Court File and Parties

COURT FILE NO.: F1363/09 DATE: May 16, 2017 SUPERIOR COURT OF JUSTICE – ONTARIO FAMILY COURT

RE: Brenda Schmidt, Applicant AND: Lawrence Schmidt, Respondent

BEFORE: TEMPLETON J.

COUNSEL: Erin Burns for the Applicant Jennifer Wall for the Respondent

HEARD: In Writing

Endorsement

[1] The parties were divorced on March 15, 2011. The Court order (hereinafter referred to as the “Divorce Order”) which was based on Minutes of Settlement filed by the parties, included a number of corollary provisions including but not limited to:

(a) the requirement that the Respondent pay spousal support in the amount of $12,500 per month to the Applicant commencing March 1, 2011;

(b) the quantum payable would only be varied due to a change in the Respondent’s income if that income exceeded $350,000 per annum or was less than $290,000 per annum for the immediately preceding taxation year;

(c) if either of the changes in the Respondent’s income occurred, the quantum payable would increase or decrease by an amount that is 43.75% of the total by which his income had exceeded or fallen below $320,000 in the immediately preceding taxation year on the 60th day following delivery of the documents required in the order.

[2] In April 2016, the Respondent reduced the quantum of spousal support paid every month.

[3] The Applicant commenced garnishment proceedings in December 2016. In the Request for Garnishment, the Applicant seeks to enforce payment of the sum of $91,090.55 and ongoing spousal support payments of $12,500 per month. The Applicant has based her calculation on the Divorce Order requiring the Respondent to pay her $12,500 per month.

[4] The Request for Garnishment which was issued on October 20, 2016 is directed to the following Garnishees:

(a) the CIBC in London;

(b) the Royal Bank of Canada in London;

(c) the Bank of Montreal in London; and

(d) the Advanced Medical Group in London.

[5] The Request declares that the Garnishee owes or will owe to the Payor (the Respondent) periodic amounts of $12,500 and a lump sum of $91,090.50. Under “description of debt owed by the Garnishee to the Payor”, the Applicant has indicated “money held at a bank, credit union etc.” or “wages, commissions or other employment income” as the case may be.

[6] The Respondent has filed a Dispute and requested a Garnishment Hearing.

[7] At the hearing, I requested written submissions. Counsel have complied.

The Evidence

[8] Until December 31, 2015, the Respondent, who is a family physician, was employed in a Family Health Organization which was paid by the Ontario Health Insurance Program on a capitation model. He also held an appointment at Western University.

[9] Effective January 1, 2016, the Respondent left his practice for health-related reasons and started working with the Advanced Medical Group on March 1, 2016. He covered another physician’s practice in the interim. He is paid on a fee-for-service basis by OHIP. His income will be lower than in past years.

[10] The Respondent has filed his Income Tax Returns for the time period in question.

[11] According to these Tax Returns, the Respondent’s Line 150 total income from all sources has been as follows:

(a) 2011: $496,123.89

(b) 2012: $302,470.56

(c) 2013: $313,020.56

(d) 2014: $298,637.81

(e) 2015: $312,447.07

[12] The parties agree that for support purposes, the Respondent’s income should be calculated as the sum of his pre-tax corporate income and his employment and other income. As the Respondent indicates, “This accounts for the Respondent’s ability to retain earnings in his professional corporation.”

[13] On the other hand, as the Applicant points out, this formula may be more favourable to the Respondent (as it was in 2012) as opposed to using his Line 150 income as the basis for the calculation of the quantum payable for the following year.

[14] The parties agree, therefore, that for support purposes, using the sum of the Respondent’s pre-tax corporate income and his employment and other income, his income for each of the following years was as follows:

(a) 2011: $395,430.90

(b) 2012: $340,322.56

(c) 2013: $335,178.56

(d) 2014: $303,517.81

[15] The parties differ with respect to the Respondent’s income for 2015:

2015: $314,924.07 (according to the Applicant) 2015: $281,884.07 (according to the Respondent)

[16] The difference in the alleged income for 2015 is based on the Applicant’s inclusion and the Respondent’s exclusion of $33,040.00 which the Applicant has characterized as “taxable dividends”.

The Position of the Parties

(a) The Applicant

[17] The order is clear with respect to how spousal support is to be calculated.

[18] Whether the Respondent’s Line 150 income is used to determine support or whether the Respondent’s employment income plus pre-tax corporate income is used, the Respondent is in arrears of spousal support for the year 2012 (plus interest) and from April 2016 to the end of the year 2016.

[19] The Respondent is not permitted to unilaterally reduce his spousal support payments. He must continue to pay spousal support in accordance with the Order unless and until spousal support is varied by a further Court order or agreement.

[20] The Respondent is taking the position that the garnishment has caused him significant hardship but fails to acknowledge his role in the generation of that hardship or the impact of his unilateral reduction on the Applicant.

[21] There is nothing in the Family Law Rules, O. Reg. 114/99 that precludes the enforcement of payment of spousal support arrears by way of garnishment.

(b) The Respondent

[22] The Respondent acknowledges that he is in arrears for spousal support in the amount of $33,001.06 for the year 2012 (based on his income for 2011) and that this is the total amount of arrears owing for the time period between January 1, 2012 and December 31, 2016.

[23] The Respondent also submits that since the Applicant has had the benefit of an increase in the Respondent’s pre-tax corporate income, she should also share in the impact of corporate loss in his income particularly when draws on retained earnings are needed to maintain payment of support to the Applicant.

[24] Further, a change in the quantum of spousal support payable does not require an amending agreement or a Court Order. The provisions and mechanism for a change to the quantum payable are included in the Divorce Order.

[25] It is also the Respondent’s position that the garnishment process has caused significant hardship to the Respondent and his wife. Their joint bank account has been garnished, as a result of which preauthorized payments have been rejected. He is paying fees for accounts that are empty by reason of the garnishment but he is unable to close.

[26] Garnishment is only appropriate when an obligation is certain. In this case, the quantum of the obligation varies from year to year. The garnishee has no way of knowing whether a variation is necessary. Even if the garnishee is provided with the income information, it is inappropriate to delegate to the garnishee the authority to crystallize the support obligation.

Analysis

[27] In my view, both parties have acted precipitously and must bear responsibility for the predicament in which they now find themselves.

[28] Firstly, the Respondent ought not to have unilaterally reduced the quantum of spousal support he was paying.

[29] The Minutes of Settlement on which the Divorce Order was based clearly provides that the quantum of spousal support payable on a go forward monthly basis is fixed on the basis of the Respondent’s income for the prior calendar, not the current calendar year. The benefit of this approach is the security and predictability afforded to both parties as to how much is to be paid for the 12 months following the determination of the prior year’s income.

[30] The drawback to this methodology, of course, is that on the one hand, when there is an income increase during the current year, the support recipient will not derive an immediate benefit from that increase and will have to wait until the next calendar year; and, on the other, when there is an income decrease during the current year, the support payor will not derive an immediate benefit from the decrease and will have to wait until the next calendar year for the adjustment.

[31] Such was the case here. In compliance with the Divorce Order, the impact on spousal support of the decrease in the Respondent’s income in 2016 ought not to have taken effect until 2017.

[32] I also disagree with the Applicant, however, that an adjustment to the quantum of spousal support payable by the Respondent requires an amending agreement or a Court Order. If this were the case, the provisions of paragraph 11 of the Divorce Order regarding the timing, the percentage and calculation of a variation of the spousal support payable would be of entirely no consequence. These are provisions that are extraordinary and unique to these parties. In my view, the intent of these provisions is precisely to allow the parties the mechanism and opportunity to avoid further costly litigation and resort to the judicial system for resolution.

[33] I turn now to the question of whether garnishment proceedings are available to the Applicant in these circumstances.

[34] In this regard, first consideration must be given to the Divorce Order.

[35] Paragraph 20 of that Order provides as follows:

THIS COURT ORDERS that unless the support order is withdrawn from the office of the Director of the Family Responsibility Office, it shall be enforced by the Director and amounts owing under the support order shall be paid to the Director, who shall pay them to the person to whom they are owed.

[36] Notwithstanding this specific provision in the Divorce Order to which the parties agreed, subsection 9 (1) of the Family Responsibility and Support Arrears Enforcement Act, 1966 [1] (“FRSAEA”) states:

Every support order made by an Ontario court, other than a provisional order, shall state in its operative part that unless the order is withdrawn from the Director’s office, it shall be enforced by the Director and that amounts owing under the order shall be paid to the Director, who shall pay them to the person to whom they are owed.

[37] Subsection 10 (1) of the FRSAEA provides:

An Ontario court that makes a support order, as defined in subsection 1(1), shall also make a support deduction order.

[38] Subsection 10 (2) reads:

When a support order is changed and the changed order is a support order as defined in subsection 1(1), the court shall also make a support deduction order to reflect the change.

[39] There is no doubt that the order for the payment of support in this Divorce Order is a “support order” as defined in the FRSAEA.

[40] Section 11 of the FRSAEA requires the Court to file the support deduction order with the Director’s office.

[41] Section 16 of the FRSAEA allows a support order to be withdrawn or a support deduction order filed in the office of the Director to be withdrawn at any time unless the support order states that it and the related support deduction order cannot be withdrawn from the Director’s office.

[42] Section 4 of the FRSAEA concerns Assignment of the Director’s powers. Those powers are defined in section 6 and include enforcing support deduction orders that are filed in the Director’s office, as provided by the Act, employing any other enforcement mechanisms expressly provided for in the Act and employing any other enforcement mechanisms not expressly provided for in the Act.

[43] There is no evidence before me that the parties withdrew their support order or the enforcement thereof from the office of the Director pursuant to section 16 or that the Director assigned his powers to anyone else including either of the parties (if that were possible) pursuant to section 4.

[44] In these circumstances, the provision in subsection 6 (7) of the FRSAEA takes on substantial significance. That subsection states:

Subject to section 4, no person other than the Director shall enforce a support order that is filed in the Director’s office.

[45] The difficulty is that, in this case, I have not been provided with proof that the Court complied with its duty to prepare a Support Deduction Order that complied with the support provisions included in the Divorce Order.

[46] In the file, there are Support Deduction Orders for the interim support orders but I have been unable to locate such an order in relation to the final consent order regarding spousal support.

[47] In any event, given the mandatory nature of subsection 9 (1) of the FRSAEA, when read in conjunction with subsection 6 (7) of the FRSAEA, concerning the jurisdiction to enforce a support order in the absence of a refusal by the Director to do so or a withdrawal by the parties, I am of the view that Garnishment proceedings are not available to the Applicant in this case.

[48] The Family Law Rules do not oust the provisions of the legislation in this regard.

[49] The Court must take immediate steps to ensure that a Support Deduction Order is prepared and signed on the basis of the Divorce Order and that subsequent Support Deduction Orders are prepared and signed that accord with the quantum of support payable as agreed by counsel for the time period between January 1, 2012 to December 31, 2016, as set out above.

[50] It will be for counsel to draft an order that reflects the changes necessary upon which the Court staff may rely.

[51] With respect to the determination of the Respondent’s income for 2016, I am of the view that the methodology agreed upon by the parties at the outset and upon which they have both relied must continue to ensure an equitable outcome for both of them.

[52] In the past, as indicated above, the Respondent’s income has been determined by adding up his pre-tax corporate income and his employment and other income. The dividends he received as reported on Line 120 of his Tax Return did not form part of the income determination for spousal support purposes taking into account the issue of retained earnings.

[53] Using the same categories in relation to his income in 2015 as previously relied upon, the Respondent therefore generated $278,345.56 (Line 101) in employment income, $1000 in professional income and $2477 in corporate income before taxes as well as interest etcetera. His income for 2015 should be fixed at $281,884.07.

[54] Should either of the parties seek to change aspects of the terms of the Divorce Order concerning the formula to be used for determining the Respondent’s income, and the formula to be used for the calculation of ongoing monthly spousal, they are required to serve and file a motion to change this order.

[55] My disposition includes orders that were not sought by either party. In my view, these orders are necessary for the Court to be able to control its own process both effectively and efficiently.

Disposition

[56] For all of these reasons, the following is my order:

(a) The Applicant’s Garnishment proceeding is hereby terminated.

(b) Any and all payments made by the Respondent on account of the Garnishment proceeding will applied to the Respondent’s arrears and spousal support obligation imposed by the Divorce Order.

(c) The parties will prepare a Support Deduction Order that reflects the Divorce Order of Justice Marshman dated March 15, 2011 and,

(i) ensure that the Court files the said Order with the Director of the Family Responsibility Office; and

(ii) ensure that all payments made by the Respondent between March 15, 2011 and December 31, 2015 are communicated to the Director.

(d) The parties will prepare a Support Deduction Order that reflects the requirement that the Respondent pay monthly spousal support for the year 2016 after application of the prescribed formula set out in the Divorce Order to an income of $281,884.07 for the year 2015. Further, the parties will file that Support Deduction Order with the Court and ensure that it is filed with the Director of the Family Responsibility Office for enforcement.

(e) The parties will prepare a Support Deduction Order that reflects the requirement that the Respondent pay monthly spousal support for the year 2017 after application of the prescribed formula set out in the Divorce Order to an income fixed for the year 2016 on the basis of the formula set out above and used by the parties since 2011. Further, the parties will file that Support Deduction Order with the Court and ensure that it is filed with the Director of the Family Responsibility Office for enforcement.

(f) Should the Director require a Court Order reflecting the changes, if any, to the quantum of monthly support payable, the parties will obtain a consent order and file a copy of same with the Director in the absence of a Court Order that changes the methodology and basis of calculation or any other aspect of the support order contained in the Divorce Order dated March 15, 2011.

(g) Unless the parties wish to make submissions to convince me otherwise, it is my view that each party ought to bear his or her own costs in this proceeding by reason of his/her own liability (as described at the outset of these Reasons) for the necessity of this Court’s intervention.

“Justice Lynda Templeton” Justice Lynda Templeton Date: May 16, 2017

[1] S.O. 1966, c. 31, as am.