CITATION: Bortnikov v. Rakitova, 2015 ONSC 2546
COURT FILE NO.: FS-11-368230
DATE: 20150429
ONTARIO
SUPERIOR COURT OF JUSTICE
BETWEEN:
Aleh Bortnikov
Applicant
– and –
Marina Rakitova
Respondent
Aleh Bortnikov on his own behalf
Eric Shapiro, for the Respondent
HEARD: March 30, 31 and April 1, 2, 7, 8 and 10, 2015
Penny j.
Overview
[1] The parties were married on August 9, 2002 and separated on February 7, 2011. They had no children together. During the marriage they both worked at a motel, called the Grand Motel, owned by the respondent at the time of marriage. They also acquired a cottage property in Penetanguishene during their marriage. Upon separation, the applicant was terminated from his employment at the motel and required to leave the matrimonial home, which was on the motel site and integrated into motel operations. The applicant was required to live in the cottage property. That property was sold in 2013 and the net proceeds equally divided, subject to satisfaction of certain cost awards outstanding against the applicant. Since separation, the respondent has continued to own and operate the motel and to reside in the matrimonial home. Since the sale of the cottage, the applicant has lived in a rented room. He recently qualified as a licensed real estate agent but has earned no material income since separation.
Issues
[2] The two main issues during the trial were the applicant’s claims for equalization of net family property and spousal support. Both parties also sought a divorce.
[3] I shall dealt with the main issues as follows:
(1) Equalization
(a) the value of the Grand Motel on the date of marriage (DOM) and the date of separation (DOS);
(b) the value of the matrimonial home;
(c) the applicant’s “trust” claim;
(d) the applicant’s claim for “occupation rent”;
(e) the applicant’s claim for reimbursement of carrying costs of the cottage property;
(f) other miscellaneous adjustments to the calculation of net family property;
(g) conclusion on equalization.
(2) Spousal Support
(a) entitlement
(b) quantum
(i) income of respondent
(ii) income of applicant
(c) conclusion on spousal support
(3) Divorce
1. Equalization
(a) The Value of the Grand Motel – DOM/DOS
[4] The respondent was, before the marriage, and remains the sole shareholder of 1291937 Ontario Inc. The only asset of 129 is a property known as the Grand Motel. The Grand Motel consists of real property and two buildings situated at 4624 and 4626 Kingston Road in Scarborough. It is a 26 room motel which includes a two-storey home for the owner/operator. The site has extensive asphalt paving and parking, mature landscaping, an inground pool and a fish pond. It was described by the expert valuator as “an attractive well maintained facility that has good signage and identification from the main arterial road.”
[5] Because the respondent was the sole owner, through her corporation, of the Grand Motel before her marriage to the applicant, she is entitled to exclude the DOM value of the Grand Motel in calculating the value of her net family property under ss. 4(1) and 5 of the Family Law Act, R.S.O. 1990, c. F.3. The exclusion does not apply to the matrimonial home, which in this case consists of the two storey home incorporated into the Grand Motel site in which this couple lived with their children from prior marriages.
[6] In July 2011, the applicant’s then counsel advised counsel for the respondent that the applicant had retained Mr. Wayne Crawford to prepare an analysis of the value of the Grand Motel and forwarded a copy of Mr. Crawford’s C.V. The applicant was seeking the respondent’s consent to schedule an appraisal appointment at the site. Counsel for the respondent replied in August 2011, indicating that Mr. Crawford was at liberty to contact the respondent directly to make an appointment.
[7] There was a case conference before Klowak J. on August 17, 2011. The parties consented to an order that:
(a) the applicant, Aleh Bortnikov, will pay for the cost of an appraisal of the properties owned by 1291937 Ontario Inc., located at 4624 Kingston Rd. and 4626 Kingston Rd., Scarborough, Ontario without prejudice to his right to claim reimbursement from the respondent a later date during this proceeding; and
(a) the appraiser, Mr. Wayne Crawford, shall be permitted to attend the properties listed in paragraph 1 above to conduct his appraisal within 30 days.
[8] Both the applicant and the respondent provided information to Mr. Crawford about the Grand Motel including access for a site visit and financial information about the motel, including the motel’s accounting ledgers and unaudited financial statements prepared by the motel’s accountant, Mr. Michael Sheyman.
[9] Mr. Crawford prepared a report dated September 6, 2011 providing his opinion on the value of the Grand Motel on the DOS and the DOM. He subsequently prepared an update to this report in February 2015, reflecting final information from the motel’s 2011 fiscal year and Mr. Crawford’s attempt to place an independent value on the two storey house on the motel property which was, it is conceded by both parties, the matrimonial home.
[10] Mr. Crawford is the president of Appraisal Group Inc. He has been in the business of valuation of residential, industrial, commercial, investment and institutional properties since 1978. He is an accredited appraiser with the Appraisal Institute of Canada and has taken ongoing educational programs in a wide range of property valuation subjects, including hotel/motel valuation and business valuation. He is the president of the Toronto chapter of the Appraisal Institute of Canada and has held a number of other professional designations and affiliations, including chairman of educational programs for the Toronto chapter of the Appraisal Institute Canada. Mr. Crawford has previously been qualified to give expert evidence on property valuation matters before the Ontario Superior Court of Justice and the Ontario Municipal Board.
[11] Following a voir dire, I accepted Mr. Crawford as an expert in real property valuations qualified to give opinion evidence on the DOM and DOS value of the Grand Motel.
[12] In Mr. Crawford’s updated 2011 report, which he confirmed and adopted at trial, he provides the opinion that the value of the Grand Motel on August 29, 2001 was $1,450,000. He also provides the opinion that the Grand Motel was worth $1,500,000 on February 7, 2011.
[13] The parties both agree that Mr. Crawford’s August 29, 2001 value of $1,450,000 was the value of the Grand Motel on the date of marriage.
[14] Mr. Crawford’s February 7, 2011 value of $1,500,000 was the subject of controversy, however. This became the most important contested issue at trial.
[15] Mr. Crawford used two methods of valuation, the direct comparison method and the income method. A third possible method of valuation, referred to as the cost method, Mr. Crawford rejected as being inappropriate in the circumstances of this case.
[16] The direct comparison method looks at comparable properties and, after making adjustments for timing, location, size, condition and other factors, seeks to estimate what the Grand Motel would have sold for on February 7, 2011 to an arm’s length third party purchaser. Using this method, Mr. Crawford concluded that the Grand Motel was worth $1,500,000 on February 7, 2011.
[17] The income method looks at the net cash flow of the Grand Motel and, through comparisons to the cash flows of other similar operations, seeks to capitalize that net revenue into an amount that a purchaser would be willing to pay to acquire the potential to earn that net cash flow into the future. Using the cash flow method, Mr. Crawford determined that the Grand Motel was worth $1,100,000 on February 7, 2011.
[18] In his conclusion, Mr. Crawford adopted the figure of $1,500,000 as his opinion on the DOS value of the motel. Mr. Crawford stated:
After much deliberation and reconciliation I have concluded the Direct Comparison Approach has provided the best indication of value for the subject property as of the specified dates. I have reached this conclusion since the income reported by the smaller motel operations likely understate[s] the total revenue received. Therefore the most probable price for the subject property is as follows:
February 7, 2011 $1,500,000
[19] Although Mr. Crawford was originally retained by the applicant, when the applicant received Mr. Crawford’s report he did not agree with the DOS conclusion on value. The applicant immediately took the position that he would not be relying on the report. The applicant did not, however, obtain any other real estate valuator’s opinion on the DOS value of the motel.
[20] As the trial approached, the respondent decided to use Mr. Crawford’s report and to lead his evidence. In a pretrial ruling, I held that the respondent was entitled to do so, subject to certain limitations. It was the respondent’s counsel who retained Mr. Crawford to prepare updates to his report. Among other things, these updates sought to identify a separate value for the matrimonial home which forms part of the motel and will be dealt with below.
[21] The applicant, in cross-examination and argument, attacked Mr. Crawford’s opinion on the basis that his report is riddled with errors and that his conclusions fly in the face of common sense. It is notorious, the applicant says, that Toronto real estate has steadily increased in value. Mr. Crawford’s opinion “makes no sense” in that it ascribes a 2011 value only marginally greater than its value some 10 years earlier.
[22] The applicant argues that Mr. Crawford did not value the whole property, and left out one of the two parcels. The property consists of two parcels and two municipal addresses, 4624 and 4626 Kingston Road. Mr. Crawford’s report refers only to 4626 Kingston Road. In his evidence, however, Mr. Crawford made it clear that his use of one municipal address was merely for convenience and that he took the entire property and operation into account in preparing his valuation. The supporting evidence in Mr. Crawford’s report makes it clear that he took account of both properties and I accept his evidence on this point.
[23] Mr. Crawford admitted during his testimony that he made a mistake in his calculation of the acreage on which the motel sits. He made it clear, however, that the minor difference in the calculation of acreage had no impact on his valuation conclusions.
[24] Mr. Crawford readily admitted that some of the direct comparables were simply not that comparable. He justified the use of properties in Burlington and Oshawa, for example, and sales from as early as 2007, on the basis that there was a paucity of sales of comparable hotel/motel properties in the 2011 timeframe and that this was the best data he could get.
[25] Mr. Crawford also made an error in his room count as a result of confusion over which part of the motel constituted the owner occupied suite. There are three rental units and an office attached to the two storey matrimonial home. One of the three rental units is a self-contained apartment. Mr. Crawford did not count this unit as rentable because he was under the mistaken impression that this was the owner occupied suite. The evidence was, however, that the apartment was rented whenever possible and was quite distinct from the owner occupied two storey house. Accordingly, Mr. Crawford’s room count understated the available rooms by one (25 instead of 26).
[26] The applicant’s main complaint about Mr. Crawford’s 2011 value, however, was the generic one; that is, that real estate prices have increased in Toronto since 2001.
[27] Mr. Crawford countered this criticism on essentially three grounds:
(1) there was a recession in 2008. Motel properties had not fully recovered from the effects of the recession, or were just beginning to recover, by 2011;
(2) motel properties are as much an investment in a net revenue stream as a real estate investment. Motel properties cannot be compared to, for example, residential homes for this reason;
(3) the motels in the Kingston Road area have not been doing that well since 2001. Seven went out of business between 2001 and 2011. At least one motel property which sold during that time period was sold for a $180,000 capital loss. The area in general has become less desirable. For example, Mr. Crawford testified that some Kingston Road motels now rent by the hour. There was also evidence during the trial that some of the motels and hotels in the area survive by renting out to participants in government programs, such as refugee and immigration claimants.
[28] Mr. Crawford also admitted that he missed one “good” direct comparable in his analysis using the direct comparison approach. This was a 30 room motel property at 4584 Kingston Road which sold in 2007 for $1,700,000 with a reported operating income of $100,000 and to which he assigned a 5.9% capitalization rate. This translated into a per room value of $56,600. Mr. Crawford opined elsewhere in his report that the Grand Motel should be valued at a $60,000 per room rate and a capitalization rate of 6.5%.
[29] Mr. Crawford testified that he used the 4584 Kingston Road property when developing his capitalization rate for the income method valuation. But, he said during the trial, he ought to have used this property in his direct comparison approach because it was such a “good” comparable. Having said that, however, Mr. Crawford testified that the inclusion of this property in his direct comparison analysis would not change his conclusion. It was not entirely clear why this was so, as I will elaborate further below.
[30] The applicant testified that he did not retain another real estate valuator because he could not afford one. However restricted the applicant may have been by his financial situation, the absence of any other opinion on value complicates the analytical exercise of evaluating Mr. Crawford’s opinion and, ultimately, determining the DOS value of the Grand Motel.
[31] On the one hand, Mr. Crawford admitted to a number of mistakes, including the number of rentable rooms and the failure to take account of the 2007 sale of 4584 Kingston Road at $1,700,000. He also admitted that there is a significant amount of judgment involved in his conclusions. However, while Mr. Crawford says he made many adjustments to account for the various differences between the properties in his direct comparable sample group, these adjustments are not set out or specifically identified or explained. They are simply wrapped up in the judgment Mr. Crawford exercised to arrive at his final opinion.
[32] On the other hand, there is no other opinion on the DOS value of the motel before the court.
[33] The applicant’s net family property statement, and his evidence at trial, is to the effect that the DOS value of the motel should be $2,350,000. In advancing this number, the applicant is, in effect, testifying as his own expert witness.
[34] While the applicant has, since separation, become licensed as a real estate sales agent, there is no evidence that he has any training, education, expertise or experience in real estate valuation. The applicant was not qualified nor, given his direct interest as a party and lack training and expertise, could he have been qualified, as an expert in real estate valuation. I find there is no evidence to support the applicant’s DOS motel value of $2,350,000.
[35] The respondent argues (and her NFP statement reflects) that that DOS motel value is $1,100,000, that is, Mr. Crawford’s value using the income method.
[36] The respondent argues, based on some evidence at trial, that during the marriage there was no hidden or undisclosed cash component of the business. Thus, she argues, Mr. Crawford’s reluctance to rely on the income method because “the income reported by the smaller hotel operations likely understates the total value received” is not applicable here.
[37] The respondent further relies on evidence from Mr. Crawford to the effect that, if there were no concerns about the quality of the income data, the income method might be preferable to the direct comparison method precisely because good direct comparisons are so hard to come by.
[38] I do not accept this argument for two reasons. First, this argument misses the point. Mr. Crawford was uncomfortable with the income method, not because the data specifically from the Grand Motel was unreliable but because the reported data from all the “smaller hotel operations” tends to be underreported. The mere fact that the revenues from the Grand Motel may not have been underreported does not mitigate the valuation problem because the income method still relies on comparisons to comparable motels for, among other things, the capitalization rate.
[39] Second, notwithstanding the respondent’s protestations that there were no undisclosed cash receipts from the Grand Motel’s operations, there is evidence that the respondent deposited amounts to her personal bank account which were, in some years, substantially in excess, not only of her own declared income, but in excess of her “split” income resulting from paycheques issued to her two children which her children habitually endorsed back to her, as well. Thus, I find, the evidence does not support the proposition that there was no undisclosed income from the Grand Motel business.
[40] Mr. Crawford, using his expertise and experience, opined that the income method, in the small hotel market, was not especially reliable. For this reason, he declined to rely significantly on the results of his income method analysis in his conclusion on DOS value. Mr. Crawford is in the best position to judge the reliability of the results of his analysis in this regard. I am not prepared to ignore his rejection of the income method analysis on the basis that his concerns about underreported income were unfounded.
[41] The remaining question is whether, and to what extent, Mr. Crawford’s opinion, based on the direct comparison method, of a DOS value of $1,500,000, should be accepted.
[42] I entirely accept Mr. Crawford’s explanation regarding the two parcels (that he did value the entire Grand Motel enterprise) and the acreage (that a small amount of additional land would not affect his conclusion).
[43] I am, however, concerned about the impact of his failure to include the 2007 sale of 4584 Kingston Road (a nearby 30 room motel) for $1,700,000 and his failure to include unit 35 (the apartment) in the rentable room count. On Mr. Crawford’s own evidence, the 4584 Kingston Road sale was a “good” comparable – probably the best comparable in his entire DOS value sample group. On Mr. Crawford’s own evidence, the number of rooms has a material impact on anticipated revenue and, therefore, on the market value using the direct comparison method.
[44] I have come to the conclusion that the DOS motel value, based on the preferred direct comparison method, must be increased to reflect these two oversights. The 2007 sale price of 4584 Kingston Road, although at $1,700,000, was for a motel with 30 rooms, rather than 26. In addition, it was a price obtained just before the 2008 recession began. The additional room represents additional potential revenue to a prospective buyer. In all the circumstances, I find the appropriate February 7, 2011 value of the Grand Motel, for equalization purposes, to be $1,600,000.
The Value of the Matrimonial Home
[45] As noted above, part of the motel consists of a partially integrated two-storey home which was used by the parties as their matrimonial home. The pre-marriage exclusion does not apply to the matrimonial home portion of the motel property. Accordingly, it is necessary for equalization purposes to determine a DOM and DOS value for the matrimonial home independent of the motel.
[46] The respondent asked Mr. Crawford to calculate such a value. In an e-mail dated December 12, 2014, he purported to supplement his opinion on value with a calculation to determine the value of the matrimonial home portion of the motel. Mr. Crawford testified that it was not easy to ascribe a separate value to the two-storey home associated with the motel because it is unique. Normal house prices are not comparable because no one looking for single-family dwelling would buy this house. It is on the motel property, attached to three rental units and also has an integrated motel office and signage attached.
[47] In the end, Mr. Crawford developed a value for the two-storey home by capitalizing an imputed revenue stream using annual rent control guidelines. The evolution of this valuation was fraught with errors and misunderstandings, both at the time it was prepared and during Mr. Crawford’s testimony at trial. It appears Mr. Crawford tried to use a monthly amount imputed to the respondent, as sole shareholder of 129, for tax and accounting purposes, which represented the notional benefit to her of living in the two-storey house portion of the Grand Motel. Unfortunately, in one of the many errors committed during his attempt to calculate the matrimonial home’s value, Mr. Crawford initially used the wrong monthly imputed amount of $800 per month rather than the amount actually used by the accountant, Mr. Sheyman, in his financial statements, which was $900 per month. During the trial, Mr. Crawford recalculated his capitalization of the notional benefit using the correct $900 figure used by Mr. Sheyman. The resulting value of the matrimonial home was, in Mr. Crawford’s opinion, $90,000.
[48] The applicant says this is a grossly undervalued number. He sought to rely on rental rates for nearby single-family dwellings advertised in the $1,800 per month range. These figures were put to Mr. Crawford in cross-examination. Mr. Crawford rejected the residential rental rates as not at all comparable, for the reasons outlined above.
[49] I am unable to accept either of these valuations for the matrimonial home. The $900 per month figure was used for internal tax and accounting purposes to represent a shareholder “benefit” to the respondent for being allowed to live in the house. This amount was never explained or justified in the evidence. This was simply a number used by the corporation’s accountant to reduce what might otherwise have been distributed, notionally, to the respondent as sole shareholder. No explanation was given of where this number came from or how it was calculated. It is, based on this lack of evidence, entirely arbitrary.
[50] Equally problematic is the applicant’s attempt to use so-called comparables from the local residential real estate market. As noted above, the applicant was not, nor could he have been, qualified as an expert in business or real estate valuation. In any event, I accept Mr. Crawford’s evidence that residential market comparators are inappropriate in the context of this unique situation.
[51] I have concluded that the only way to ascribe a freestanding value to the two-storey house used as the matrimonial home on the motel property which is founded in reliable evidence, is by comparing the square footage of the home to the square footage of the motel as a whole and using, as the value of the home, that percentage of the DOS value of the motel as I have found it to be.
[52] The evidence was that the house is about 1,800 square feet. The total square footage of the motel was reported by Mr. Crawford to be 10,580. Neither figure was challenged at trial. The matrimonial home, therefore, represents 17% of the total square footage of the motel. I therefore find the DOS value of the matrimonial home to be 17% of $1,600,000, or $272,000. The value of the business as of the DOS, separate from the matrimonial home, would then be $1,328,000 ($1,600,000 minus $272,000). For the purposes of the respondent’s DOM deductions, I find the same approach should be employed using the DOM value of the motel property, to arrive at the DOM value of the business as separate from the matrimonial home. Subtracting 17% of $1,450,000, or $246,500, from $1,450,000 yields a total DOM deduction for the respondent of $1,203,500.
Applicant’s “Trust” Claim
[53] The explanation and disposition of what I will refer to as the applicant’s “trust” claim (for want of a better term) requires some background.
[54] The respondent acquired 100% of the shares of 129 and, therefore, indirect ownership of the Grand Motel, in 2001 as part of her divorce from Terrence Liu. The respondent acquired the shares for $1,092,938, payable in monthly installments, for the first year of $5,000 and after that of $7,000. Monthly interest on the purchase price was postponed as long as the monthly payments were made. This obligation was secured by a mortgage on the motel property. On the DOM, the parties agree that the outstanding amount owing to Liu was $1,052,938. On the DOS, the parties also agree, the amount which remained owing to Liu by the respondent was $346,938.
[55] After these proceedings were commenced, Liu sued the respondent and the applicant, alleging a breach of the respondent’s contract for payment, slander of title and other wrongful acts. These proceedings were settled. The respondent agreed to pay Liu, in addition to fulfilling her obligations under the purchase agreement, $60,000 in settlement of his claims. It was a term of the settlement that the respondent could not rely on the $60,000 payment to Liu to reduce her net family property in these proceedings. Since separation, the respondent has continued to pay Liu $7,000 per month.
[56] The respondent and Liu have agreed, apparently, that the $60,000 settlement amount will be added to the respondent’s outstanding obligations to Liu and will be paid down by extending the $7,000 per month payments. The evidence was that, by the time of trial, the respondent’s financial obligations to Liu were well under $100,000 and would be finally satisfied in full, assuming the continued $7,000 per month payments, by the end of December 2015.
[57] In his amended application, the applicant advanced claims for ownership of shares of 129 and an ownership interest in the Grand Motel, including an ownership interest in the matrimonial home, based on contract as well as relief under the oppression remedy in s. 248 of the OBCA and under a constructive trust.
[58] By the time of trial, however, the applicant agreed to abandon his contractual, oppression and trust claims and to rely solely on his spousal rights under the FLA.
[59] This agreement was reflected in the trial management endorsement of Kiteley J. of January 26, 2015 and was reiterated by the applicant on more than one occasion during the trial. Kiteley J. wrote, at para. 17:
The applicant had at some point claimed that he was a beneficial owner of the shares in 1291937 Ontario Inc. (129). Mr. Shapiro pointed out answers to questions that the applicant had made on an earlier occasion and statements made at the TMC on November 17 and this date. On the basis of those answers on questioning and the position taken at TMC’s, the applicant agrees and acknowledges that, vis-à-vis the Grand Motel and 129:
(a) he asserts a claim only for the equalization of net family property;
(b) he does not assert a claim as owner of the Grand Motel or as owner of the shares of 129;
(c) he does not seek to enforce the terms of a written agreement between the Applicant and the Respondent dated March 22, 2010;
(d) although not specifically discussed that the TMC, it follows from (a), (b) and (c) that the Applicant does not seek an order that the Respondent pay to the Applicant 40% of the rental income received by the Grand Motel commencing February 7, 2011;
(e) he does not assert a claim under the Ontario Business Corporations Act for an oppression or any other remedy;
(f) because he is not asserting an ownership claim, he cannot seek a remedy for sale under the Partition And Sale Act;
(g) as a result of his claim for an equalization of net family property, he will seek a judgment for the amount of the equalization payment.
[60] Notwithstanding these concessions, the applicant seeks, as part of his equalization entitlement, half of the amount the respondent has paid to Liu since separation; that is, $3,500 per month since February 2011 to the date of trial (or 48x3500 equals $168,000).
[61] The applicant’s basis for advancing this claim results from his view that he has, since separation, had an entitlement to equalization, based notionally on his efforts and investments in the family business during the marriage. The applicant reasons that he has been deprived of the benefit of this “return” on his investment since separation. Since the respondent, he argues, has been paying $7,000 per month in compensation for her purchase of the business from Liu, the applicant believes half of a similar amount would be appropriate compensation to him for the respondent’s “use” of his investment in the Grand Motel since separation.
[62] The applicant’s claim for this relief is dismissed. The applicant has abandoned any claim to an ownership interest in 129 or the Grand Motel, whether by contract, statute or common law trust. His entitlement, if any, under the FLA is to a payment of money, sufficient to equalize the value of the parties’ net family property.
[63] The applicant has advanced no legal basis upon which the amount he seeks could be justified. In essence, the applicant seeks compensation for being deprived of his equalization payment since February 2011. That, however, is precisely what awards of pre-and post-judgment interest are for.
[64] The applicant is entitled to interest on the amount owing to him by way of equalization but there is no basis for any other form of compensation for the time value of his money in the circumstances of this case.
[65] This claim of the applicant is therefore dismissed.
Applicant’s Claim for Occupation Rent
[66] The applicant argues that the respondent has been permitted to live in the matrimonial home since separation, to his exclusion, and that she should be liable for the market rent of these accommodations. The applicant has put forward a “comparable” single-family home in the area as a basis for market rent, that being $1,800 per month.
[67] I cannot accept the applicant’s claim for occupation rent. There are several reasons for this conclusion. First, he is not an owner of the motel or the matrimonial home. Second, I would, in any event, not accept the rental value of a standard single-family home as any evidence of the value of the two-storey residence at the motel for the owner/manager. Finally, the respondent has been paying all costs associated with the motel, including the owner/manager’s residence. She has, as a result, been paying the carrying costs of the matrimonial home since separation. Having to pay market rent on top of those costs would be double counting and punitive.
[68] In conclusion, I can find no basis in law, or on the facts of this case, to warrant an order that the respondent is liable for occupation rent. This claim is, therefore, dismissed.
Applicant’s Claim for Carrying Costs of the Cottage Property
[69] The parties bought a cottage property in Penetanguishene during their marriage. They held title as joint tenants. On separation, the applicant moved into the cottage and lived there with his two sons (when they were not away attending university). The property was sold by court order in 2013. The net proceeds have since, again by court order, been distributed between the parties.
[70] From separation to the date of sale, the applicant paid the mortgage, insurance, property tax and utilities for the cottage. He seeks to recover half of this amount from the respondent. That amount, as calculated by the applicant, is $14,175.99.
[71] Because the parties were joint owners and jointly received the net proceeds of sale, there is at least a principled basis upon which the applicant could claim contribution to the carrying costs of the cottage. However, the evidence is that the applicant (and his family) enjoyed exclusive use of the cottage post-separation. While the respondent was a joint owner, she had no use of the property post-separation. If the applicant had not lived in the parties’ joint asset, he would have had to pay rent somewhere else. He would have had no basis to claim recovery of that rent.
[72] Instead, he paid the carrying costs of the cottage. It is similar, in this way, to the respondent’s post-separation use of the matrimonial home.
[73] The circumstances of this case do not warrant an order against the respondent to pay half the carrying costs of the cottage during the period of time during which the applicant enjoyed exclusive use and possession post-separation. This claim is, therefore, dismissed.
Other Adjustments
[74] There were a number of other disputes over inputs into the parties’ net family property statements. Most of them were minor and had minimal impact on the calculation of equalization. Two issues, however, were material and warrant specific attention:
(i) household items, including jewelry, and
(ii) disposition costs.
(i) Household Items
[75] The applicant claims that the respondent retained household items and jewelry valued at approximately $33,000 whereas he retained household items valued at a little over $6,000 (Ex. 1 Vol. 2 Tab 12 pp. 328 to 330). Some limited evidence of original cost was provided but in most cases there was no support for the values used in the applicant’s calculations. In addition, many of these items were in the matrimonial home, which is integrated into the motel business. It is by no means clear that most of these items, located at 4624 Kingston Road, were not captured by the valuation performed by Mr. Crawford.
[76] Be that as it may, I do not think the applicant has offered any admissible evidence to support the values he wishes to attribute to household items retained by the respondent. The tables prepared by the applicant amount to no more than the applicant’s speculation. I accept the values for these items used in the respondent’s net family property statement (Ex. 12 p. 2 Part 4(b)).
(ii) Disposition Cost
[77] The respondent included in her calculation of net family property “debts and other liabilities” consisting of disposition costs for the Grand Motel which included capital gains and real estate fees. The applicant did not include any such liabilities.
[78] The applicant argued that I should order the sale of the Grand Motel. In such an event, I would find it hard to exclude disposition costs of this nature. I am not, however, persuaded that I have the jurisdiction to make such an order or, if I did, that such an order is necessary or even warranted in the circumstances of this case. I therefore decline to make any order concerning the sale of the Grand Motel.
[79] It remains the case, however, that disposition costs of this nature are frequently included as a liability associated with an asset simply because, in order to realize on the wealth embedded in that asset, the asset would normally have to be sold. It is clear that sooner or later the respondent will sell the Grand Motel.
[80] In my view, the prospect of a sale is sufficiently likely within the foreseeable future that the cost of disposition should be reflected in the parties’ net family property statements.
[81] The respondent proposes two such costs, a capital gain of 23% calculated as $46,092 (it is not clear what “gain” the respondent used for her calculation) and real estate fees of $55,000 (based on 5% of the respondent’s proposed value of $1,110,000 using Mr. Crawford’s income method).
[82] The respondent’s evidence did not explain or justify the existence or likelihood of a capital gain on the sale of the Grand Motel. There is simply no evidence to support the conclusion, on a balance of probabilities, that material capital gains would actually become payable on a sale. For this reason, I decline to include potential capital gains as a liability in the calculation of net family property.
[83] Real estate fees are more straightforward. There was evidence that standard real estate fees are 5%. Five per cent of the DOS value, which I have determined is $1,600,000, equals $80,000. That figure must be included as a liability in the net family property calculation.
Conclusion on Equalization
[84] In conclusion, I calculate the applicant’s net family property at $123,324.43 and the respondent’s net family property at $1,442,991.71, resulting in an equalization payment owing by the respondent to the applicant of $659,833.64.
2. Spousal Support
Entitlement
[85] Sections 15.2(1) and (2) of the Divorce Act set out the court’s jurisdiction to make interim or final orders requiring a spouse to pay such spousal support as the court considers reasonable.
[86] Section 15.2(4) of the Divorce Act directs the court to take into consideration the condition, means, needs and other circumstances of each spouse, including:
a. the length of the spouses’ cohabitation;
b. the functions performed by each spouse during cohabitation; and
c. any order, agreement or arrangement relating to support of either spouse.
[87] An award of spousal support must:
a. recognize any economic advantages or disadvantages to the spouse arising from the marriage or its breakdown;
b. apportion between the spouses any financial consequences arising from the care of any child over and above any obligation for the support of any child;
c. relieve economic hardship of the spouses arising from the breakdown of the marriage; and,
d. promote economic self-sufficiency of each spouse within a reasonable period of time.
[88] In determining the issue of spousal support, the court is required by section 15.2(4) to consider the condition, means, needs and other circumstances of each spouse. The “condition” of a spouse includes such factors as their age, health, needs, obligations, dependants and their station in life. A spouse’s “means” encompasses all financial resources, capital assets, income from employment and any other source from which the spouse derives gains or benefits. These factors include, but are not limited to, the inability of a spouse to support him or herself due to professional and career sacrifices made during the marriage and the functions performed by the spouses during the marriage: see Bracklow v. Bracklow, 1999 CanLII 715 (SCC), [1999] 1 S.C.R. 420, at paras. 36 and 39; Smith v. Smith, 2012 ONSC 1116, [2012] O.J. No. 800, at para. 69.
[89] The Ontario Court of Appeal has said that the factors and objectives outlined in the Divorce Act require a balancing of “the parties’ circumstances, including the duration of the parties’ cohabitation, their ages, their incomes and prospective incomes, the effects of equalization, the stages of their careers, contributions to the marital standard of living, participation in household responsibilities, the absence of child-care obligations, … [and] the parties’ reasonable expectations”: see Fisher v. Fisher (2008), 2008 ONCA 11, 88 O.R. (3d) 241 (C.A.), at para. 84.
[90] The Supreme Court of Canada has held that all of the stated objectives in section 15.2(6) of the Divorce Act must be considered since no single objective is paramount. However, trial judges have a significant amount of discretion to determine the weight that should be placed on each objective based on the particular circumstances of the parties: see Moge v. Moge, 1992 CanLII 25 (SCC), [1992] 3 S.C.R. 813, at paras. 53-54; Bracklow v. Bracklow, supra, at para. 35; Smith v. Smith, supra, at para. 70.
[91] There are three conceptual bases for entitlement to spousal support:
(a) Compensatory: This is in recognition that upon marriage breakdown, there should be an equitable distribution between the parties of the economic consequences of the marriage. Specifically, compensatory support is intended to compensate a spouse upon relationship breakdown for contributions made to the relationship and to recognize sacrifices made and the advantages to one spouse and disadvantages to the other, both during and after the breakdown of that relationship. It is to compensate for foregone careers and missed opportunities during the marriage, and to serve as reimbursement for hardships accrued as a result of the marriage breakdown;
(b) Contractual: This entitlement may arise from express or implied agreements between spouses that purport to either create or negate a spousal support obligation; and
(c) Non-compensatory: This entitlement arises as result of the needs of a spouse, even if that need does not arise as a result of the roles adopted during marriage. This basis for spousal support is founded on the view that marriage is a relationship involving mutual obligations and interdependence that may be difficult to unravel when the marriage breaks down.
[92] The respondent argues that the applicant falls within none of these categories. There are no contractual rights alleged or proved. The respondent says there is no need. The applicant is young and healthy. He has a university degree from Russia in electrical engineering. He is intelligent and hard-working. His explanation for not working, that he was suffering from stress and that the litigation consumed all his time, lacks all credibility. There is no medical evidence to support an inability to work.
[93] The respondent also says there is no compensatory component to the applicant’s spousal support claim. He chose to work with the respondent at the motel and was paid for his work. To the extent he added realizable value beyond that covered by his salary, he is receiving an equalization payment.
[94] The respondent also argues that even if there were any basis for a spousal support claim, it would be modest. The respondent’s agreement not to deduct her settlement payment to Liu of $60,000 is worth $30,000 to the applicant in equalization – more than adequate, she says, to offset any spousal support that might be owed.
[95] I cannot agree. I accept the applicant’s evidence that the respondent encouraged him to work full-time with her at the motel. The respondent received substantial financial and personal benefits from this. She now had 24/7 adult help in running the motel. Unlike the arm’s length employees whom the applicant replaced, the applicant’s salary was, in effect, plowed back into the business and was used, among other things, to eliminate all arm’s length debt and to substantially reduce the respondent’s financial obligation to Liu.
[96] I agree there is no medical evidence to support any suggestion the applicant is unable to work. I also agree that being unrepresented is no excuse for not finding a job. There is, however, a good deal more to the circumstances of this case than that. There is nevertheless, I find, strong evidence to support a compensatory spousal support claim.
[97] The applicant, by virtue of devoting himself to working with the respondent at the motel for nine or more years, was required to forgo his emerging career in airport computer systems and security. He was terminated from his employment and evicted from his home without notice. While it is true that the applicant is hard-working and has skills, being forced to live in Penetanguishene limited his options.
[98] I have no doubt the applicant was genuinely shocked at the abrupt end to his marriage and career in motel management. I do not think, in all the circumstances, there must be an expectation that he hit the ground running immediately as if nothing had happened.
[99] Accordingly, I find the applicant is entitled to spousal support.
[100] In Fisher, the Court of Appeal enjoined trial judges not to depart from the SSAGs unless they were able to provide reasons for doing so. The SSAGs encompass both amount and duration; there exists a “symbiotic relationship” between these two elements of a support order, as the Court of Appeal explained at para. 109 of its reasons, citing the following principle from the Guidelines:
Amount and duration are interrelated parts of the formula -- they are a package deal. Using one part of the formula without the other would undermine its integrity and coherence. As discussed below, the advisory guidelines provide for restructuring, which allows duration to be extended by lowering the monthly amount of support.
See also the recent case of Djekic v. Zai, 2015 ONCA 25, at paras. 9 and 10, in which the Court of Appeal varied the duration of the trial judge’s support award to bring it in line with the SSAGs. The court held that the trial judge had erred in making the support time limited, without providing reasons for doing so, when the SSAGs suggested an award of indefinite duration.
[101] For a nine year marriage, the SSAGs provide a range of 4.5 to 9 years. Having regard to the applicant’s age, length of marriage, proven work ethic, the economic disadvantage and hardship occasioned by the breakdown of the marriage and, importantly in this case, the underlying policy of promoting self-sufficiency, I find the low end of the duration range is appropriate in this case. Accordingly, the applicant is entitled to spousal support for a term of 4.5 years from the date of separation, i.e., from February 7, 2011.
[102] I am not satisfied, however, with the applicant’s explanation for being unable to earn any income for the entire period of time. I find that the applicant did not seek out new employment opportunities with sufficient alacrity. From February 8, 2013 to August 7, 2015, I find income based loosely on minimum wage should be imputed to him, in the amount of $24,000 per annum.
Quantum
(a) Respondent’s Income
[103] The respondent’s most recent sworn financial statement stipulates income of $36,000. It is conceded that, during the marriage, both parties engaged in a form of income splitting with their children. Paycheques were issued from the motel to their children. The children endorsed those cheques back to their parents.
[104] It is also conceded by the respondent that she continued this practice with her adult children post-separation. Indeed, the documentary evidence is that paycheques totaling $20,000 were issued to each of the respondent’s adult children in 2014, for example, and that these cheques were all endorsed back to the respondent’s personal bank account.
[105] The respondent now claims that these post-separation payments back to her were “loans” and that her children performed valuable services for the motel. She claims that she pays back these loans by paying for vacations or other benefits/gifts for her children when she can afford to do so.
[106] No credence whatever can be given to these claims. The allegation that the cheques endorsed back to the respondent were loans from her children is completely unsupported by any documentary evidence, such as a contemporaneous loan agreement or even e-mails or letters. Neither child was called to testify to confirm these loans. These alleged loans are not, and have never been, reflected in the respondent’s financial statements sworn in these proceedings. The respondent was unable to say how much she had “borrowed” or “paid back” or what the current state of her “indebtedness” to her adult children is. All she could say is that it was her intention to sit down with them when this litigation is over, figure out what she still owes and work out a repayment plan. The allegation that these advances back to her were loans is completely incredible.
[107] I reject the respondent’s contention that this income, totaling $40,000 per year, should not be attributed to her.
[108] This conclusion is consistent with the applicant’s evidence, which was not challenged in cross examination or by the respondent in her own evidence, that deposits totaling the following amounts were made into the respondent’s personal bank account:
2011 $71,000
2012 $81,000
2013 $92,000
2014 $79,000
The average cash flow into the respondent’s personal bank account over the four years since separation was, therefore, about $80,000 per year.
[109] I find that the gross income to be attributed to the respondent for spousal support purposes from 2011 to 2015 is $76,000 per year.
(b) Applicant’s Income
[110] The applicant has had essentially no income since separation. He has lived off tax rebates, proceeds of sale of family assets, loans and the goodwill of friends. As noted earlier, for spousal support purposes, I find the applicant must be imputed income of $24,000 per annum for the last two and a half years since separation.
Conclusion on Spousal Support
[111] For the reasons outlined above, I find the low end of the duration range in the SSAGs is appropriate here. I find there is no reason, however, to depart from the midrange monthly amounts produced by the application of the SSAGs to the respondent’s income.
[112] In conclusion, therefore, I find that the applicant is entitled to spousal support as follows. (I have used calendar years for simplicity, since separation took place on February 7, 2011):
Year
Respondent’s Income
Applicant’s Income
Mid-Point SSAGs
2011
$76,000
Nil
998 x 12 = 11976
2012
$76,000
Nil
998 x 12 = 11976
2013
$76,000
$24,000
682 x 12 = 8184
2014
$76,000
$24,000
682 x 12 = 8184
2015 (half year)
$38,000
$12,000
682 x 6 = 4092
Total Spousal Support Owing: $44,412
[113] Given that all but the last three months of this award are retroactive, and in the interests of facilitating a clean break between the parties, I find that it is appropriate in this case to order the respondent to pay the entire $44,412 as a lump sum award.
[114] Prejudgment interest shall be calculated on the annual sums for each beginning year at the six month point. For example, 2011 interest shall be calculated based on the total amount of 2011 spousal support owing as of June 30, 2011. Interest due for 2012 shall be calculated on the full principal owing from 2011 plus the total 2012 spousal support amount owing on June 30, 2012. Interest for 2013 shall be calculated on the full principal amount owing from 2011 and 2012 and the total amount of 2013 spousal support owing on June 30, 2013, and so on.
3. Divorce
[115] Both parties seek a divorce. It is clear on the evidence that the statutory preconditions to the grant of a divorce are met here. Judgment shall therefore issue granting the parties’ divorce, to take effect 30 days following the release of this judgment.
Costs
[116] Although there was some divided success, the applicant was the substantially successful party. He may seek costs by filing a written submission, not to exceed three typed, doublespaced pages, together with a Bill of Costs and supporting documents, such as accounts for past lawyer’s fees and disbursements, within two weeks of the release of these reasons. The respondent may respond by filing a written submission, subject to the same page limit, within a further two weeks.
Penny J.
Released: April 29, 2015
CITATION: Bortnikov v. Rakitova, 2015 ONSC 2546
COURT FILE NO.: FS-11-368230
DATE: 20150429
ONTARIO
SUPERIOR COURT OF JUSTICE
BETWEEN:
Aleh Bortnikov
Applicant
– and –
Marina Rakitova
Respondent
REASONS FOR JUDGMENT
Penny J.
Released: April 29, 2015