CITATION: Smith v. Smith, 2016 ONSC 1157

COURT FILE NO.: 109/09

DATE: 2016-02-16

ONTARIO

SUPERIOR COURT OF JUSTICE

BETWEEN:

LIBERATINA SMITH

Applicant

– and –

DEREK SMITH

Respondent

Gary Joseph/Elissa Gamus, Counsel for the Applicant

Derek Smith, Self-represented

HEARD: July 2-5, 10-12, October 21-24, November 19, December 2-3, 2013, January 20, March 10-14, March 17-21, May 2, August 5-7, 11-15, December 22, 2014

REASONS FOR JUDGMENT

[1] This Application has been ongoing since 2009.

[2] This trial was originally scheduled for eight days and should have been fairly straightforward. The parties settled their custody and access issues well before the commencement of this trial, agreeing to joint custody and equal parenting time. They signed Minutes on October 27, 2009, which were incorporated into the Order of Justice Bielby dated March 19, 2012 (the “Final Custody Order”). The issues before me were child support, spousal support and equalization.

[3] Rather than being straightforward, the trial descended into a take-no-prisoners battle between the parties. There were at least 6 motions within the trial. A voir dire lasting approximately five court days was held on whether the Respondent’s income expert could testify. There were 186 trial exhibits filed. The trial lasted approximately eight weeks spread over eighteen months, including the receipt of written closing submissions. The Applicant’s submissions, including reply, totalled 661 paragraphs. The Respondent’s closing submissions were 255 paragraphs in length. The casual reader might, not unreasonably, wonder whether this was a dispute between two members of our society’s wealthy elite. It was not, as the below makes clear.

Facts

[4] The facts of this case are not, for the most part, controversial. However, it is not practical to review eight weeks of evidence in these reasons. I have considered all of the evidence. The following is a summary of the salient points and is not intended to be an exhaustive review. I make further comments where helpful to explain and otherwise amplify my reasons.

[5] The Wife and the Husband were married on August 6, 1988 and separated after 20 years of marriage on September 2, 2008. They were divorced by the Divorce Order of Justice Mossip dated January 20, 2014.

[6] They have three children together, namely Meghan, born January 14, 1999, Maya, born May 14, 2003 and Eve, born June 2, 2007. As stated above, the parties consented to the Final Custody Order providing for joint custody and equal sharing of the children. The eldest child, Meghan, was living primarily with the Applicant prior to the start of this trial. Maya and Eve have continued in the equal time sharing regime.

[7] Prior to separation, the Applicant was last employed outside of the home in an administrative assistant role ending in about 2002. She was a stay at home parent during the latter part of the marriage. She has been employed as a bookkeeper since 2011.

[8] The Respondent has a high school education. He has been self-employed at all material times.

[9] The Respondent owns and operates three corporate businesses, namely “Miracles in Glass” (“Miracles”), “Tropic Aquaria” (“Tropic”) and 1159134 Ontario Inc. (“1159134”).

[10] Miracles was in existence at separation. This company is located in Erin, Ontario, and manufactures custom aquariums and other glass products.

[11] Tropic is the current version of what was an existing business that wholesaled pet supplies and was formerly located in Brampton, Ontario. During this trial, the former business was referred to as “Old Tropic” and I will continue that usage in this decision. The Respondent acquired the assets of Old Tropic after separation, in or about October 2012, to form Tropic and relocated this business to the same Erin premises as Miracles.

[12] 1159134 existed at separation and is the titled owner of the land and building in Erin where both Miracles and Tropic operate.

[13] The Respondent is the sole shareholder of the three corporations.

[14] In the latter part of 2012, the matrimonial home located in Erin was sold. The net sale proceeds realized were $726,159.14. The Applicant received approximately one half of the sale proceeds, with the balance otherwise payable to the Respondent remaining in trust pending the outcome of this trial. Each party has since purchased her/his own residence.

[15] This trial commenced in July 2013 and concluded in August 2014. Final submissions were completed in March 2015.

[16] The Applicant and the Respondent both gave evidence during the trial. In addition, each party called experts to give evidence on various financial issues. The Applicant’s experts testified as to the Respondent’s income, the value of the Respondent’s businesses, the fair market value of the matrimonial home and taxation issues. The Respondent likewise had his experts give testimony respecting his income and the value of his businesses. Other more peripheral witnesses also testified.

Trial Issues

[17] The primary factual issues to be determined were the income of the Applicant, the income of the Respondent and the value of his businesses. Flowing from this was the determination of child support, the Applicant’s claim to spousal support and equalization issues, including the value of the matrimonial home registered in the name of the Applicant alone, the value of her jewellery and tax liabilities.

Income of the Parties

[18] The income determination for the Applicant is relatively straightforward.

[19] The Applicant has a secondary school diploma, having achieved her grade 13 designation. She completed one year of university but has no degree or diploma.

[20] The Applicant worked as a receptionist at the Orlando Corporation in Mississauga following her year at university and during the marriage. My understanding is that the parties were then living in the Brampton area. She remained at the Orlando Corporation, advancing to the position of an executive administrative assistant, from about 1996 until about the time she became pregnant for the second time in 2002. The Applicant was earning approximately $60,000.00 annually when she left the employ of the Orlando Corporation.

[21] The evidence at trial was that the Applicant was for the most part a stay at home spouse and mother from 2002 until the end of the marriage. She was primarily responsible for the day-to-day care of the three children and the matrimonial home, which at separation was a large home and hobby farm. She had not worked outside of the home since 2002.

[22] The Applicant testified that she would need to retrain to resume her career as an executive assistant, specifically with respect to current computer programs. She has not looked into this retraining or the related costs.

[23] Following separation, the Applicant remained in the matrimonial home and managed the hobby farm, including the rental of the barn, indoor riding arena, paddock and related premises.

[24] The Applicant commenced retraining in 2010 to become a life coach. However, she did not get beyond the basic training and did not obtain any certification. She testified that she lacked the monies and clients necessary to complete the certification.

[25] The Applicant then worked three part-time office administration jobs. This is the same employment she had at trial. Her evidence was that she worked 20-25 hours weekly, earning $22,000.00 to $25,000.00 annually from the three jobs. She suggested that her employment continued to be limited to some extent by her parenting responsibilities but that she hoped one of her three jobs would evolve into a full-time position.

[26] The Applicant now resides in Caledon. She testified that she is listed with a temporary help agency in Orangeville, Ontario, and continues to search for full-time employment.

[27] The Applicant’s evidence was that her income earned for the years leading up to the trial were as follows:

2008 – $14,465.91 (not including rental income);

2009 – $10,925;

2010 – $0;

2011 – $9,621.06 (not including RRSP income);

2012 – $7,144.81(based on T4s);

2013 – $25,000 (suggested achievable income); and

2014 – $25,000 (suggested achievable income).

[28] The Respondent argues that the Applicant should earn more and asks that income be imputed to her. He suggests an income of $60,000 should be imputed to the Respondent, which is slightly more than the income he asks the Court to determine he earns.

[29] The Respondent has a high school education. He was previously employed in sales for a glass manufacturing company. In or about 1989, the Respondent started Miracles. He has solely owned and operated Miracles ever since. The Respondent acquired the assets of Old Tropic in October 2012, which he used to commence Tropic. The Respondent also owns the numbered company that is the registered title holder for the property and building where Miracles and Tropic operate. The Respondent is the sole shareholder of these three corporations.

[30] Income for child and spousal support purposes is determined pursuant to the Child Support Guidelines, O. Reg. 391/97 (the “Guidelines”): see Bak v. Dobell, 2007 ONCA 304, 86 O.R. (3d) 196, Smith v. Smith, 2012 ONSC 1116, Ludmer v. Ludmer, 2013 ONSC 784 and Spousal Support Advisory Guidelines.

[31] The principles that apply in determining whether to impute income are the same in both child support and spousal support cases: see Smith, Perino v. Perino (2007), 2007 CanLII 46919 (ON SC), 46 R.F.L. (6^th^) 448(S.C.) and Rilli v. Rilli, 2006 CanLII 34451 (ON SC), [2006] O.J. No. 4142 (S.C.). Income imputation is not strictly limited to the payor spouse. It may also be imputed to the recipient spouse: see Spousal Support Advisory Guidelines.

[32] Income may be imputed in circumstances where an individual is intentionally under-employed or unemployed: see Drygala v. Pauli (2002), 2002 CanLII 41868 (ON CA), 61 O.R. (3d) 711 (C.A.) and section 19(1) of the Guidelines.

[33] Prior to imputing income to a party under Section 19(1), a court must undertake the three part analysis set out by the Court of Appeal in Drygala. Specifically, a court must ask itself the following questions:

a. Is the spouse intentionally under-employed or unemployed?

b. If so, is their intentional under-employment or unemployment required by virtue of the needs of a child of the marriage or any child under the age of majority?

c. If the answer to question b. is negative, what income is appropriately imputed in the circumstances?

[34] In Smith (2012), at para. 81, Justice Chappel outlines the relevant factors in determining whether to impute income as follows:

1. The onus is on the party seeking to impute income to establish an evidentiary basis upon which to establish that the other party is intentionally unemployed or underemployed;

2. It is not necessary to establish bad faith or an attempt to thwart support obligations before imputing income. A payor is intentionally underemployed if they earn less than they are capable of earning having regard for all of the circumstances. In determining whether to impute income on this basis, the court must consider what is reasonable in the circumstances. The factors that the court should consider include the age, education, experience, skills and health of the party, the party's past earning history and the amount of income that the party could reasonably earn if they worked to capacity;

3. There is a duty on the part of the payor to actively seek out reasonable employment opportunities that will maximize their income potential so as to meet the needs of their dependants;

4. The court will not excuse a party from their support obligations or reduce these obligations where the party has persisted in un-remunerative employment, or where they have pursued unrealistic or unproductive career aspirations. A self-induced reduction of income is not a basis upon which to avoid or reduce support payments;

5. If a party chooses to pursue self-employment, the court will examine whether this choice was a reasonable one in all of the circumstances, and may impute an income if it determines that the decision was not appropriate having regard for the party's support obligations;

6. Where a party fails to provide full financial disclosure relating to their income, the court is entitled to draw an adverse inference and to impute income to them; and,

7. The amount of income that the court imputes to a party is a matter of discretion. The only limitation on the discretion of the court in this regard is that there must be some basis in the evidence for the amount that the court has chosen to impute.

[35] The determination of the Applicant’s income comes down to whether she has made reasonable choices and is earning to the best of her ability in all of the circumstances. I would be inclined to permit the Applicant some transition time following the separation. She had been out of the workforce for several years prior to the breakdown of the marriage. At separation, she remained in the matrimonial home with the children, including Eve who was then one year old. The Applicant was responsible for the day to day management of the matrimonial home plus the farm buildings and property while the Respondent was primarily focussed on his business.

[36] There was no meaningful evidence that the rental of the farm buildings and property generated income for the Applicant following separation. The evidence before me, including that of the Respondent’s witness, Jessica Fox, was that it was difficult to secure a tenant, that the rent chargeable was modest, that rent payments were not consistent and that costs consumed most if not all of the rents received.

[37] The Applicant’s only effort at retraining was to briefly engage in a course to become a life coach. This was a career path with no antecedents for the Applicant. It would appear that her efforts were modest and that this path was abandoned sometime in 2010 after she took the initial course(s). She testified that one of the reasons she did not complete this training was due to a lack of finances arising from the Respondent being in default of his support obligations. She also indicated that she experienced difficulty in securing the clients she needed to meet the practicum requirements of the course.

[38] The Respondent was almost immediately in default of the agreed upon support payments and significant arrears accumulated as noted in the endorsement of Langdon J. dated June 22, 2011. Mr. Smith did not satisfy these significant support arrears until the matrimonial home and property was sold with the arrears paid from the share he would have otherwise received from those proceeds pursuant to the Order of Langdon J.

[39] The evidence before me was that the Applicant commenced her current career path as a bookkeeper in 2011. This makes sense given that her attempt at becoming a life coach ended sometime in 2010 and the Applicant was not generating any meaningful income from the farm buildings and property.

[40] The Applicant had modest earnings in 2011 and 2012. Again, this is not terribly surprising. She had been out of the workforce for about a decade by 2011. She had limited education and a fairly narrow work history. She was then living in a rural area with presumably less opportunities than the larger urban centre where she had lived and worked while with the Orlando Corporation. I am satisfied that the Applicant was then making reasonable efforts to generate income given the circumstances, including the fact that she remained responsible for the day-to-day management of the matrimonial home plus farm buildings and property and that she was otherwise, no doubt, distracted by having to address the Respondent’s ongoing failure to provide her the support he agreed to pay.

[41] In my view, the Applicant should have been earning greater income by 2013. This was more than three years from the date of separation. The matrimonial home was sold in the latter part of 2012. The prior distractions of managing the matrimonial home plus farm buildings and property were gone and with the sale of these properties the Respondent paid the significant arrears ordered by Justice Langdon.

[42] I have considered child care responsibilities in my assessment but note that the parties commenced a more or less equal split of the children’s time by Minutes signed in 2009. Although Meghan subsequently came to reside full-time with the Applicant, Meghan was old enough that this would not have significantly hindered the Applicant’s ability to work. I also do not accept that the Applicant’s decision to reside outside the children’s school catchment, with the result they were not able to use the school bus and required the Applicant to transport them, should be the basis for lower income expectations. The Applicant made this choice for no apparent reason other than her preference.

[43] I would not expect the Applicant to be earning large amounts. I would not expect the Applicant to be able to return to the job she had with the Orlando Corporation more than a decade prior, especially with consideration to the fact that she has the younger two children in her home half the time and her former job was located in Mississauga. I also note her evidence that she would require some upgrading in order to return to her former position in any event. However, the Applicant has some university education and a demonstrated ability, having earned a promotion from receptionist to executive assistant at her last place of employment. I am also of the view that her job search has been somewhat too limited geographically.

[44] The Applicant’s evidence was that, working 20-25 hours weekly, she expected to earn $22,000.00 to $25,000.00 in both 2013 and 2014. I appreciate the efforts that she has made but feel that working 20-25 hours weekly left her with the capacity for greater income. I am of the view that she could have earned more in 2013 and thereafter. I would impute income to her of $37,500.00 for 2013 forward, which is approximately what her earnings would be at her current pay scale if she worked closer to full-time hours.

[45] The Respondent is self-employed. He is the sole shareholder of Miracles, Tropic and 1159134. He suggests that he has had modest income of approximately $58,000.00 at all material times from all sources.

[46] The Applicant argues that the Respondent is understating and otherwise manipulating his income to suggest modest earnings with related lower support obligations. The Applicant asks that income be imputed to him.

[47] The determination of the Respondent’s income is obviously more complicated. The fundamental difficulty in this analysis is that all of the expert input is premised on the financial records of the Respondent’s businesses. These records are less than reliable according to the evidence of the experts and the parties. This problem is compounded by the difficulties in obtaining full disclosure from the Respondent.

[48] Respecting the reliability of the Respondent’s business records, the essence of the Respondent’s evidence was that he assigned the accounting duties to a bookkeeper who was not qualified and who was prone to errors. In fact, the Respondent testified that significant, retroactive changes were made to the business records to correct the bookkeeper’s errors. The Respondent’s expert, Ms. Minelli, testified to the Respondent engaging professionals following the date of separation to correct various journal entries in the books of the Respondent’s businesses with related restatements of the financial statements.

[49] The Applicant’s expert, Mr. Mozessohn, also testified that he had concerns with the reliability of the Respondent’s business records, including and in particular these retroactive changes producing the obvious dilemma of there being two sets of financial information covering the same periods.

[50] The issues arising from the records’ overall lack of reliability was compounded by the difficulties with which financial disclosure was obtained. These difficulties have been documented by me in a prior endorsement made during this trial. The following is a summary of the disclosure orders made leading up to this trial:

a. Order of Wein J. dated August 10, 2009, for the Respondent to produce business valuation;

b. Order of Dunn J. dated September 14, 2009, for the Respondent to produce business valuation and disclosure as requested in letter from Applicant’s counsel;

c. Order of Price J. dated October 19, 2009, for the Respondent to produce business valuation;

d. Order of Price J. dated February 1, 2010, for the Respondent to produce disclosure required by the Applicant’s expert respecting income;

e. Order of Wein J. dated June 17, 2011, for the Respondent to complete valuation;

f. Order of Corbett J. dated April 27, 2012, for the Respondent to provide disclosure in support of the details in his sworn financial statement and other items;

g. Order of Murray J. dated January 7, 2013, for the Respondent to provide various disclosure; and

h. Order of Snowie J. dated April 19, 2013, for the Respondent to provide various disclosure, failing which the Respondent risked the striking of his pleadings.

[51] I note that some of the disclosure orders were directed at the Applicant. However, the bulk of the numerous orders made were directed at the Respondent.

[52] At trial, the Applicant and her expert, Mr. Mozessohn, testified that requested disclosure from the Respondent remained outstanding, interfering with their ability to fully undertake the necessary analysis and provide the related evidence.

[53] The Respondent’s repeated argument in reply to this allegation was that he believed he had no further disclosure obligation pursuant to the orders of this court. Justice Corbett’s April 27, 2012, endorsement set forth a schedule for the exchange of disclosure and a deadline for the bringing of motions in contemplation of this matter having a trial in January 2013. The trial did not proceed at that time. This did not mean that the parties had no disclosure obligations after the deadlines set by Corbett J. In fact, Corbett’s J.’s endorsement specifically reminded the parties “of their continuing disclosure obligations.” On January 7, 2013, Murray J. endorsed a disclosure list and timetable agreed to by the parties and set the matter for a trial in June 2013. Snowie J.’s April 19, 2013, endorsement ordered the Respondent to provide various items of disclosure with the warning that he risked having his pleadings struck if he failed to do so. Given these orders, I fail to appreciate how the Respondent could not be aware that his obligation to disclose continued.

[54] My view remains that these orders and the evidence before me clearly demonstrate the Respondent’s pattern of being so slow to produce his disclosure as to necessitate court intervention. I accept the evidence of the Applicant and Mr. Mozessohn that the Respondent failed to produce relevant disclosure despite court orders and requests by the Applicant.

[55] In summary and as a preliminary point in this analysis, the Court has considered the evidence pertaining to the Respondent’s income provided during this trial, including the expert opinions, in the context of the business records being unreliable and the above noted disclosure concerns. Simply stated, the expert opinions are compromised by the state of the Respondent’s business records and his slow and incomplete disclosure. This means that the court is left to make the best approximation it can of the Respondent’s income based on this flawed evidentiary record.

[56] It is very easy for me to conclude that Mr. Smith’s income and ability to earn are not accurately reflected by the amounts claimed on his personal income tax returns and T4s filed. The issue that flows from this, obviously, is the determination of his true income on the basis of the evidence that was available during this trial.

[57] In considering Mr. Smith’s income, it is important to consider the legal principles as set out in the Guidelines for calculating income and determining income earned from a corporation closely held by the payor parent.

[58] In Thompson v. Thompson, 2013 ONSC 5500, [2013] O.J. No. 4001, starting at para. 84, Justice Chappel provides a thorough analysis of how income is determined under the Guidelines, including how income may be attributed from corporate pre-tax income under section 18 of the Guidelines. This has obvious relevance to this case. Justice Chappel also outlines the general principles surrounding the imputation of income under section 19 of the Guidelines. Sections 18 and 19 can work together in the determination of income in circumstances where the payor’s income is earned from a closely held corporation and where disclosure has been inadequate, which is clearly the case here.

[59] In considering the determination of Mr. Smith’s income, I have considered the following statements of Justice Chappel, at paras. 84-97:

[84] Section 16 of the Guidelines provides that subject to sections 17 to 20, a spouse’s annual income is determined using the sources of income set out under the heading “total income” (line 150) in the T1 General Form issued by the Canada Revenue Agency, and by then making the adjustments provided for in Schedule III to the Guidelines. Federal Child Tax Benefits and GST/HST Tax Credits for children are not included in the calculation of income for the purposes of child support. Section 16 does not require the court to blindly use the previous year’s total income as reported by the party in the T1 General Form for the previous year as a basis for determining ongoing child support. Rather, the goal is to ascertain current income based on the sources set out in the T1 form. Where a party’s prior year’s income is not predictive of what they are likely to earn in the upcoming year, the court should determine the party’s Guidelines income for the upcoming twelve months from when child support will be paid.

[85] The determination of income for the purposes of applying the SSAG differs than for child support cases in that social assistance is not treated as income for the purposes of the SSAG, but the Child Tax Benefit and other government child benefits are included in income under the “With Child Support” formula.

[86] By virtue of section 2(3) of the Guidelines, the court is required to determine issues relating to income based on the most current information available.

[87] As previously noted, the Respondent has requested that I attribute corporate pre-tax income of Harmony to the Applicant for the years 2009 to 2012 for the purposes of calculating the retroactive and prospective child and spousal support claims. He relied on section 18 of the Guidelines in support of these arguments. That section allows the court to attribute to a party all or a portion of the pre-tax income of a corporation that is owned by the party in circumstances where the court is satisfied that the determination of the party’s income pursuant to section 16 does not fairly reflect all of the money available to the party for the payment of child support. It provides as follows:

Shareholder, director or officer

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.

Adjustment to corporation’s pre-tax income

(2) In determining the pre-tax income of a corporation for the purposes of subsection (1), all amounts paid by the corporation as salaries, wages or management fees, or other payments or benefits, to or on behalf of persons with whom the corporation does not deal at arm’s length must be added to the pre-tax income, unless the spouse establishes that the payments were reasonable in the circumstances.

[88] The Ontario Court of Appeal stated in Wildman v. Wildman that the purpose of section 18 is “to enable the courts to conduct a fair accounting of the money available for the payment of child support.” In Kowalewich v. Kowalewich, the British Columbia Court of Appeal noted that section 18 requires “that a payor spouse’s allocation of pre-tax corporate income between business and family purposes be assessed for fairness by an impartial tribunal…” In Koester v. Koester, Stayshyn, J. elaborated upon the purpose of section 18, explaining that the section is in part “designed to address the unfairness which would result if a spouse was to artificially manipulate his income through a corporate structure for the purpose of avoiding child support obligations.” While manipulation of corporate income may provide a basis for invoking section 18, evidence of manipulation, bad faith or intentional avoidance of support obligations is not a prerequisite to relying on the section.

[89] It is important to emphasize that section 18(1) refers to the corporation’s “pre-tax income” for the most recent year only, and not to the company’s “retained earnings.” As MacDonald, J. highlighted in Bembridge v. Bembridge, this is a very important distinction. Retained earnings are the cumulative net earnings of the corporation since the inception of the company less dividends paid out to shareholders since that time. They are the shareholders’ equity in the company, and do not necessarily represent cash in the bank that shareholders can take out as income. In some circumstances, the accumulation of retained earnings in a company may result in the court imputing income to a party pursuant to section 19 of the Guidelines, on the basis that the party is not properly using their property to generate income by failing to declare dividends from the company.

[90] As the court emphasized in Bembridge v. Bembridge, it is critical for a court dealing with a section 18 argument to have a clear understanding of where and how additional money can be found from a corporation’s pre-tax income so as to increase a party’s income for the purpose of support calculations. To use the words of MacDonald, J. in that case, failure to properly understand this issue “can lead to an incorrect result and ultimately, if the parent cannot find the expected additional money, may undermine the operation of the corporation and eventually kill the goose that lays the golden egg.”

[91] The party proposing that corporate pre-tax income be attributed to the other party has the onus of demonstrating some basis upon which section 18 should be engaged. The fact that retained earnings remain in the corporation does not in and of itself require the party with the interest in the company to justify the business reasons for not withdrawing corporate pre-tax income or retained earnings. Once the party advancing the section 18 argument has met this onus, the party who has the interest in the corporation has the onus of explaining why the decision to add the corporate pre-tax income to the company’s retained earnings rather than withdrawing a portion of the earnings was reasonable from a business perspective. The rationale for this is that the shareowner will in all likelihood have a much greater appreciation of the workings and needs of the company, or will be best able to identify individuals who can be called as witnesses to address the issue.

[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.

[93] If the court determines that it is appropriate to attribute a portion of corporate pre-tax earnings to a party, the question arises as to what portion of that income should be attributed. In deciding this question, one of the factors to consider is the nature of the party’s interest in the corporation. It has been found to be unreasonable to attribute and amount of income that is disproportionate with the payor party’s ownership interest in the company.

[94] The Respondent has also invited me to impute income to the Applicant from 2012 onward. The courts have held that the principles that apply in determining whether to impute income are the same in both child support and spousal support cases. The Guidelines grant the court the discretion to impute income to a party in situations where the court is of the view that the income reported in a party’s tax returns is not an accurate reflection of what the party is or could be earning. The relevant section of the Guidelines is section 19, which provides as follows:

Imputing income

19. (1) The court may impute such amount of income to a spouse as it considers appropriate in the circumstances, which circumstances include the following:

(a) the spouse is intentionally under-employed or unemployed, other than where the under-employment or unemployment is required by the needs of a child of the marriage or any child under the age of majority or by the reasonable educational or health needs of the spouse;

(b) the spouse is exempt from paying federal or provincial income tax;

(c) the spouse lives in a country that has effective rates of income tax that are significantly lower than those in Canada;

(d) it appears that income has been diverted which would affect the level of child support to be determined under these Guidelines;

(e) the spouse’s property is not reasonably utilized to generate income;

(f) the spouse has failed to provide income information when under a legal obligation to do so;

(g) the spouse unreasonably deducts expenses from income;

(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; and

(i) the spouse is a beneficiary under a trust and is or will be in receipt of income or other benefits from the trust.

[95] Sections 19 and 18 are “inextricably linked, designed to work in tandem, and are not mutually exclusive means of ascertaining [that] income.” The list of circumstances set out in section 19 is not exhaustive, and therefore it does not circumscribe the court’s general discretion to impute income in other situations where it considers it appropriate to do so. These other situations need not be analogous to the circumstances listed in section 19 in order to provide a foundation for imputation of income.

[96] Regardless of the basis upon which income is imputed, the amount of income that the court imputes to a party is a matter of discretion. The only limitation on the discretion of the court in this regard is that there must be some basis in the evidence for the amount that the court has chosen to impute.

[97] The question of onus with respect to imputation of income is an important one. In original proceedings, the onus is on the party requesting the court to impute income to establish the grounds for this request. However, the support payor has an obligation to disclose all information that is relevant to their position respecting their income, which includes full and frank disclosure of all information required to properly assess their earnings, their income earning potential and efforts which they have made to maximize their income

[60] As a result, I am unable to make the necessary findings of fact and apply the relevant legal principles to specifically determine Mr. Smith’s income based on the evidence provided during this trial, including the expert reports on income. I noted above that the evidence before me, including the expert reports, is compromised by the Respondent’s unreliable business records and his disclosure failings. This means I am left to impute the income that is “appropriate” for Mr. Smith in the context of this compromised evidentiary record.

[61] Mr. Smith retained Ms. Minelli, a chartered accountant and business valuator, to provide an analysis of his 2008-2013 personal income for support purposes. The 2013 Minelli Report suggests that Mr. Smith’s income available for support should be $50,800 for 2008; $56,100 for 2009; $56,000 for 2010; $54,500 for 2011; $57,400 for 2012 and a future achievable income of $58,400.

[62] I cannot accept these figures for the fundamental reasons noted above.

[63] In addition, Ms. Minelli’s figures do not include any of Mr. Smith’s personal expenses that were paid for by Miracles and by Tropic. I note that neither expert added any personal expenses paid by Tropic to their respective calculations. Mr. Mozessohn calculated the expenses paid by Tropic to be in excess of $15,000.00 in 2013. However, he was unable to determine the specifics of these payments to determine whether they should be added to income so they were not in fairness to the Respondent.

[64] Ms. Minelli’s justification for not adding back any of the Miracles amounts to income was that Miracles owed monies to Mr. Smith greater than the personal expenses paid by the company on his behalf. Further, she advanced that there was no benefit to Mr. Smith in treating these as expenses given that doing so would not lower the income available to him for support from Miracles given the company’s losses. This offers no justification for failing to include these amounts in the income calculation and ignores the obvious benefit to the Respondent of having the company pay personal expenses that he would otherwise be paying from his personal, net of tax, funds.

[65] Ms. Minelli also attempted to justify not including the personal expenses of Mr. Smith paid for by Miracles in the calculation of income on the basis that these amounts were, ultimately, recorded against the Respondent’s loan account in the company financial records. Initially, these payments were not recorded in this manner. This is one example of the retroactive amendments to the financial records referenced above. The expenses in question cover a period from 2008 to 2010.

[66] The Applicant’s expert, Mr. Mozessohn, produced an initial Income Report dated April 22, 2010. The personal expenses of Mr. Smith paid for by Miracles were not recorded against the Respondent’s loan account at that time. Obviously, this was a retroactive adjustment. Again, this adjustment speaks to my overall concern with the reliability of the Respondent’s business records. The Respondent seems to make entries between the companies and then go back to change them to suit the exigencies of the moment. Regardless, my task is to determine what income was available to the Respondent over the years in question.

[67] At the time they were paid, the Respondent in fact received the benefit of these personal expenses being paid by the company. A retroactive accounting entry made in the course of litigation does not alter the benefit he in fact received at that time. These personal expenses should be added to Mr. Smith’s income with appropriate tax gross up.

[68] Miracles also paid income to and the personal expenses of the Applicant, which was done in order to split income between the parties and minimize personal taxes owing. In other words, money Miracles had available to pay to Mr. Smith was instead redirected to the Applicant until partway through 2009. The Applicant was not employed by and did not provide services to Miracles. It was clear on the evidence that the primary reason for doing this was to minimize the personal taxes payable by the Respondent. As such, these amounts should also be included in the calculation of the income that is available to the Respondent for support purposes in the applicable years.

[69] Ms. Minelli also tried to suggest that Miracles’ finances were in steady decline from 2005 forward such that the related income available to the Respondent decreased. I do not accept this argument. As Mr. Mozessohn pointed out, Miracles continued to operate and pay Mr. Smith more or less consistent income throughout the period under consideration, namely 2008 to 2013. This consistency is confirmed in Ms. Minelli’s 2013 Income Report where she suggests that Mr. Smith’s income ranges from a low of $50,800 in 2008 to a high of $57,400 in 2012 with a projected future achievable income still higher at $58,400. Looking strictly at the figures, Ms. Minelli’s 2013 Report appears to suggest that Miracles is in a better financial position presently and not declining given the rise in the related income available to Mr. Smith in 2012 forward.

[70] The suggestion that the finances of Miracles have been in steady decline is also contrary to the actions of the Respondent during the course of this litigation. Two examples will suffice to demonstrate this point.

[71] The first example concerns the purchase of a farm property.

[72] In November 2010, the Respondent became the guarantor on a $420,000 mortgage. This mortgage was obtained from Mr. Smith’s private money man, Mr. Wayne Gamble, against a home situated on 98 acres. The Respondent and his then partner, Jamie Sala, lived in the home. Title to the property was placed in Ms. Sala’s name alone although there is little evidence she invested any monies into the property. The evidence before me was that Ms. Sala earns a very modest income that would not be anywhere near capable of supporting this venture even in part. Regardless, the Respondent assumed potential responsibility for a significant debt should Ms. Sala default. It is less than surprising that title was subsequently placed in the names of the Respondent and Ms. Sala, who he has since married. The evidence before me was that Mr. Smith and Ms. Sala continue to reside on this property, that they have undertaken some improvements to the house and that they have acquired horses. I make the obvious inference that the Respondent had an interest in the property at all times. Clearly, the Respondent would not have taken on financial responsibility for this home and property if Miracles was in the financial peril suggested by Ms. Minelli.

[73] The second example concerns the purchase of a business.

[74] In or about October 2012, the Respondent acquired the assets of Old Tropic to form Tropic. I accept that this purchase was again financed by Mr. Gamble, this time to the tune of some $400,000 plus significant further sums for ongoing operations. Again, the obvious conclusion is that the Respondent would not have taken on the financial burden of this enterprise if Miracles was in the financial peril suggested by Ms. Minelli.

[75] I had the benefit of hearing testimony from Mr. Gamble during this trial. He is an experienced businessperson who has done very well for himself. I am certain he would not have loaned the funds for the farm property and the asset purchase if he shared Ms. Minelli’s view that Miracles and by relation Mr. Smith were in the dire straits suggested.

[76] Ms. Minelli also argued that the payments by Miracles to and for the benefit of Mr. Smith were effectively done with borrowed money. As such, she maintains that any calculation of Mr. Smith’s income must be discounted to account for the fact that these payments were artificially generated by borrowing as opposed to being paid from corporate profits.

[77] I agree with the point made by the Applicant that any credit need of Miracles is distorted given the fact that Miracles is owed $500,000 from Mr. Smith’s other company, 1159134, for the funds it received to purchase a property and construct the building that Miracles operates from. If this intra company loan was repatriated then Miracles would be in a much better cash flow position. Regardless, Ms. Minelli’s argument misses the fundamental point of the calculation of income for support. The primary question is what income the individual has available to him for support.

[78] The individual in this case, Mr. Smith, was consistently paid by or otherwise had the benefit of monies from Miracles over the period in question. It is largely immaterial whether Miracles borrowed money in the course of its operations during the period of these payments to Mr. Smith and otherwise had no profits. The fact remains that Mr. Smith personally had funds in his hands from Miracles and that Miracles otherwise made payments benefitting Mr. Smith thereby providing him income available for support purposes. The fact that these payments were made to him personally or for his personal benefit is not dependent on the source of these funds for Miracles.

[79] I also accept Mr. Mozessohn’s suggestion that it is not uncommon for companies to operate with borrowed funds on an ongoing basis. Again, the point is that Miracles was able to pay these monies to Mr. Smith or for his benefit without any interruption in its operations. In other words, these were funds available to Mr. Smith from the corporation.

[80] Ms. Minelli also referenced database generated market incomes for general managers in the general geographic area of the Respondent as support for the income figures suggested for Mr. Smith. I am of the view that these database figures are usually of little value except in the case where there is a lack of actual income information. Even where, as here, we have less than reliable information, the determination of income should be based on the data related to the individual rather than database generalizations of uncertain derivations.

[81] The other difficulty I have is with the income figures Ms. Minelli suggests are applicable from these databases. Ms. Minelli suggests the median income for general managers in Mr. Smith’s general geographic location is $58,800 per year and this is the figure she offers as the Respondent’s achievable income going forward from 2013. This income figure is contrary to the evidence before me from the Respondent’s own companies. The Respondent pays the manager of Tropic, Gary Mount, $80,000 per year for a four day work week. This is equivalent to $100,000 for a five day standard work week. How can Ms. Minelli argue that Mr. Smith’s market remuneration as a manager is $58,800 when the Respondent pays the manager of one of his companies the equivalent of approximately seventy percent more than that? As stated, I do not accept this income figure.

[82] Mr. Mozessohn calculated the income available to Mr. Smith for support from 2006 to 2009 in the same manner as described above, by adding back the personal expenses for both parties paid by Miracles plus the income paid to the Applicant over those years with one caveat for 2009.

[83] Mr. Mozessohn noted that Mr. Smith’s expenses were inflated by $28,600 in 2009, representing the monies used by the Respondent to fund this litigation. Mr. Mozessohn quite fairly suggests in his 2010 Income Report that Mr. Smith’s income for support purposes should be $75,100.00 after this non-recurring expense payment is removed. I agree with this approach and would set the Respondent’s income for 2009 at that figure.

[84] Given the above, I accept the calculations of Mr. Smith’s income from Mr. Mozessohn for the years 2006 to 2009 as follows:

a. 2006 - $78,700;

b. 2007 - $79,600;

c. 2008 - $77,700; and

d. 2009 - $75,100.

[85] The average of the incomes noted above is $77,775. Mr. Mozessohn took this average and rounded it up to $77,800 to determine Mr. Smith’s potential income going forward from 2010. Mr. Mozessohn did not provide any further analysis for 2011 or 2012. The Applicant argues the same $77,800 income would be achievable for Mr. Smith in those years as well. Given the limitations on the evidence identified above, including the issues identified with Ms. Minelli’s income figures, the $77,800 suggested by Mr. Mozessohn best approximates the income achievable by Mr. Smith for support in 2010, 2011 and 2012.

[86] As noted above, the Respondent’s expert suggested that his achievable income for 2013 forward was $58,800 per year.

[87] The Applicant’s expert suggested that Mr. Smith’s achievable income for 2013 forward was $200,500 per year. The only significant change in the Respondent’s financial universe from 2012 to 2013 was his acquisition of the assets of Old Tropic in or about October 2012, the formation of Tropic and the relocation of this business to the same premises as Miracles. As a result of the income she argues is attributable from Tropic, the Applicant suggests that Mr. Smith’s income increased more than two hundred and fifty percent from the three prior years.

[88] In reviewing what corporate income should be added to the payor’s income for support purposes, I have considered the comments of Justice Croll in Murray v. Murray (2003), 2003 CanLII 64299 (ON SC), 66 O.R. (3d) 540, at paras. 83-84:

83 The question that now must be answered is how much of the pre-tax corporate income should be attributed to Mr. Murray. In Brophy, supra at para. 37, Justice Linhares de Sousa states that the extent to which corporate profits should be included is "left to the court's discretion to be determined by the individual facts of the case." Indeed, the cases Linhares de Sousa J. cites for this proposition show that a variety of factors have shaped the courts' decision to include different portions of corporate income.

84 As the parties in this case have not used a line-item analysis in submitting how much of Mr. Murray's various corporate incomes might be included in his income for support purposes, I base my decision to include 50% of his share of pre-tax corporate incomes on the following general considerations. First, for the continued financial health of the companies, I am of the view that it would be unreasonable to start from the position of including all of Mr. Murray's share of pre-tax corporate income. As the British Columbia Court of Appeal recently noted in Kowalewich v. Kowalewich (2001), 2001 BCCA 450, 19 R.F.L. (5th) 330 at para. 58, judges have to be wary of killing the goose who lays the golden eggs. Monies needed to maintain the value of the business as a viable going concern will not be available for support purposes. In my view they should not be included in determining annual income.

[89] I am not prepared to attribute any income from Tropic to the Respondent’s income. The reasons for this are straightforward.

[90] The Respondent purchased the assets of Old Tropic, relocated these assets to Erin from Brampton and attempted to restart the business under his leadership in order to achieve some kind of synergy with Miracles. The financial information available to the Court for Tropic was limited to essentially seven months, from the start of November 2012 to the end of May 2013. I note that the Respondent tried to provide documentation and related evidence respecting the performance of Tropic from June, 2013 forward during this trial. The Applicant objected to this evidence being permitted given the Respondent had not disclosed these documents previously. This was an entirely valid objection but the Court was thereby deprived of a broader temporal base to assess Tropic for income.

[91] The information that was available respecting Tropic’s financial performance was simply too limited to rely upon, especially when the suggested impact is the imputation of income to the Respondent which is two and one-half times greater than he has ever achieved.

[92] I appreciate that Tropic retained Gary Mount, one of the former owners of Old Tropic, to manage this business along with other employees of Old Tropic. However, I do not accept the argument that we can simply blend the performance of Old Tropic with the minimal information relating to Tropic and reliably extrapolate those results forward in the manner suggested by the Applicant.

[93] Tropic is a new business in some very fundamental ways. Tropic is located in a rural town. Old Tropic was located in a large city within the G.T.A. Tropic is owned and operated by the Respondent rather than Gary Mount. Mr. Smith is now responsible for guiding Tropic and Miracles in a manner which promotes the finances of both. This could well be very different than the business plan pursued by Old Tropic, especially given the evidence before me about the changing landscape for these businesses due to the dominance of large players like Wal-Mart, Petsmart and others.

[94] I would not attribute any of Tropic’s income to the Respondent even if I were to accept that Tropic was reliably projecting meaningful profits. The purchase of Tropic was entirely financed with hundreds of thousands in private funds provided by Mr. Gamble. The Respondent’s shares of Tropic are hypothecated to Mr. Gamble pending repayment of the loan, which is due in or about October 2015. I am unaware of any source for the repayment of this loan other than Tropic’s potential profits. As such, any meaningful profits earned by Tropic will need to be retained to satisfy this loan repayment.

[95] Finally, and again assuming that I were to accept that Tropic was reliably projecting meaningful profits, I do not believe it is reasonable to isolate Tropic from the finances of the other two companies.

[96] As stated above, the evidence before me was that the businesses were closely related. The Respondent acquired Tropic in the hopes that it would complement Miracles’ operations. He hoped to realize efficiencies by operating both businesses out of the building owned by 1159134. Miracles loaned 1159134 more than $500,000 to acquire the land owned by 1159134 and to construct the building on that property that Miracles and Tropic operate out of. Clearly all three businesses are integrated. Each is closely held with the only shareholder being Mr. Smith. He operates all three companies together as one homogenized enterprise. I am of the view that the finances for the overall enterprise must be considered to assess whether any of its operating profit should be added to Mr. Smith’s income for support.

[97] I do not have satisfactory information before me to offer anything more than general commentary respecting the financial health of the overall enterprise. Ms. Minelli produced a report offering an analysis of the enterprise as a whole. However, the usefulness of this report is limited by the frailties in the evidence identified above. Based on the limited information before me, there does not appear to be any meaningful profit available to the Respondent from the three companies when viewed together. This is largely due to the losses of Miracles. I would need to see the financials for Tropic following at least one year of operations, along with the information for Miracles and 1159134 at that point, in order to reliably assess the corporate profit available to the Respondent.

[98] There is one final consideration in my determination of the Respondent’s income for 2013 forward. The evidence before me was that Mr. Smith received $85,000.00 from Tropic in 2013. The payment was recorded by Tropic as a loan receivable. The Respondent signed a Promissory Note dated January 22, 2013. The Promissory Note did not contain any terms for repayment. Clearly this was a shareholder loan given that Mr. Smith is the only shareholder of Tropic.

[99] In reviewing this issue, I have considered Ryan v. Scott, 2011 ONSC 3277, [2011] O.J. No. 3032, where the Court attributed shareholder loans to the payor spouse. The Court, in doing so, stated at para. 36:

Ryan filed a series of cases which indicate that the repayment of shareholder loans should not be considered as income for the purposes of determining child support payments. They are all distinguishable on the basis that the only shareholder in this particular company is Mr. Ryan. He has absolute control over the distribution of monies generated from this Corporation. Therefore, I have little difficulty in finding that his income for child support purposes in 2010 was $75,000.

[100] In Ryan, the Court added company loans to the income of the sole shareholder where the loans were paid back. Here, I have no evidence that Mr. Smith repaid the $85,000 advanced to him. As the sole shareholder of Tropic, the Respondent had total control over the payout. There was no set repayment period for the loan. There is no evidence of interest paid on the loan. On the evidence before me, it is quite clear that Mr. Smith did not treat this advance as a legally binding loan that he was obligated to repay and as a result he did not repay the loan.

[101] I also note that a shareholder loan typically must be repaid by the corporate year end immediately following the year of the loan to avoid being considered personal income for the calendar year of the loan pursuant to the Income Tax Act. Again, there was no evidence of any repayment of this loan by that deadline or at all.

[102] The more obvious point is that the $85,000 from Tropic was available to Mr. Smith in January 2013, which was within the first three months of Tropic commencing its operations. It may well be that these funds were sourced from the loans advanced by Mr. Gamble. Similar to my comments respecting Miracles, the source of the funds does not detract the fact that this income was available to the Respondent. There was no evidence before me to the contrary.

[103] Given all of the above, I have no difficulty in adding the $85,000 advanced by Tropic in January 2013 to the $77,800 income that I have accepted as otherwise achievable by Mr. Smith. As such, I find that Mr. Smith’s income for support purposes in 2013 was $162,800. This income is more consistent with a person living in a home on 98 acres of property, guaranteeing a $420,000 mortgage, purchasing horses and undertaking even modest renovations.

[104] The Applicant suggested that Ms. Minelli’s evidence should not be relied on due to her apparent bias. I make no finding in this regard. As detailed above, I have attributed so little weight to her opinions that the issue of her potential bias is moot.

[105] I was not provided with income analysis beyond 2013. Any adjustment to this figure going forward will need to be based on the income evidence available for 2014 onward, including financials covering at least one year of Tropic’s operations. Mr. Smith will, therefore, pay support based on this $162,800 figure unless and until changed through agreement of the parties or by a future court order. While I appreciate that will be disappointing given that we are now into 2016, I simply cannot determine income beyond 2013 based on the evidentiary record before me.

[106] My next task is to address the Applicant’s claims for child and spousal support now that the incomes for the parties have been determined.

Child and Spousal Support

[107] The parties agreed to a time sharing regime where all three of the children split their time equally between the home of the Applicant and the Respondent. This remained in place until approximately January 2013.

[108] The evidence before me was that the Applicant continued to receive monies from Miracles following separation. This was a continuation of the parties’ income splitting arrangement and it continued until court ordered support commenced.

[109] Various interim orders were made by this Court to address support.

[110] The first support order was that of Dunn J. dated September 14, 2009, based on a consent entered into by the parties whereby the Respondent agreed to pay $2,000 in monthly spousal support commencing September 15, 2009. There was no provision for child support in the consent. The Respondent was also obligated to pay all expenses related to the matrimonial home and farm property.

[111] The next support order was that of Price J. dated October 19, 2009, again based on a consent entered into by the parties whereby the Respondent agreed to continue to pay $2,000 monthly, characterized as spousal support. Again, there was no provision for child support in the consent. The Respondent also agreed to continue to pay all expenses related to the matrimonial home and farm property up to a maximum of $2,200 monthly. These payments were left uncharacterized subject to the Respondent having the choice of applying them against support or property payments found owing.

[112] The next and last temporary order was that of Langdon J. dated June 22, 2011. Justice Langdon directed the Respondent to pay set-off child support of $1,476.00 plus “mid-level” spousal support of $802.00 monthly based on his income of $77,800.00 and an income of $8,000 for the Applicant. These payments were to commence July 1, 2011.

[113] I am not inclined to exercise my discretion to revisit the support arrangements that the parties negotiated through counsel following separation up to and including the Orders of Justice Dunn and Justice Price. These arrangements included funds paid directly to the Applicant and the payment of expenses for the matrimonial home where the Applicant and the children continued to reside subject to the Respondent having the option of assigning any payments made either to support or property amounts found owing by him. In all of the circumstances, these arrangements appear to be appropriate.

[114] The Order of Langdon J. made June 22, 2011, was based upon incomes essentially the same as what I have determined for 2011 and 2012. The Applicant’s average income between 2011 and 2012 was just under $8,400. The Respondent’s annual income over the same period was $77,800. Justice Langdon relied on nearly identical figures for the parties when determining the Respondent’s child and spousal support obligations. As such, no adjustment to this order need be made.

[115] Given the above, I am left to determine the Respondent’s child and spousal support obligations from January 1, 2013, forward. The only complicating factor is Meghan’s fulltime residency with the Applicant combined with the arrangement whereby Maya and Eve split their time equally with each parent.

[116] Justice Zisman in Sadkowski v. Harrison-Sadkowski, 2008 ONCJ 115, [2008] O.J. No. 1013, offered a review of the different approaches to child support where there is a mix in the residential arrangements as there is here. Following her review, Justice Zisman offered the following:

23 In the case of Contino v. Leonelli-Contino, 2005 SCC 63, [2005] 3 S.C.R. 217, 341 N.R. 1, 204 O.A.C. 311, 259 D.L.R. (4th) 388, 19 R.F.L. (6th) 272, [2005] S.C.J. No. 65, 2005 CarswellOnt 6281, Justice Michel Bastarache, speaking for the majority, noted that the legislators recognized that there is a wide range of situations of shared custody depicting the reality of different families and that there are a myriad of fact patterns that come under the application of section 9 of the Child Support Guidelines.^6^ Although the decision in Contino v. Leonelli-Contino did not deal with the issue of "hybrid" custodial arrangements, nevertheless it provides guidance with respect to the proper approach in applying section 9 of the Child Support Guidelines.

24 In any analysis of child support, a court must keep in mind the overall objectives of the guidelines, namely, "to establish fair levels of support for children from both parents upon marriage breakdown in a predictable and consistent manner" and to ensure that a divorce will affect the children as little as possible.^7^ The goals of predictability, consistency and efficiency must be balanced with those of fairness, flexibility and recognition of the actual financial circumstances of the parents and children.^8^ The court approves the discretionary approach in section 9 with its emphasis on flexibility and fairness even if it is to the detriment of predictability, consistency and efficiency, to some degree. As stated at paragraph [39] in Contino v. Leonelli-Contino:

[39] The specific language of s. 9 warrants emphasis on flexibility and fairness. The discretion bestowed on courts to determine the child support amount in shared custody arrangement calls for the acknowledgement of the overall situation of the parents (conditions and means) and the needs of the children. The weight of each factor under s. 9 will vary according to the particular facts of each case.

25 The particular circumstances of children's living arrangements requires the exercise of discretion, consistent with the Child Support Guidelines, in order to achieve a standard of support that is fair to both parents and to all the children of the marriage. Accordingly, it appears to me that dealing with "hybrid" custody situations under an "economies of scale" approach and applying a section 9 analysis, in accordance with the principles in Contino v. Leonelli-Contino, gives the court the most discretion to arrive at a fair and proper quantum of child support. It is my view that this is the approach most consistent with the principles of the guidelines.

26 The problem with the "two stage" analysis, is simply that it does not reflect the reality of the custodial situation as it is a fiction to treat the child(ren) living full time with a parent in total isolation from the other child(ren) who live in a shared custodial situation. For example, there may be savings to the parent who has more than one child in his or her care or the cost to the parent who only cares for one child full time but exercises access may be greater. There may be a large disparity in incomes between the parents that would result in some of the children living in a household with a significantly lower standard of living. The "two stage" analysis only allows some flexibility to the child's living in the shared custody situation. It may be very difficult to isolate the factors under clauses 9(b) and (c) with respect to the child(ren) living in the shared custody regime.

27 The advantage of the "economies of scale" approach is that it recognizes the economies of having more than one child in a residence and yet retains the flexibility to examine the actual financial circumstances of both parties and all of the children. However, I would not follow the mathematical gymnastics used in the cases such as Burns v. Burns, supra, where child support was calculated for 2.5 and .5 children or in Blair v. Callow, supra, where there was a pro-rated set-off. In fairness, both of these decisions were rendered prior to the Supreme Court of Canada decision in Contino v. Leonelli-Contino. Consistent with the reasoning in that decision, the full guideline amount for the children should be used in determining the appropriate set-off amount.

28 In this case, the mother would pay the father support for the two children in his care, set off against the father's obligation to pay her for the one child in her care. This, then, would require the mother to pay the father support of $589. The advantage of using the full amount of the set-offs in the guidelines is that these amounts already calculate part of the fixed costs.

29 However, the simple set-off only serves as a starting point but is not presumptive. Clause 9(b) recognizes that the total cost of raising children in shared custody arrangements may be greater than in situations where there is sole custody. Accordingly, the court is required to examine the budgets and actual expenditures of both parents to address the needs of the children.

[117] Following Justice Zisman’s lead, Justice Chappel in Thompson v. Thompson, 2013 ONSC 5500, offered the following useful comments relating to the “mixed” custody analysis:

[37] In split custody cases, section 8 of the Guidelines directs that child support shall be the difference between the amounts that each spouse would otherwise have to pay if a child support order were sought against each of the spouses.

[38] As previously noted, the Respondent alleges that Paige spent equal amounts of time with the parties from February 2010 until late December 2011, and has also been spending roughly equal time with the parties since June 2012. Jessie was primarily with the Applicant during these periods. This type of custodial arrangement is referred to in the case-law as a "hybrid" case. The Guidelines do not specifically address how child support should be calculated in these cases, and to date there is no appellate authority on the issue. The case-law relating to this question has drawn largely from the law that has developed around the application of section 9 of the Guidelines, which directs how child support should be calculated in "shared custody" situations. An appreciation of the law relating to section 9 is therefore necessary. The phrase "shared custody," encompasses situations where a spouse has a right of access to, or has physical custody of, the child for not less than 40% of the time over the course of a year. In shared custody cases, section 9 provides as follows:

Shared custody

9. Where a parent or spouse exercises a right of access to, or has physical custody of, a child for not less than 40 per cent of the time over the course of a year, the amount of the order for the support of a child must be determined by taking into account,

(a) the amounts set out in the applicable tables for each of the parents or spouses;

(b) the increased costs of shared custody arrangements; and

(c) the condition, means, needs and other circumstances of each parent or spouse and of any child for whom support is sought.

[39] The Supreme Court of Canada addressed the issue of how child support calculations should be approached in shared custody situations in Contino v. Leonelli-Contino, 2005 SCC 63, [2005] 3 S.C.R. 217. In that case, the court made the following significant comments regarding the interpretation of section 9 and the manner in which child support calculations should be approached in shared parenting scenarios:

a) In shared parenting arrangements, there is no presumption in favour of the parent who has less time with the child paying the Table amount of child support. Similarly, a finding that a shared parenting arrangement exists does not automatically dictate a deviation from the Table amount of child support. The court emphasized that in some cases, a careful review of all of the factors set out in section 9 may lead the court to conclude that the Table amount remains the appropriate figure.

b) None of the three factors listed in section 9 prevail over the others. In reaching an appropriate child support figure, the court must consider the overall situation of shared custody, the costs to each parent of the arrangement and the overall needs, resources and situation of each parent and child. The weight to be accorded to each of the three factors set out in section 9 will vary according to the particular facts of each case.

c) The purpose of section 9 is to ensure a fair and reasonable amount of child support. In adopting section 9 of the Guidelines, Parliament made a clear choice to emphasize the need for fairness, flexibility and the actual condition, means, needs and circumstances of each parent and the child, even if this meant sacrificing to some degree the values of predictability, consistency and efficiency.

d) The calculation of child support pursuant to section 9 involves a two-step process. First, the court must determine whether the 40% threshold has been met; second, if the threshold has been met, the court must consider the factors outlined in section 9 to determine the appropriate quantum of support.

e) The simple set-off approach outlined in section 8 of the Guidelines may be a useful starting point for the section 9 analysis, as a means of bringing consistency and objectivity to the child support determination. This is particularly so in cases where the parties have provided limited information and the incomes of the parties are not widely different. However, the court emphasized that the simple set-off approach has no presumptive value in carrying out the support calculation. It cautioned against a rigid application of the set-off approach, noting that the set-off figure may not be appropriate when a careful examination of the respective financial situations of the parties and their household standards of living raises concerns about the fairness of a drastic reduction in child support to the recipient.

f) The court has the discretion to modify the simple set-off amount where "considering the financial realities of the parents, it would lead to a significant variation in the standard of living experienced by the children as they move from one household to another, something which Parliament did not intend". In crafting a child support award, the court should insofar as possible strive for a result that avoids the child experiencing a noticeable decline in their standard of living as they move between households.

g) The court highlighted as one consideration in carrying out the section 9 analysis whether one parent is actually incurring a higher share of the child's costs than the other, such as costs relating to clothing and activities.

h) With respect to subsection 9(b), the court emphasized that this section does not refer only to the increased expenses which the payor parent has assumed as compared to the expenses that they would be incurring if they had the child less than 40% of the time. This subsection recognizes that the total global cost of raising the child in a shared custody arrangement may be higher than in a primary residence arrangement. It requires the court to consider the total additional costs attributable to the situation of shared custody. In carrying out this analysis, evidence of necessary duplication of fixed costs arising due to the shared child care arrangement may be important.

i) The court recognized that not every dollar spent by a parent who has the child over the 40% threshold is a dollar saved by the recipient parent. It stated that in the absence of evidence to the contrary, it is possible to presume that the recipient parent's fixed costs have remained the same, and that their variable costs have only marginally decreased by the other parent's increase in time with the child. The court stated that where no evidence respecting the increased cost of shared custody is adduced, the court should recognize the status quo regarding the recipient parent.

j) Financial statements and /or child expense budgets are necessary in order for the court to properly carry out the child support analysis pursuant to section 9. The judge should not make assumptions regarding additional costs attributable to a shared parenting arrangement, but must apply the evidence relating to the additional costs.

k) The court's discretion under section 9 is sufficiently broad to bring a parent's claim for section 7 expenses into the analysis under that section, taking into consideration all of the factors outlined in section 9.

[42] Turning to the principles that apply in hybrid child care arrangements, a review of the current case-law reveals broad support for the approach which Zisman, J. adopted in the case of Sadkowski v. Harrison-Sadkowski, 2008 ONCJ 115, [2008] O.J. No. 1013. In that case, the court described two possible approaches to hybrid claims, namely the "two-step" analysis and the "economies of scale" analysis. The former approach involves first calculating the child support owing relating to the children whose custody is not shared, based on section 3 of the Guidelines, then separately calculating the support owed for the child in a shared custody arrangement using a straight set-off amount, and adding the two sums. The latter "economies of scale" involves calculating the full Table amount owed by the parent with shared care of children for the total number of children in the care of the parent who has both primary and shared care of children, and setting that amount off by the full Table amount payable by the parent with both primary and shared care for the total number of children with the parent who has shared care. Zisman, J. held that the set-off calculation using the "economies of scale" approach is the proper starting point for the analysis of hybrid claims. She concluded that this set-off calculation serves only as a starting point for the child support analysis, and is not presumptive. The second step in determining hybrid claims is to carry out a Contino inquiry to determine whether adjustments are necessary in order to achieve the goal of establishing fair levels of support for the children from both parents. This step involves the court examining the budgets and actual expenditures of each parent to determine whether adjustments are necessary in order to ensure that the children enjoy relatively comparable standards of living in each household. The approach which Zisman, J. described in this case has since been followed in subsequent cases, including Murphy v. Murphy, 2012 ONSC 1627, [2012] O.J. No. 1235, and Lalonde v. Potier, [2013] O.J. No. 1065. I conclude that this approach is the appropriate one to follow, as it recognizes the economies involved when fixed costs are shared between more than one child, and accords with the general principles which the Supreme Court of Canada adopted in Contino in the case of shared custody arrangements. [Citations omitted]

[118] I share the view of Justice Zisman and Justice Chappel that the guiding objective must be to set child support in an amount that ensures that the children do not suffer markedly different experiences flowing from financial disparities between each parent. This objective must be pursued with consideration to all of the factors at play in the circumstances of each case and, of course, be subject to the reality that the available finances now support two households instead of one. This approach requires flexibility, which implies discretion and may seem contrary to the Guidelines’ philosophy of predictability. However, the caselaw is clear that the Guidelines offer a framework that the Court has the discretion to adjust towards allowing the children to continue to benefit from the resources of both parents regardless of which home they are in.

[119] I have applied the principles provided by Justices Zisman and Chappel to the determination of the appropriate support for the Smith children. In so doing, I note that I am not limited to any strict calculation. As stated above, the Guidelines calculation provides a framework that is subject to adjustment, if warranted, based on all relevant facts.

[120] I am of the view that no adjustment to the Guidelines calculation is appropriate here.

[121] There are no special or extraordinary expenses claimed by either party that need to be considered in the support determination.

[122] The Respondent did not provide a child care budget. The Applicant did submit a budget. The only remarkable expense claimed is for 75 per cent of her car expense, which she says is related to the transport of the children. The Applicant created this extra expense by choosing to live where she did instead of a location more proximate to the children’s schools, as the Respondent did. This choice should not fall on the Respondent to bear financially.

[123] I have also taken into consideration the overall flow of funds between the households. It is clear on the evidence before me that the Applicant has a compensatory and non-compensatory claim to spousal support. She abandoned her career in favour of relocating with the Respondent to a rural farm setting and being a stay at home parent. This allowed the Respondent to pursue his business interests. These choices that the parties made together during the marriage have consequences flowing long after the marriage ends.

[124] While I appreciate that child support is to be given priority over spousal support, determining whether to adjust the Guidelines support in the case of a mixed custody matrix requires consideration of spousal support and whether there will be an unacceptable disparity of finances between the homes of each parent. If the combination of the Guidelines child support and the spousal support payments will not produce a disparity impacting the children then it makes little sense to suggest that any Guidelines adjustment is warranted.

[125] The Respondent’s income for 2013 was $162,500, with a corresponding Guidelines child support obligation of $2,791. The Applicant’s 2013 income of $37,500 corresponds to a Guidelines obligation of $540. The straight set-off amount is $2,251. The Spousal Support Advisory Guidelines suggest a midpoint spousal support amount of $2,068. The combination of these payments results in the Applicant’s household having 55 per cent of the combined net disposable income of the parties and the Respondent’s having 45 per cent. This is without giving any consideration to the financial contributions the Respondent receives from what I understood to be the modest income brought into his household by his current spouse. In my view this division of the parties’ net disposable income is appropriate given that Meghan resides primarily with the Applicant. This division will ensure that there is no meaningful disparity in the experiences of the children between households.

[126] As stated above, there are no presently claimed section 7 expenses for the children. The parties shall be responsible for contributing to any future special or extraordinary expenses, including costs for post-secondary education, in ratio to their respective incomes at the time of such expenses. Both parents must consent in advance to any such expense in order to be obligated to contribute. However, neither parent shall withhold consent unreasonably.

[127] As determined above, the Respondent must satisfy the terms of the temporary support orders made in this proceeding and he now has a significant ongoing child support obligation pursuant to this Judgment. There is no doubt that these support obligations need to be secured. As such, the Respondent shall designate the Applicant as the irrevocable beneficiary of his life insurance policy in the face amount of $1,000,000.00 for her own benefit and in trust for the children. This designation shall remain in place for so long as the Respondent has a support obligation to the Applicant and/or the children subject only to variation in the face value of the policy to coincide with changes to the quantum of the Respondent’s support obligation from time to time. The Respondent shall provide the Applicant with authorization to contact his insurer directly to obtain written or such other confirmation as she prefers that this policy, beneficiary designation and related face value remain in good standing and in keeping with this Judgment or any order subsequently varying this Judgment. The Respondent shall pay all premiums when due and otherwise keep this policy in good standing and in conformity with this Judgment. Should the policy not be in good standing or otherwise not be in conformity with this Judgment then the support obligations then owing by the Respondent not secured by his insurance policy shall be a first charge against the Respondent’s estate.

Property and Equalization

The Value of Miracles and 1159134

[128] The ultimate issue to be determined is equalization given that the parties were married. However, a number of contentious property related issues must be determined prior to any equalization calculation.

[129] The two most monetarily significant property related issues are the determination of the value of the Respondent’s business interests and whether he had any ownership interest in the matrimonial home on the date of separation.

[130] The Respondent was the sole shareholder of Miracles and 1159134 at separation. These two corporations need to be valued in order to form part of the equalization arithmetic.

[131] The Applicant and the Respondent each retained experts who were called to give testimony respecting the value of the Respondent’s businesses. The Applicant’s expert, Mr. Mozessohn, and the Respondent’s expert, Eveline Reid, were both qualified to provide expert opinion evidence to the court and the related reports from each expert was filed as an exhibit during the trial.

[132] Both Mr. Mozessohn and Ms. Reid provided opinions on the fair market value of the Respondent’s businesses. Mr. Mozessohn and Ms. Reid adopted different approaches to the valuation of the Respondent’s businesses.

[133] Mr. Mozessohn used the “going concern approach”. The going concern approach seeks to determine the fair market value premised on the business operating at the date of separation with the expectation that the business will continue operating into the future.

[134] Ms. Reid used the orderly “liquidation” approach. The liquidation approach seeks to determine the fair market value premised on the business operating at the date of separation with the expectation that there will be a voluntary liquidation of the business.

[135] Clearly, the respective approaches adopted by Mr. Mozessohn and Ms. Reid are incompatible. I must choose the one that is best supported by the trial evidence.

[136] As I explained above, the expert opinions in this case have been compromised by the state of the Respondent’s business records and his slow and incomplete disclosure. Clearly the overall lack of reliability of the Respondent’s financial records also degrades the expert reports concerning the value of his businesses. Similar to the income analysis, I am left to determine the value of the Respondent’s businesses on this flawed evidentiary record.

[137] Based on the record before me, I have little difficulty in rejecting the liquidation approach suggested by the Respondent. My reasons for doing so are straightforward and align with the various reports authored by Mr. Mozessohn. The more compelling reasons for rejecting the liquidation approach are discussed below.

[138] There was no meaningful evidence before me that the Respondent had any intention at the date of separation of liquidating Miracles and/or 1159134. The Respondent’s intention alone is not determinative but it is clearly a significant factor to consider. Surely the person in the best position to determine whether the business should continue or not is the Respondent. He is the one person who has been involved in operating these businesses since inception and he presumably has the most complete understanding of these businesses.

[139] Related to the above, I would have expected the Respondent to detail his plan for alternate employment and earnings if he truly had any intention of liquidating his only source of income for the 20 years from Miracles’ inception in 1989 to the parties’ separation in 2008. The Respondent offered no such detail. As a result, I draw the inference that the Respondent had no genuine intention to liquidate.

[140] Both experts agreed that Miracles had a positive annual maintainable cash flow. I accept that the level of annual maintainable cash flow suggested by the Applicant’s expert was modest. An even lower annual figure was suggested by the Respondent’s expert. However, the more salient point is that Miracles had a positive maintainable cash flow at separation.

[141] Miracles provided the Respondent with an ongoing steady income stream and other personal benefits. This stream was of sufficient magnitude to permit income splitting with the Applicant throughout the marriage and for a period following separation. The Applicant provided no services in return for this income. In other words, she was paid by Miracles simply to reduce the taxes the Respondent would have otherwise owed if he received full payment for the services he provided to Miracles. The income stream from Miracles was sufficiently large and reliable for the Applicant to not work outside of the home from 2002 until after separation while she continued to receive payment from Miracles.

[142] The evidence was clear that Miracles had sufficient maintainable cash flow at the date of separation to provide income plus benefits to the parties consistent with historic payments.

[143] As I noted above, Miracles operates out of the building owned by 1159134. This building is located at 26 French Drive, in the Township of Mono (the “French Drive Property”). Miracles also loaned 1159134 more than $500,000 to construct this building. Both Miracles and 1159134 are closely held corporations with the only shareholder being Mr. Smith. Obviously Miracles was financially strong enough to advance a loan of $500,000 to 1159134 and continue operating. While I appreciate that Miracles thereafter benefitted by being able to operate from the 1159134 building, the point is that Miracles was able to loan $500,000 to 1159134 and continue operating. Otherwise Miracles would have had to rent space from an arm’s length third party and kept the $500,000 to maintain its own operations.

[144] One cannot assess the Respondent’s intentions respecting Miracles and 1159134 without considering their financial symbiosis. The interconnectedness of their finances is quite simple.

[145] The first point of significance is that, at separation, Miracles operated from and leased the building owned by 1159134. Miracles paid rent to 1159134. This rent was 1159134’s only source of revenue. 1159134 owed Miracles for the loan used to purchase and develop the French Drive Property. 1159134 needed and would use the revenue from the rent paid by Miracles to service the loan owed to Miracles.

[146] Again, I reference the evidence I did not have. I would have expected detailed evidence from the Respondent of his plans to find another tenant for the 1159134 building if Miracles was to be liquidated to avoid default on the loan owed by 1159134. The Respondent provided no such detail. Again, I infer from this lack of detail that the Respondent had no genuine intention to liquidate Miracles.

[147] The other obvious point of significance is regarding the impact of the loan owed by 1159134 on the value of Miracles. The more realizable that loan was at separation the greater the value to Miracles of that loan as an account receivable.

[148] The value of 1159134 determined by each of Mr. Mozessohn and Ms. Reid was essentially the French Drive Property less the loan owed to Miracles and an additional mortgage against that property. In determining the realizable amount of the loan, both experts reduced the amount of the loan by the excess of 1159134’s liabilities over its assets at the date of separation. The fundamental difference between the two valuators’ opinions respecting the realizable amount of the loan is their estimation of the fair market value of the French Drive Property. The greater the value of the French Drive Property, the smaller the deficit of liabilities of 1159134 over its assets and, by relation, the larger the recoverable portion of the loan owed to Miracles after reduction for that deficit.

[149] Each of the parties retained an appraiser to provide opinion evidence regarding the value of the French Drive Property. The Applicant retained Anne Helliker, then of Hendren Appraisals, who authored an appraisal report. The Respondent hired the firm of Blake, Matlock and Marshal. Two members of that firm, Peter Bobechko and Elizabeth Bourne, authored the appraisal.

[150] Both Ms. Helliker and Mr. Bobechko were qualified to provide their respective appraisal opinions. Ms. Helliker determined the property and building value at $1,175,000. Mr. Bobechko believed the value was $1,000,000.

[151] Having heard testimony and reviewed the appraisals, I accept Ms. Helliker’s valuation of the French Drive Property. Her appraisal was not seriously challenged during her testimony. The same cannot be said for the value suggested by Mr. Bobechko.

[152] Perhaps the most obvious challenge to the Respondent’s valuation is that Mr. Bobechko provided his appraisal report without having personally viewed the property. Instead, he relied upon the input of another individual, Blake Bobechko, who attended at the property.

[153] Another valid challenge is that the report of Mr. Bobechko states that it was prepared “to assist in the internal matters of ownership”. It is difficult to comprehend how there could be any internal matters of ownership given that the property was owned by 1159134 and that the Respondent was the only shareholder of 1159134. Regardless, the report was not prepared in relation to this litigation as mandated by Rule 20.1(10) of the Family Law Rules.

[154] It is also concerning that Mr. Bobechko’s report quotes the Current Value Assessment of $871,500 when the valuation was in fact $1,014,000.

[155] Ms. Helliker also effectively challenged various comparable sales relied upon by Mr. Bobechko, including one property that appears to have been sold for land value and then immediately redeveloped.

[156] These flaws, among others identified in the evidence, greatly diminish the value of Mr. Bobechko’s appraisal opinion and weigh in favour of Ms. Helliker’s valuation.

[157] Accepting the value for the French Drive Property from Ms. Helliker’s appraisal leads to the conclusion that a significantly higher portion of the loan owed by 1159134 to Miracles was recoverable. This, in turn, increases the value of Miracles at separation. This higher recoverable amount also weighs against the liquidation approach suggested by the Respondent given the significant value of this loan receivable asset of Miracles’.

[158] In addition to the above, there was no evidence before me that Miracles considered the loan owed by 1159134 to be in default at the date of separation. There was no evidence that Miracles demanded payment from 1159134. There was no litigation commenced at any time by Miracles to collect the loan.

[159] I am left to conclude that the loan owed by 1159134 to Miracles was collectable given that there is no meaningful evidence of default. This, of course, serves to increase the value of Miracles. Simply stated, the value of Miracles would include the asset of the loan receivable from 1159134. I accept the value for the loan suggested by Mr. Mozessohn based upon the value of the French Drive Property provided by Ms. Helliker.

[160] I have also considered Miracles’ other major loan receivable. Miracles loaned $360,000 to the Applicant for the purchase of the parties’ matrimonial home, located at 9760 Wellington Road 22, in the Township of Erin. The evidence before me was that the matrimonial home had ample equity at the date of separation to satisfy this loan. I make this comment recognizing that the Applicant had no other source of funds to repay this loan other than the equity in the matrimonial home and that payment from the equity would otherwise be reasonable given that is where the monies were invested. The point is that this $360,000 account receivable was completely recoverable by Miracles. This also weighs against the liquidation approach suggested by the Respondent.

[161] I have also considered the fact that the Respondent continued to invest in the assets and operations of Miracles leading up the date of separation. In particular, he expanded Miracles by commencing a horse operation and investing more than $150,000 in that activity and capital assets in the corporate fiscal year that ended three months prior to separation. This level and character of investment is inconsistent with a business owner intending to liquidate.

[162] I also have the benefit of considering what has occurred since the date of separation respecting the operations of Miracles and 1159134. I appreciate that this “hindsight” evidence is not available for the purpose of determining values at the date of separation. However, common sense suggests that post-separation evidence regarding the businesses’ operation is relevant to assess the assumptions relied upon by the experts in their date of separation valuations. The post-separation evidence in this case is highly instructive in that respect. The most obvious point is that Miracles and 1159134 both continued operating after the date of separation and continued to operate throughout this trial. In addition, the Respondent acquired Tropic in the time leading up to the start of this trial to complement Miracles’ and 1159134’s ongoing operations. In other words, the Respondent expanded his operations. Clearly this supports the going concern approach taken by Mr. Mozessohn in his valuations.

[163] Having accepted the going concern valuation approach, I want to comment on one point of difference between the experts respecting whether any Scientific Research and Development Credits “(SRED”) should be included in the value of Miracles. There is no disagreement between the experts that the credits in issue were earned by Miracles during its 2007 and 2008 fiscal years. Miracles’ 2007 and 2008 fiscal year ends were both prior to the date of separation. In other words, there is no dispute that these credits were available to Miracles at the date of separation. In my view, these credits should form part of the valuation of Miracles regardless of whether the Respondent had by then filed a claim or even knew about them. The suggestion that this constitutes hindsight makes little sense to me and I reject it. The fact is that these credits were in existence at the date of separation and are relevant to the assessment of the value of Miracles at separation.

[164] In conclusion, I reject the argument that Miracles and 1159134 should be valued using the liquidation approach. I accept the going concern approach as the appropriate model for valuation in this case. I adopt the values suggested by Mr. Mozessohn for Miracles of $780,600 and nil for 1159134 at the date of separation.

The Respondent’s Interest in the Matrimonial Home

[165] The Respondent seeks an order giving him an equal share in the matrimonial home that was registered in the name of the Applicant alone.

[166] The Applicant, in her Reply submissions, takes issue with the Respondent seeking such an interest on the basis of trust principles. The Applicant states that the Respondent did not plead any such trust claim and, therefore, should be precluded from advancing one now.

[167] To the extent that his pleadings are deficient in not making any trust claim, the Respondent should have brought a motion to amend his pleadings to seek this additional relief. No such motion was brought before me.

[168] The easy path in determining this issue would be for me to simply deny the trust claim sought by the Respondent on the basis that it was never pleaded. There is certainly support for such a determination in the caselaw: see Rodaro v. Royal Bank (2002), 2002 CanLII 41834 (ON CA), 59 O.R. (3d) 74 (C.A.), Musicians’ Pension Fund of Canada v. Kinross Gold Corp., 2014 ONCA 901, and Taylor v. Taylor, 2004 CanLII 42952 (ON SC), [2004] O.J. No. 4802 (S.C.).

[169] I am directed by two points in deciding to address the trust relief sought by the Respondent.

[170] The first is that the Applicant had notice of a potential claim by the Respondent for an interest in the matrimonial home. I know this because evidence elicited from the Applicant in chief was specifically addressed to the matrimonial home being registered in her name alone and the reason for this.

[171] The Applicant had a full opportunity to cross-examine the Respondent on this issue and did so. This trial was heard over a period of many months, allowing the Applicant time to locate and use any documents or other resources she wanted for any relevant reply after hearing the evidence of the Respondent on this issue. In her closing submissions, the Applicant presented detailed argument on this issue, including the principles of trust with related caselaw. In other words, the Applicant had notice of the ownership claim being pursued by the Respondent and had every opportunity to call the evidence she thought necessary to address that claim.

[172] Clearly, having notice of a claim and the opportunity to respond to it is a basic principle of fundamental justice. The Applicant had both. She was not prejudiced. Trial fairness was achieved in my view.

[173] Second, I am obligated by Rules 2(2) and 2(3) of the Family Law Rules to deal with cases in a manner that is fair, that is time and cost efficient and that applies court resources appropriately.

[174] It makes little sense not to address the Respondent’s claim to an ownership interest in the matrimonial home. As stated, this trial consumed a great deal of court time spread over many, many months. The determination of this claim will directly impact on how the parties are to deal with the balance of the proceeds from the sale of the matrimonial, which remain in trust and represent the only significant pool of funds available to the parties. This issue has potential impact on the equalization arithmetic.

[175] The parties were permitted to call full evidence respecting this claim. The evidence was clear and not contradictory. The law relevant to this issue is well settled and I am able to apply it to the evidence to make a final determination of this issue. It would be a complete waste of resources for me not to deal with the Respondent’s claim. Ignoring this claim would leave these parties without any resolution of this fundamental property matter. I will not leave them without such a resolution.

[176] The evidence respecting ownership of the matrimonial home is not controversial.

[177] The parties owned other homes during their marriage. Initially, both parties took title to their homes, which I infer to mean that both parties contributed financially to those homes. However, the last two homes were registered in the name of the Applicant alone.

[178] The matrimonial home on the date of separation was located at 9760 Wellington Road 22, in the Township of Erin. As stated above, the matrimonial home was registered in the name of the Applicant alone.

[179] The Respondent claims that he is an equal owner of the matrimonial home and that the Applicant held his one-half interest in trust for him. Although this was not entirely clear from his submissions, the Respondent appears to be claiming a resulting trust interest in the matrimonial home.

[180] The Supreme Court of Canada in Pecore v. Pecore, 2007 SCC 17, [2007] 1 S.C.R. 795, at paras. 24-25, explained the doctrine of the presumption of resulting trust as follows:

24 The presumption of resulting trust is a rebuttable presumption of law and general rule that applies to gratuitous transfers. When a transfer is challenged, the presumption allocates the legal burden of proof. Thus, where a transfer is made for no consideration, the onus is placed on the transferee to demonstrate that a gift was intended: see Waters' Law of Trusts, at p. 375, and E. E. Gillese and M. Milczynski, The Law of Trusts (2nd ed. 2005), at p. 110. This is so because equity presumes bargains, not gifts.

25 The presumption of resulting trust therefore alters the general practice that a plaintiff (who would be the party challenging the transfer in these cases) bears the legal burden in a civil case. Rather, the onus is on the transferee to rebut the presumption of a resulting trust.

[181] In Kerr, at para. 18, the Supreme Court of Canada explained how trial courts should consider the presumption of resulting trust:

18 The Court's most recent decision in relation to resulting trusts is consistent with the view that, in these gratuitous transfer situations, the actual intention of the grantor is the governing consideration: Pecore v. Pecore, 2007 SCC 17, [2007] 1 S.C.R. 795, at paras. 43-44. As Rothstein J. noted at para. 44 of Pecore, where a gratuitous transfer is being challenged, "[t]he trial judge will commence his or her inquiry with the applicable presumption and will weigh all of the evidence in an attempt to ascertain, on a balance of probabilities, the transferor's actual intention" [Emphasis added].

[182] The presumption is that the titled spouse holds an interest in the subject asset, whether it is real property, money loaned or some other item, for the benefit of the non-titled spouse. The non-titled spouse is presumed not to have intended a gift. However, this presumption can be rebutted by the evidence. Clearly, the evidence necessary to rebut the presumption depends on the facts of the case: see Pecore, at para. 55.

[183] The following remarks of Justice Van Melle, at paras. 17-19 in Launchbury v. Launchbury, [2001] O.J. No. 1516 (S.C.), aff’d [2005] O.J. No. 1332 (C.A.), offer further assistance in determining whether or not a gift was intended between spouses:

[17] When I looked at the cases dealing with resulting trust, it seemed to me that where the purpose was to defeat existing or “real” creditors the presumption of resulting trust was rebutted and where there were no creditors, just the uncertain specter of creditors, the resulting trust claim was allowed.

[18] In Reany v. Reany, an unmarried couple purchased property using joint funds, and registered the property in the defendant’s name alone in order to avoid the plaintiff’s creditors. Because the defendant knew that this was the reason for putting the property in her name, she was held to have participated in the illegal transaction and was unable to use the fact that the property had been put into her name to rebut the presumption of resulting trust.

[19] In this case, the funds used to purchase the property were joint which raises the presumption of resulting trust. Ms. Launchbury knew that Mr. Launchbury had concerns about his job and was putting the property into her name for that reason. There was no evidence that any creditor or claimant was prejudiced by the property being registered in Ms. Launchbury’s name. There was no evidence to show that the transfer to Ms. Launchbury was a gift. The presumption of resulting trust is not rebutted. Accordingly, I find that Mr. Launchbury has established that Ms. Launchbury held one half of the matrimonial home by way of resulting trust for him.

[184] The Ontario Court of Appeal’s most recent review of this area of the law was in Korman v. Korman, 2015 ONCA 578. The Court of Appeal provided the following thorough analysis of the law pertaining to a beneficial ownership argument in the matrimonial context:

Beneficial Ownership of the Matrimonial Home

[24] The critical issue at trial concerning the Matrimonial Home was whether the Husband intended to gift his interest in the property to the Wife when the property was acquired in 2002.

[25] For married spouses, the Act provides a comprehensive scheme for resolving financial issues following marriage breakdown. Section 10(1) of the Act authorizes a court to determine questions of title between spouses. This includes considering whether legal title actually reflects beneficial ownership. As indicated by this court in Martin v. Sansome, 2014 ONCA 14, 118 O.R. (3d) 522, at para. 47, citing Rawluk v. Rawluk, 1990 CanLII 152 (SCC), [1990] 1 S.C.R. 70, “[b]efore property can be equalized under the [Act], a court must first determine the “net family property” of each spouse. This exercise requires first that all questions of title be settled.” In other words, property entitlements must be determined before they can be equalized.

[26] Section 14 of the Act affirms the presumption of a resulting trust in determining questions of ownership between spouses in the context of gratuitous property transfers. Where the presumption is invoked, the party resisting the imposition of a resulting trust is required to disprove the presumption that his or her spouse is the beneficial owner of an interest in the disputed property.

[27] In Kerr v. Baranow, 2011 SCC 10, [2011] 1 S.C.R. 269, at paras. 16-19, the Supreme Court confirmed that a traditional resulting trust may arise in the domestic context where, as here, there has been financial contribution to the initial acquisition of a property and a subsequent gratuitous transfer of title to the property. In these circumstances, the actual intention of the transferor is the governing consideration. See also Pecore v. Pecore, 2007 SCC 17, [2007] 1 S.C.R. 795, at paras. 43-44; Schwartz v. Schwartz, 2012 ONCA 239, 290 O.A.C. 30, at paras. 41-42. Further, the intention of the transferor to make a voluntary and gratuitous transfer is an essential ingredient of a legally valid gift: see McNamee v. McNamee, 2011 ONCA 533, 106 O.R. (3d) 401, at para. 24.

[28] At the appeal hearing, although the Husband relied on the s. 14 statutory presumption of resulting trust, he focused his claim regarding the Matrimonial Home mainly on principles of constructive trust and unjust enrichment. It appears that he proceeded at trial in a similar fashion. As a result, the trial judge made little reference to the s. 14 presumption.

[29] The focus of the Husband’s argument on this issue was misconceived. As I have said, under the Act, questions of title must be settled before property can be equalized. By reason of s. 10 of the Act, trust claims – including claims based on constructive or resulting trust – may be advanced prior to equalization. And, crucially, s. 14 legislates a presumption of a proprietary resulting trust. Where the presumption applies, it yields a finding of beneficial ownership in the context of a gratuitous property transfer. The Act contains no analogous presumption of constructive trust.

[30] In my view, the Husband’s claim regarding the Matrimonial Home turns on whether the Wife met her burden at trial to disprove the presumption that the Husband was the beneficial owner of a one-half interest in the Matrimonial Home. Her argument, in effect, was that the presumption of a resulting trust was rebutted by evidence of a voluntary and irrevocable, gratuitous gift by the Husband of his interest in the Matrimonial Home to the Wife at the time of its acquisition.

[31] And it is here, in my opinion, that the Wife’s failure to meet her burden is evident. Neither the Wife’s own trial evidence nor that of the Husband supported a finding that the presumption of a resulting trust in respect of the Matrimonial Home had been displaced.

[32] Turning first to her evidence at trial, the Wife never said that the Husband gifted his interest in the Matrimonial Home to her. To the contrary, she testified that while title to the Matrimonial Home was put in her name to protect it from potential claims by creditors,.

[33] The trial judge viewed the parties’ evidence on this issue as “quite muddled” and “a little surprising”: at para. 56. Nonetheless, he appears to have captured the essence of the Wife’s testimony at paras. 60-61 of his reasons:

The [Wife] is adamant, both in parts of her testimony and in her submissions, that the house was placed in her name to protect it in the future. She states that it was the [Husband’s] idea to deal with title this way as he was the one in the family with a financial background.

A difficulty with the [Wife’s] position, however, is that on cross-examination, she clearly stated that it was her view that no matter how the family held assets, their value should be shared equally. She made no exception for the matrimonial home. Her point was that, as far as she was concerned, the marriage was one of financial equality. Had there been creditors, the equity in the matrimonial home would have been insulated against a potential lawsuit for the benefit of the family.

[34] The trial judge rationalized the Wife’s evidence on this issue on the basis that she had claimed an interest in the Gleedah family business. He stated, at para. 62:

Given the totality of the evidence with respect to “the family business”, while not specifically expressed, I can reasonably infer that the [Wife] meant that she would willingly divide all assets equally if those assets included the value of the Gleedah shares. In other words, if all assets she thought were owned by the [Husband] could be shared equally, then so could the house. [Emphasis added.]

[35] With respect, this inferential gloss on the Wife’s evidence conflicts with the core of her trial testimony regarding the Matrimonial Home. The Wife did not in any way qualify her admission at trial that the Husband had a full interest in the Matrimonial Home. She did not assert that his equal interest in the house was conditional on her having an equal interest in his shares in Gleedah. And, as I have indicated, she did not say that the Husband gifted his interest in the Matrimonial Home to her. Instead, she testified on cross-examination that the Husband had a full interest in the Matrimonial Home and, in effect, that the assets held during the marriage were to be shared equally.

[36] Nor did the Husband suggest that he intended to gift his interest in the Matrimonial Home to the Wife because he loved her. When cross-examined by the Wife – who was self-represented at trial – the Husband testified as follows:

We had our [first] home in joint name[s] in Aurora. I loved you. I trusted you. You said it’s because of creditors. I said ‘well, look, I have – I’m not worried about creditors. I’ve never been sued in my life.’ So, I said ‘whatever makes you happy.’ And I had, at that point, as I said – it’s not a key thing but I had liability insurance, you know, from my business and I didn’t see the – I didn’t know of any future ramification and so I – I acceded to your request.

[37] Thus, I do not think it can fairly be said that either the Wife’s or the Husband’s trial testimony supports the trial judge’s key finding that the Husband unconditionally gifted his interest in the Matrimonial Home to the Wife in 2002 when the parties purchased the property. The trial judge’s impugned finding to the contrary ignores the presumption of resulting trust that operates in favour of the Husband. Moreover, in my opinion, even absent the presumption, the evidence at trial does not ground a finding of a clear intention to gift.

[38] Furthermore, any motivation to shield the property from the Husband’s potential creditors does not in itself rebut the presumption of a resulting trust. In Nussbaum v. Nussbaum (2004), 2004 CanLII 23086 (ON SC), 9 R.F.L. (6th) 455 (Ont. S.C.), Karakatsanis J., then of the Superior Court of Justice, noted that, despite “a line of cases … where the court has found the specific intention to evade creditors means an implied intention to deprive oneself of beneficial ownership”, and “[w]hile evidence that someone intended to fully evade creditors can be evidence that they intended to gift their entire interest in the property, the intention of the parties is a question of fact to be determined from all the evidence”: at paras. 19-27 and 32. See also Schwartz, at para. 43.

[39] The trial judge’s finding that the Husband unconditionally gifted his interest in the Matrimonial Home to the Wife denied the Husband any proprietary interest in the Matrimonial Home. For the reasons given, I conclude that, in light of the unrebutted presumption of a resulting trust, the trial judge committed a palpable and overriding error in finding that the Husband did not retain a beneficial ownership interest in the Matrimonial Home.

(b) Effect of Beneficial Ownership of the Matrimonial Home

[40] The determination that the Husband is a beneficial owner of a one-half interest in the Matrimonial Home is dispositive of his entitlement to share in any post-separation increase in the value of the property: he is placed in the same position as a joint owner on title, thereby becoming entitled to a one-half interest in the value of the Matrimonial Home whenever that value crystalizes. Consequently, when the property is sold, the Husband will be entitled to one-half of the net proceeds of sale, reduced by any unpaid share in the expenses of upkeep. The value of the Matrimonial Home at V-Day is thus irrelevant since, for the purpose of equalization, a one-half interest in the property is placed on each side of the parties’ property ledgers, requiring no further equalizing exercise.

[41] The Wife’s argument to the contrary relies on this court’s recent decision in Martin. The Wife says that Martin confines married spouses’ property claims to the equalization provisions contained in the Act, except in rare cases. In her submission, a case in which a matrimonial home has increased in value since the date of separation is insufficiently rare to fall within that exception.

[42] I do not read Martin in the manner urged by the Wife. Martin is an unjust enrichment case. Unlike this case, it concerns the sufficiency of a monetary remedy once unjust enrichment in respect of a joint family venture has been found. Martin does not involve the presumption of a resulting trust or an asserted gift of property between spouses.

[43] Perhaps more importantly, Martin illustrates, in the context of married spouses, that where either a monetary or a proprietary remedy in respect of property is claimed and a monetary award is sufficient to address unjust enrichment, the court should look to the Act’s equalization provisions to determine the appropriate amount of the monetary award. The Martin court put it this way, at para. 66: “[i]f unjust enrichment as the result of a marriage has been found, and it has been determined that monetary damages can suffice, the aggrieved party’s entitlement under the equalization provisions of the [Act] should first be calculated.”

[44] That is not this case. Here, the application of the unrebutted statutory presumption of a resulting trust establishes an entitlement to property ownership, as opposed to a monetary award. And the establishment of an entitlement to ownership, as opposed to a monetary award, precedes the calculation of net family property and the application of the equalization provisions of the Act.

[45] Martin, therefore, does not assist the Wife. On this evidentiary record, the Wife did not rebut the statutory presumption of a resulting trust by establishing an unequivocal intention by the Husband to gift his interest in the Matrimonial Home to her. Consequently, the Husband is entitled to full recognition of his 50% beneficial interest in the Matrimonial Home. It follows that he is entitled to 50% of the net proceeds of the sale of the Matrimonial Home, less his share of the maintenance costs of the Matrimonial Home until the date of sale. I will return to the details of this remedy later in these reasons.

[185] The evidence before me was clear that the Respondent had the title to the 9760 Wellington Road 22 property placed in the name of the Applicant alone to avoid potential liability flowing from his businesses. This was the evidence from the Respondent.

[186] There is no evidence suggesting that the Applicant financed the purchase of the matrimonial home herself. The parties both lived off the Respondent’s income at the time and the evidence suggests that the matrimonial home was financed by the Respondent’s income and a loan from the Respondent’s business. The Applicant’s position at trial and reiterated in her closing submissions confirmed that the Respondent made the financial decisions and that the home was titled in her name alone to shield it from potential creditors.

[187] There was no evidence before me that the Respondent was attempting to evade existing creditors then pursuing him.

[188] I start with the presumption that no gift was intended by the Respondent. I find that the Applicant did not rebut this presumption. Based on all of the above, the Respondent has established entitlement to a one-half share in the matrimonial home. Borrowing from Korman, at para. 44, “Here, the application of the unrebutted statutory presumption of a resulting trust establishes an entitlement to property ownership, as opposed to a monetary award. And the establishment of an entitlement to ownership, as opposed to a monetary award, precedes the calculation of net family property and the application of the equalization provisions.”

[189] The parties argued at trial over the value of the matrimonial home at the date of separation. This argument is no longer relevant. Again quoting from Korman, at para. 40, “The value of the Matrimonial Home at V-Day is thus irrelevant since, for the purpose of equalization, a one-half interest in the property is placed on each side of the parties’ property ledgers, requiring no further equalizing exercise.”

[190] On its face, this finding means that the Respondent is entitled to fifty percent of the net proceeds of the sale of the matrimonial home and obligated to pay his one-half share of the maintenance and other costs to ready the home for sale as claimed by the Applicant. I will address those costs next.

Other Property Adjustments

[191] The Applicant gave evidence respecting the amounts she incurred to maintain the matrimonial home following separation and to prepare the property for sale. Her evidence was that she spent $25,000. The Applicant in her submissions submits that the Respondent should pay this entire amount. I fail to understand why the Respondent, who holds a fifty percent interest in the property, should be required to pay one hundred percent of these costs. The Applicant’s evidence on what she spent was not seriously challenged. I accept her evidence regarding what she spent. These expenses were reasonable in the circumstances. As such, the Respondent shall pay his one-half share of all such costs, namely $12,500. This shall be paid forthwith to the Applicant from the Respondent’s share of the proceeds from the sale of the matrimonial home, prior to any payment of proceeds to the Respondent.

[192] The parties had a joint line of credit registered against the matrimonial home at the date of separation. This line of credit was paid and discharged on the date of closing for the sale of the home. The Respondent acknowledges that $50,000 of the money owing on that line of credit at separation represented funds he borrowed for Miracles to buy equipment for his business. This was a debt owed by Miracles to him alone and, presumably, forming part of his shareholder loan to the company. As such, he concedes an adjustment needs to be made to repay the Applicant one-half of this amount from his share of the matrimonial home sale proceeds given that these joint funds were used to pay that debt along with the balance of the line of credit. Order to go that this $25,000 shall be paid forthwith to the Applicant from the Respondent’s share of the matrimonial home sale proceeds, prior to any payment of proceeds to the Respondent.

[193] The same logic applies to the $2,750 that the Respondent confirmed he withdrew for his own use post-separation. An adjustment needs to be made to repay the Applicant one-half of this amount from the Respondent’s share of the matrimonial home sale proceeds given that these joint funds were used to pay that $2,750 along with the balance of the line of credit. Order to go that $1,375 shall be paid forthwith to the Applicant from the Respondent’s share of the matrimonial home sale proceeds, prior to any payment of proceeds to the Respondent.

[194] The Order of Langdon J. dated June 21, 2011, provided that the Respondent would then pay arrears of support to the Applicant of $34,600 and that such payment should be “a first charge against” the Respondent’s interest in the matrimonial home. Although these funds have been paid to the Applicant, this payment needs to be accounted for from the Respondent’s share of the matrimonial home sale proceeds prior to any payment of proceeds to the Respondent.

[195] In other words, the Applicant is entitled to confirmation that the $34,600 payment to the Respondent was paid from the Respondent’s share of the proceeds and not, in part or whole, from the Applicant’s share. If any part of the payment came from the Applicant’s share then any such amount shall be repaid to the Applicant forthwith from the Respondent’s share of the matrimonial home sale proceeds, prior to any payment of proceeds to the Respondent. I suspect that the monies came from the joint sale proceeds. If so then $17,300 shall be paid forthwith to the Applicant from the Respondent’s share of the matrimonial home sale proceeds, prior to any payment of proceeds to the Respondent.

[196] The balance of the joint line of credit was paid from the joint sale proceeds such that no further adjustment is required.

[197] The Applicant filed “Certificates of Valuation” and called an expert to provide opinion evidence respecting the value of her jewellery at the date of separation. This evidence valued the Applicant’s jewellery at $6,150 and was unchallenged. I accept that evidence and find the value of her jewellery at separation to be $6,150.

[198] The final property issue is with respect to $360,000 that was used by the parties to purchase the matrimonial home. This $360,000 was above referred to as a loan owing from the Applicant to Miracles. A bit of background is needed to arrive at that conclusion.

[199] The facts related to this $360,000 are not complicated.

[200] In 2006, Miracles received financing from Mr. Gamble. Miracles in turn used this advance to loan $420,000 to the Applicant for the purchase of the matrimonial home located at 9760 Wellington Road 22, in the Township of Erin.

[201] The parties closed the purchase of the 9760 Wellington Road 22 property on May 7, 2006, paying $1,200,000. The title was registered in the name of the Applicant alone. As such and to be consistent, the monies from Miracles were advanced to the Applicant as the sole registered owner.

[202] There was no loan or other paperwork relating to the advance from Miracles to the Applicant.

[203] The financial records for Miracles described the advance as a “loan receivable from a related party” (i.e., the Applicant). This was the description in Miracles’ financial records at the date of separation. Following the date of separation, Miracles retroactively amended its financial records to describe the advance as “prepaid rent”, presumably to reflect payment to the Applicant for use of the farm and buildings for the horse operation Miracles commenced in 2007, namely a year after the monies were advanced.

[204] The original $420,000 loan balance had been reduced to an outstanding balance of $360,000 at the date of separation.

[205] The Applicant paid $360,000 directly to Mr. Gamble from the sale proceeds when the matrimonial home sold in 2012. The Applicant made this payment directly to Mr. Gamble rather than Miracles at the direction of the Respondent.

[206] Given all of the above, there is no doubt in my mind that the $420,000, reduced to a $360,000 balance at the date of separation, was a loan to the Applicant for the purchase of the matrimonial home. The funds were obtained from Mr. Gamble. Miracles was used as a conduit for the monies for reasons only known to the parties and Mr. Gamble. Regardless, the character of the monies remains the same, namely a loan to the Applicant from Miracles that she owed at separation and that was repaid in 2012 from the proceeds of the sale of the matrimonial home.

[207] The Applicant retained a tax lawyer, Robert Kepes, to provide a report and opinion evidence during this trial as to the tax implications of this loan to the Applicant. The Respondent did not provide any expert evidence in response.

[208] Mr. Kepes’ unchallenged opinion was that this loan could be made pursuant to the Income Tax Act by Miracles to the Applicant on the basis of her being related to a shareholder, namely the Respondent.

[209] Mr. Kepes was also clear that the Applicant would have to repay the loan by May 31, 2007, Miracles’ fiscal year end following the year of the loan or the amount of the loan then outstanding would be considered personal income for the Applicant in her 2006 taxation year pursuant to section 15 of the Income Tax Act.

[210] In other words, the Applicant’s 2006 income increased by $360,000 once the May 31, 2007 deadline passed. Nothing else needs to occur for this loan to become deemed income with related tax implications. For example, the deemed income and related tax payable is not contingent upon the Applicant filing her income tax return. Canada Revenue requires notice of the income to enforce the related taxation but any delay in notice does not change the fact of the income and liability.

[211] The evidence before me was that the Applicant had not filed an amended tax return claiming the $360,000 in deemed additional income for 2006. The deemed income and any related tax debt came into existence on June 1, 2007, when the Applicant failed to repay the loan within the deadline permitted by the Income Tax Act. Any failure on her part to file an amended 2006 return claiming the $360,000 income is an issue between her and Canada Revenue. It does not affect the equalization analysis in this case. The tax debt existed at the date of separation subject only to assessment and collection by Canada Revenue once she does file an amended 2006 return.

[212] Given the above, I do not view the Applicant’s tax debt arising from her additional $360,000 income in 2006 as being contingent. I appreciate that enforcement by Canada Revenue is contingent on notice of the income and debt. Regardless, I would assess this tax debt at full value even if I did think it contingent.

[213] In cases involving contingent liabilities, the Court must assess “the reasonably foreseeable amount of the contingent liability and use that figure for purposes of NFP calculations”: see Zavarella v. Zavarella, 2013 ONCA 720, 117 O.R. (3d) 641, at para. 34. In this case, enforcement of the Applicant’s liability to Canada Revenue is contingent only on her filing an amended 2006 return. There is no meaningful evidence to suggest that the Applicant has knowingly evaded her tax liability or that she would do so in future years. It is reasonably foreseeable that the Applicant will owe the entire debt to Canada Revenue.

[214] Given the above, I find that the Applicant had a debt owing at the date of separation for the $360,000 she owed to Miracles and she had a debt owing to Canada Revenue for tax liability related to the unpaid loan becoming deemed income by the date of separation. Mr. Kepes estimated that tax liability as $157,282 plus an additional $31,000 in interest on that tax debt calculated to the date of separation. Mr. Kepes was equivocal as to whether the Applicant would pay any penalties such that I did not add to these to the value of the debt at separation.

[215] The remaining question is whether the above tax debt, including interest, warrants an unequal division of net family property as requested by the Applicant. In my view, it does not.

[216] The Applicant’s main argument is that the Respondent made all of the financial decisions and she simply did what he told her to. Related to this, she says she did not appreciate the tax implications of receiving the loan from Miracles and should not be responsible for those amounts. Accordingly, she asks for an unequal division of net family property to account for her tax liability.

[217] The Applicant’s argument is analogous to a non est factum argument. In other words, ignorance of the transaction that she was a party to.

[218] The party trying to advance a non est factum argument before the Court must establish that her being a party to that transaction was not attributable to her carelessness in not taking steps to ascertain its nature and that the transaction was fundamentally different than what she thought she was agreeing to. These are factors that have direct application to the loan the Applicant received from Miracles.

[219] The Applicant states that she simply did what the Respondent told her. There was no evidence that she lacked the opportunity to obtain legal or any other advice she desired with respect to this loan. In my view, this amounts to an acknowledgment that she was careless in failing to take the necessary steps to ascertain the nature of the transaction and its impact on her.

[220] There was no evidence before me to suggest that the Applicant was unaware that she was agreeing to receive a loan from Miracles towards the purchase of a matrimonial home registered in her name alone.

[221] The caselaw has consistently held that a person who executes a document without reading it or is otherwise careless as to its contents is liable under that document: see Royal Bank of Canada v. Poisson (1977), 1977 CanLII 1129 (ON SC), 26 O.R. (2d) 717 (H.C.J.), Marvco Color Research Ltd. v. Harris, 1982 CanLII 63 (SCC), [1982] 2 S.C.R. 774, Duce Community Credit Union Ltd. v. Fulco Automotive Ltd., 2002 CarswellOnt 5350 (S.C.), aff’d 2003 CarswellOnt 2315 (C.A.). I appreciate that in this case the Applicant did not sign any documents with Miracles respecting this loan. However, in my view, this principle should apply with similar force here where the Applicant agreed to receive the loan from Miracles and was careless as to the consequences.

[222] The Court has the discretion to award an unequal division of net family property. The test for such an award is well established and starts with the statutory framework set out in section 5(6) of the Family Law Act as follows:

Variation of share

(6) The court may award a spouse an amount that is more or less than half the difference between the net family properties if the court is of the opinion that equalizing the net family properties would be unconscionable, having regard to,

(a) a spouse’s failure to disclose to the other spouse debts or other liabilities existing at the date of the marriage;

(b) the fact that debts or other liabilities claimed in reduction of a spouse’s net family property were incurred recklessly or in bad faith;

(c) the part of a spouse’s net family property that consists of gifts made by the other spouse;

(d) a spouse’s intentional or reckless depletion of his or her net family property;

(e) the fact that the amount a spouse would otherwise receive under subsection (1), (2) or (3) is disproportionately large in relation to a period of cohabitation that is less than five years;

(f) the fact that one spouse has incurred a disproportionately larger amount of debts or other liabilities than the other spouse for the support of the family;

(g) a written agreement between the spouses that is not a domestic contract; or

(h) any other circumstance relating to the acquisition, disposition, preservation, maintenance or improvement of property.

[223] As a starting point to the exercise of the Court’s discretion, the facts of a case must fall within one of the categories enumerated in section 5(6) of the Family Law Act. It seems clear that the $360,000 loan is related to the acquisition of property thereby satisfying section 5(6)(h).

[224] The Ontario Court of Appeal in Serra v. Serra, 2009 ONCA 105, 93 O.R. (3d) 161, at paras. 37 and 47, set forth the methodology for the Court’s analysis and described the very high threshold that must be met for the Court to exercise its discretion to award an unequal division as follows:

The court must first ascertain the net family property of each spouse, by determining and valuing the property each owned on the valuation date (subject to the deductions and exemptions set out in s. 4). Next, the court applies s. 5(1) and determines the equalization payment. Finally — and before making an order under s. 5(1) — the court must decide whether the equalization of net family properties would be unconscionable under s. 5(6), having regard to the factors listed in paragraphs 5(6)(a) through (h).

…the threshold of "unconscionability" under s. 5(6) is exceptionally high. The jurisprudence is clear that circumstances which are "unfair", "harsh" or "unjust" alone do not meet the test. To cross the threshold, an equal division of net family properties in the circumstances must "shock the conscience of the court”.

[225] The Ontario Court of Appeal in Ward v. Ward, 2012 ONCA 462, 111 O.R. (3d) 81, reiterated its comments in Serra and added the following at para. 27:

The high threshold for finding unconscionability is based on the criteria set out in s. 5(6). In Serra, the court held that a finding of unconscionability need not rest on fault-based conduct and may flow from the financial result that the spouses are left with.”

[226] I am not persuaded that the threshold of unconscionability has been met here having considered the overall circumstances of this case, including the equalization calculation and the particulars with respect to the subject loan.

[227] I note that the $360,000 loan was in fact repaid from the joint proceeds of the sale of the matrimonial home in 2012. This was not segregated as a payment from either party’s share of those proceeds. As such, the Applicant did not incur this debt alone. Both she and the Respondent paid this amount equally, at least initially.

[228] In other words, the Applicant had the benefit of $180,000 of her loan being repaid using the Respondent’s funds up to this point. However, this debt is the Applicant’s and the Respondent is entitled to payment of this $180,000 from the Applicant. As such, the Applicant shall pay $180,000 to the Respondent.

[229] The $360,000 is listed on the Applicant’s side of the ledger as a date of separation debt for her. As such, this debt is accounted for in the equalization calculation by either reducing the amount that the Applicant has to pay if she has the higher net family property value or increasing the payment that she will receive should hers be lower. The Respondent thereby has at least indirect liability for a share of that debt.

[230] While I appreciate that the assignment of fault is not determinative of the issue, I have considered the Applicant’s conduct with respect to the loan. The Applicant is an intelligent, able person with some post-secondary education. She knew that she was receiving a loan from Miracles and intended that these monies be used to purchase the matrimonial home registered in her name alone. The Applicant directly benefitted from these funds by using them to acquire the matrimonial home. Her carelessness in not investigating the implications of this transaction is not an acceptable reason to support a finding of unconscionability and the imposition of an unequal division of net family property as a result.

[231] For all of the above reasons, I am not persuaded that there should be an unequal division of net family property in this case. I am of the firm view that the equalization calculation satisfactorily addresses the financial claims of the parties.

[232] I also accept the opinion presented by Mr. Kepes with respect to the capital gains debt that will be owed for the part of the matrimonial home property that will not meet be included in the principle residence exemption pursuant to the Income Tax Act and the notional tax rates to be applied to the R.R.S.P. savings of each party. The Respondent called no expert evidence on these issues.

[233] Subject to my findings above, the amounts set forth in the net family property calculation presented by the Applicant were not challenged in any meaningful way by the Respondent. Using the Applicant’s calculation and making the adjustments for my findings above, I calculate an equalization payment of $699,309.14 owing by the Respondent to the Applicant plus prejudgment interest pursuant to the Courts of Justice Act from the date of separation, namely September 2, 2008.

[234] I have set out my Net Family Property calculation as Schedule “A” to this Judgment.

[235] The Respondent’s share of the net sale proceeds from the matrimonial home shall be applied towards the payment of the equalization owing to the Applicant pursuant to this Judgment.

Non-Depletion Order

[236] The Respondent has argued throughout this proceeding that he lacks the funds to pay the child and spousal support that he consented to, forming the basis for the Order of Price J., or the support obligations imposed on him by Justice Langdon. Justice Langdon was called upon to enforce those payments at June 2011. I was also required to make an order to enforce the Respondent’s support payments at the commencement of this trial. I subsequently made a preservation/non-depletion Order against the Respondent in response to evidence from his expert, Ms. Minelli, that she was going to place a lien against the Respondent’s current home for a debt owing to her firm.

[237] The effect of my judgment is to maintain the support orders in place up to December 31, 2012, and to significantly increase the support quantum going forward from January 1, 2013. This will create immediate and significant arrears owing by the Respondent.

[238] I have also calculated that an equalization payment of $699,309.14 is owing by Respondent. However, I have directed that the Respondent make payment of the equalization owing from his one-half share of the matrimonial home sale proceeds net of the set-off adjustments noted in this Judgment. To my knowledge, the Respondent’s share of the sale proceeds net of the adjustments will be insufficient to satisfy the equalization payment he owes.

[239] The Court has the discretion to make a final order for preservation/non-depletion pursuant to sections 12 and 40 of the Family Law Act.

[240] The purpose of the preservation order is to ensure that if the court does determine that an equalization payment is owing, there are sufficient funds available to satisfy that payment: see Bronfman v. Bronfman (2000), 2000 CanLII 22710 (ON SC), 51 O.R. (3d) 336 (S.C.).

[241] Given the Respondent’s past payment delinquency, noted above, and the significant amounts he will now owe further to this Judgment, I am persuaded that a non-depletion order should be granted for a period of six months. This will allow the Applicant to take whatever steps are necessary to secure the payments owing to her without unduly restricting the Respondent’s use of his finances to address his obligations under this Judgment and otherwise.

Summary of Judgment Terms

[242] I will not exercise my discretion to revisit the support obligations set forth in the Temporary Orders of Justice Dunn, Justice Price and Justice Langdon. The parties will each be bound by the terms of these Orders, as applicable, until and including December 31, 2012.

[243] The Respondent’s income for 2013 was $162,500, with a corresponding Guidelines child support obligation of $2,791. The Applicant’s 2013 income of $37,500 corresponds to a Guidelines obligation of $540. The straight set off amount is $2,251. The Spousal Support Advisory Guidelines suggest a midpoint spousal support amount of $2,068. The Respondent shall pay child support of $2,251 and spousal support of $2,068 monthly commencing January 1, 2013 and each 1^st^ of the month thereafter.

[244] A Support Deduction Order shall issue further to the above.

[245] The Respondent shall designate the Applicant as the irrevocable beneficiary of his life insurance policy in the face amount of $1,000,000.00 for her own benefit and in trust for the children. This designation shall remain in place for so long as the Respondent has a support obligation to the Applicant and/or the children subject only to variation in the face value of the policy to coincide with changes to the quantum of the Respondent’s support obligation from time to time. The Respondent shall provide the Applicant with authorization to contact his insurer directly to obtain written or such other confirmation as she prefers that this policy, beneficiary designation and related face value remain in good standing and in keeping with this Judgment or any order subsequently varying this Judgment. The Respondent shall pay all premiums when due and otherwise keep this policy in good standing and in conformity with this Judgment. Should the policy not be in good standing or otherwise not be in conformity with this Judgment then the support obligations then owing by the Respondent not secured by his insurance policy shall be a first charge against the Respondent’s estate.

[246] The Respondent was a beneficial owner of 50 per cent of the matrimonial home and is entitled to 50 per cent of the net proceeds of the sale of the matrimonial home subject to the following adjustments from and to his share:

a. the Respondent shall pay $12,500 to the Applicant from his share of the sale proceeds, being his one-half share of the costs incurred by the Applicant to maintain the matrimonial home and prepare it for sale;

b. the Respondent shall pay $25,000 to the Applicant from his share of the sale proceeds to repay the Applicant one-half of the $50,000 amount he withdrew from the joint credit line for that he borrowed for Miracles to buy equipment for his business;

c. the Respondent shall pay $1,375 to the Applicant from his share of the sale proceeds to repay the Applicant one-half of the $2,750 amount he withdrew from the joint credit line for his personal use; and,

d. the Respondent shall pay to the Applicant from his share of the sale proceeds all sums from the Applicant’s share of the proceeds that was previously applied to pay the $34,600 arrears of support pursuant to the Order of Langdon J. dated June 21, 2011.

[247] The Applicant shall pay to the Respondent $180,000 to repay the Respondent one-half of the $360,000 loan amount owed by the Applicant that was in fact repaid from the joint proceeds of the sale of the matrimonial home.

[248] The Respondent shall pay to the Applicant an equalization payment of $699,309.14 plus prejudgment interest pursuant to the Courts of Justice Act from the date of separation, namely September 2, 2008. The Respondent’s share of the net sale proceeds from the matrimonial home, after the adjustments to that share set forth at paragraphs 119 and 120 above, shall be applied towards the payment of this equalization payment.

[249] The Respondent shall preserve and not deplete his property for a period of six months following this Judgment.

Costs

[250] If the parties cannot agree on costs then I will accept brief written submissions respecting the costs of this trial. Ms. Smith shall file her written submissions not exceeding five double spaced pages exclusive of Bill of Costs and any relevant Offer(s) to Settle within 25 days of this decision. Mr. Smith shall file his written submissions not exceeding five double spaced pages exclusive of Bill of Costs and any relevant Offer(s) to Settle within 45 days of this decision. Ms. Smith shall file any Reply not to exceed two pages within 60 days of this Judgment.

Fitzpatrick J.

Date: February 16, 2016

SCHEDULE “A”

CITATION: Smith v. Smith, 2016 ONSC 1157

COURT FILE NO.: 109/09

DATE: 2016-02-16

ONTARIO

SUPERIOR COURT OF JUSTICE

BETWEEN:

LIBERATINA SMITH

Applicant

– and –

DEREK SMITH

Respondent

REASONS FOR JUDGMENT

Fitzpatrick J.

Released: February 16, 2016