CITATION: Wade v. Wade, 2016 ONSC 1056

COURT FILE NO.: FD1441/10

DATE: March 2, 2016

ONTARIO

SUPERIOR COURT OF JUSTICE

FAMILY COURT

BETWEEN:

Cynthia Louise Wade

Cynthia L. Mackenzie for the applicant

Applicant

• and -

Barry William Wade

B. Thomas Granger, Q.C. for the respondent

Respondent

HEARD: June 9, 10, 11, 12, 15, 16, 18, 2015; last written submissions October 30, 2015

VOGELSANG J.

[1] The parties were married September 22, 1989, having lived together before for a short period of time. They separated September 12, 2008. They had a child, Robert William Wade, on December 22, 1994. At the time of trial, Ms. Wade was 57 years of age and Mr. Wade was 54.

BACKGROUND

[2] At separation, the parties owned three properties. Ms. Wade owned 3969 Hamilton Road in Dorchester, and 127 Faye Street in Port Burwell, Ontario. Both parties were joint owners of 30 Bridge Street in Dorchester. Mr. Wade has now agreed with Ms. Wade that she will retain ownership of 3969 Hamilton Road and he will own the 127 Faye Street, Port Burwell property. The parties have agreed upon the values of the three properties and have prepared net family property statements on the basis of ownership as set out above. The parties also agree that Ms. Wade shall be responsible for the existing line of credit account 2350-320-4046, secured against 3969 Hamilton Road, and shall obtain a release of the line of credit as against Mr. Wade. Mr. Wade shall be responsible for and obtain a release in favour of Ms. Wade from the TD Canada Trust line of credit account 2360-323-7556, secured against 3969 Hamilton Road.

[3] The jointly-owned 30 Bridge Street, Dorchester, property was sold during June, 2004 leaving net sale proceeds of $87,112.77. Ms. Wade has received her 50 per cent of those net sale proceeds while Mr. Wade’s share remains in trust. The net family property statements of the parties should show as an asset his or her net sale funds of $43,556.00.

[4] At the time of trial, Robert was attempting to gain employment. His goal is to apprentice as an electrician. He had been studying biomedical engineering at St. Clair College in Windsor in 2014 but withdrew from that course and entered into an electrical engineering program but departed from that in mid-April, 2015. There is agreement that child support for Robert should terminate at the end of April, 2015.

DISSOLUTION

[5] Ms. Wade identified her marriage certificate during her testimony (Ex. 9) and confirmed the particulars on its face. It was uncontradicted that the parties separated on September 12, 2008 and, accordingly, an order will go dissolving the marriage of the parties celebrated at London on September 22, 1989, effective 31 days from the date of release of these reasons.

APPLICANT’S EDUCATION AND WORK HISTORY

[6] Ms. Wade completed grade 13 but has no subsequent diploma or degree. She attended the University of Western Ontario for two years, first in natural science, then social science courses. She left before completion, feeling that she had to go to work and did not need a “wishy washy BA.” She had been working part-time at Zeller’s and then took up fulltime employment as an office manager for an optometrist for about nine years.

[7] By 1989, she had just moved in with Mr. Wade. They decided that she would help “grow his business.” They planned that Ms. Wade would obtain a licence to sell real estate, after which Mr. Wade would build houses and she would sell them. Ms. Wade left the optometrist and obtained a real estate sales licence. She says she “tried hard” but that the real estate market was very difficult in the late 1980s and early 1990s. She obtained occasional employment as a rental agent with M.F. Arnsby. She would be paged and would go out to meet prospective tenants. If successful, she would receive a commission of about one month’s rent. That job lasted only one year.

[8] While she was acting as the rental agent, Ms. Wade was also helping do the books and payroll for Mr. Wade’s business. There was no specific payment agreement although she received a “stipend” on occasion. She described “money in the [business] pot, that sort of thing” which she could always obtain if she needed anything for the home or family. In fact, the two spouses created a financial model where the company would pay the rent and substantially all of the family expenses. The sole use of corporate business funds as a sort of “family ATM,” which continued long after separation, predictably led to significant problems in sorting out the financial issues in this trial.

[9] Ms. Wade testified that her responsibilities “grew and grew.” Mr. Wade began more and larger construction jobs and the accounting grew more involved and difficult. Her responsibilities increased and she met them admirably.

[10] In 1992, Ms. Wade became pregnant with Nathan, a boy who, tragically, died in infancy in the spring of 1993. Robert was born in 1994, one year later.

[11] After Robert’s birth, Ms. Wade continued working for their business, although she took up a part-time job in September, 1996 as a coordinator of municipal sports for the City of London. That part-time work lasted for one and a half years through which Ms. Wade continued in her primary bookkeeping role for Mr. Wade’s construction company. That role continued following separation in September, 2008 and she continued her active involvement in her bookkeeping capacity until she applied for a divorce in 2010. As a consequence of that, Mr. Wade removed her access to the bank account and terminated her by letter one year later, in April, 2011.

[12] A termination term involved full payment to Ms. Wade for one year until April, 2012 and Mr. Wade providing a letter of recommendation to her to assist her in gaining employment. The glowing letter of recommendation signed by Mr. Wade on April 19, 2011 (Ex. 2) is a testament to the skill and dedication with which Ms. Wade performed her accounting duties for the construction company.

[13] In Ex. 4, Ms. Wade sets out the income comparison between the parties for the years 2006 – 2010 from the total income paid by Mr. Wade’s corporation, 776497 Ontario Limited (hereafter termed 776497). It demonstrates that they were roughly splitting income, with Ms. Wade receiving between (rounded) $61,000 to $75,500 and Mr. Wade an average of about $80,000.

[14] After her termination by 776497, Ms. Wade attempted to gain work at a large number of different employers in the London area. She attached a binder describing her search. She failed in each of her efforts, describing her competing candidates as having accounting certification or management certification through a community college, a qualification she lacks. By April 2012, she undertook to start her own bookkeeping business and registered as C.C. Consulting and Bookkeeping Services. That enterprise continues today. In her first year of her part-time accounting business, she earned approximately $7,150. In 2013, the second year, her net professional income was $8,500. By 2014, she had net income of $13,300. She anticipates that her income in 2015 will be “perhaps a little more.”

[15] I was most impressed with Ms. Wade as a dedicated worker and as a witness. She is active and eager to work; she volunteers as a first responder and team leader for Crisis Services of Middlesex County and is called by the Ontario Provincial Police or by area hospitals to assist victims of crime or tragedy. I think she is unstinting in her efforts to keep herself occupied and to work at her business as much as she can with the clients she has.

[16] She demonstrated the same dedication and effort in her care of Robert and described a typical day in the boy’s life during his school day. Ms. Wade appears certainly primarily responsible for Robert’s needs. She took the boy to school and picked him up, “did whatever was needed at the business” and looked after the house. Ms. Wade testified that she was responsible, over a period of two years, for taking Robert to speech therapy and overseeing the Individual Education Program required to assist his small motor skill delay and attention deficit. She was the parent responsible for looking after all his medical and dental needs and attending the annual meetings at the school where his progress was discussed. It appears Ms. Wade was similarly the parent who undertook to get Robert to swimming lessons in Ingersoll and through six years of soccer and hockey and, later, be involved as a coach of Robert’s Aylmer baseball team. By the time Robert stopped hockey, Ms. Wade was volunteering as a Dorchester local hockey league convener.

[17] I accept Ms. Wade’s evidence that Mr. Wade never criticized her various volunteer or sports activities. She fairly conceded that he would “come to the hockey games and whatnot,” and Mr. Wade testified that he also participated as Robert’s coach.

[18] Following separation, Ms. Wade said Mr. Wade did not pay her child support or spousal support. Support for Robert was not paid until December, 2010 although Mr. Wade did pay back to September, 2010 at that time. Spousal support did not begin to be paid until May, 2012 and Ms. Wade seeks an order for arrears of both forms of support to be paid now.

RESPONDENT’S TRAINING AND WORK HISTORY

[19] Mr. Wade gave evidence. He attended Fanshawe College in 1981, undertaking the two year architectural technician program involving drafting and building construction design. He then worked at several different design firms, architects, and construction and restoration businesses, refining his knowledge of building design and the operation and management of a construction business.

[20] Mr. Wade described his usual course of obtaining construction work after he started his own company in the late 1980s. He talked about an initial short meeting with a potential client to gain an understanding of the basic sort of residence or building intended to be built. He would then quickly prepare an “artist’s concept,” or “rendering,” to show, generally, the finished building. Mr. Wade has great artistic ability, judging by the concept drawings which were produced at trial. He said that, in a typical case, there would be other conceptual drawings, being succeeded by actual working or technical drawings used to acquire building permits or to provide the basis for a tender for the construction work. Some of Mr. Wade’s working drawings were submitted in evidence and were quite impressive in their complexity and scope.

[21] After the completion of the working drawings, Mr. Wade testified that a client would have a choice of construction possibilities. The client can choose to enter into a construction management contract with Mr. Wade’s company and, thereafter, the building would be erected with Mr. Wade’s site supervisor attending at the scene and directing construction while the office dealt with potential tradesman and arranged for delivery of materials and all necessary other matters. In other cases, the client could opt to tender the construction process for competitive bids and Mr. Wade might or might not succeed in the bidding process and engage in the actual work.

[22] It is important, because of the issues raised in this case, to underscore the fact that Mr. Wade’s company does not possess any “sole source” customers who have all their construction work performed by Mr. Wade’s corporation. He has no established, regular relationship with any one client or a history of similar projects undertaken over time historically with any one person. There is no evidence that he has any particular client or buyer with an established pattern of past satisfaction. People simply come to Mr. Wade because of his undoubted qualifications and reputation as a very competent builder and, especially, as a designer of unique residences and buildings.

[23] The evidence establishes that the design construction business is highly competitive. Since it can involve multi-million dollar residences, it generally features sophisticated, knowledgeable and demanding purchasers who are quite willing to negotiate a deal with competing construction companies, similarly well equipped to do the needed work.

THE EVIDENCE OF THE COMPANY’S FINANCIAL AFFAIRS

[24] Mr. Wade’s evidence demonstrates that he has been a tireless worker in his field. Like Ms. Wade, he is quite articulate and obviously very intelligent. He is a very talented man. Ms. Wade showed herself to be equally talented in the bookkeeping and accounting field. The evidence produced by Ms. Wade was voluminous and included all manners of lists and ledger reproductions showing the flow of funds through 776497 in the hands of herself and Mr. Wade. She prepared graphs and charts of considerable complexity and, quite obviously, knew and knows everything about the financial operation of the business and the corporation.

[25] Mr. Wade is quite disadvantaged in this proceeding because his great facility is not with the books and records of the corporation or its financial operations on a day to day basis. Unfortunately for him, the only person who does have that familiarity is Ms. Wade, the applicant. This positional inequality, unfortunately, led Mr. Wade into raising some allegations that Ms. Wade had been converting some corporate funds to her own purposes. In cross-examination, he was unable to support his statements. He even attempted to say that a cheque of over $3,200 payable to the Receiver General was an example of Ms. Wade converting business funds for her own purposes. In cross-examination, however, it turned out that Ms. Wade was, in fact, paying Mr. Wade’s own income tax liability by that instrument. That did very little to convince me of the accuracy of Mr. Wade’s evidence about the financial operations and workings of the company. Where his evidence differs from Ms. Wade’s about monies paid from the corporate account, I much prefer her evidence.

CHILD AND SPOUSAL SUPPORT ARREARS

[26] Exhibit 6 is a series of charts prepared on behalf of Ms. Wade showing her post-termination entitlement to spousal support and the child support that should have been paid for Robert.

[27] James Hoare and Ron Martindale gave evidence at the trial. These well-educated and trained accountants have quite significant experience and training in the areas of forensic accounting and business valuation. The experts differed on the issue of inclusion of excess capital in 776497 for income purposes. I think it is inappropriate, under the circumstances, to employ the figure of $155,000 for Mr. Wade’s 2011 income as paragraph 44 of Mr. Hoare’s April 29, 2014 income report shows available income of $162,420 in 2011 and $210,544 in 2012. Both those figures include pre-tax income from 776497. The question arises as to the propriety of including those monies.

[28] 776497 made loans in two successive years of $27,600 and $394,600 to Barry Wade Homes Inc., a corporation created to purchase parcels of land to eventually build a condominium complex near Dorchester. Mr. Hoare in his income report employed s. 18 of the Federal Child Support Guidelines to include pre-tax income of 776497 in determining Mr. Wade’s ability to pay a fair quantum of child and spousal support. He found that 776497 did not have a significant financial requirement to fund capital asset additions. Section 18 is reproduced as follows:

18. (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; or

(b) an amount commensurate with the services that the spouse provides to the corporation, provided that the amount does not exceed the corporation’s pre-tax income.

[29] In Thompson v. Thompson, 2013 ONSC 5500 (Ont. S.C.J.), Chappel J. stated:

[92] A review of the case-law relating to section 18 indicates that courts have considered the following factors in determining whether all or a portion of a corporation’s pre-tax income should be included in a party’s income:

a) The historical pattern of the corporation for retained earnings.

b) The restrictions on the corporation’s business, including the amount and cost of capital equipment that the company requires.

c) The type of industry the corporation is involved in, and the environment in which it operates.

d) The potential for business growth or contraction.

e) Whether the company is still in its early development stage and needs to establish a capital structure to survive and growth.

f) Whether there are plans for expansion and growth, and whether the company has in the past funded such expansion by means of retained earnings or through financing.

g) The level of the company’s debt.

h) How the company obtains it financing and whether there are banking or financing restrictions.

i) The degree of control exercised by the party over the corporation, and the extent if any to which the availability of access to pre-tax corporate income is restricted by the ownership structure.

j) Whether the company’s pre-tax corporate income and retained earnings levels are a reflection of the fact that it is sustained primarily by contributions from another related company.

k) Whether the amounts taken out of the company by way of salary or otherwise are commensurate with industry standards.

l) Whether there are legitimate business reasons for retaining earnings in the company. Monies which are required to maintain the value of the business as a going concern will not be considered available for support purposes. Examples of business reasons which the courts have accepted as legitimate include the following:

(i) The need to acquire or replace inventory;

(ii) Debt-financing requirements;

(iii) Carrying accounts receivable for a significant period of time;

(iv) Cyclical peaks or valleys in cash flow;

(v) Allowances for bad debts;

(vi) Allowances for anticipated business losses or extraordinary expenditures; and

(vii) Capital acquisitions.

[30] In my view, Mr. Martindale was correct in dismissing these two loans from excess working capital to find extra income available to Mr. Wade to pay support. The evidence discloses that Barry Wade Homes Inc. needed the money to demonstrate an equity interest which would convince the vendor of the land to take back a mortgage to complete the sale. To me, the purchase of the raw land was completely consistent with the testimony of Ms. Wade herself that the original vision of 776497 was to build homes and sell them at a profit. I find the acquisition of the real property represented a necessity in satisfying the long-term requirements of 776497 for expansion, quite consistent with growth in the competitive residential construction industry. In my view, the arrears set out on page 2 of Ex. 6 should be recalculated employing Mr. Wade’s line 150 declared income of $112,500.

CLAIM FOR CHILD AND SPOUSAL SUPPORT PRE-2011

[31] Mr. Wade was cross-examined about his financial contributions to Ms. Wade post-separation and agreed that, after the severance was paid, they attempted to equalize their incomes because of her poor financial position. He testified that he increased his draw from the corporation and paid her about half, discontinuing this practice only when he received information (which turned out to be incorrect) that Ms. Wade had taken up a fulltime job as an employee of John McKenzie Auctioneers.

[32] With respect to arrears of the child and spousal support before 2011, Ms. Mackenzie takes the position that in excess of $16,500 is owing as set out in page 6 of Ex. 6, the support arrears calculation. I accept, however, Mr. Granger’s submission that there should be no arrears of support owing before 2011. Between the date of separation and August 13, 2010, Mr. Wade deposited his personal pay cheque into a joint bank account to which both he and Ms. Wade had access. I accept his evidence that Ms. Wade used that joint account for her financial needs and those of Robert. Again, at that time she was receiving substantial monies from 776497 which continued until April, 2011 after which she received a significant severance. On balance, I am not satisfied that support arrears existed before calendar year 2011.

TAX TREATMENT OF ARREARS OF PERIODIC SUPPORT

[33] In Ex. 6, Ms. Mackenzie has discounted the spousal support to be paid to take the effect of taxation into account. The problem is noted by Philip Epstein Q.C. in (2015) 46 Fam. L. Nws. 3:

Tax Deductibility for a Lump-Sum Payment for Retroactive Periodic Support

James v. R., 2013 CarswellNat 1460 (T.C.C. [General Procedure]): This case, decided in 2013, was a decision of the Honourable Justice Campbell Miller of the Tax Court of Canada and decides that a lump-sum payment for retroactive period support paid pursuant to a court order is deductible to the payor and taxable to the recipient. Although this case was decided in 2013, there was some considerable doubt that CRA would continue to apply its principles and accept that the issue was a settled issue. As a result of its recent tax bulletins, CRA has signalled a general acceptance of the Tax Court of Canada's decision in James and made it clear that where a lump-sum amount meets the requirements of a periodic support amount, it is deductible by the payor and included in the income of the recipient. The recipient, however, has the availability of a special tax calculation in order to reduce the impact of receiving a retroactive amount in one lump sum and, theoretically, driving the recipient into a much higher tax bracket.

Simply put, if a payor has been previously ordered to make periodic support payments and does not pay them on a timely basis and subsequently pays a lump sum to catch up the support payments or where a lump-sum payment is ordered by a court as retroactive periodic support, this amount will be deductible by the payor and taxable in the hands of the recipient. An amount paid as a single lump sum will generally not qualify as being payable on a periodic basis. However, there may be circumstances where a lump sum amount paid in a tax year will be regarded as qualifying as a periodic payment where it can be identified that: the lump sum payment represents amounts payable periodically that were due after the date of the order or written agreement that had fallen into arrears, or the lump sum amount is paid pursuant to a court order and in conjunction with an existing obligation for periodic support whereby the payment represents the acceleration or advance or future support payable on a periodic basis for the sole purpose of securing the funds to the recipient, or the lump-sum amount is paid pursuant to a court order that establishes a clear obligation to pay retroactive periodic maintenance for a specified period prior to the date of the court order.

However, a lump-sum amount paid pursuant to a written agreement in respect of a period prior to the date of the written agreement would not be considered a qualifying support amount for the purposes of subsection 56.1(4). This is all discussed in Canada Revenue Agency's Income Tax folio S1-F3-C3, which was updated effective March 5, 2015. This replaces interpretation bulletin IT-530R, which would not have permitted the payor a tax deduction for the lump-sum spousal support paid.

In this case, the husband paid to the wife $169,775 representing the retroactive spousal support ordered by the British Columbia Court of Appeal. This amount arose because the Court of Appeal found that the husband had considerably underpaid during the relevant period. As the Tax Court notes:

The British Columbia Court of Appeal did order payment in respect of periods before the date of its order - many periods. It also ordered $9,000 on a periodic basis, monthly, going forward. It did not order a lump sum: it was silent as to how the increase of $3,250 per month ($9,000 minus $5,750) was to be paid. It would be fair to presume a lump sum was likely contemplated, and certainly that is how Mr. James did in fact pay. Would it change the nature of the order to increase monthly amounts had Mr. James written 54 cheques for $3,250? The combination of the Sills concept, the authority of the British Columbia Court of Appeal to make an order for payment of support "in respect of any period before the order is made", the binding nature of such an order on all the world ("Dale"), leads me to conclude that given how the British Columbia Court of Appeal framed its order, it was ordering increased payments for each of the preceding 54 month periods, and as such, the requirement for payable on a periodic basis is met. The legal obligation, even if considered to be created currently, is an obligation to make good the periodic payments, but more on this later.

Having reviewed the other tax cases, some of which are in conflict, Justice Miller ultimately distinguishes Peterson v. R., 2005 CarswellNat 1667 (F.C.A.). Justice Miller finds that, provided the nature of the payment reflects the periodic payment obligation, the definition for deductibility is met. That fact was not proven in Peterson and that is why this case differs from Peterson and Peterson is no bar to this result.

Counsel will have to carefully consider this decision in making their presentation to the court. It affects whether the judgment should be netted down. It the payor is going to get the deductibility and the recipient is going to pay the tax, it seems to me that netting it down is no longer necessary. However, in determining how netting down is to be calculated, it is important to bear in mind the availability of the special tax calculation for the recipient, and for that, counsel have to look at form T1198, Statement of Qualifying Retroactive Lump Sum Payment, and have their accountant assist in determining the appropriate tax rate to be considered.

[34] Counsel will have to review this note with some care and obtain accounting assistance with respect to the appropriate tax rate and any diminution of the retroactive spousal support to be effected. If they are unable to agree on the arrears figure, I may be spoken to.

[35] I have two observations about the preparation of the arrears chart; the first concerns the use of the mid-range of Guideline spousal support employing the Spousal Support Advisory Guidelines, http://www.justice.gc.ca/eng/rp-pr/fl-lf/spousal-epoux/spag/index.html. This was a marriage of significant duration and the factors and objectives of spousal support in the Divorce Act, R.S.C. 1985, c. 3 (2nd Supp.) c.3 [as am. by S.C. 1997, c.1] always must be considered. They are as follows:

Factors

15.2(4) In making an order under subsection (1) or an interim order under subsection (2), the court shall take into consideration the condition, means, needs and other circumstances of each spouse, including

(a) the length of time the spouses cohabited;

(b) the functions performed by each spouse during cohabitation; and

(c) any order, agreement or arrangement relating to support of either spouse.

Objectives of spousal support order

15.2(6) An order made under subsection (1) or an interim order under subsection (2) that provides for the support of a spouse should

(a) recognize any economic advantages or disadvantages to the spouses arising from the marriage or its breakdown;

(b) apportion between the spouses any financial consequences arising from the care of any child of the marriage over and above any obligation for the support of any child of the marriage;

(c) relieve any economic hardship of the spouses arising from the breakdown of the marriage; and

(d) in so far as practicable, promote the economic self-sufficiency of each spouse within a reasonable period of time.

[36] While Mr. Wade in his evidence suggested that he was unhappy that Ms. Wade did not take up fulltime employment, he was not convincing. I prefer her evidence that the requirements of childcare and other factors substantially limited her ability to obtain any kind of formal certification in any of the accounting, bookkeeping or office management fields. Also important is Ms. Wade’s much greater role in assuming responsibility for Robert’s day to day care during cohabitation, all of which has left her at significant disadvantage with respect to her ability to earn income following separation. In my view she has a very significant compensatory spousal support claim and, in addition, presents a needs-based claim because of the significant disparity between her income and that enjoyed by Mr. Wade.

[37] In Gray v. Gray, 2014 ONCA 659 (C.A.), the Court of Appeal stated “typically an entitlement to compensatory and needs based support would result in an award at the high end of the SSAG ranges.” I think Ms. Mackenzie was quite fair and reasonable in employing the mid-range spousal support to arrive at her estimate of arrears before trial. As set out later, ongoing spousal support should be determined at the high end range.

[38] My second observation concerns the claim for table-based child support for Robert for the period of time when he was in attendance at community college in Windsor.

[39] I accept Ms. Wade’s evidence that she spent considerable sums assisting Robert in attempting to succeed at the community college. In addition, she provided a home for him when he was not in school and was apparently responsible for a host of his other expenses when he was away studying.

[40] It is quite appropriate in this case, in my view, to employ the table amount as the basis for child support as there is no evidence whatsoever before me which would overcome the presumption in s. 3(2)(a) of the Federal Child Support Guidelines, SOR/97-175. There is very little in this record which would even allow me to try to determine an appropriate amount under s. 3(2)(b). There is an undisclosed amount of money which was available for Robert’s educational needs from an existing RESP; however, there is no claim advanced for allowable expenses for post-secondary education under s. 7 of the Guidelines, all of which satisfies me that the straight table amount of child support would be both appropriate and reasonable in these circumstances.

VALUE OF 776497 ON DATE OF SEPARATION

[41] Both Mr. Hoare and Mr. Martindale gave evidence at the trial about the value of the 776497 shares at valuation date. Each was immediately accepted as able to give opinion evidence with respect to their investigations, reports and findings. Each expert reviewed the general approach to business valuation as a process and described the various general approaches which are used in different circumstances, both coming to the conclusion that the adjusted net book value method would be the most appropriate in the circumstances of 776497. They came, however, to much different views about the value of the business on separation. Mr. Hoare’s view was that the value was $213,300; Mr. Martindale’s opinion of value was only $30,000.

[42] The evidence evolved into discussions of fair market value and a notional prospective purchaser dealing with Mr. Wade as a willing seller and calculations of the loss to Mr. Wade of divesting himself of his shares in the corporation. There was considerable discussion about undefinable and intangible assets and their transferability. Questions of the existence of goodwill and its nature arose, as did discussion of the use and nature of non-competition agreements following a notional sale.

[43] Mr. Hoare adjusted the net book value by taking into account what he termed “secured customer leads,” contacts, he said, which “may lead to work in the future.” Part of the business, in his view, was the ability to generate contracts which, together with the business’ reputation and its history of successful contracts would be a property asset of definable value. He reviewed the records of past projects and customer lists and was not deterred where no contract had been generated at separation, insisting that he was valuing customer leads and contacts, not contracts. In his words: “No contract doesn’t mean there wasn’t a relationship here and it’s the relationship we’re trying to value.” He distinguished intangible and unidentifiable goodwill from the intangible but identifiable relationship which, he said, was the customer lead. Where the pre-separation contact led to a post-separation construction contract, he apportioned (he conceded somewhat arbitrarily) the eventual profits over time, applied a discount and took a present value to the valuation date.

[44] Mr. Martindale also chose to use the adjusted net book value approach. In Schedule 6 to his May 23, 2012 valuation, he assessed the fair market value of the shares of 776497 at $26,249 which he rounded up to $30,000, including a discounted figure for the expected profit from work in progress of $50,000, ascribing the difference of $3,750 to a limited goodwill of the vendor’s name and telephone number.

[45] Mr. Martindale emphasized the “one time” nature of Mr. Wade’s construction business (as opposed to the frequently long term relationships between clients and accounting firms). He foresaw no value, even theoretically, to a notional purchaser of the business arising from the fact that Mr. Wade had met somebody and had had discussions. Without the existence of a contract at separation, and to him, there was no possible increase in fair market value.

[46] It seems to me that the fair market value discussion, and the issues of the value of pre-separation contact or the notion of a secure lead having a quantifiable value, all miss the mark. They fail to recognize the applicable legislative scheme. In the Family Law Act, R.S.O. 1990, c. F.3, the relevant definition of property is as follows:

4(1) “property” means any interest, present or future, vested or contingent, in real or personal property and includes,

(a) property over which a spouse has, alone or in conjunction with another person, a power of appointment exercisable in favour of himself or herself, …

[47] Brinkos v. Brinkos, 1989 CanLII 4266 (ON CA), [1989] 33 O.A.C. 295 (C.A.), 20 R.F.L. (3d) 445 is authority for the proposition that the words “vested” and “contingent” should be read in their legal sense as developed in the law of real property and estates and require an identifiable proprietary interest as opposed to a mere expectation. In Lauzon v. Lauzon (1992), 1992 CanLII 13970 (ON SC), 42 R.F.L. (3d) 438 (Ont. Gen. Div.), the court held that unvested employee contributions in a company pension plan could not constitute “property.” Until vesting occurred, the spouse would have no “rights” but merely an “expectation.”

[48] To me, the very words of the legislation and the principles in the decided cases are fatal to the position put forward by Mr. Hoare in the witness box with respect to the “secured customer leads.” I think the facts in this case are quite analogous to those in Perron v. Perron, 2010 ONSC 1482 (Ont. S.C.J.), aff’d 2012 ONCA 811, 113 O.R. (3d) 600 (C.A.), leave to appeal refused 2013 CarswellOnt 7995 (S.C.C.). In that case, the wife became entitled to future pension benefits as a member of the Defence Canada Reservists. The legislation creating the right occurred after the date of separation, although its likely enactment had been known for years before. The court held no legal right existed on the date of separation: “the implementation of such a plan was completely in the hands of the Federal government.” It was, at best, a “hope,” not a contingent interest.

[49] In my view, a discussion with a potential client leads to nothing more than a hope that a potential contract may be signed and that, in the context of the Ontario matrimonial property regime, is not “property.”

[50] Mr. Hoare’s analysis is not assisted by the fact that, in some cases, contracts were produced for construction involving some of the potential customers. In Dembeck v. Wright, 2012 ONCA 852 (C.A.), the court rejected the notion that a property entitlement can arise retroactively after crystallizing as a result of subsequent events. It was said there was no jurisdiction in the Family Law Act to reclassify a property interest as circumstances change. The court further held that the purpose of the statute, as identified in its preamble, is to provide for the orderly and equitable settlement of the affairs of spouses on their breakdown of their partnership and to interpret the statute in a manner allowing a property interest to arise by reclassification would inject uncertainty into the scheme and do nothing to further the purpose of the Act.

[51] Mr. Hoare testified that valuation principles require the use of the approach which yields the greatest amount when considering fair value. When the argument about secured leads representing a property interest fails, to my mind the adjusted net book value approach should be supplanted by the capitalized cash flow approach which yields a larger value. In Mr. Hoare’s report at Ex. 7, pages 103 to 106, he sets out the capitalized cash flow approach as a valuation estimate. After setting out the significant components of that approach he determined that a reasonable estimate of adjusted annual cash flow before taxes, capital expenditures, rent and management salaries was in the range of $172,500 to $187,500. After several adjustments for rent, salaries and taxes, he estimated the maintainable cash flow of 776497 to be in the range of $24,400 to $36,900. After capitalizing the maintainable cash flow to represent the expected rate of return, Mr. Hoare was of the view that an appropriate multiplier (as determined by the application of a weighted average cost of capital analysis) was 4, the inverse of 25 per cent. He concluded that the capitalized cash flow approach would yield a value of the 776497 stock at a range of $97,600 to $147,600. I accept his figure of $97,600 as a fair and reasonable valuation estimate of the value of the shares on the date of separation.

VALUE OF 776497 SHARES AT DATE OF MARRIAGE

[52] 776497 was incorporated barely 15 months before the September 22, 1989 marriage of the parties. Mr. Hoare was unable to prepare a valuation of the corporation as at the date of marriage and testified that there was insufficient data to provide such a valuation. Mr. Martindale relied upon the financial statements of Barry Wade Design and Construction Management (776497) prepared by Gary E. Mason, CA for the year 1989. Mr. Martindale adjusted the balance sheet of the fair market value of the assets and the liabilities of the company as of June 30, 1989 by adding an additional value of $7,020 being the work in progress discounted by 10 per cent. In addition, he offset approximately $15,000 of a loan receivable from a shareholder with the amount due to the shareholder. Mr. Martindale calculated the fair market value of the shares at date of marriage at $20,000. Mr. Martindale’s approach and testimony was not shaken or weakened on cross-examination. Although Ms. Mackenzie complains that Mr. Martindale’s valuation relied heavily on Mr. Wade’s untested representations and is therefore unreliable, I am satisfied that the $20,000 probably represents a fair estimate of value on the date of marriage.

UNPAID SHARED EXPENSES FOR HOME, COTTAGE AND BUSINESS PROPERTY

[53] The parties agreed that until all issues were resolved, they would each pay 50 per cent of the carrying costs of the various properties, being the matrimonial home, the cottage and the business property at Bridge Street. The business used to pay rent for the use of that last property, which was applied to the carrying costs of the matrimonial home and the cottage. The amount of rent paid by the business to Mr. Wade and Ms. Wade reduced over time, leaving the parties to pay more from their respective pockets. The chart which appears at page 7 of Ex. 6 represents the arrears and Mr. Wade’s contributions to his 50 per cent share of those expenses. There was nothing in the evidence to indicate that those amounts should not be paid and, after the equalization payment is determined, Mr. Wade will pay a post-separation adjustment of $4,719.22 to Ms. Wade.

THE VALUE OF THE SUN RAY BOAT

[54] Mr. Wade purchased a Sun Ray sailboat from one Cal Childs in June, 2006. At Ex. 7, tab 6, Ms. Wade provides supporting documentation with respect to the purchase of the boat. She testified that a Capital One credit card had been used by Mr. Wade to make the original deposit on the boat of $5,169.67 and that she used a corporate cheque number 14 to pay that credit card in July, 2006. She also testified that the balance of the purchase price was paid by cheque to Mr. Childs in the amount of $13,500 in June, 2006, making a total purchase price of about $18,600. Mr. Wade did not agree, saying that the total purchase price was $13,500 and pointed to what he alleged were later efforts to label the duplicate of the cheques as “boat deposit.” Given the history of Ms. Wade’s record keeping and her demonstrably better memory of financial matters and transactions, I believe she is probably correct and that using 50 per cent of that purchase price at separation, two years after the transaction, is reasonable in all of the circumstances.

GENERAL HOUSEHOLD ITEMS

[55] After the parties separated over seven years ago, they made a decision that they would each have the benefit of a furnished residence. Ms. Wade took up possession of 3969 Hamilton Road in Dorchester and has lived there since. Mr. Wade was to have 127 Faye Street in Port Burwell. He still resides there. Neither of the parties ever obtained or seemed to desire a valuation of the contents of either residence and Mr. Wade did not give evidence that he had ever sought any of contents of the former matrimonial home from Ms. Wade.

[56] I think Ms. Wade’s position is correct. The contents of the respective residences have already been divided to the satisfaction of the parties.

[57] There is little merit in Mr. Wade taking the position at trial that there was some great disparity in the values of the respective chattels which they divided so long ago. In my view, those goods and chattels should be excluded from the equalization process.

SPOUSAL SUPPORT GOING FORWARD

[58] Commencing July 1, 2015, Mr. Wade bears the responsibility to pay spousal support to Ms. Wade. As Ms. Mackenzie points out, there are very strong compensatory factors in Ms. Wade’s support claim. When her 20 year marriage ended, so did her livelihood of the same period. She supported Mr. Wade’s career and relieved him of the responsibilities of child care to enable him to focus on the success of his construction business. She allowed her equity in the matrimonial home to be reduced by lines of credit in order to prop up the business and obtain needed cash from time to time throughout the marriage. As I have said, there is also such a significant disparity in the resources and income available to the parties that Ms. Wade asserts a very strong needs-based spousal support claim. The comments I made earlier about Gray v. Gray, supra are quite apposite and support the high range of post-trial quantum of spousal support.

[59] Obviously Mr. Wade’s income varies from year to year. The construction industry was described by Mr. Martindale as a profitable but cyclic and unpredictable type of business enterprise. In the case of 776497 and all of Mr. Wade’s business fortunes, there was evidence adduced at trial of bulges in profits and corresponding dips where business slowed down or the company was beset by unanticipated bad debts which were rendered uncollectable. Because of the historical fluctuation in income, it is appropriate to consider s. 17(1) of the Guidelines:

17. (1) If the court is of the opinion that the determination of a spouse’s annual income under section 16 would not be the fairest determination of that income, the court may have regard to the spouse’s income over the last three years and determine an amount that is fair and reasonable in light of any pattern of income, fluctuation in income or receipt of a non-recurring amount during those years.

[60] Mr. Wade’s line 150 income for the last three years is: (2012) $112,500, (2013) $130,000, (2014) $122,300. At trial, there was no evidence of his 2015 income. Financial statements for the corporation had not been prepared and there was no evidence of any fact-based income figure. All I had was Mr. Wade’s guess that his income would approximately $90,000 in 2015. Having particular regard, however, to the last three years of declared income, to my mind an amount that is fair and reasonable in light of that pattern would be $125,000. On that basis, Mr. Wade’s liability for spousal support on an ongoing basis should be $3,300 monthly commencing June 1, 2015. This high-range figure is based on imputed income to Ms. Wade in the amount of $20,000 annually. I have chosen that figure because of my confidence that she will continue to work hard and to develop her part-time bookkeeping business.

[61] Because Ms. Wade’s spousal support entitlement has the two foundations of compensation and need, a question may arise in the future concerning post-separation income increases – more relevant, perhaps, here because of the cyclic nature of the construction industry. See, generally, Julien D. Payne, “Recent Developments in Family Law in the Canadian Common Law Provinces” (2011), 38 Adv. Q. 312, at pp. 348-356 (Post-Separation Income Increases). Because of that, the support order should include a disclosure provision requiring both the usual income tax returns for Mr. Wade and the annual financial statements for his corporate entities, all by July 1, commencing in 2016.

RESULT

[62] Unfortunately, it will be necessary for counsel to redo their net family property statements in accordance with these reasons, recalculate the figure for arrears using the income for Mr. Wade that I have indicated and deal with the issue of the tax consequences of the retroactive spousal support arrears.

PRE-JUDGMENT INTEREST AND COSTS

[63] My preliminary view is that this would not be an appropriate case for pre-judgment interest; however, I may be spoken to when the other matters are completed by counsel, at which time I would be pleased to receive submissions with respect to costs.

“Justice Henry Vogelsang”

Justice Henry Vogelsang

Released: March 2, 2016

CITATION: Wade v. Wade, 2016 ONSC 1056

COURT FILE NO.: FD1441/10

DATE: March 2, 2016

ONTARIO

SUPERIOR COURT OF JUSTICE

FAMILY COURT

BETWEEN:

CYNTHIA LOUISE WADE

Applicant

• and -

BARRY WILLIAM WADE

Respondent

REASONS FOR JUDGMENT

VOGELSANG J.

Released: March 2, 2016