Court File and Parties

COURT FILE NO.: F1802/13 Ext. 01 DATE: 2016-Apr-19

ONTARIO SUPERIOR COURT OF JUSTICE

BETWEEN: STEPHANIE SMITH, Applicant – and – PAUL NICHOLSON, Respondent

Counsel: H. Hassan, Counsel for the Applicant D. Burns, Counsel for the Respondent

HEARD: January 11, 12, 13, 14 and 15, 2016 at London, Ontario.

Overview

1Stephanie Smith and Paul Nicholson separated in September, 2006 after 28 years of marriage. Each retained experienced family law counsel and, with their assistance, they entered into a comprehensive Separation Agreement that addressed all issues arising from their separation including, inter alia, child and spousal support.

2As a consequence of the Separation Agreement, the parties were able to avoid court proceedings until now. The Separation Agreement terms have not previously been incorporated into an Order. The parties seek, in essence, to interpret and apply their Agreement to the facts which have arisen since separation. Both parties seek to vary the spousal support payable by Mr. Nicholson to Ms. Smith under the terms of their Separation Agreement. They resolved all child support issues before trial.

3The issues raised at trial are as follows:

1. Was Mr. Nicholson entitled to reduce the amount paid to Ms. Smith as and when each child ceased to be a dependent?
2. Should income be imputed to Mr. Nicholson for, a. The calendar years 2016 forward until Ms. Smith turns 65 because of his retirement in January 2016; b. The calendar years 2014 and 2015 given his voluntarily reduced income from his employment while he transitioned to retirement; c. The $35,000 received from a trust established by his grandmother that was paid to him and used to pay his legal fees herein; d. Monies received by him from his father from the same trust for each child’s education; e. The condominium he lets from his sister-in-law at what Ms. Smith contends is below market rent; f. Shares gifted to him by his father?
3. Should income be imputed to Ms. Smith post-separation?
4. Should the amount payable for spousal support under the Agreement be varied retroactively or prospectively having regard to her need, any increases in income, and his retirement in January 2016?

Facts

The Parties

a. The Applicant

4The Applicant, Stephanie Smith, was born September 2, 1954. She is presently 61 years old. She has a Bachelor of Fine Arts from Western University in 1977, a Bachelors of Education from Queens University in 1978, and has taken courses toward her Masters of Education in counselling. She testified that she did not wish to teach and never did. She took courses in the Masters of Education program because of her love of learning and to gain a specialization in counselling.

5Ms. Smith was a stay-at-home mother by agreement with the Respondent. She took on part-time employment from time to time after the children were all in school and more recently, post-separation. She has taught yoga, and done counselling and presentations for women’s support organizations. She has not sought full-time employment since the children graduated high school; rather, she sees her continuing role as mother and grandmother.

b. The Respondent

6The Respondent, Paul Nicholson, was born January 21. 1956. He turned 60 on January 21, 2016. He obtained a Bachelor’s degree in Economics in 1977. He started an MBA through Queens University in 1978 before the date of marriage and completed his MBA in 1980. Mr. Nicholson began his employment with what is now the Canada Revenue Agency (CRA) in March, 1981. Over the years, he rose through the ranks at CRA in London to a management position. He availed himself of education and training opportunities through work. On occasion he travelled for work but remained based in London throughout his career.

7Mr. Nicholson worked full-time for CRA until January, 2014. He then transitioned to reduced hours of work for two years which ended on January 13, 2016, the day he officially retired. During that transitional period of employment with CRA, Mr. Nicholson worked and earned 60% of what he would have earned if working full-time.

8In October 2012, he received notice from his employer that it was no longer going to pay accrued severance on retirement, a benefit previously enjoyed by long-time federal employees. He elected to receive a one-time payment for this benefit which was calculated at $54, 050.10. That amount was paid to him in January 2013. He used the 2013 lump sum payment, which he put into an RRSP in early 2013, to “top up” to his annual income in 2014 and 2015.

Marriage, Children and Separation

9Stephanie Smith and Paul Nicholson married August 8, 1978. During the marriage, they had four children: Ben born August 12, 1986; Eve born May 5, 1988; Skye born April 16, 1990; and, Chloe born February 17, 1992.

10The parties separated permanently on September 1, 2006. By that date, Ben was in his third year of university, Eve was in her first year of university, Skye was entering grade 11 and Chloe was starting high school.

Roles During Marriage

11Ms. Smith testified that she and Mr. Nicholson agreed early in their marriage that they wanted to have a “1950’s marriage”. Thus, during the marriage to the date of separation, the parties divided responsibilities as follows:

1. Paul Nicholson worked outside the home and was the principal bread-winner for the family. He helped with some chores around the house, mostly involving outdoor tasks like grass cutting, garbage etc.. He did the family budget and looked after finances. He was also involved in the care and transportation of the children for extra-curricular activities as his work schedule permitted. By all accounts he was a devoted father to the children before and after separation; and,
2. Stephanie Smith was a stay-at-home mother whose primary role was to care for and nurture the children and to look after the house including meals. After the youngest child was in school full-time, she also worked part-time outside of the home providing counselling at a women’s shelter and/or teaching yoga. Her hours of work outside the home were modest and tailored to her children’s schedules.

12Both parties acknowledge that the other was an excellent parent. The proof lies in the four exceptional children they have raised. Ben is now 27 years old. He has a university education, and resides and works full-time in Toronto. Both Eve and Skye have university educations and are living independently in London. Eve is married and is expecting her first child. Skye is also married. Both Eve and Skye are employed in London. Chloe is finishing her Master’s degree and expects to pursue full-time employment shortly.

Purchase of Matrimonial Home

13Prior to marriage, Ms. Smith inherited a number of properties in the Peterborough area from her grandparents. Those properties were sold in the early 1980’s and the proceeds used to fund the purchase of three properties in London, one of which they lived in; the other two were income producing. She sold the three London properties after the date of marriage and used the proceeds of sale to fund all but $10,000 of the purchase price for the matrimonial home at 356 Central Ave in London. The balance of the purchase price was secured by a first mortgage in the principal amount of $10,000. They paid off that mortgage in 1990, approximately five years after their purchase.

14Ms. Smith listed $110,000 for the properties she inherited from her grandparents as excluded property in the Financial Statement sworn by her which is attached to the Separation Agreement. She also later received an inheritance from her sister, Barbara, of $49,000 which was classified as excluded property in the same Financial Statement.

Post-Separation Residence

15Upon separation, Stephanie Smith remained in the matrimonial home at 356 Central Ave, London, with the four children. Mr. Nicholson moved two blocks away to a one bedroom apartment that he occupied until approximately March, 2012 at which time he moved nearby to 1001-7 Picton Street, London. The Picton apartment has two bedrooms. It is owned by Mr. Nicholson’s sister-in-law. Mr. Nicholson pays rent to a property manager equivalent to the monthly condominium fees, together with utilities.

16At the date of separation, the matrimonial home was held jointly by the parties. Pursuant to the Separation Agreement, title was transferred to Ms. Smith alone as part of the resolution of equalization of net family property issues. Ms. Smith continues to reside in that home which has five bedrooms, one of which has since been converted to a yoga studio in which Ms. Smith teaches yoga on a part-time basis. There is also a separate art studio on the premises that Ms. Smith uses personally.

17Of the children of the marriage, only Chloe still resides with Ms. Smith in the home. Chloe is finishing her Masters in Engineering at Western University. She is expected to finish by August, 2016 following which she intends to seek full-time employment.

Separation Agreement

18As mentioned above, soon after separation, the parties retained experienced family law counsel. With the assistance of counsel, they negotiated a Separation Agreement which was signed by Ms. Smith on April 27, 2007 and by Mr. Nicholson on May 30, 2007.

19The parties continue to be married although they are and have been living separate and apart since September 1, 2006. Mr. Nicholson is obliged by the Separation Agreement to provide health and dental benefit coverage for Ms. Smith through his employment and retirement benefits, if available. If they divorce, that coverage will not be available and he is then obliged to purchase such coverage elsewhere, presumably at a higher cost. No claim for divorce is asserted by either party.

20The terms of the Separation Agreement are integral to the Motions to Change and will be reviewed and discussed in more detail below. For ease of reference, excerpts from the Separation Agreement are appended as Schedule “A”.

Equalization

21Upon separation, the matrimonial home was jointly held. It was valued at $260,000. Both parties utilized a joint line of credit to fund expenses immediately following separation to approximately $60,000. Mr. Nicholson owed $46,500 for equalization. They agreed that he would give up and transfer his interest in the matrimonial home to Ms. Smith in return for forgiveness of the amount payable by him for equalization. All of this is spelled out in the Separation Agreement with attached Financial Statements.

22In addition, Ms. Smith received one half of the value of Mr. Nicholson’s pension with CRA in 2011 as part of the equalization of net family property. She invested those funds in retirement accounts with an investment advisor with the intent that she will begin drawing from those investments at age 65. She also received one half of the value of his CPP pension which she likewise invested.

Custody of Children

23The parties agreed that they would have shared/joint custody of the children although Ms. Smith had final say on important decisions concerning their welfare after consultation with Mr. Nicholson (Separation Agreement: articles 3.1 and 3.5). The Separation Agreement contained several articles that imposed obligations on both parents consistent with acting in the children’s best interests and the avoidance of conflict which might negatively affect the children.

24As mentioned, Mr. Nicholson moved to a one bedroom apartment very close to the matrimonial home. He was then paying combined support of $3800/month and living on $1400/month. Although the children were free to stay the night with him, as a practical matter, it made little sense to do so in light of his limited quarters and the proximity of their own bedrooms. As a result, there were no overnight visits, not even after his move to Picton Street. The children did visit his apartment on occasion where they ate meals that he prepared and played board games etc..

25It is fair to say that the home at 356 Central Ave has been the hub of the family since 1985. It is the home in which the children were raised. It is still a place where the children gather with Ms. Smith for holiday meals and special events.

26It is equally fair to observe that the house is much larger than is needed for Ms. Smith and Chloe. There is no doubt that the house has huge sentimental attachment for Ms. Smith, but the decision to stay at that location is not one of necessity. It is an older house with the attendant upkeep that older houses require. Ms. Smith has dipped into monies set aside for her retirement to fund repairs and expenses for the house. She has also taken out a line of credit to cover the shortfall between her income from all sources, including support, and her expenses. That line of credit is secured against her home.

27There is no evidence that Ms. Smith has leased out rooms in the house to students or others to supplement her income. The house is located near to downtown London with proximity to bus routes that go to the nearby university. There is also no evidence why taking in boarders is either feasible or impractical, nor the amount of income that could be generated thereby.

Child Support/Spousal Support

28Schedule “A” to this decision contains all of the provisions of the Separation Agreement dealing with child and spousal support. Accordingly, I will not repeat them here.

29Immediately following separation and up to the date the parties signed the Separation Agreement, Mr. Nicholson voluntarily paid to Ms. Smith child support of $1900 per month which was the applicable Table amount for four children based on his then income (Separation Agreement: article 4.3).

30In addition, Mr. Nicholson paid to Ms. Smith interim and transitional spousal support of $5,000 per month during the same period. He financed the spousal support payments by drawing on a joint line of credit from which he also paid third party expenses for utilities etc., and provided cash to Ms. Smith (Separation Agreement: article 4.4). The parties agreed that $20,000 of the spousal support paid to Ms. Smith would be income tax deductible in her hands for the 2006 tax year (Separation Agreement: article 4.5).

31At trial, Ms. Smith contends that by the terms of the Separation Agreement, she was to be paid $3,800 per month for combined child and spousal support. More importantly, she asserts that as each child became independent, the amount attributable for child support would reduce but the monthly payment would not. In other words, spousal support was intended to increase to offset any decrease in child support so that the monthly payment remained a constant $3,800 per month.

32Ms. Smith points to articles 4.7, 4.17, 4.29 and 4.31 in support of her position. In short, she argues that:

1. The agreement requires payment of “combined child/spousal” support of $3,800 in two articles; and,
2. Mr. Nicholson must continue to pay at that combined rate until the parties amend the amount by agreement or a court order is made – neither triggering event occurred to permit any reduced payment.

33Mr. Nicholson contends that the Separation Agreement clearly differentiates between the amounts payable for child and spousal support, and what will trigger a change in the obligation to pay. He points to articles 4.8, 4.10, 4.11, 4.15, 4.16, 4.19, and 4.30. He asserts that there is nothing in the Agreement that says that as child support is reduced, spousal support goes up to stay at a constant monthly payment of $3,800. He notes that this position is a recent construct of Ms. Smith’s counsel and is not a position advanced in her Motion to Change.

34I foreshadow the positions of the parties to provide a measure of context for the facts material to the claims involving child and spousal support which follow.

35The Separation Agreement required the parties to exchange their financial information annually including tax returns with schedules, attachments and assessment notices (see article 4.16). It is undisputed that Mr. Nicholson provided a copy of his T4, but not his tax return to Ms. Smith in the Spring of each year. He also provided his Notice of Assessment following receipt. Ms. Smith did not provide her financial information as required in a timely fashion despite requests made by Mr. Nicholson.

36It is undisputed that Mr. Nicholson paid Ms. Smith monthly spousal support of $1900 from the date of the Separation Agreement to trial. He also paid child support monthly albeit in declining amounts as the children became independent. Ms. Smith testified that he left two cheques in her mail box each month for each of child and spousal support.

37As the children reached independence, Mr. Nicholson prepared a calculation of the new child support payable for the remaining children. He used the Child Support Table available on a Government of Canada website. He provided that calculation to Ms. Smith with the Table and thereafter, reduced the amount paid to her correspondingly.

38Exhibit 7 contains communications between Mr. Nicholson and Ms. Smith with respect to an upcoming change in child support as Ben was then nearing completion of his university program. On February 3, 2010, Mr. Nicholson emailed Ms. Smith the following:

“Hi Steph. I hope you’re well. This e-mail is further to the voice-mail that I left for you earlier this morning.

When we chatted in the late fall, you commented on the upcoming change in child support with Ben finishing his program in April. I think this is really a straight forward shift that flows from our separation agreement and can be calculated at the click of a button using this Department of Justice website:… I certainly don’t see a need for either of us to rack up legal bills. Having said that, I’d be pleased to hear your thoughts about how to move ahead. Let me know.

(I’ll send a hard copy of this note over to you with the February 6 post-dated support cheque.)”

39On February 19, 2010, Mr. Nicholson provided a Justice Canada Child Support Online Lookup page with a hand-written note as follows:

“Hi Steph. Further to our Feb. 16 conversation - current child support @ $1900/month & to April 2010 - from May 2010 @ $1717 /month- see attached NOR & calculation below. Please: 1) Review & confirm 2) provide copy of your CRA Notice of Assessment for 2009 as promised by you during our chat. Thanks Paul.”

40On February 25, 2010, Ms. Smith wrote to Mr. Nicholson:

“Paul,

Thanks as always for your punctual and reliable support payments. The kids seem to be doing well, so I guess even in separation we are both parenting well.

Regarding child support adjustments there are two issues I would like to address,

One- I will need your 2009 T4 before the support for 3 children can be calculated,

Two- Using your 2008 T4 information, you are $1704 behind in your child support for 2009 and Jan/Feb 2010 (see attached).

If we are to procede [sic] without legal intervention we need to follow the law regarding child support. I’m willing to forgo adjustments for 2008 and would sign re-this – but 2009 needs to be paid. So for us to procede [sic] in this manner the 2009 child support needs to be complete and the 2009 T4 needs to be used in the calculation for 3 children . Both of these items are simply the law.

Stephanie” { emphasis added }

41On April 13, 2010, the parties signed an agreement confirming points discussed during a telephone conversation on April 11, 2010. Ms. Smith acknowledged receipt of the $1704 representing retroactive adjustments for child support paid in full by Mr. Nicholson through December 31, 2009. The agreement also contained the following three paragraphs with the initials of the parties beside each:

“ Similar child support adjustments will be made if/as required on a moving forward basis.

Child support will be at $1717 per month as of May 2010 [i.e. the semi-annual cheque for May 6, 2010 will be ($1900 for spousal support + $1717 child support) /2 = $1808.50.]

I, Stephanie Smith, will it take immediate steps to provide Paul Nicholson with a copy of my CRA 2008 Notice of Assessment.” {Emphasis added}

42I note that Ms. Smith expressly agreed to the reduction in child support starting in May, 2010 and that spousal support would remain the same. There is no suggestion that spousal support was to increase by the amount the child support reduced; in fact, this agreement says the opposite.

43The reductions in support paid to Ms. Smith provoked no action on her part. She accepted the reduced amount of child support without initiating any proceedings until her Motion to Change issued on December 12, 2013. I note that her Motion to Change is silent with respect to the obligation to increase spousal support by an amount equal to child support reductions; indeed, this interpretation of the terms of the Separation Agreement was not advanced until the first day of trial.

Trust Monies

44At an early stage in their marriage, Mr. Nicholson and Ms. Smith learned that he and, to a greater extent, his children were to be the beneficiaries of trusts established as part of the estate of his grandparents, Jean and Robert Nicholson. Pursuant to their Wills, substantial trusts were established. The income earned on the monies held in trust was to be paid to Mr. Nicholson’s parents during their lifetime.

45The Wills further provided that upon the death of Mr. Nicholson’s parents, the monies then in the trust would be paid out as follows:

1. One third of the capital to his sister;
2. One third of the capital to his brother; and,
3. The remaining one third of the capital was to be invested and the income therefrom paid to Mr. Nicholson during his lifetime. On his death, the balance in the trust is divided equally among his four children.

46Jean Nicholson’s Will contains a clause (paragraph 9) which permits the trustee to encroach on the capital of the trust if a beneficiary is in need. Although not expressly stated in her Will, an understanding was reached with Mr. Nicholson’s parents that allowed monies to be drawn from the trust in Jean Nicholson’s Estate to pay for post-secondary education for Ben, Eve, Skye and Chloe. Knowing that cost was covered, the parties did not pay into RESPs for any of the children. The trust has funded $128,104 of post-secondary tuition for the parties’ children.

47Mr. Nicholson testified that typically, he told his father the amount of tuition for his child and his father then gave him a cheque drawn on the trust payable to Mr. Nicholson. He then paid the tuition to the school. He was a conduit for the tuition monies.

48There is no question that these arrangements provided an enormous benefit to the children and to the parties none of whom were burdened by the expense of post-secondary tuition. The draw-down of capital for Mr. Nicholson’s children could only be done with the cooperation of his parents since reduced capital would mean reduced income payable to his parents.

49In 2015, the trust established by his grandparents’ Wills was accelerated with the consent of all beneficiaries including the parties’ children. Mr. Nicholson’s parents did not require the ongoing income from the trust. They proposed to accelerate or cascade the trust to the next generation early, i.e. before their deaths. Mr. Nicholson conceded in cross-examination that he asked his children to consent to the trust being accelerated. He felt that was only fair to his brother and sister who would be able to access their shares of the capital. He advised his children that they should consent; that doing so was fair since they had already received some of the capital early and it would benefit their extended family. They agreed.

50Upon acceleration of the trust, the trustees paid the capital shares to Mr. Nicholson’s sister and brother. The remaining balance was invested where it continues to generate a very modest return which accrues to Mr. Nicholson as the income beneficiary.

51In addition to withdrawals from the trust for the children’s tuition, Mr. Nicholson received a one-time payment of $35,000 in February, 2015 that he used to pay legal expenses related to these proceedings. This payment was made at Mr. Nicholson’s request before the trust was accelerated. The payment was justified as one of “need” under paragraph 9 of Jean Nicholson’s Will.

52Whether that payment to Mr. Nicholson was appropriate vis-à-vis his children is not an issue before me. Clearly he benefitted at his children’s expense since the payment reduced what is left of the capital of the trust that they will ultimately receive. I note, however, that Mr. Nicholson did not include that sum as income for spousal support purposes. Ms. Smith asks that that amount be imputed to him for his 2015 income.

Gift of Shares

53In 2014, Mr. Nicholson’s father gifted 219,176 common shares in WI2WI to each of Mr. Nicholson and his siblings. In his May 20, 2014 Financial Statement, Mr. Nicholson estimated the value of his shares at approximately $32,451. At trial, he testified in cross-examination that he sold those shares in 2015 for approximately $19,000 and used the proceeds to pay more legal bills for this proceeding.

Payment in Lieu of Severance Benefit

54Although in a managerial position with CRA, Mr. Nicholson was a member of a union and subject to collective agreements negotiated from time to time. One of the benefits that he accrued was the right to a payment in lieu of severance payable on retirement based on years of service. This payment was in addition to any pension and health/dental benefits he was entitled to receive.

55In October, 2012, Mr. Nicholson learned that that benefit would no longer accrue. Instead, he and other affected CRA employees were given an option:

1. Receive a one-time payment for the value of that benefit accrued to that point. Employees like Mr. Nicholson had the option to take the payment as income or have it deposited into an RRSP account provided they had sufficient unused contribution eligibility;
2. Defer receipt of the payment to his retirement from CRA; or,
3. Some combination of options 1 and 2 above.

56Mr. Nicholson was advised by his employer that if he took options 1 or 3, the monies would be paid or deposited in 2013 and that the payment would apply to the 2013 tax year. He opted to receive a one-time payment deposited to an RRSP.

57Mr Nicholson testified that he opted for the payment to his RRSP as it would allow him to transition to retirement while still paying the same level of child and spousal support as if he were working full-time hours. He wanted to reduce his hours of work and “put the landing gear down for retirement”.

58I pause at this point to observe that Mr. Nicholson did not disclose this benefit in his Financial Statement appended to the Separation Agreement. Whatever the accrued value of that benefit at that point, it was not taken into account for equalization purposes.

59Mr. Nicholson did not bring the fact of the benefit and payment to Ms. Smith’s attention in either 2012 or 2013. He testified that he intended to provide his 2013 T4 to her in the Spring of 2014 as was his practice since separation. In other words, his income for each year was customarily disclosed in the Spring following the end of the tax year. He denies any attempt to hide the fact of the payment from Ms. Smith. As indicated above, the amount of the payment deposited to his RRSP account in 2013 was $54,050.10.

Mr. Nicholson’s Income

60Exhibit 26 is Mr. Nicholson’s Income Brief. It shows his income for the period 2008 to 2014 was:

2008 -$93,125 2009- $100,277 2010-$108,228 2011-$98,945 2012-$101,369 2013-$159,269 * 2014-$58,394 ** (* Total includes payment in lieu of severance of $54,050.10 before deductions.) (** Income at 60% of full-time)

61His last year-end pay statement in 2015 indicates that $62,301 was deposited to his account by CRA in 2015 (see Exhibit 29). Again, his income was 60% of full-time because he was in the final year of the transition to retirement program.

62According to paragraph 17 of Mr. Nicholson’s Response Motion to Change, his anticipated income upon retirement is $43,214 per annum. That figure includes his CPP pension for which he has already applied.

Retirement Transition

63On June 27, 2013, Mr. Nicholson emailed Ms. Smith as follows:

“Hi Steph. I am writing to you to let you know that I plan to retire from the Federal Public Service by January 2016, the month in which I will turn 60. I will be working part-time for the last years of my career, earning 60% of my pay. I will continue to pay spousal support at $1900 per month until I retire. As ever, I will fulfil all child support commitments. At or before my retirement, I will apply to the court for reduction in spousal support since my employment status will be changing and each of us has half of the pension that I earned to September 1, 2006, the date of our separation.

Per the terms of our separation agreement, please send me copies of your Canada Revenue Agency Notices of Assessment for 2010, 2011, and 2012 and all Notices of Reassessment. Thank you.

I will also send a hard copy of this note to you.

Paul”

64Mr. Nicholson received no response to this email from Ms. Smith. She did not object to the $1900 figure payable for spousal support. She did not object to his intended reduction in hours of work or retirement until the proceedings herein were commenced on December 12, 2013.

65On July 31, 2013, he applied for “pre-retirement transition leave” which was approved on August 6, 2013.

66In January, 2014, Mr. Nicholson reduced his hours of work at CRA. As a result, his hours of work were reduced to 60% of full-time employment and his pay was reduced to match. He drew down on the funds deposited to his RRSP in 2013 to supplement his employment income in 2014 and 2015. By the end of 2015, the funds in the RRSP were entirely depleted. He used the funds to pay, inter alia, support to Ms. Smith for 2014 and 2015.

67During this period of transition to retirement, Mr. Nicholson wrote a bird watching article for the local newspaper for a very modest sum which was almost entirely offset by his expenses. The reduced hours of work allowed Mr. Nicholson to indulge his passion for bird watching.

Retirement

68Mr. Nicholson retired from CRA on January 13, 2016 during the trial. At that point, he had worked for CRA and its predecessor for 34+ years. He testified that:

1. He initially chose to work for the government because it paid a fair wage, provided job security, a medical and dental plan, a pension, opportunity for advancement and training, and he could take pride in his work;
2. His pension is a defined benefit pension plan;
3. The amount paid on retirement from his pension is based on a formula which he believes is 2% x his best five years x the number of years of credited service to a maximum of 35 years;
4. To earn a full pension, i.e. unreduced pension, one must reach an 85 factor, i.e. age plus years of service equal or exceed 85. He reached that threshold at age 55 when he had 30 years of service;
5. During the years that he cohabited with Ms. Smith, he planned to work until he had a full pension. There was no concrete exit date that he and Ms. Smith had put in place. He testified: “I was going to work until I had a full pension and look up and see the lay of the land and decide from there.”
6. He denied any discussion with Ms. Smith that he intended to work until his parents died, at which point he is expected to receive a substantial inheritance;
7. There was no advantage to continuing to work at CRA since he could only accrue another two months of pension service credit;
8. Based on his experience, his age and years of service at retirement are consistent with and perhaps even a little longer than most CRA employees in his area.

69Following separation, he obtained a valuation of his pension for equalization purposes. On January 24, 2011, he caused to be paid to Ms. Smith the sum of $344,946.45 representing one half of the value of his pension to the date of separation with income earned thereon since separation.

70Mr. Nicholson timed his retirement to closely coincide with Chloe’s 24th birthday (in February, 2016), after which his obligation to pay any child support ceased. He testified that he does not seek to avoid altogether his spousal support obligations to Ms. Smith; rather, he seeks to vary the spousal support payable under the Separation Agreement based on a material change in circumstances contemplated by the Agreement. He takes the position that only pension entitlement (employment and government) accrued since the date of separation should be considered for the purpose of calculating the new spousal support payable because Ms. Smith received one half of the value of his CRA and CPP pensions accrued to the date of separation. If his full pensions are used to calculate future spousal support, Ms. Smith will be “double dipping”.

71Ms. Smith takes the position that:

1. Mr. Nicholson expressly committed to spousal support for her lifetime in recognition of the length of their marriage and the roles each performed during it;
2. Mr. Nicholson is retiring early to avoid or minimize his spousal support obligation. At a minimum, he retired without due regard to his commitment to pay spousal support to Ms. Smith;
3. Income should be imputed to Mr. Nicholson for a variety of reasons including his premature retirement from CRA;
4. Ms. Smith has significant ongoing need for spousal support until she reaches age 65 at a minimum. Her retirement plans contemplate that she will not draw down on her retirement investments or on the available government pensions like CPP until then;
5. If she has to start drawing against the capital put aside to fund her retirement, she will likely exhaust her savings before her death. She comes from a family that lives a long time;
6. She has dipped into her retirement accounts to pay for needed home repairs and maintenance; she needed to do so because Mr. Nicholson reduced the monthly support he paid for the children as they reached independence – he did not increase spousal support by an amount equal to the reduction;
7. Her needs justify “double dipping” which can be done in exceptional circumstances.

Ms. Smith’s Needs

72Exhibit 3 at trial is a brief of Ms. Smith’s Financial Statements, the most recent of which was sworn December 31, 2015. She discloses that in 2015, she earned $17,695 in addition to spousal support paid of $22,800. In addition, she estimates that she withdrew $10,769 from her RSP and had approximately $413 in income from an RLIF.

73Ms. Smith testified that she was teaching private yoga classes from home but had a setback due to a knee injury in 2015. On the advice of her doctor, she stopped teaching yoga for approximately eight months in 2015 to allow her knee to heal. According to her financial statement, she earns approximately $240 per month from the private lessons. In addition, she taught yoga at the YMCA where she earned $2666 doing that in 2015. She also worked part-time at My Sister’s Place for CMHA in 2015 where she earned $7000.83.

74All of her employment since the date of separation has been part-time. She has not applied for full-time employment since 1983. She hopes to increase her private yoga classes in 2016 to four classes per week and continue to work for CMHA on a part-time basis. She testified that she intends to continue to do the work she has been doing.

75At separation, Ms. Smith had approximately $67,000 of debt on a line of credit for which she became responsible. Since then, she has accumulated more debt. She incurred a second line of credit for roof repairs and taxes. She has been using her MasterCard for living expenses and to pay legal fees. In April, 2015, she refinanced her mortgage to consolidate her lines of credit and credit card debt. She presently has a mortgage with CIBC in the amount of $181,796 which is amortized over 30 years.

76Ms. Smith testified that when she refinanced, she increase the amount of the mortgage from approximately $115,000 to $181,796. She explained that as the children graduated and moved out, and her income went down, she could not meet her ordinary expenses. She wanted to stay in the house for herself and Chloe. Her debt has increased every year which she attributes to Mr. Nicholson paying reduced child support or combined support.

77According to her December 31, 2015 Financial Statement, her annual expenses are $68,728. This includes mortgage and property taxes of approximately $1200 per month, and repairs and maintenance to the house of approximately $1100 per month. She has a 13-year-old vehicle which she estimates it will cost approximately $230 per month for repairs and maintenance and a further $200 per month for car insurance and license. She estimates the current value of her home at $343,000 based on the MPAC assessment.

78It is abundantly clear that Ms. Smith is spending more than she brings in and has been for some time. Her desire not to move from an older five bedroom house that requires considerable ongoing maintenance is undoubtedly a significant factor. She has done little to increase her income since the date of separation. She relies upon spousal and child support as her principal source of income. She argues that Mr. Nicholson should have continued to work at CRA on a full-time basis so that she can continue to receive not only the agreed-upon $1900 for spousal support but an increased amount until she reaches age 65.

79Ms. Smith is eligible to apply for her CPP pension but has not done so. On the advice of her financial advisor, she prefers to wait until age 65 at which time she will draw a higher amount.

Positions of Parties

80As mentioned above, both parties seek to vary spousal support payable and rely upon the provisions of their Separation Agreement which permit a change in spousal support where there has been a “material change in circumstances”.

81Mr. Nicholson seeks to reduce his monthly spousal support because he has just retired from CRA. He submits that his retirement with attendant reduced income is a material change in circumstance. He maintains that his retirement is entirely reasonable at this stage of his life. He points to the following:

1. Ms. Smith received 50% of the value of his pensions, both employment and CPP, as of the Date of Separation.
2. He is 60 years old.
3. He has worked for CRA for almost 35 years.
4. He has achieved very close to maximum pensionable service time; if he worked only two more months he would be at the maximum.
5. He could have retired with a full pension at age 55 years but continued to work to meet his support obligations.
6. Most of his colleagues at CRA retire at or earlier than he has.
7. He has interests outside of work to pursue.
8. He gave Ms. Smith 2.5 years notice of his pending retirement – ample time to order her affairs.
9. Ms. Smith has done little to augment her income since separation, and continues to occupy a house that is far bigger than she needs. That house is and has been an unnecessary financial drain on her income.

82Ms. Smith asserts that Mr. Nicholson was required to pay and should continue to pay $3,800 per month for combined child and spousal support by the terms of the Agreement. In the alternative, Ms. Smith seeks to vary spousal support to increase it both retroactively and prospectively. She points to the following:

1. The Separation Agreement expressly recognizes that Mr. Nicholson’s spousal support obligation is for life having regard to the length of their marriage and the roles each performed during it;
2. Mr. Nicholson voluntarily retired and ceased his employment with CRA. He was not forced to retire by his health or employer.
3. Mr. Nicholson failed to promptly and properly disclose monies and benefits he received from his family including the WI2WI shares, the $35,000 from the trust under his grandmother’s Will, and the use and occupancy of a luxurious two bedroom apartment condominium for minimal monthly rent. These payments/benefits form part of his real annual income.
4. Mr. Nicholson failed to disclose the payment of severance in lieu by CRA in January 2013. His income for 2013 should include that amount.
5. He unilaterally and voluntarily reduced his annual income in 2014 and 2015 by working at only 60% of his regular hours. Income should be imputed to him equivalent to full-time hours for those two calendar years.
6. He has timed his retirement to coincide with the end of child support. In doing so, he has ensured that he fulfilled his child support obligations while minimizing the spousal support paid to Ms. Smith.
7. Despite the life-long support commitment made to Ms. Smith, he made no effort to ascertain or consider Ms. Smith’s financial needs before transitioning to a reduced work week and retirement.
8. If he worked longer at CRA, he would likely have increased the monthly pension amount paid to him since it is based on his best five years earnings. While he would have reached his maximum service pension time within a couple of months, there was nevertheless a financial benefit to him in continuing to work.
9. Ms. Smith suffered a knee injury that limited her income in 2015.
10. Ms. Smith’s income from other sources than spousal support is very modest. Her expenses have historically exceeded her income from all sources, including child and spousal support. That gap will widen when child support is further reduced to nil.
11. She has accumulated debt that arises from the inadequate support paid by Mr. Nicholson.
12. Ms. Smith’s ability to earn additional income at this stage in life is extremely limited. She has taken reasonable steps to do so.
13. If she is forced to further encroach on pension savings, she will likely run out of money before she dies.
14. She has a genuine need for increased spousal support until she reaches age 65. Her financial situation has deteriorated significantly as child support was reduced.
15. The end of Mr. Nicholson’s child support obligations is a material change in circumstances.

Law

83Before I set out the legal principles engaged, I will highlight portions of the Separation Agreement dealing with variation of support to provide context.

84Article 4.18 of the Separation Agreement allows either party to seek a change in child support “if there is a material change in the condition, needs or other circumstances” of either party or any of the children that would affect child support. Article 4.19 assists in defining what constitutes a “material change in the condition, means or other circumstances”. It says “may include” (emphasis added) which I interpret to mean that the list following is not an exhaustive list.

85Article 4.30 similarly contemplates a change in spousal support if “there is a material change in circumstances”. There was no evidence or submission that there was any significance to the difference between a “material change in the condition, means or other circumstance” and “material change in circumstances”.

86Article 4.30 is germane to the spousal support variations sought by the parties, so I will recite it in full at this point. It states:

“Spousal support may be changed if there is a material change in circumstances, even if the change was foreseen or foreseeable. The change may be:

a. in either party’s financial position, b. in the child support arrangements, c. Paul or Stephanie’s entitlement to receive money by way of gift, inheritance, trust, interest in expectancy, loans, advances, or other payments or receipts, including any sums which may or may not be taxable in Paul and Stephanie’s hands; d. or any other similar change but not simply the fact of either parties’ [sic] cohabitation or remarriage, it being agreed by Paul that Stephanie’s age, station in life, employment history and other unique factors including his likelihood of receiving a substantial inheritance and titles her to support for life, although Paul may apply to commute or prepay spousal support.”

87I note that:

1. There is no prior final order for support which the parties seek to vary. Child and spousal support were agreed to and incorporated into a formal agreement which has governed the parties until these proceedings;
2. The parties each seek to vary the spousal support agreed upon in the Separation Agreement;
3. Neither party seeks to set aside or resile from the Separation Agreement. To the contrary, both seek to apply it;
4. The Separation Agreement expressly contemplates that spousal support may be varied if there is a material change in circumstance.

88In L.M.P. v. L.S., 2011 SCC 64, Justice Abella and Rothstein (for the majority) set out the relevant principles to a variation of a spousal support order:

“a) the proper analysis of a variation application is the same whether or not a spousal order incorporates an agreement; that is, the threshold issue is whether or not there has been a material change in circumstances since the making or the order;

b) a material change must have some degree of continuity and not merely be a temporary set of circumstances;

c) what amounts to a material change in circumstances depends on the parties’ actual circumstances at the time of the order;

d) a term in an agreement that contemplates a specific type of change that will or will not give rise to a variation should be given effect to as it is evidence that the parties considered this particular situation changed circumstances;

e) a general clause in an agreement that support is final or implying it is final is still subject to a court applying an inquiry to determine if there has been a material change in circumstances;

f) once a material change in circumstances has been established, the variation order should properly reflect the objectives of a spousal support order taking into account the material change in circumstances and consider the existence of the separation agreement and its terms as a relevant factor; and

g) a court should limit itself to making the variation that is appropriate in light of the change. A variation should not be approached as if it were an initial application for support, not is it an appeal of the original order or a new hearing.”

Although the L.M.P v. L.S. decision arose under the Divorce Act, it is generally accepted that the above principles apply equally under the Family Law Act.

89I am mindful that this is not an application under section 17 of the Divorce Act. No divorce has been sought or granted. The parties remain married and as such, section 30 of the Family Law Act governs. That section states:

“Every spouse has an obligation to provide support for himself or herself and for the other spouse, in accordance with need, to the extent that he or she is capable of doing so.”

90In closing submissions, both counsel approached the variation issue with reference to case law dealing with material change in circumstance where the parties in those cases sought to vary a prior final order for spousal support. Certainly, the terms of the Separation Agreement reflect an intention to be consistent with the law in this area.

91Counsel provided extensive case law that addresses variation in support and the imputation of income in various circumstances including retirement, a change in child support, intentional underemployment or unemployment, and gifts.

92With respect to whether retirement constitutes a material change in circumstance to justify a reduction in spousal support, the following principles emerge from the cases provided:

1. Parties cannot avoid support obligations by unilaterally deciding to leave the workforce, whether by retirement or otherwise: Cossette v. Cossette, 2015 ONSC 2678, [2015] O.J. No. 2073 (Div. Ct.) at para 13. See also Bullock v. Bullock, [2004] O.J. No. 909 (S.C.J.) at para 13 and the cases cited therein;
2. Evidence that a payor voluntarily retired or withdrew from the workforce in order to frustrate the payment of support is an important fact militating against a finding of material change. In that case, the court may impute income to the payor up to the amount he would have earned had he not retired or withdrawn: Hickey v. Princ, 2015 ONSC 5596 (Div. Ct) at para 59, citing Teeple v. Teeple, [1999] O.J. No. 3565 (C.A.);
3. The absence of evidence that the voluntary withdrawal from the workforce was for the purpose of reducing or avoiding the obligation to pay spousal support does not give rise to an automatic right to vary spousal support: Hickey v. Princ, supra, at para 60;
4. The court must still consider the payor’s ability to pay support, which includes a consideration of his capacity to earn income either from the job he chose to leave or from other employment having regard to his circumstances: Hickey v. Princ, supra, at paras 60 and 64;
5. Where the payor retires considerably earlier than expected and the recipient spouse has good reason to rely upon support being provided for several more years, the payor may well be expected to seek new employment opportunities: Dishman v. Dishman, 2010 ONSC 5239 at para 29;
6. Whether the payor considered the financial circumstances and impact on the recipient spouse is one of the factors which the court will consider on an application to vary spousal support: Roy v. Roy, [2015] O.J. No. 73 at para 40; Bullock v. Bullock, supra, at para 1;
7. The court should consider the motivation for retirement and whether it is reasonable in light of the ongoing spousal support obligations: Innes v. Innes, 2013 ONSC 2254 at para 30.

93In Meissner v. Meissner, 2013 ONSC 5621, Fitzpatrick J. summarized the principles that apply to the imputation of income at paragraphs 34 – 37 as follows:

“34. 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 CarswellOnt 7171 (S.C.J.) and Rilli v. Rilli, 2006 CarswellOnt 6335 (S.C.J.)). Income imputation is not strictly limited to the payor spouse. It may also be imputed to the recipient spouse (see Spousal Support Advisory Guidelines).

35. Income may be imputed in circumstances where an individual is intentionally under-employed or unemployed (see: Drygala v. Pauli, 2002 CarswellOnt 3228 (C.A.) and Section 19(1) of the Guidelines.

36. Prior to a court imputing income to a party under section 19(1), they must undertake the three-part analysis set out by the Court of Appeal in Drygala (2002). Specifically, a court must ask itself:

a. Is the spouse intentionally under-employed or unemployed? b. If so, is the 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?

37. In Smith v. Smith (2012), [2012 CarswellOnt 3113] Justice Chappel outlined the relevant factors for determining whether to impute income as follows:

a. 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; b. 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, skills and health of the party, the party’s past earning history and the amount of income the party could reasonably earn if they had worked to capacity; c. 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 dependents; d. 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; e. 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 parties support obligations; f. 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, g. 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.”

Issue #1: Was Mr. Nicholson entitled to reduce the amount paid to Ms. Smith as and when each child ceased to be a dependent?

94This issue gives rise to two questions:

1. Was Mr. Nicholson entitled to unilaterally reduce child support as the children reached age 24 or independence?
2. Was spousal support supposed to increase by the amount of any reduction in child support?

95Both questions require a consideration of the terms of the Separation Agreement.

i) Reduced Child Support

96The Separation Agreement required Mr. Nicholson to pay $1900 per month to Ms. Smith for four dependent children based on his then annual income. The $1900 was the Table amount. Article 4.10 defines when child support ends “for each child”. It expressly ends his obligation to pay child support for a child upon the happening of specific events including, inter alia, when the child turns 24 years of age, a child becomes self-supporting or a child marries.

97Further, Article 4.15 indicates that when Mr. Nicholson’s obligation to support a child ends, the parties will determine the support payable for the other children at that time under the Guidelines. That is precisely what occurred. As each child reached one of the milestones, a recalculation was done by Mr. Nicholson which he provided to Ms. Smith. There is no evidence that she disputed that the milestone had been reached for any particular child. She accepted the reduced child support because that is what the Agreement called for.

98In my view, the Separation Agreement very clearly contemplated that Mr. Nicholson’s obligation to pay child support would be reduced as and when each child reached one of the milestones specified in the Agreement. This is consistent with what the parties did as Ben neared completion of his schooling in 2010, and what happened when Eve and Skye reached independence. Ms. Smith’s own correspondence to Mr. Nicholson dated February 25, 2010 reflects that she had exactly the same understanding, as does the agreement that she signed on April 13, 2010.

ii) Offsetting Increase in Spousal Support

99I reject the submission made by Ms. Smith’s counsel that as child support reduced, Mr. Nicholson was to continue paying $3800 per month, i.e., that as child support went down, spousal support went up in an equal amount. This submission is entirely without merit. It places a tortured construction on the Separation Agreement and completely ignores the conduct of Ms. Smith in the years between execution of the Separation Agreement and her Motion to Change. It is not even a position advanced in the Motion to Change. This argument by the Applicant first advanced at trial is over-reaching.

100I find that the reference to “combined” spousal and child support in the Separation Agreement simply reflects Mr. Nicholson’s obligation to pay each of child support and spousal support. The agreement expressly pegs the amount payable for spousal support at $1900 per month. It likewise initially sets child support at $1900 per month, both of which are paid bi-monthly in equal instalments.

101If the parties had intended that as child support reduced, spousal support would increase so that the amount of support payable stayed at $3800, they could easily have provided for same in the Agreement. There is no such term.

102Article 4.30(b) allows for a change in spousal support if there is a material change in circumstances, even if the change is foreseen, including a change in child support arrangements. The Separation Agreement allows Ms. Smith to apply to the court to increase spousal support if there is a change in child support, something she did not do before this Motion to Change.

103Further, the agreement that she signed and initialed on April 13, 2010 specifically dealt with a change in child support where spousal support stayed the same. If the Separation Agreement truly required spousal support to go up as child support went down in an equal amount, why did she sign an agreement that recognized otherwise?

104As it relates to spousal support, the provisions of the Separation Agreement require Mr. Nicholson to pay Ms. Smith a flat sum of $1900 per month unless and until the parties agree to a different monthly amount or the court makes an order on a motion to change. Unlike child support which expressly allowed for a reduction in the amount payable as children reached defined milestones, there is no comparable provision. A reduction in child support may amount to a material change in circumstances but that is not automatic. I will address whether the reduction in child support is a material change in circumstances below.

Issue #2a: Should income be imputed to Mr. Nicholson for the calendar years 2016 forward until Ms. Smith turns 65 because of his retirement in January, 2016?

105The Separation Agreement does not list retirement as a material change in circumstance, nor does it contain any indication of Mr. Nicholson’s expected retirement date as is sometimes found in such agreements. I accept Mr. Nicholson’s evidence that there was no discussion with Ms. Smith that he would work until the death of his parents. That seems to me an unlikely conversation and far too uncertain date in any event.

106It is undisputed that Mr. Nicholson’s retirement from CRA is voluntary. He is not retiring for health reasons, nor is he being forced from employment by circumstances beyond his control. Rather, he testified that he simply wished to withdraw from the workforce, to spend time on activities he enjoys while he has his health and to reap the benefits of nearly 35 years of employment.

107The first question I must consider is whether his decision to retire is motivated by a desire to reduce or avoid the payment of spousal support.

108I am satisfied that Mr. Nicholson deliberately and consciously ordered his retirement to coincide as nearly as possible with the end of his child support obligations. He is devoted to his children and would not see them perceive that he did other than fulfill his support obligations for them. He does not bear the same level of commitment where Ms. Smith is concerned.

109I observe that:

1. He did not promptly disclose the fact of the unexpected one-time payment for severance in lieu in 2012 even though some portion of the value of that benefit accrued during the time the parties were living together;
2. Instead, he had the funds deposited into an RSP account which he also did not promptly disclose to Ms. Smith;
3. He notified her months after that deposit that he was going to be working fewer hours with the disingenuous assurance that support would not reduce over the next two years. I say disingenuous because arguably, she would have been entitled to assert a claim to either a share of the severance payment for equalization or increased spousal support in 2013. Absent disclosure of the payment, she would logically infer he was earning less with no other income to offset the reduction; and,
4. There is no suggestion in the evidence that he was dissatisfied with his employment at CRA; that after 35 years, he had wearied of the tasks he performed or the people with whom he worked. This is not a case where he was and had been unhappy in his work for some time.

110Mr. Nicholson is a man in good health who held a secure and stable job that paid a good wage. He managed the family finances during the parties’ period of co-habitation. He demonstrated a life-long pattern of careful financial planning. As his annual recalculations and child support adjustments indicate, he was well-versed on the terms of the Separation Agreement and his obligations. He surely appreciated that as child support ended, Ms. Smith could (and eventually did) seek to vary spousal support given the elimination of all child support and his income. He timed his departure from CRA to forestall that claim and to significantly reduce her spousal support as soon as the last child reached age 24.

111It is my view that Mr. Nicholson’s retirement from CRA was intended to reduce the spousal support otherwise payable by him to Ms. Smith under the Separation Agreement. His retirement is motivated by that goal. Accordingly, I find that his retirement does not constitute a material change in circumstances pursuant to Article 4.30 of the Separation Agreement.

112The evidence at trial does not include what amount he would have earned in 2016 at CRA if employed full-time. Therefore, for spousal support purposes, I find that Mr. Nicholson’s 2016 income shall be $106,500 which I have estimated based on his 2013 income net of the severance payment in lieu (his last year of full-time employment) with a modest increase for inflation/cost of living.

113I am not prepared to order that Mr. Nicholson should work until Ms. Smith reaches age 65. There is much that could happen to either or both between now and then. It is sufficient for now that I fix the above amount for income for Mr. Nicholson for spousal support purposes. That amount should continue to be used to calculate his annual income for an indefinite period which should be reviewed at the end of 2017 unless the parties reach an agreement otherwise.

Issue 2b: Should income be imputed to Mr. Nicholson for the calendar years 2014 and 2015 given his voluntarily reduced income from employment while he transitioned to retirement?

114I find that the decision by Mr. Nicholson to transition to retirement was part and parcel of the plan to retire early to thwart or reduce the payment of spousal support to Ms. Smith when child support ended. Mr. Nicholson was able to avail himself of that programme at CRA because he accepted the payout of the severance benefit and used that additional income to supplement the shortfall that resulted from working fewer hours each week in 2014 and 2015. He kept Ms. Smith in the dark about the lump sum payment. I reject his explanation that he was going to disclose it a year later when he disclosed his 2013 income. It was an extraordinary payment, a portion of which was earned during the period they lived together.

115In my view, the proper course was to promptly alert Ms. Smith that this benefit was available and paid to him. The value of that benefit was not disclosed in his Financial Statement when the parties negotiated the Separation Agreement, including equalization. Perhaps he forgot that benefit was there when they were negotiating; perhaps he deliberately withheld that information from Ms. Smith – I cannot say on the evidence before me. It is clear, however, that in the Fall of 2012, he knew of the benefit and its value but failed to disclose it.

116I find that Mr. Nicholson deliberately reduced his earnings in 2014 and 2015 from CRA, and did so as part of the scheme to reduce spousal support payable to Ms. Smith. He knew that the severance payment would be a red flag that would likely justify an increase in spousal support absent a corresponding reduction in income from the transition to retirement programme.

117Therefore, I find that income should be imputed to Mr. Nicholson for each of 2014 and 2015 such that his employment income from CRA was $104,000 for 2014 and $105,000 for 2015. These amounts are exclusive of the $54,050.10 received in January 2013 for the payout of the severance benefit.

118As it relates to the payment of $54,050.10, I find that that amount should be considered part of his 2013 employment income for spousal support purposes. It is included in the figure for 2013 at paragraph 60 above. The resultant substantial increase in his 2013 income constitutes a material change in circumstance under Article 4.30 of the Separation Agreement.

Issue 2c: Should income be imputed to Mr. Nicholson for the $35,000 received from the trust established by his grandmother that was paid to him and used to pay his legal fees herein?

119Article 4.30 (c) contemplates that a material change in circumstance may arise when either of them becomes entitled to receive money “by way of gift, inheritance, trust…, or other payments or receipts, including any sums which may or may not be taxable…”.

120The evidence clearly establishes that at the time of the $35,000 payment, Mr. Nicholson was entitled to receive only the income generated by the funds held in trust under his grandmother’s estate. On his death, his children are to receive the capital. That capital has been reduced to his benefit and the disadvantage of his children by the $35,000 payment. It is not a loan which he must repay, nor is there any evidence that his children knew of and consented to the payment to him.

121I find that the $35,000 payment from the estate of his grandmother is a material change in circumstances and should be attributed to his 2015 income for spousal support purposes. It is a payment or gift in a significant amount. Although apparently a one-time payment, it nevertheless provides a material financial benefit to Mr. Nicholson. There is nothing to indicate that his mother may not do the same again despite the obvious detrimental impact on his children/her grandchildren.

Issue 2d: Should income be imputed to Mr. Nicholson for monies received by him from the same trust for each child’s education?

122The short answer to this question is: no. Mr. Nicholson was a mere conduit for monies advanced from the trust for the direct benefit of the children. This was done before and after the date of separation. I accept his explanation that the value of an education has long-term benefits for the children which justified the encroachment on capital. Ms. Smith was content with this arrangement before they separated. He derived no direct financial benefit from these transfers, unlike the $35,000 payment above.

Issue 2e: Should income be imputed to Mr. Nicholson for the condominium he lets from his sister-in-law?

123The evidence on this issue is entirely unsatisfactory. I have no evidence as to what a fair market rent would be for the Picton apartment. Mr. Nicholson pays utilities and an amount that covers condominium fees and municipal taxes. There is no comparator against which to measure the amount he pays. A mere suspicion of benefit is not sufficient. Therefore, I decline to impute any income or benefit to Mr. Nicholson for the Picton apartment.

Issue 2f: Should income be imputed to Mr. Nicholson for the WI2WI shares gifted to Mr. Nicholson by his father?

124Mr. Nicholson received the shares as a gift from his father in 2014. He sold them in 2015 for approximately $19,000. I find that this amount should be attributed to his 2015 income, the year he realized the benefit of the gift. Again, the Separation Agreement recognizes that gifts may amount to a material change in circumstances. In this instance, the gift is a significant one. I find that it amounts to a material change in circumstance for the purpose of spousal support.

125The evidence at trial was that the parties ordered their respective roles and their finances during their cohabitation in recognition that Mr. Nicholson, quite fortunately, was likely to come into money from either or both of the estates of his grandparents and parents. That prospect is evident in the terms of the Separation Agreement as well; that those inheritances and inter vivos gifts may be significant amounts which would impact what Mr. Nicholson can afford to pay for child and spousal support.

Issue 3: Should income be imputed to Ms. Smith post-separation?

126Mr. Nicholson submits that Ms. Smith has done little to earn an income particularly since 2013. By then, the children were all either finished their schooling or in post-secondary institutions. She has a post-secondary degree in education. She has contented herself with part-time work that provides very modest income, relying instead on child and spousal support. He argues that she has an obligation under section 30 of the Family Law Act to provide support for herself to the extent she can. She has under-achieved and income should be imputed to her.

127To some extent, this argument also responds to Ms. Smith’s motion to vary spousal support based on need. Mr. Nicholson contends that:

1. Her needs would be met or at least substantially reduced if she worked and earned more; and,
2. Her needs are exacerbated by the expense of a home which is far larger than necessary.

128Ms. Smith testified and other evidence confirmed that she has asked for more hours at My Sister’s Place. Unfortunately, there simply is not enough funding to expand her hours. Her work is excellent and well-regarded. Nevertheless, in the face of that fact she has done nothing to seek full-time employment elsewhere or to explore other part-time work that would generate income. Ms. Smith testified that she continues to see her role as that of a mother and, soon to be grandmother.

129I agree with Mr. Nicholson that Ms. Smith has not made a serious effort to earn additional income to provide for her needs. It strikes me that she is willing to work so long as it does not impinge upon the routine and lifestyle she has structured. The Separation Agreement contemplates that child support will diminish as the children become independent which three of four now are, and the fourth soon will be. Even Chloe, the youngest, is a mature and self-reliant young woman. As child support reduced, it was reasonable to expect that Ms. Smith would utilize the time not needed for child rearing to expand skills and enter the workforce.

130I appreciate the challenges faced by those who try to return to the workforce after a lifetime as a stay-at-home parent. Nevertheless, I find that she has not made sufficient effort to obtain employment to provide for her needs. The evidence before me is regrettably limited as to what job market exists for Ms. Smith and what income she could have expected to earn. I am satisfied that with Ms. Smith’s education and obvious intelligence, she should be able to work sufficient to earn at least $30,000 per annum and that was the case as early as 2013.

131I agree with Mr. Nicholson’s assertion that Ms. Smith is living beyond her means, particularly as it relates to holding onto a five bedroom home that requires considerable ongoing upkeep. One of the bedrooms has been converted to a private yoga studio, but that leaves four bedrooms for two, soon to be one person. There is a separate private art studio on the property. There is surely an opportunity to earn income by taking in boarders, or letting out the studio. She has not done so. However, there is no evidence of any kind as to that opportunity and the income she might earn; as a result, I will not impute rental income in these circumstances.

Issue 4: Should the amount payable for spousal support under the Separation Agreement be varied retroactively or prospectively having regard to Ms. Smith’s need, any increases in income, and his retirement?

132Chloe turned 24 years on February 17, 2016. Mr. Nicholson’s child support obligations ended at that point in accord with the Separation Agreement. Ms. Smith argues that she should have increased spousal support retroactive to December 2013 at latest when she commenced this motion to vary. She bases that retroactive spousal support on Mr. Nicholson’s increased/imputed income, the reduction in child support and her need.

133I agree that the termination of child support in February, 2016 constitutes a material change, albeit one Mr. Nicholson hoped to offset by retirement. I have addressed his retirement above and, in light of those findings and the imputation of income for 2016, there is a significant gap between his imputed 2016 income and that of Ms. Smith. It is appropriate to vary spousal support going forward.

134I also find that it is appropriate to vary spousal support payable starting in July, 2013 based on the following:

1. Mr. Nicholson’s receipt of $54,050.10 for the severance benefit in January, 2013;
2. His failure to disclose that payment;
3. His receipt of payments/gifts from the trust and his father; and,
4. The significant gap between his income and Ms. Smith’s income as child support reduced.

135Given my findings above, Mr. Nicholson’s income as imputed for 2013-2016 is as follows:

2013 - $159,269 2014 - $104,000 2015 - $159,000* 2016 - $106,500 (* denotes base CRA income of $105,000 plus $35,000 (trust) and $19,000 (shares)).

136I have undertaken Divorcemate calculations for each of 2013-2016 based upon my findings above with respect to the incomes earned by the parties in that period. I attach copies of those calculations for ease of reference for the parties.

137For 2013, I have used Mr. Nicholson’s income of $159, 269, and Ms. Smith’s income of $30,000. The calculation includes child support payable for Chloe. The mid-range for spousal support under the Spousal Support Advisory Guidelines (SSAGs) is $ 3267 per month. I have used the mid-point throughout these calculations as the circumstances are not such as would require a support amount at the upper end of the range or at the lower end of the range. Nicholson paid $1900 per month as per the Separation Agreement leaving a monthly shortfall of $1367.

138I have fixed the commencement of the variation of spousal support payable to Ms. Smith at July 1, 2013, not December, 2013 as:

1. Mr. Nicholson did not promptly disclose the payment received of $54,050;
2. Had he done so, it is reasonable to expect Ms. Smith would have moved to vary spousal support in a timely way and earlier than she did;
3. She initiated this application to vary roughly the same length of time after receiving Mr. Nicholson’s letter that he planned to retire; i.e. there was an almost 5-6 month delay in initiation of these proceedings. Had he informed her in January when the funds were deposited, a similar time delay brings her to July.

139Therefore, the accrued arrears of spousal support for 2013 are $8,202 ($1367 x 6 months).

140For 2014, I have used Mr. Nicholson’s imputed income of $104,000 and Ms. Smith’s income of $30,000. Again, Mr. Nicholson was paying child support for Chloe and that is taken into account. The mid-point for spousal support according to the SSAGs is $1782. He was paying $1900 during that year and is therefore entitled to a credit against 2013 arrears of $1416 ($118 x 12 months).

141The total therefore owing for 2013 and 2014 is $6786 (being $8202 less $1416). That amount must be discounted to reflect that unlike the monthly support of $1900 paid, Ms. Smith will pay no income tax and Mr. Nicholson will not be entitled to a tax deduction given the passage of time. The table on the Divorcemate calculation indicates that Mr. Nicholson’s average income tax rate is approximately 24%. Therefore, I discount the amount owing by a corresponding percentage ($6776 x .76) to arrive at $5157.

142For 2015, I have used Mr. Nicholson’s imputed income of $159,000 and Ms. Smith’s imputed income of $30,000. Again, this calculation takes into account child support paid for Chloe. The SSAG mid-point is $3571. He paid $1900 monthly leaving a difference of $1671. There is no need to discount because the parties are able to re-file their tax returns for 2015 and the additional income paid for spousal support will be taxable in Ms. Smith’s hands. Therefore, the accrued arrears for 2015 are $20,052.

143The monthly spousal support payable for 2015 shall continue to February 29, 2016, after which spousal support must be calculated using a no-child support approach. For that calculation, I have used Mr. Nicholson’s imputed 2016 income at $106,500 and Ms. Smith’s imputed income at $30000. The SSAG mid-point is $2789. Mr. Nicholson has paid at the rate of $1900 in 2016. The shortfall or arrears for January and February, 2016 is $3,342. There is an ongoing shortfall of $889 per month starting March 1, 2016 to the date of release of this decision.

144The monthly spousal support payable to Ms. Smith going forward shall be $2789 effective immediately.

145I note that both sides accused the other of additional income – Mr. Nicholson from his monthly birding column, and Ms. Smith from monies withdrawn or received from her retirement savings for home repairs. These are modest amounts which do not materially impact the outcome. Had I included those figures, the spousal support figure used would have been adjusted in the range to come to essentially the same endpoint.

146Mr. Nicholson also argued that Ms. Smith is forgoing income from her CPP pension by deferring receipt of that benefit until she reaches age 65. I disagree. She is following the advice of her financial planner who testified at trial. The deferral will maximize what she receives for her retirement by which time Mr. Nicholson’s spousal support is likely to be significantly lower. It is a reasonable approach.

Conclusion

147I conclude as follows:

1. Spousal support payable under the Separation Agreement is varied and Mr. Nicholson shall pay spousal support to Ms. Smith effective March 1, 2016 in the amount of $2,789.

2. Spousal support payable shall be reviewed at the end of 2017 unless the parties agree otherwise.

3. Arrears of spousal support for the period July 1, 2013 to February 2016, are fixed at $28,551 comprised as follows:

   2013 – 2014 -$5157 2015- $20,052 Jan/Feb 2016- $3342.

4. Mr. Nicholson’s application to reduce spousal support payable is dismissed.

5. The parties may make written submissions as to costs within 15 days of release of this decision if they cannot agree otherwise.

”Original signed by Raikes J.” The Honourable Mr. Justice Russell Raikes