Court File and Parties

COURT FILE NO.: FC-16-051509 DATE: 20170217 SUPERIOR COURT OF JUSTICE - ONTARIO

RE: Donna Lynn Lovie, Applicant AND: Neil McQueen Lovie, Respondent

BEFORE: THE HONOURABLE MADAM JUSTICE S. E. HEALEY

COUNSEL: Debra L. McNairn, Counsel for the Applicant Grant W. Gold, Counsel for the Respondent

HEARD: February 15, 2017

Endorsement

[1] By this motion the applicant wife seeks orders requiring the sale of two jointly owned assets - the matrimonial home and a boat.

[2] The respondent husband gives three primary reasons for opposing this motion: a sale will prejudice his claim for unequal division; a trial is required in order for the court to have a full appreciation of the evidence related to that claim; and the applicant's financial disclosure is incomplete at this time.

[3] The respondent's claim for an unequal division is premised on the allegation that the applicant misappropriated funds from his corporation, Scot Carpentry Costom Trim Inc. ("Scot's") during the last five years of their marriage, while she was performing the bookkeeping for that business. His allegations in this respect are that the applicant misappropriated approximately $227,800 from Scot's through ATM withdrawals and cheques ($179,900 in cheques and $47,900 in ATM withdrawals). He further alleges that she underreported his income to CRA during those years due to further misappropriation of income, which will result in him having to pay further taxes and penalties on what he projects to be his more accurate income of $150,000.

[4] The relevant law applicable to this motion is that pertaining to an interim order for sale of jointly owned property, in conjunction with a consideration of the law developed under s. 5(6) of the Family Law Act, R.S.O. 1990, c. F.3. With respect to the latter, even though this is an interim motion it bears keeping in mind that the onus will be on the respondent to satisfy the court that an equal division would be unconscionable. The law is clear that this is an exceptionally high threshold to meet, and that the focus is ultimately on the result of equalization: Serra v. Serra 2009 ONCA 105 (Ont. C.A.); Symmons v. Symmons 2012 ONCA 747 (Ont. C.A.). While the respondent does not have to demonstrate a potentially unconscionable result to defeat this motion, he does need to meet the onus of showing a prima facie case for his claim to an unequal division, as the matrimonial home and boat are the only significant assets owned by these parties from which any such payment could be satisfied: Goldman v. Kudeyla 2011 ONSC 2718 (S.C.J.) at para. 18; Zargar v. Zarrabian 2016 ONSC 2900 (S.C.J.) at para. 8; Bonnick v. Bonnick 2016 ONSC 657 (S.C.J.) at para. 3. As the party resisting the sale, the respondent must alternatively show that the applicant has engaged in malicious, vexatious or oppressive conduct: Latchman v. Latchman, 2002 CarswellOnt 1757 (Ont. C.A.), at para. 2. I use the word "alternatively" because s. 5(6) of the Family Law Act does not specifically require a party to show such conduct. Failing proof by the respondent of an arguable case for unequal division, the applicant is entitled to exercise her prima facie right under s. 2 of the Partition Act, R.S.O. 1990, c. P.4 to obtain an order for partition and sale of the jointly owned home.

[5] The facts that I find relevant to this decision are those that follow. The parties had a 9 year relationship; 2 years of cohabitation preceded their marriage in July, 2009, and they separated on May 5, 2016.

[6] The current matrimonial home was purchased in March 2009, and the parties’ respective contributions to the down payment are not in dispute. The applicant contributed $47,000 from the sale of a previously owned property, and the respondent contributed $8,000 (figures rounded).

[7] The applicant has three children from a former relationship, all of whom remain dependent. She and the children moved into rental accommodation on the date of separation. The respondent has had de facto exclusive possession of the matrimonial home since that date, with the exception of a single instance arranged between counsel for the applicant to retrieve her personal possessions. The respondent has paid all expenses relating to the home and boat since then. The respondent has no support obligations arising out of any former relationships. He has not paid child support to the applicant, insisting that the applicant should pursue such claim from the children's biological father.

[8] The respondent is the sole shareholder of Scot's, which has a business year-end of March 31. It is the respondent's sole source of income. Scot's is a modest enterprise. Prior to the applicant's involvement in its bookkeeping, between 2002 and 2008 the respondent's total line 150 income ranged from a low of $4,152 to a high of $58,087.

[9] The respondent had tax arrears of $150,000 at the time of entering the marriage. During the duration of their marriage the matrimonial home was remortgaged on four occasions. On three of those occasions the net proceeds from refinancing were used to either satisfy Scot's HST arrears or the respondent’s personal income taxes, for which CRA had placed a lien on the property for $123,000. The total amount of borrowing which diminished the equity in the home, and which benefited Scot's or the respondent personally totalled $222,975.

[10] The applicant is a bookkeeper by training. By mutual agreement, she began to do the bookkeeping for Scot's after the parties’ marriage. She initially began helping the respondent with his business when she became aware that he had been deducting but not remitting source deductions. She helped him catch up with his books in about 2009 when she learned that he had not filed his 2007 or 2008 tax returns. The respondent used the accounting firm of Mack Chieu even prior to knowing the applicant, and proceeded to use that firm until 2013. She continued to maintain Scot's books even after December 2014 when she began working part-time for an accountant, Eric Heilbronn. The applicant had signing authority on Scott's business account at RBC, and possession of a debit card tied to that account. In the spring of 2015 the respondent met with Mr. Heilbronn and decided to use Mr. Heilbronn as his personal and corporate accountant going forward. The respondent always "signed off" on the business financial statements and tax returns. The parties would review them together and the applicant's evidence is that she would attempt to explain them to the respondent.

[11] The applicant used the QuickBooks program and a laptop to maintain the business records for Scot's. Her evidence is that she made sure that the bookkeeping for the March 31, 2016 year-end was completed before leaving in May. That laptop has been in the respondent's possession since August 2016. During argument the applicant learned for the first time that the respondent intends to have a forensic analysis performed in respect of it, presumably to examine any deleted files. Another laptop, given to the applicant as a birthday gift and used as her personal computer, has been in the respondent's possession since October 2016 and a preliminary forensic analysis has been performed on it on the respondent's behalf by RBS Computer Forensics. A reporting letter dated January 14, 2017 from RBS is in evidence. The respondent has not pointed to any evidence on this motion arising from that analysis that would support his position that the applicant has “scooped” and hidden funds from Scot's over the years.

[12] Mr. Heilbronn was examined for the purposes of this motion. He has loaned the applicant $55,000, evidence by promissory notes. The notes bear no interest and have no repayment date. The applicant has provided evidence demonstrating that these sums came from her employer and have been deposited to her personal account to meet her own living expenses. The first advance occurred before separation. In his evidence Mr. Heilbronn explained that he knew about the separation before the respondent because the applicant was leaving the marriage in a state of fear as to the respondent's reaction. Mr. Gold pointed to the fact that Mr. Heilbronn may have been in a conflicted position as the accountant for both parties as well as Scot's, and yet he prepared the March 31, 2016 year-end financial statements and tax return based on information given to him by the applicant alone, and without consulting with the respondent or having him review the figures in question. Mr. Heilbronn explained that he saw nothing in the numbers for that year to differentiate the bookkeeping records from former years, and that he did make an attempt to reach the respondent for review. Mr. Gold also pointed to the fact that the promissory notes bear no interest rate or repayment date as evidence that something is going on that does not "add up". Mr. Heilbronn’s evidence, together with that of the applicant, suggests instead that he anticipates being repaid for the sale of the parties’ home, and that he has a generous spirit and high regard for the applicant. There is no suggestion of a romantic link between the applicant and her employer.

[13] The evidence is that the respondent accepted cash for some jobs and kept cash on hand. He also generated his own hand-drawn invoices. He claims to have none of these invoices. The applicant states that all such business records were left in the matrimonial home in the respondent's office. Other than her one re-entry to retrieve her own personal possessions, including documents boxed up by the respondent, she has had no access to his records.

[14] The applicant denies all allegations that she has personally benefited from income earned by Scot's by hiding it from the respondent or otherwise misappropriating it, or that she has underreported income to CRA either for the corporation or the respondent personally. The respondent during questioning admitted that he has always taken money from his business for purchasing personal items, and after his cohabitation with the applicant he continued to pay the household bills from the business account, and encouraged the applicant to do so. He also admitted during questioning that they began income splitting after cohabitation in order to take advantage of the applicant's lower income. His former accountant would advise how best to structure this division in the most advantageous way. The applicant began being paid by Scot's in 2011 for her bookkeeping services. A letter exists from Scot's which confirms her annual salary of $36,500 at December 2014 as a "permanent full-time employee", which is signed by the respondent.

[15] Both parties had access to the corporate account, and the applicant was given signing authority with respect to it. With respect to the withdrawals over the past five years, the respondent denies that he made any of them, while the applicant states that she cannot definitively say which of the two of them made those withdrawals or what the funds were used for.

[16] With respect to the cheques, the applicant states that the total sum is $144,150, not the "approximate amount" of hundred and $179,900 suggested by the respondent. The applicant argues that the highest case for the respondent is that there is a total of $81,035 over five years that is unaccounted for between the ATM withdrawals and the cheques, once her T.4 income is subtracted, and that this comes nowhere close to establishing unconscionability given all of the facts of this case. Nonetheless, despite it being the respondent's case to establish his claim for unequal division, the applicant has gone to the effort of going through all of the cheques written for one year – 2015 - and has provided a full explanation to the respondent in respects of cheques written in that year.

[17] In addition, the evidence establishes unequivocally that the applicant has provided timely, detailed and fulsome financial disclosure. She has obviously spent many hours answering her undertakings, responding to the respondent's allegations and explaining the financial circumstances of these parties. In the face of that detail disclosure, the respondent has not been able to raise any truly compelling red flags or the spectre of misappropriation of funds. One issue raised by him related to a December, 2016 trip provided to the applicant and her children by her family as a gift. It was her understanding and evidence that they had provided the trip from travel points. When she was pressed by the respondent to provide proof of that, she was given a credit card statement from a family member which indicates that it may have been funded other than through points. The respondent argues that this still leaves questions about where the money originally came from to fund the vacation, and continues to request disclosure in respect of other payments on that credit card statement not belonging to the applicant.

[18] The applicant alleges, and it was confirmed by the respondent during his questioning, that in the past he made allegations resulting in lengthy litigation with a former partner, stating she had manipulated him for her own financial gain and blaming her for his own financial problems. He alleged that she tricked him into taking title to their home in her name alone, and forged his signature to facilitate the deception.

[19] The respondent has been given opportunities since last May to purchase the applicant's interest in the house, but has shown no evidence that he would qualify to do so. In questioning, he stated that he will not qualify to carry the matrimonial home in his name alone. He has an office in the home but does not use it to meet with clients. No one else resides in the home.

[20] Respondent's financial statement sworn February 10, 2017 [i] estimates the property to be worth $725,000 with first and second mortgages totalling $574,936. The boat, a 2012 Cruiser 380, is estimated to have a value of $220,000, with a loan registered against it exceeding its estimated value.

Decision

[21] This is a case in which sale of jointly owned property prior to trial is justified.

[22] One party cannot hold joint assets hostage and delay timely resolution out of ignorance regarding the true state of his financial affairs, which I find is the case with the respondent. The respondent, I expect, will continue to push his claim for unequal division, exhausting the applicant with ongoing requests for financial disclosure. Until all of the equity in the home is spent on legal fees. It is unfair to her given her careful and detailed attempts to satisfy the respondent's unwarranted claim that she stole money from Scot's.

[23] As the applicant argues, at the highest the respondent can point to approximately $81,000 in "unexplained" expenditures. The applicant has explained one years’ worth of those expenditures in detail, and should not have to continue this pointless exercise. The reason for this should be obvious. Divided over the five years in which the respondent believes the misappropriation to have occurred, approximately $16,200 per annum remains "unexplained". Together, the parties combined incomes over those five years is $312,971 [ii], which averages to an annual combined income of $62,594. During those years, the parties maintained a household of five people on this average income of $62,594. According to the respondent's financial statement sworn December 13, 2016, they were maintaining mortgages at the time of separation totalling close to $290,000, which required combined monthly payments of $3,158. The boat expenses, including loan, marina fees, insurance and maintenance, cost $4,796 per month. These combined payments of $7,954 monthly cost of the parties $95,448 per annum leading up to their separation, well exceeding their combined reported incomes. And yet the respondent still asks the applicant to explain what happened to $16,200 annually?

[24] As for the respondent’s assertions that he actually earned $150,000 and will have to refile his taxes, he has taken no steps to do so and is highly unlikely to given that he has historically attempted to minimize his payment of taxes and his return were prepared by an accountant throughout, without issue from CRA. While the evidence does in fact suggest that the respondent’s income was greater than represented, the respondent’s willingness to be paid in cash is a more plausible explanation then the allegation that the applicant has been stealing from him.

[25] Given the respondent's history of financial irresponsibility as explained extensively in the applicant's affidavits, it is not surprising that he fails to grasp these obvious points. I strongly suspect that, were it not for the applicant taking charge of his books and ensuring that regular remittances and filings were made, he would be in a much worse financial position than he is currently. Suffice it to say that he has failed to make out any malicious, vexatious or oppressive conduct on the part of the applicant.

[26] Further, the respondent's claim for unequal division bears no reasonable prospect of being successful at trial based on the evidence revealed by this motion, and therefore there is no reason to have such claim forestall the sale of these assets and the resolution of this file. The home and boat will be sold. There is no reason to further waste the parties funds through a formal appraisal of the home, as the market value will be ascertained through a sale guided by the realtor as requested in the applicant's notice of motion.

[27] An order shall issue in accordance with paragraph 1 and 4 through 6 of the applicant's notice of motion dated November 29, 2016, with the following changes:

(a) at 1 (c) the date of February 15 shall be changed to February 21; (b) at 1 (i) by deleting the words "as provided by para (2) herein" and adding the words "and payment of repairs and improvements referenced in (b) herein"; (c) at para 6 the date of February 15 shall be changed to February 28; (d) at para 6 (a) the date of February 8 shall be changed to February 28.

[28] An endorsement on cost will follow after the court reviews the applicant's offer to settle, and further submissions on costs will be requested if necessary.

HEALEY J. Date: February 17, 2017

[i] The respondent's counsel is reminded that this financial statement, which was provided to the court at the argument of the motion, still needs to be properly filed in the continuing record.

[ii] This is if $50,000 is arbitrarily assigned for the respondent's 2012 income, which is unknown. $50,000 may be an over-estimation given his historic income.