field employees and six more summer students. The applicant testified that he works 10 am to 3 pm on average during the busy season. When he said that, the respondent rolled her eyes. I had the same reaction, although I trust I kept it to myself. At most, then, he works part-time. I think he works rather less than that. A company that size does not need two, much less three, managers.

[7] During the marriage, not only did the wife claim the $40,000 income that she did not earn, she was laid off in the winter low season and received EI benefits. This strikes me as out and out dishonesty on the part of both parties and it colours my view of their credibility. For the most part, however, the facts are evident from the documents and the testimony of the husband’s brother, who to me was an impressive witness. I thought he was both astute and honest. The origin and workings of the trusts were explained to me by the lawyer who set them up. The lawyer is also a Chartered Accountant. He was an impressive witness as well. The accountant involved with the trust also testified. I did not find him so impressive. He testified in chief that the applicant attributed income to his wife “for EI purposes.” When I asked him what it meant he explained that the applicant would lay the respondent off in the winter. He claimed not to know that she did not really work for the applicant, but his testimony was evasive at this point and his demeanour nervous.

Equalization

a. The family trust

[8] The husband’s father was a successful land developer. In 1991, a few months before his death, he settled a trust for the benefit of his six children. The value of the applicant’s parents’ interest in the business at that time was fixed and frozen by issuing to the parents preferred shares with a set value. Common shares with nominal value were issued to the trust for the benefit of the children. As the business progressed, the value of the common shares grew. In 2004, the value was frozen again and common shares were issued to six trusts, one for each child, for the purpose of giving each child of the applicant’s father control over his or her share. The applicant’s trust is controlled by him. He and his siblings are the beneficiaries. He is one of three trustees. He has the right to appoint the other two trustees.

[9] In 2012, after the parties separated, the father’s family trust had to be wound up because it had been in existence for 21 years. The five siblings who were resident in Canada were each given shares of two corporations. They took the shares at their original value, which means that the trust did not have to pay tax on the money earned or added value in the meantime, but the gain will be attributed to each sibling in due course. The sixth sibling is not a resident of Canada. He could only have taken assets at their fair market value, with the result that tax would be owed immediately. The family determined to distribute the assets of the trust among the five resident siblings, and to compensate the sixth sibling at an unspecified time in an unspecified manner. They have not yet done this.

[10] The value of the husband’s interest in the family trust at the date of separation must have been the same as it was a few months later when the assets were distributed. The husband was given shares in two corporations worth $3.2 million in total. This value was earned by the money originally settled by the father. I estimate that all but $2 million of it was earned during the marriage. The family trust did not exclude income from net family property under s.4 (2) of the Family Law Act. If this amount was the husband’s property, it is not excluded from net family property. The applicant however argues that whatever interest he had in the family trust during the marriage, it was not property as defined in s.4 of the Act.

[11] For the purposes equalization of property under the Family Law Act, property means “any interest, present or future, vested or contingent, in real or personal property.” This is a broad definition of property, but it is not without limits: Lowe v. Lowe, 2006 804 (ON CA), [2006] O.J. No. 132 (CA). The family trust in question was designed to limit the parents’ assets for the purposes of tax to amounts earned before 1991 and to allow the business to grow from that date for the benefit of the six children, but still under the control of the parents and their successors as trustees. It was not designed for any purpose associated with the marriage of the applicant or his siblings. Whatever might happen, the applicant had no legal or practical right to the assets held by the trust until they were distributed, which occurred after the end of the marriage. I conclude that the husband had no present or future vested or contingent interest until after the marriage ended. The value of the trust was not property and should not be included in his net family property.

b. tracing loan repayments to a $US1.2 million gift

[12] During the marriage, the husband got a $US 1.2 million dollar gift from a family member. He and the other four resident siblings then invested $US 1 million each by way of a shareholder loan to a numbered company for land development in Arizona. This investment paid handsome returns for a time and then went bankrupt in 2008. The numbered company no longer had assets to repay the shareholder loans. In 2010, the father’s trust caused one of its companies, Royker, to amalgamate with the numbered company and pay out the loans. Each shareholder was repaid and from the repayment each shareholder gave about $100,000 to the non-resident brother, because he had not invested in the numbered company, but he did have a 1/6 interest in Royker. The applicant gave the gift to his brother a few months before the separation, when the marriage was obviously in trouble. He also made from the same source a payment of $185,000 to Royker to repay a loan from Royker to Niagara Tents and Events. Mr Nagy says that these amounts should be included in the applicant’s property at separation. He submits that the payments cannot be traced to the $US1.2 million gift, because that money went into the numbered company and was lost, while the repayment of the loan to the applicant came from Royker, a separate entity with money from a separate source. I do not give effect to this argument. Royker amalgamated with the numbered company and took on its debt. I think that that circumstance is sufficient to establish that these amounts can be directly traced to the $US1.2 million gift.

[13] For these reasons I dismiss the application for equalization.

Spousal support

[14] The applicant submits that he should pay spousal support in the range of $753 to $1005 per month for 9 years, or the lump sum equivalent from $57,570 to $77,211. He bases this on his annual income of $56,000 and the respondent’s $22,000.

[15] During the marriage the family lived from the husband’s company and remittances from the family trusts. The couple would pay their expenses from the joint line of credit on the matrimonial home. Then the husband would get money from the family trust and repay the line of credit. The process would then be repeated. The family’s lifestyle is attested by the withdrawals from their joint chequing account. Both parties agreed that this is the money they lived on. In the last four years of the marriage, they lived on an average of about $200,000 a year.

[16] The family’s lifestyle, by mutual choice, whatever the source of funds, involved a big house, frequent travel, a motor boat and so on. In my view, if the husband has the means, he should pay spousal support commensurate with this lifestyle. It was the parties’ mutual choice that the wife would leave her paying job and take care of the family. The value of the wife’s property increased from her equity in her previous residence to about $500,000 over the course of the marriage. Nevertheless she has suffered financially from the breakdown of the marriage. After living a high lifestyle that the applicant still enjoys, the respondent is reduced to self-sufficiency at a marginal level at best, even taking into account that she now has a house without a mortgage. She will receive no equalization payment. I have to consider the conditions, means and needs of both spouses.

[17] The husband now has shares in the family companies that he owns personally. He has the right to retract them and be paid $3.2 million dollars. This is a real right. It had to be included in the terms of the disposition of the assets in order for the tax liability to be deferred. According to the brother and the accountant, if the husband exercised his right, it would cause the company operational difficulty, because the company’s assets are not all liquid. In the opinion of the accountant, if all five siblings redeemed their shares, each shareholder might get 1/3 of the stated value. I accept that in the circumstances the shares might be worth less than their face value. I do not accept the accountant’s estimate for the following reasons:

a. It appeared to be off the cuff.

b. It assumed that all four other shareholders and the non-resident brother would demand their portion at once, which is far from probable.

c. The business has $4 million in liquid assets.

d. As I have said, the accountant’s credibility is not great as far as I am concerned.

[18] When assessing the applicant’s income, section 19 of the Child Support Guidelines does not apply, but the factors in paragraphs 19(1) (e), (g) and (i) seem to me to be analogous to some important considerations that are relevant to spousal support:

a. The applicant has a duty to support his wife. He is not entitled to leave his money tied up with a family company for the benefit of his siblings. Their inconvenience is not sufficient reason to deny his wife reasonable support [cf. 19(1) (e)].

b. The applicant is not entitled for present purposes to deduct the notional salary that he pays his new partner or the depreciation of his company’s equipment that is made only for accounting purposes [cf. 19(1) (g)].

c. In reality the applicant will continue to receive income in future from his portion of what were the assets of the family trust [cf. 19(1) (i)].

[19] The wife submits that the husband has the means to support a $220,000 a year lifestyle. I accept this argument, based on the following:

a. He can earn $50,000 a year from Niagara Tents and Events and his directorship in the family companies.

b. He could earn another $40,000 a year if he stopped paying his new partner for doing no work.

c. He could earn yet another $40,000 if he fired the real manager and actually did some work himself.

d. His company’s earnings are reduced for accounting purposes by $56,000 for depreciation of equipment, but he has not actually put this money aside to save for new equipment. This amount should also be imputed to him, because it is available to him.

e. The family business earns 4 to 5% interest on about $4 million in relatively liquid assets. Assuming that the applicant redeemed his $3.2 million and invested it at 4.5% p.a., he would earn $144,000.

[20] If he did all these things, he would have $330,000 a year. It would be reasonable to expect him to do some of them and earn $220,000. The husband could negotiate periodic payments from the companies that he owns with his siblings, or he could redeem his shares or some of them. He is well able to do enough to earn $220,000 a year. I impute that amount of income to him.

[21] Given the parties’ respective incomes and the tax consequences of spousal support, the advisory guidelines give a range from $4,455 a month to $5,940 a month. I think that $5,200 a month, the approximate midpoint, reflects the circumstances of the parties.

[22] Accordingly I order the applicant to pay $5,200 a month spousal support to the respondent commencing April 1, 2012. He will be given credit for $14,500 already paid. A support deduction order will issue.

[23] The parties may make written submissions to costs, the respondent by May 5, 2014 and the applicant by May 12.

J.A. Ramsay J.

Date: 2014-04-28