CITATION: Ritchie v. Ritchie, 2015 ONSC 3860
COURT FILE NO.: 123-12
DATE: June 15, 2015
ONTARIO
SUPERIOR COURT OF JUSTICE
BETWEEN:
Karen Elizabeth Ritchie
Applicant
– and –
Richard Kevin Ritchie
Respondent
Shane Kelford, for the Applicant
Robert Hammond, for the Respondent
Heard at Perth, on April 23, 2015
RULING ON MOTION
PEDLAR j
[1] This motion is brought for an order for interim child support, interim spousal support, the provision of life insurance and an advance on the equalization of family property, together with certain orders related to disclosure.
[2] The parties began living together in 1986 and were married on October 24, 1992. They separated on August 15, 2010, following a 24 year relationship.
[3] There are no issues regarding custody or access related to the two children of the marriage namely, Matthew Douglas Ritchie born June 17, 1995 and Emma Mar-lin Ritchie born December 6, 1999. In view of the age of the children an order for joint custody of their daughter Emma Mar-lin Ritchie with Emma’s primary residence being with the Applicant will go on consent. Matthew who is now age 19 is currently attending Trent University in Peterborough.
[4] The Respondent left the matrimonial home following separation and the Applicant and children have continued to reside in the matrimonial home. Matthew resides in Peterborough during the school week, and comes home and resides with his mother on weekends, school holidays and during the summer months including the summer of 2015. The question of life insurance has been resolved between the parties and will also go on consent.
[5] One major issue to be decided on this motion is to determine the Respondent’s income for the purpose of interim child and spousal support. The Applicant is seeking to have an income attributed to the Respondent of $180,000.00 a year and the Respondent’s position is that his income should be fixed at $145,090.00 for the purpose of this motion. The Respondent is also seeking to have the Applicant’s income increased by imputing $14,158.00 per annum based on a return of investment for the net family property payment that the Respondent accepts as owing to the Applicant based on a return of investment factor of 4% on that payment. The Applicant is employed as an educational assistant and receives income from that employment as well as employment insurance during the summer months. There is no dispute that the total income received from these sources by the Applicant in 2014 was $39,661.68.
[6] With respect to the issue of determining the Applicant’s income I am not prepared to attribute to her, for the purpose of this interim support motion, any return on investment of her future net family property payment which has not been received as of yet, except for a modest advance of $19,000.00. The question of net family property remains an issue between the parties as it relates to the value of the Respondent’s interest in a family business. That may take some time to resolve and once that issue is resolved then the ongoing spousal issue will be reviewed as part of a final resolution of the financial issues flowing from the breakup of this marriage. I would therefore set the Applicant’s income, for the purposes of this motion, at $39,661.68.
[7] The Respondent’s income according to his 2014 Income Tax Return was $145,089.70. It is conceded by the Applicant that $145,000.00 is approximately an average income claimed by the Respondent on his tax returns in recent years. The Applicant is seeking to invoke sections 18 and 19 of the Child Support Guidelines. Section 18 of the Child Support Guidelines provides as follows:
- (1) Where a spouse is a shareholder, director or officer of a corporation and the court is of the opinion that the amount of the spouse’s annual income as determined under section 16 does not fairly reflect all the money available to the spouse for the payment of child support, the court may consider the situations described in section 17 and determine the spouse’s annual income to include:
(a) all or part of the pre-tax income of the corporation, and of any corporation that is related to that corporation, for the most recent taxation year.
[8] Section 19 of the Child Support Guidelines provides as follows:
- (1) Imputing Income – The court may impute such amount of income to a spouse as it considers appropriate in the circumstances, which circumstances include the following:…
(d) it appears that income has been diverted which would affect the level of child support to be determined under these Guidelines;…
(h) the spouse derives a significant portion of income from dividends, capital gains or other sources that are taxed at a lower rate than employment or business income or that are exempt from tax.
[9] The Applicant wishes to invoke both of those sections from the Guidelines and relies on the evidence that the Respondent’s employer pays certain personal expenses of the Respondent in respect of his vehicle, cell phone, food and entertainment expenses as spelled out at paragraph 15 of the Applicant’s Factum totalling $1,335.00 a month or $16,020.00 annually.
[10] The Respondent’s 2015 combined federal/provincial marginal tax rate is 46.41%. The Applicant submits it would be reasonable to attribute 50% of the Respondent’s vehicle, cell phone, and entertainment and meal expenses to personal use in the amount of $8,010.00. After the application of a tax gross up of 46.41% to the personal expenses paid by the Respondent’s employer that would result in an additional $11,727.00 of annual income being imputed to the Respondent pursuant to s. 19.1 (h) of the Child Support Guidelines. I accept the Applicant’s position on that request as being reasonable given the facts in this case and the law to be applied.
[11] The Applicant is also seeking to have additional income attributed to the Respondent for the purposes of this motion based on his interest in a holding company, 2010220 Ontario Limited (“Holdco”), in which the Respondent and his father are shareholders and which company holds a 25% equity interest in Rideau Pipe and Drilling Supplies Ltd. (“Rideau Group”) which is the Respondent’s employer. The holding company only holds shares in Rideau Group and has no other function other than to receive and distribute funds.
[12] The initial disclosure in these proceedings provided by the Respondent indicated that the Respondent held 100 Common Shares and majority voting control of Holdco, with his father holding 90 redeemable Preferred Shares redeemable at $1,000.00 per share. In late 2014, after valuations had been completed by the accountants for the business, it was revealed that the Respondent and his accountant and corporate lawyer took the position that there had been an error in the company’s Financial Statements. The Respondent now takes the position that Daryl Ritchie, the Respondent’s father, holds 150 redeemable Preferred Shares, which are voting shares, and therefore the Respondent does not have voting control of Holdco. The Respondent submits he is unable to control the distribution of dividend income by Holdco.
[13] Attached to the Applicant’s Affidavit at Tab 17 of the Continuing Record is Exhibit “D”, which is a summary from the Financial Statements of Holdco that clearly, as backed up by the documentation disclosed, demonstrates a pattern of redemption of 450 of Daryl Ritchie’s Class B Preferred Shares from 2004 to 2010, inclusive, reducing the balance of Class B Preferred Shares he owns to 150. Those Class B Preferred Shares are part of an estate freeze entered into between the Respondent and his father, Daryl Ritchie redeemable at a fixed price of $1,000.00 per share from the initial 600 Preferred Shares issued at the time of the estate freeze.
[14] It is clear from the documentation attached to the Affidavit at Tab 2, Volume 2 of the Continuing Record sworn by Howard Allan and specifically at Exhibit “B” of that Affidavit that the Respondent’s father Daryl Ritchie was redeeming an average of approximately 60 Preferred Class B Shares annually during the seven years prior to 2010 when the Applicant and Respondent separated. The estate freeze between the Applicant and his father took place in 2002. That is an asset management strategy whereby an owner, such as the owner of a family business, aims to transfer assets to his or her beneficiaries without adverse tax consequences. The common pattern of the owner exchanging Common Shares for Preferred Shares equal to the fair market value of the exchanged Common Shares is was happened here. The corporation then issued the Respondent beneficiary new Common Shares at a nominal amount. Because Preferred Shares are non-growth securities his father, as the original owner, will not incur future income tax on those shares. The future value (and associated tax liabilities thereon) accretes to the common share holder. The future value of the business (in excess of the freeze value) then accrues to the new common shareholder, being the Respondent herein.
[15] It is clear, from the pattern established of redemption of his Class B Preferred Shares that, if it had continued, it would have completed the estate freeze and effectively transferred the ownership of the business over to the Respondent. In the context of a Family Law dispute it is not unreasonable for the Applicant to raise a legitimate concern as to why that pattern was suddenly changed so dramatically and has not been reinstated. In response to that concern the Affidavit of Howard Allan, the accountant for the family business filed at Tab 2 of Volume 2 of the Continuing Record at paragraph 18 notes that if the Respondent’s father had continued to redeem his Class B Shares at the same rate he would have lost the controlling interest in the company “which was not deemed to be in his best interests”. In view of the clearly established pattern of redemption of those shares, within the normal context of an estate freeze where one would expect that pattern of redemption to be continued in a family business I find that statement to be wholly inadequate for the purposes of this motion.
[16] The evidence shows that the Respondent is an officer, director and senior executive with Rideau Group and Daryl Ritchie his father is now over 70 years old and plays only a minor part-time role in the company.
[17] The evidence also discloses that since 2010, the year in which the parties separated, Holdco has received a total of $441,403.00 in dividend income from the Rideau Group, of which $90,000.00 has been paid to the Respondent and $90,000.00 has been paid to the Respondent’s father. The balance of dividend income, net of any taxes and professional expenses has been accumulated as cash or investments.
[18] The Respondent’s position that his father has majority voting control and can exercise sole discretion on the payment of dividends from Holdco is contradicted by the practice during the seven years prior to the family breakup. During those years the Respondent and his father shared approximately equally in the income available for distribution from Holdco irrespective of their relative share holdings. The current assets in Holdco as of March 31, 2014, including cash and investments amount to $143,114.00. Howard Allan, at paragraph 14 of his Affidavit filed at Tab 2 of Volume 2 of the Continuing Record states that he has advised the Respondent’s father that, if he is able to do so, he should accumulate wealth for future needs in the corporation. He states that is an effective means of accumulating savings and avoiding tax. He states this advice is entirely in line with accepted accounting standards. He also states that those funds have been set aside for the future needs of the Respondent’s father. I find that the practice of the Respondent and his father has been that they have shared approximately equally in the income available for distribution from Holdco. That, obviously, does not mean that all of those funds should be viewed as being immediately available for the purposes of this interim support motion.
[19] I agree with the Applicant’s submission that it is appropriate to allocate a reasonable portion of the income available in Holdco to the Respondent as income for support purposes pursuant to s. 18 of the Child Support Guidelines. It is not unusual for funds to be found available from a family corporation, as imputed income to the payor spouse for the purpose of determining income available for the payment of child and spousal support. On a motion such as this, the Court must estimate the actual means which a parent has available for child and spousal support.
[20] I find that, as requested by the Applicant, it is reasonable on an interim basis to attribute and impute an additional $23,000.00 per year to the Respondent’s income for support purposes. That amount would represent approximately 25% of the average annual dividend income received by Holdco from the Rideau Group, based on the dividend history over the five year period since the date of separation. That would leave 75% of the dividend income received by Holdco from Rideau Group to be distributed to the Respondent’s father or accumulated in Holdco.
[21] For the purpose of this motion then I agree with the Applicant’s position that the Respondent’s income should be attributed for support purposes on an interim basis as $180,000.00 to be made up of employment income of $145,090.00, personal expense income of $11,727.00, Holdco income available $23,000.00, totalling $179,817.00.
[22] Based on an imputed income of $180,000.00 for the Respondent the Ontario Support Guidelines provide for support payable as follows:
One child $1,485.00 a month;
Two children $2,354.00 a month;
Difference $869.00 a month.
[23] As noted above Matthew is currently a dependent child, over the age of 18 attending university in Peterborough on a full-time basis. He resides with the Applicant on weekends, holidays and the summer months.
[24] I find it appropriate under these circumstances that the Respondent pay Guideline child support for one child (Emma) for 12 months and Guideline child support for two children for the months May to August when Matthew resides full-time with the Applicant. Averaging the difference in summer child support over 12 months the Respondent would pay an additional $290.00 per month in child support for Matthew bringing the monthly amount of total child support payable to the Applicant by the Respondent to $1,775.00 per month. With regards to spousal support on an interim basis the amount must be based on the Applicant’s needs and the Respondent’s ability to pay. The parties had a 24 year traditional relationship with two children of the marriage. The Applicant took primary responsibility for the children while the Respondent worked long hours to advance his career and benefit the family by way of increased income. The Applicant has remained in her career as a teaching assistant throughout the marriage with two maternity leaves. There is no question about entitlement.
[25] As stated above I find the Applicant’s current annual income for the purposes of this motion to be $39,661.00. I find the Respondent’s imputed income for spousal support purposes to be $180,000.00 per annum. I have ordered child support in the amount of $1,775.00 per month to be paid by the Respondent. The Support Advisory Guidelines for those incomes would require a range of spousal support from $2,549.00 to $3,624.00 per month. I would therefore grant the Applicant’s request for spousal support payable by the Respondent in the amount $3,200.00 per month.
[26] Based on those rulings the extraordinary expenses pursuant to the Child Support Guidelines should be shared between the Respondent and Applicant on the basis of 35% to the Applicant and 65% to the Respondent. The first payment on this interim support order, without prejudice to any other claims herein, is due May 1, 2015. The support order is payable to the Director of the Family Responsibility Office and a Support Deduction Order is to issue.
[27] The Applicant has requested payment of an advance on the equalization money owed to her. There has already been one advance of $19,000.00. The nature of these proceedings, and in particular the contested issue over the valuation of the family business, will result in extensive disbursements by the Applicant in order to resolve this matter. I consider this an access to justice matter and there is no reason, given the disparity of resources between the parties, that the Applicant’s request for a further advance of $30,000.00 on the equalization that will be due to her should not be made within 30 days and I so order.
[28] With regard to the disclosure requested in the draft order filed at Tab F to the Applicant’s Factum on this motion I agree that the evidence discloses only a minority shareholder position for the Respondent as it relates to Rideau Pipe and Drilling Supplies Ltd., but I see no reason that, as a minority shareholder, he would not be entitled to see and receive copies of the annual Financial Statement of that company. I do not consider that request to be unreasonable given the history of these parties and the findings I have made on this motion. In all respects, I find the draft order acceptable. The parties had already agreed that the costs of the motion would be fixed at $3,500.00 and the Applicant is entitled to her costs in that amount pursuant to paragraph 10 of the draft order.
The Honourable Mr. Justice Kenneth Pedlar
Released: June 15, 2015
CITATION: Ritchie v. Ritchie, 2015 ONSC 3860
COURT FILE NO.: 123-12
DATE: June 15, 2015
ONTARIO
SUPERIOR COURT OF JUSTICE
B E T W E E N:
Karen Elizabeth Ritchie
Applicant
– and –
Richard Kevin Ritchie
Respondent
RULING ON MOTION
Pedlar, J.
Released: June 15, 2015