CITATION: Knowles v. Lindstrom, 2015 ONSC 1408

COURT FILE NO.: FS-12-18006

DATE: 20150303

SUPERIOR COURT OF JUSTICE - ONTARIO

RE: Nancy Evelyn Knowles, Applicant

AND:

James E. Lindstrom, Respondent

BEFORE: Penny J.

COUNSEL: Philip Epstein and Melanie Kraft for the Applicant

Sarah M. Boulby for the Respondent

HEARD: March 2, 2015

ENDORSEMENT

Overview

[1] This is a motion by the applicant for interim spousal support in the amount of $30,000 per month. The applicant takes the position that this is substantially less than the Guideline amount but is the minimum necessary to enable her to live, pending trial, in the manner to which she was accustomed during the parties’ cohabitation. The respondent argues that entitlement has not been made out and that, in any event, the amount sought is grossly excessive.

Background

[2] The parties began cohabiting in 2002. They separated in 2012, although the continuity of the relationship was interrupted from time to time. They had no children together and were never married. There is no cohabitation agreement.

[3] The parties met in Florida. The applicant is from Toronto. She is currently 60 years of age. The respondent is from the U.S. He is currently 66 years of age. This couple divided their time between Florida, where there was a luxury home, and Ontario, where there were two Muskoka cottage properties. Now, the applicant lives in Oakville with her adult, married daughter. The respondent continues to live in Florida.

[4] It is not in dispute that the respondent is a wealthy businessman. The amount of $4.5 million is held in trust, in Ontario, to secure the applicant’s trust claims in respect of the Muskoka cottage properties which were sold in 2012. The respondent’s declared annual income in 2014 was about CDN $1.5 million. He paid no tax on this income as a result of various tax exemptions and deductions available to him under U.S. tax law.

[5] The applicant worked until shortly before she began her relationship with the respondent. She did not work during their relationship. She has, to her credit, recently obtained work as a manager in the retail women’s fashion business. She earns about $78,000 annually.

[6] On February 20, 2012, the respondent told the applicant their relationship was over. He arranged a chartered jet flight for her to return to Toronto the same day. They have not lived together since.

The Issues

[7] There are three issues which underpin the motion for interim spousal support:

(1) entitlement;

(2) commencement date; and

(3) quantum.

[8] It is well-established that interim support motions are not intended to involve a detailed examination of the merits of the case. Nor is the court required to determine the extent to which either party suffered economic advantage or disadvantage as a result of the relationship or its breakdown. These tasks are for the trial judge. Orders for interim support are based on a triable or prima facie case. An order for interim support is in the nature of a “holding order” for the purpose of maintaining the accustomed lifestyle pending trial, Jarzebinski v. Jarzebinski, 2004 CarswellOnt 4600 (ONSC) at para. 36; Damaschin-Zamfirescu v. Damaschin-Zamfirescu, 2012 ONSC 6689, 2012 CarswellOnt 14841 (ONSC) at para.24.

Entitlement

[9] Under Part III of the Family Law Act, “spouse” is defined to include two persons who are not married and who have cohabited continuously for a period of not less than three years. Every spouse has an obligation to provide support for him or herself and for the other spouse, in accordance with need, to the extent that he or she is capable of doing so. The purposes of a support order under the FLA include:

(a) recognition of the spouse’s contribution to the relationship and the economic consequences of the relationship for the spouse;

(b) making fair provision to assist the spouse to become able to contribute to his or her own support; and

(c) relief of financial hardship.

[10] There are three conceptual bases for entitlement to spousal support: compensatory; contract; and non-compensatory. The contractual basis is not in play here.

[11] A spousal support obligation may arise on a compensatory basis in recognition that, upon relationship breakdown, there should be an equitable distribution between the parties of the economic consequences of the relationship. Entitlement may arise under the non-compensatory ground as a result of the needs of a spouse, even if that need does not arise as a result of the roles adopted or sacrifices made during the relationship.

[12] The analytical approach for determining whether an order for support is warranted is as follows:

(a) determine the threshold issue of whether the claimant is a spouse within the meaning of s. 29;

(b) consider both parties’ needs and abilities under s. 30;

(c) consider the purposes of a support order under s. 33(8) and, in determining the amount and duration of support in relation to need, consider all of the circumstances of the parties, including those factors listed in s. 33(9); and

(d) if a support order is warranted, choose from those forms of support contained in s. 34(1),

see Halliday v. Halliday, 1997 CarswellOnt 5077 (ONCA) at para. 9.

Spouse

[13] The respondent contests the applicant’s claim that she was a spouse. He maintains that there was no continuous period of cohabitation for three years. Whatever details of the relationship the respondent may wish to pursue at trial, in my view the applicant has made out a prima facie case that the parties cohabited from 2002 to 2012 and that she was a spouse within the meaning of s. 29 of the FLA.

Needs and Abilities

[14] There is no question that the respondent has the ability to pay substantial spousal support. He has a net worth exceeding CDN $35 million. He purchased the parties’ 6,000 square-foot home in Islamorada, Florida, and neighboring lot, for a total of $12 million cash. He purchased Muskoka cottages worth over $9 million cash. His income, derived from investments and for which he pays no income tax under U.S. tax law, is approximately CDN $1.5 million.

[15] The applicant has, since separation, returned to the workforce and has a job managing an Armani women’s clothing boutique. She earns about $78,000 per annum with the possibility of bonus and a clothing allowance.

[16] It is also beyond doubt that this couple lived a very extravagant and lavish lifestyle during the relationship, in particular, since 2007 when the respondent cashed in on his telecom business interests. Their Florida home was a seven bedroom beach property on 6 acres with a tennis court, swimming pool and private dock. They had three boats in Florida, three boats in Muskoka and various other adult toys (SeaDoos, snowmobiles etc.). They shopped extensively and dined out regularly. They were members of exclusive clubs and drove luxury vehicles.

[17] The parties’ living expenses were in excess of $80 - 90,000 per month. They travelled and vacationed extensively including to the Bahamas, Jackson Hole Wyoming, New York City, Maine, Vermont, California and elsewhere. They travelled primarily by private jet and stayed at five-star hotels. The respondent’s private jet budget is about $250,000 per year, some $24,500 per month.

[18] Post-separation, the respondent has continued to enjoy his lavish lifestyle. He admitted during his examination that his current lifestyle has not changed from the one he enjoyed while living with the applicant. His AMEX credit card statements for the last two years disclose average monthly spending of approximately US $40,000. He has another credit card which, he claims, covers other $5-$6,000 per month.

[19] Since returning to Toronto, the applicant has lived with her daughter. There is no Florida beach home; there is no Muskoka cottage; there is no travelling in private jets; there is no staying in five-star hotels; there is no luxury shopping and dining out; and there are no expensive ski and beach holidays. While the applicant’s daughter’s home is, by all accounts, large and comfortable, the applicant lives in the basement.

Purpose of Support: Compensatory and Non-Compensatory

[20] The respondent disputes any basis for compensatory support. He argues the applicant did not leave the workforce on his account. She made no contribution to the accumulation of his wealth and was disadvantaged in no way by their relationship. He disputes that he obtained any significant emotional support or companionship from the applicant and takes the position that she contributed little, if anything, to running their household.

[21] Almost all of this is disputed by the applicant. The applicant concedes that she had no involvement in the respondent’s business interests but maintains that she was responsible for the acquisition of the Muskoka properties, managed their home and staff, cooked their meals and was a constant, supportive companion, not least of all in respect of the applicant’s alcoholism and treatment in rehab.

[22] In my view, for interim support purposes, there is at least a prima facie case for some compensatory element to support.

[23] More important, however, in this case, is the argument relating to a non-compensatory basis for support – need.

[24] The parties agree that “need” in cases such as this relates not only to basic shelter and necessities but to a lifestyle that is commensurate with the lifestyle enjoyed during the relationship, provided the other spouse has the ability to pay. Thus, the accustomed standard of living during a relationship is the appropriate context in which a payee spouse’s need should be assessed, Linton v. Linton, 1990 2597 (ON CA), 1990 CarswellOnt 316 (ONCA) at para. 92; Marinangeli v. Marinangeli, 2003 27673 (ON CA), 2003 CarswellOnt 2691 (ONCA) at para. 74.

[25] In my view, the evidence is overwhelming that the applicant, despite returning to the work force and living in a comfortable home with her daughter, cannot possibly achieve a lifestyle remotely similar to the lifestyle she enjoyed during the relationship without support from the respondent.

[26] The respondent argues that his transfer of a Rosedale home at less than full value to the applicant and certain other payments made since this application was commenced have discharged, or at least ameliorated, his obligation to pay spousal support. This argument is, in my view, premature. The issue of the transfer of the Rosedale home is the subject of highly contested oral, and highly ambiguous documentary, evidence. Whether this transfer was intended for the applicant or for her daughter, and the economic ramifications of the transfer, cannot be determined on the record before me. It will be an issue for the trial judge to resolve.

[27] The respondent also argues that the applicant has not spent the significant sums he has already paid to her during the course of this litigation. This, he argues, is evidence that the applicant is accumulating wealth by squirreling away his payments and that she does not need further support to maintain a non-existent luxury lifestyle.

[28] This argument, in my view, stands the basis for non-compensatory support on its head. The respondent has accumulated over half a million dollars in legal fees fighting the applicant in this case. He challenged jurisdiction, taking the case to the Supreme Court of Canada, where leave was denied. It has been 37 months since the parties separated. The only amounts the respondent has paid (beyond the $4,200 per month “allowance” he paid during and after their relationship) were quid pro quos for adjournments he sought of this motion. It is hardly surprising, in the circumstances, that the applicant would not spend the limited funds she has obtained on luxury living, given the uncertainty over whether and how much support she might reasonably receive in the future.

[29] I conclude that the applicant has made out a prima facie case for interim spousal support on a non-compensatory basis.

Commencement Date

[30] The applicant is presumptively entitled to spousal support from the time she gave notice of her claim for support. To do otherwise would be to reward a party for delaying the hearing, see Vanasse v. Seguin, 2008 35922 (ON SC), 2008 CarswellOnt 4265 (ONCA) at paras. 225 and 226. This underlying principle is relevant in this case because it has been almost three years since the applicant served her notice of application on April 26, 2012. The appropriate order, in this case, is that the applicant is entitled to interim spousal support from April 26, 2012.

Quantum

[31] Section 19(1) of the Child Support Guidelines (Ontario) provides that the court may impute such income to a spouse as it considers appropriate in the circumstances, including where the spouse is exempt from paying income tax or where the spouse derives income from sources, such as dividends or capital gains, that are taxed at a lower rate than employment or business income.

[32] Section 20 of the CSGs states that a non-resident’s income is determined as though the spouse were a resident of Canada. There is some protection for a non-resident payor who resides in a country with significantly higher rates of income tax than in Canada.

[33] It is common ground that the CSGs, with respect to “grossing up” for income tax, have been and are commonly applied to spousal support scenarios, Mariani v. Mariani, 2012 CarswellOnt 10471 (ONSC) at para. 102. This is done to ensure consistency of treatment where a party’s affairs are arranged to pay less tax on income, Sarafinchin v. Sarafinchin, 2000 22639 (ON SC), 2000 O.J. No. 2855 (ONSC) at para. 63. As stated by Sachs J. :

If the Guidelines are designed to ensure consistent and predictable treatment, the argument becomes that an adjustment must be made to reflect the fact that Mr.Sarafinchin pays much less income tax than he would if he were a salaried employee.

[34] The respondent argues that monthly support payments will be taxable to the applicant and deductible to him although, because of his tax loss carry forwards in the U.S., he will not receive the benefit of any deduction. Further, the respondent argues that grossing up his income will generate a larger support payment based on a notional income which he does not have. The respondent's factum states:

While the gross up may make sense in cases which are essentially tax avoidance (such as over claiming of expenses), it seems harsh in a case, like Lindstrom’s, where the non-taxable nature of the payment is perfectly above board. It is not logical in a case like Lindstrom’s in which part of the income is taxable but set off against huge and legitimate prior losses.

The respondent relies on Landry v. Landry, 2013 CarswellOnt 1535 (ONSC) at para. 8, for the proposition that “there is no sense in engaging in a fiction that because no tax is payable, additional income must be attributed.”

[35] In my view, Landry was a very different case. The cited passage from Landry is, in any event, out of step with the weight of authority on the subject. I certainly agree with counsel for the respondent that the SSAGs do not automatically apply to cases in which incomes are over $350,000. Courts are, nevertheless, to consider the SSAGs as a factor when ordering spousal support, Trombetta v. Trombetta, 2011 CarswellOnt 318 (ONSC) at para. 32.

[36] It seems to me, on the narrow point of whether a gross up is prima facie reasonable, that the default position should be that it is. Grossing up for tax is not limited to cases where there is over-claiming for expenses. The very language of the CSGs, reveals an intention that income may be grossed up in any case where a spouse is exempt from paying income tax (whatever the reason) or where the spouse derives income from sources, such as dividends or capital gains, that are taxed at a lower rate than employment or business income, i.e., where the non-payment of tax is “perfectly above board.”

[37] The need for consistency of treatment is manifest in a case like where the applicant’s income is taken into account in the SSAG calculation. The calculation assumes an income of $78,000, although this amount exceeds what the applicant actually receives and has to live on. It would be unfair to the applicant to use her gross income, subject to payment of tax, in the same calculation as the respondent’s net income, on which no tax is exigible.

[38] Any unfairness, from the application of the gross up rule, to support obligations generally, and to the respondent’s ability to pay in particular, should be taken into account in the exercise of the court’s discretion not simply to adopt the resulting SSAG calculation as the appropriate amount to order for interim support.

[39] The respondent’s Divorcemate calculation is flawed in that it uses actual income (i.e., not taxed) and U.S. dollars for the respondent but uses taxed income in Canadian dollars for the applicant. Even without gross up, therefore, the respondent’s monthly support ranges fail to reflect the 20% difference in exchange rate between Canadian and U.S. funds. Roughly adjusting for the exchange only, the respondent’s calculation results in a range of about $16,000 to $22,000 monthly, with a midpoint of approximately $19,000 Canadian.

[40] The applicant’s Divorcemate calculation shows, using grossed up income converted to Canadian dollars, ranges of approximately $35,000 to $47,000, with the midpoint of about $41,000. The applicant, however, recognizing the discretionary nature of the exercise before the court, asks for only $30,000 per month, or about 18% of net disposable income.

[41] The applicant has presented a modest expense budget of approximately $76,000. As noted above, I do not think the applicant should be penalized for failing to spend beyond her means or for failing to advance, as her monthly budget, lavish expenses she is not actually incurring. By the same token, I agree with the respondent that while the parties’ lifestyle during the relationship is relevant to the context for establishing the applicant’s needs, it is within the court’s discretion to draw the line at certain types of lavish expenditures, such as private jets, Goriuk v. Turton, 2011 CarswellOnt 1216 (BCSC) at para. 56.

[42] The applicant ought not to be reduced to living in her daughter's basement, spending all she earns, with next to nothing for entertainment, vacations, gifts, dining out and personal expenses. In my view, the amount of $25,000 per month until trial is reasonable and appropriate, having regard to the factors in s. 33(9) of the FLA, the various amounts calculated under the SSAG and the lifestyle enjoyed for at least the last five years of this medium-term relationship. An order, therefore, shall issue awarding the applicant $25,000 per month by way of interim spousal support until trial.

Costs

[43] I was advised by counsel that costs would have to be dealt with following the release of these Reasons due to outstanding offers to settle.

[44] I encourage the parties to seek an accommodation on costs. Absent agreement, however, the applicant may seek her costs by filing a brief written submission, not to exceed three typed, double-spaced pages, together with a Bill of Costs and any supporting documents, within two weeks of the release of these Reasons. The respondent may file a responding submission, subject to the same page limit, within a further 10 days.

Penny J.

Date: March 3, 2015