Nabeta v. Nabeta, 2017 ONSC 5857
CITATION: Nabeta v. Nabeta, 2017 ONSC 5857
COURT FILE NO.: 37742/15
DATE: 2017-10-03
ONTARIO
SUPERIOR COURT OF JUSTICE
BETWEEN:
Jared Isao Nabeta Applicant
– and –
Kelly Jean Nabeta Respondent
Steven McCutcheon, for the Applicant
Ann Stoner, for the Respondent
HEARD: November 16, 21 – 24, 2016 & January 30, 2017
REASONS FOR JUDGMENT
Fitzpatrick J.
[1] This Application was commenced in April, 2015.
[2] The parties settled their custody and access issues before the commencement of this trial, agreeing to joint custody and equal parenting time.
[3] The parties also resolved their property and equalization issues prior to the beginning of this trial.
[4] The parties entered into a Consent setting out the terms of their settlement, which were incorporated into the Final Order of Justice Coats dated October 26, 2016 (the “Final Custody Order”).
[5] The remaining issues before me at trial were determination of each party’s income with related child and spousal support obligations, including the interpretation of the parties’ marriage contract (the “Marriage Contract”) dated April 4, 2007. The parties both also sought a divorce order terminating their marriage.
Facts
[6] The facts of this case are not, for the most part, controversial. I have considered all of the evidence. The following is a summary of the salient points only and is not intended to be an exhaustive review. I make further comments where helpful to explain and otherwise amplify my reasons.
[7] The Applicant and the Respondent met and started dating in 2001 while both were students attending university in Cleveland, Ohio. The Applicant was born in Canada and the Respondent in Pennsylvania, U.S.A.
[8] The Respondent graduated in January, 2002 with a Master’s Degree in Nutrition.
[9] The parties began cohabiting in Cleveland in 2002 following the Respondent’s graduation and while the Applicant completed his dentistry program.
[10] The Applicant graduated from his dentistry program in the spring of 2003.
[11] The parties relocated to the Applicant’s ordinary domicile, Ontario in May, 2003. The Respondent had never lived in Ontario prior to this.
[12] The Applicant and Respondent were married April 13, 2007.
[13] They have two children together, namely Mason Isao Nabeta born October 12, 2011 and Chase William Nabeta born September 24, 2013.
[14] The parties separated November 15, 2014. The Applicant was 37 years old and the Respondent 39 years old at the date of separation.
[15] The Applicant relocated outside the matrimonial home on December 10, 2014. The Respondent remained with the children in the matrimonial home until it was sold in September, 2016.
[16] The Applicant had the children in his care every weekend from Friday to Sunday evening when the parties first separated. In September 2015, this time extended to every weekend from Friday after school to Monday evening.
[17] As stated above, the parties consented to the Final Custody Order providing for joint custody and equal sharing of the children around September, 2016.
[18] The Applicant owned and operated his own general dentistry practice in Burlington at the date of separation. The Applicant purchased the Burlington practice from his father during the marriage. The Applicant purchased his uncle’s dentistry practice in Oakville on December 5, 2014. Both practices are incorporated. The Respondent was previously a minority shareholder but the Applicant is the now sole shareholder of the two corporations. The Applicant has at all times been the sole and controlling mind of his corporate practices. Stating the obvious, he has been self-employed at all material times.
[19] The Applicant paid all expenses for the former matrimonial household and the Respondent, including paying her credit card, following separation on an informal basis.
[20] The Applicant brought a motion for the sale of the matrimonial home in June, 2016. The Respondent, in turn, brought a motion for child and spousal support.
[21] By Order of Justice Gray made June 30, 2016, the matrimonial home was listed for sale and sold in September, 2016.
[22] The Order of Justice Gray directed the Applicant to pay child support of $2,582 monthly commencing July 1, 2016. The Applicant was also ordered to pay spousal support to the Respondent monthly in the amount of $4,500 commencing the first of the month following the sale of the matrimonial home. The Applicant commenced paying spousal support October 1, 2016 and each first of the month following. These support amounts were based on an annual income of $200,000 for the Applicant and none for the Respondent.
[23] The Applicant and the Respondent both gave evidence at trial. In addition, each party called an expert to give opinion evidence respecting the Applicant’s income for support purposes. The Applicant’s mother and uncle also testified about the Applicant’s businesses and income.
Trial Issues
[24] The primary factual issues to be determined were the Applicant’s income, the Respondent’s income and the interpretation of the spousal support terms contained in the Marriage Contract. The Applicant’s child and spousal support obligations were to be determined based on these factual findings.
Income of the Parties
[25] Income for child and spousal support purposes is determined pursuant to the Child Support Guidelines, O. Reg. 391/97 (the “Guidelines”): see Bak v. Dobell, 2007 ONCA 304, 86 O.R. (3d) 196; Smith v. Smith, 2012 ONSC 1116, [2012] W.D.F.L. 4785; Ludmer v. Ludmer, 2013 ONSC 784, 33 R.F.L. (7th) 331; Spousal Support Advisory Guidelines (the “SSAG”).
[26] Both parties ask that I not accept the other party’s suggested earnings and instead impute a higher income to the other party.
[27] The principles that apply in determining whether to impute income are the same in both child support and spousal support cases: see Pey v. Pey, 2016 ONSC 1909, 79 R.F.L. (7th) 107, Smith, Perino v. Perino (2007), 2007 CanLII 46919 (ON SC), 46 R.F.L. (6th) 448 (Ont. S.C.) and Rilli v. Rilli, [2007] W.D.F.L. 1161 (Ont. S.C.). Income imputation is not strictly limited to the payor spouse. It may also be imputed to the recipient spouse: see Spousal Support Advisory Guidelines.
[28] Income may be imputed in circumstances where an individual is intentionally under-employed or unemployed: see Drygala v. Pauli (2002), 2002 CanLII 41868 (ON CA), 61 O.R. (3d) 711 (C.A.) and section 19(1)(a) of the Guidelines.
[29] Prior to imputing income to a party under Section 19(1), a court must undertake the three part analysis set out by the Court of Appeal in Drygala. Specifically, a court must ask itself the following questions:
a. Is the spouse intentionally under-employed or unemployed?
b. If so, is their intentional under-employment or unemployment required by virtue of the parent’s reasonable education needs or 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?
[30] In Smith, at para. 81, Chappel J. outlines the relevant factors in determining whether to impute income:
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;
It is not necessary to establish bad faith or an attempt to thwart support obligations before imputing income. A payor is intentionally underemployed if they earn less than they are capable of earning having regard for all of the circumstances. In determining whether to impute income on this basis, the court must consider what is reasonable in the circumstances. The factors that the court should consider include the age, education, experience, skills and health of the party, the party's past earning history and the amount of income that the party could reasonably earn if they worked to capacity;
There is a duty on the part of the payor to actively seek out reasonable employment opportunities that will maximize their income potential so as to meet the needs of their dependants;
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;
If a party chooses to pursue self-employment, the court will examine whether this choice was a reasonable one in all of the circumstances, and may impute an income if it determines that the decision was not appropriate having regard for the party's support obligations;
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,
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.
[31] It is also important to consider the legal principles set out in section 18 of the Guidelines for calculating income earned from a corporation closely held by the payor parent. Sections 18 and 19 of the Guidelines can be read in tandem to determine income in circumstances where the payor’s income is earned from a closely held corporation. Both experts agreed that adjustments had to be made to Dr. Nabeta’s Line 150 income. These adjustments are discussed in detail below.
The Respondent’s Income
[32] The income determination for the Respondent is relatively straightforward.
[33] The Respondent has a Master’s Degree in nutrition and is a Registered Dietician licensed in both Canada and the United States.
[34] The Respondent was unable to work when she initially relocated with the Applicant to Ontario pending the processing of her immigration application.
[35] The Respondent first worked in Ontario beginning April, 2004 at the Grace Villa long-term care facility. She worked one day per week as a registered dietitian earning $33 per hour. She remained at Grace Villa for approximately eight months. She then had a few months off before obtaining employment with another long-term care facility, Extendicare in Brampton, Ontario. There, she worked two days per week earning $36 per hour. The Respondent was next employed at Idlewylde Manor, another long-term care facility in Hamilton, where she worked two to three days each month earning $37 per hour. The Idlewylde position was in addition to her Extendicare job.
[36] The Respondent commenced working at Joseph Brant Hospital in December, 2006. She was hired by a company called Aramark. Aramark provided contract services for Joseph Brant Hospital. The Respondent initially worked two and a half days per week at Joseph Brant Hospital, which changed to four days per week in late 2007 or early 2008. The Respondent ceased her jobs with Extendicare and Idlewylde once she obtained the four-day-per-week position with Aramark/Joseph Brant Hospital. The Respondent had no benefits through her employment with Aramark.
[37] The Respondent commenced fertility treatments in 2008 with a view to starting a family with the Applicant.
[38] The Respondent has suffered from Crohn’s Disease since 1992. She had bowel resection surgery to address this disease in April, 2009. She was off work for approximately three months following her surgery. Also in 2009, she commenced taking “Humera” medication to address her Crohn’s and has remained on that medication since that time at a current cost of approximately $1,700.00 monthly.
[39] In early 2010, the Respondent left her position with Aramark/Joseph Brant Hospital and started a private diet and nutrition practice operating out of the Applicant’s Burlington dental office. The Respondent attended at the Applicant’s office to conduct her practice Monday through Friday during the day and on Wednesday evenings. The Respondent charged $100 per hour in her private practice but testified that she earned little money given it was a new business and she was also focused on starting a family.
[40] The Respondent ceased working when she gave birth to Mason on October 12, 2011.
[41] The Respondent had the following income:
a) In 2008, her Line 150 income was $59,514.78 which she indicated was all from employment earnings at Joseph Brant Hospital and/or Idlewylde. There were no dividends paid to her by the Applicant’s business or other income splitting that year.
b) I did not have specifics before me respecting the Respondent’s income for 2009. However, the Respondent testified this was the year she had surgery that had her absent from work and earning no income or employment benefits for an extended period.
c) In 2010, total income of $67,427 made up of $3,312 of “other income”, a professional income of $885, and $65,000 taxable dividends derived from the Applicant’s business.
d) In 2011, total income of $130,379 comprised of $379 in professional income and $130,000 in taxable dividends from the Applicant’s business.
e) In 2012, total income of $161,875 comprised completely of taxable dividends from the Applicant’s business.
f) In 2013, total income of $60,875 comprised of $1,500 in Universal Child Care Benefits and $59,375 taxable dividends from the Applicant’s business.
g) In 2014, total income of $46,650 comprised of a $2,400 Universal Child Care Benefit and a $44,250 taxable dividend from the Applicant’s business.
h) In 2015 and 2016, the only income the Respondent had was in the form of support paid by the Applicant.
[42] The Respondent did not work for or provide any meaningful services to the Applicant’s businesses in exchange for the monies she was paid from the corporation(s).
[43] The Respondent was not working at the date of separation.
[44] It is clear based on the evidence before me that the Respondent made minimal efforts to find employment following separation to the point this trial commenced in November, 2016.
[45] The Respondent would meet with her friend and colleague Tracy Campbell, who is the clinical manager of dietitians at Joseph Brant, to investigate job opportunities and maintain contacts. She also testified to networking with other dieticians.
[46] The Respondent has also been searching websites such as the Dietitians of Canada website (she is a member of this group), Workopolis, Glass Door and Indeed for employment opportunities.
[47] The Respondent made only four job applications up to her testimony in this trial in November, 2016. She sent resumes to the Trillium Care Facility in Mississauga in May, 2016 (no interview given), the Fox Foundation in November, 2016, and the Centre for Addiction and Mental Health in September, 2016 (no response). In the fall of 2016, the Respondent applied for a maternity leave position as a dietitian at Joseph Brant Hospital that would have commenced fulltime for a twelve month period commencing October, 2016. She did not obtain this position.
[48] Leading up to the start of this trial, the Respondent also volunteered with a dietitian at the Billings Court long-term care facility in Burlington towards ongoing networking for job prospects and to make her resume more current given the gap since her last employment.
[49] The Respondent applied for the following nine dietitian positions after this trial started in November, 2016:
a. St. Elizabeth Health Care (zero response)
b. Halton Diabetes Program (zero response)
c. Chartwell Retirement residences (zero response)
d. Loblaws/Shoppers Companies (zero response)
e. St. Joseph’s Hospital in Hamilton (zero response)
f. University Health Network Toronto (zero response)
g. Extendicare Hamilton (not hired but lead to work with Seasons Care Inc. per below)
h. Region of Peel (zero response)
i. Seasons Care Inc. (hired December 23rd to fill gaps while fulltime personnel engaged at other placements.)
[50] The Respondent’s temporary contract with Seasons Care commenced in January, 2017 for 80 hours and has been extended to February 17th. She earns $40 per hour on that contract working Monday, Tuesday and half day Fridays.
[51] The Respondent testified that she has been out of the workforce from October 11, 2011 until January, 2017.
[52] The evidence before me was that the Respondent’s last year of full-time earnings was in 2008 when she had a Line 150 income of $59,514.78 primarily from employment earnings with Aramark at Joseph Brant Hospital. The Respondent was working 4 days per week in 2008, which she also described as a “0.8” classification.
[53] The Respondent agreed that earning $60,000 at 0.8 (four days per week) would extrapolate to earnings of $75,000 annually if she was working the same job five days per week. However, she did not believe that was currently an achievable income for a registered dietitian based on her current observations of the health sector. She would only expect to have health benefits if employed by or at a hospital.
[54] The Respondent believes, in the long term, she can achieve an income of $60,000 per year but that she will likely be working part time positions to start. She believed that her best prospects for employment as a dietician would be in a hospital, long term care facility, or grocery store.
[55] The Respondent did not believe restarting her private practice was viable. The Respondent testified that a private practice has a five to ten year growth cycle from start-up to having a full practice – an unrealistic pursuit given her age and need for health benefits to cover her Humera medication, along with any other future medical needs.
[56] The Respondent testified that her Crohn’s was stable and she did not have any health issues impacting her ability to work. No medical documentation was presented to support any ongoing health issues impacting the Respondent’s ability to earn an income although there is no dispute that she continues to have Crohn’s requiring ongoing medication.
[57] The Respondent testified that she was the primary caregiver to the children prior to her separation from the Applicant. The Applicant denies this, suggesting he was an equal parent.
[58] The Respondent testified that the Applicant agreed she would remain home with the children and out of the workforce until both children were in school full-time. The Applicant denies this specific agreement. However, the Applicant’s pleadings appear to support the Respondent’s narrative insofar as they state that the Respondent “is on maternity leave and should return to work gradually as the children get older” (see: paragraph 12 of the Application).
[59] Regardless of the competing narratives, the fact is that the Respondent was not working and instead remained as a stay-at-home mother from the birth of their first child, Mason, to the date of separation. She continued to have child care responsibilities following separation.
[60] The evidence before me was that the Applicant had the children in his care every weekend from January, 2015 until June, 2015, when his weekend was extended to Monday at 6:30 p.m. The Respondent would have the children in her care at all other times. This became a 50/50 shared arrangement at September, 2016 forward.
[61] Mason started attending fulltime junior kindergarten in September, 2015 and full-time school since September, 2016. Chase commenced fulltime junior kindergarten in September, 2017.
[62] Determining the Respondent’s income comes down to whether she has made reasonable choices and is earning to the best of her ability in all of the circumstances following separation. The Respondent had an obligation to make all reasonable efforts to earn an income and contribute to the support of the children in addition to her own needs. What is reasonable, of course, depends on the specifics of the case under consideration.
[63] I am inclined to permit the Respondent some transition time to find and return to work following the separation. The Applicant agrees that this is necessary.
[64] The Respondent had been out of the workforce for three plus years prior to the date the parties separated, although her last significant employment dates back to 2009 when she was employed with Aramark at Joseph Brant Hospital. At separation, she remained in the matrimonial home with the children, including Chase who was then one year old. The Respondent was responsible for the day to day management of the matrimonial home and the children following separation.
[65] However, the Respondent is highly educated. Her professional credentials are either up to date or could be brought current in short order. She was 39 at the date of separation and had no health issues impeding her ability to work (i.e. her Crohn’s was managed with medication).
[66] I have also considered child care responsibilities in my assessment. Dr. Nabeta had the children in his care every weekend from Friday to Sunday evening when the parties first separated, which was later extended to include Mondays starting in September, 2015. The parties have had an equal sharing regime since September, 2016. Because Dr. Nabeta’s took on increased childcare responsibilities, the Respondent gradually had more time available to work.
[67] Finally, I note that the Respondent made no meaningful attempt to secure employment until this trial began in November, 2016, which was two years after the parties separated.
[68] In all of the circumstances, I am of the view that the Respondent could have earned more in 2016 and thereafter. I would impute an annual income of $37,500.00 to her, as suggested by the Applicant. This $37,500.00 is approximately one-half of the full-time equivalent of what the Respondent earned while with Aramark at Joseph Brant Hospital.
The Applicant’s Income
[69] The Applicant is a doctor of dental surgery who is licenced as a general dentist by the Ontario Dental College. He does not specialize in any one area.
[70] The Applicant commenced working in 2003 for his father’s practice in Burlington during the weekdays and at his uncle’s dental practice in Oakville on the weekends, earning a combined income of approximately $125,000.
[71] The Applicant purchased his father’s practice in 2008 for $950,000. This purchase was financed entirely by a bank loan for ten years. His father then became the Applicant’s associate.
[72] In 2013, the Applicant signed a lease and commenced renovations for a new location in Burlington to house his dental practice. The Applicant testified that he obtained financing for the renovations in the amount of $850,000. The practice was relocated to the new premise in 2014.
[73] The Applicant commenced negotiations at March, 2012 to purchase his uncle’s dental practice in Oakville. The appraised value for the practice was $1,450,000. The Applicant purchased his uncle’s practice for $1,450,000 with a closing at December, 2014. This purchase was also financed.
[74] The Applicant has owned and operated the two dental practices since December, 2014 to the present. The combined practice now employs his mother, his father, his uncle, three receptionists, three assistants, five hygienists and an office manager.
[75] The Applicant testified that all of his income is derived from the Burlington practice. He has not taken any income as yet from the Oakville practice.
[76] The Applicant does the daily accounting for both offices through the use of QuickBooks. He then takes the QuickBooks ledgers and entries to an accountant to prepare annual financial statements and returns.
[77] The Applicant had the following line 150 incomes:
a. 2012 - $126,400;
b. 2013 - $125,000;
c. 2014 - $127,404; and,
d. 2015 - $180,504.
[78] The Applicant testified that the Respondent was paid dividends from the business as a method of income splitting. For example, in 2013 the Applicant received his $125,000 salary and the Respondent was paid $60,875 in dividends. In 2012, the Applicant took the same $125,000 salary and the Respondent was paid $161,875 in dividend income.
[79] The Applicant testified that he needed to increase his income in 2015 to fund what was now two households post-separation, namely his residence and the matrimonial home where the Respondent remained until it was sold in September, 2016.
[80] The Applicant says his finances are now “dire”.
[81] The determination of the Applicant’s income is obviously more complicated. He is self-employed owning and operating two incorporated dental practices, one in Burlington and the other in Oakville. The evidence before me was that the Applicant was not receiving any income from the Oakville practice to date. All of his income was derived from the Burlington practice.
[82] It is very easy for me to conclude that Dr. Nabeta’s income and ability to earn are not accurately reflected by the amounts claimed on his personal income tax returns filed. Flowing from this, I must determine his true income on the basis of the evidence that was available during this trial.
[83] Each party retained an expert to calculate the Applicant’s income for support purposes. The Applicant retained Michael Carnegie. The Respondent hired Trevor Hood. Both were qualified as experts to provide evidence assessing the Applicant’s income in relation to support.
[84] Both Mr. Carnegie and Mr. Hood are well known to this Court. They each provided initial reports plus supplementary reports responding to issues raised by the other. This was a helpful process. Each expert made some adjustment to his opinion in favour of the comments of the other. This distillation permitted each expert to provide evidence focussed on the remaining differences in their respective opinions.
[85] I am able to determine Dr. Nabeta’s income based on the evidence before me, including the two expert reports on income with related testimony. However, in so doing I must resolve the remaining differences between the opinions offered by Mr. Hood and Mr. Carnegie.
[86] The three major differences between the opinions offered by Mr. Hood and Mr. Carnegie relate to their respective treatment of corporate profits and related dividends paid out to Dr. Nabeta, the personal component of certain items expensed by Dr. Nabeta through the business, and the salary paid to his mother by the business.
[87] The biggest difference in terms of impact on the income calculation was with respect to the treatment of corporate profits and related dividends.
[88] Mr. Carnegie opined that the dividends in fact paid should not be isolated from what he would suggest is the larger issue of corporate profit and loss. Mr. Carnegie suggested that the best measure of income is to remove dividends (i.e. not include them as part of the income calculation) in favour of attributing all profits or losses to Dr. Nabeta. Mr. Carnegie’s opinion was that the corporate bottom line provided a more appropriate estimation of Dr. Nabeta’s income. Simply stated, the Applicant’s income available for support would rise or fall depending on whether the corporations enjoyed a year-end profit or suffered a loss. For the reasons set forth below, I do not agree that this is the appropriate calculation.
[89] As noted above, the business paid significant dividends to the Respondent during the marriage, effectively splitting Dr. Nabeta’s income to minimize the overall household income tax debt.
[90] The business, not surprisingly, also paid significant income and dividends to the Applicant.
[91] Mr. Hood rejected the suggestion that removing dividends from the income calculation in favour of attributing all profits or losses of the business to Dr. Nabeta was the more accurate measure in this case. In his income calculation, Mr. Hood included the actual dividends paid directly to the Applicant from the business. Mr. Hood also added the dividends paid to the Respondent in his calculation of the Applicant’s income available for support. The dividends paid to the Applicant were direct payments received from the business. Mr. Hood suggested that the dividends paid to the Respondent represent income attributable to the Applicant, given that these payments could only be characterized as income splitting where the Respondent provided no services whatsoever to the business.
[92] Mr. Hood noted that there was no additional corporate income available to Dr. Nabeta beyond the salary and dividends that were paid out.
[93] The most glaring departure between the opinions of the two experts was the treatment of corporate losses. Mr. Carnegie, adopting an income/loss model, deducted any such losses in the calculation of the Applicant’s income whereas Mr. Hood did not. As I have indicated above, I am in agreement with the approach adopted by Mr. Hood.
[94] I remind myself that I must determine the income available to Dr. Nabeta from his business to pay support.
[95] A corporate year-end profit or loss may conceivably determine or at least direct the income calculation in some cases. However, each case would need to be assessed on its particular facts to know whether such an approach is appropriate. I would strongly disagree with any suggestion that the income/loss model be a default starting approach. It seems to me that the calculation of corporate income/loss is vulnerable to manipulation depending on how various items are assigned in the ledgers, especially in a closely held corporation like Dr. Nabeta’s. Ledger entries that are otherwise acceptable from an accounting perspective producing a corporate profit or loss may not provide an accurate picture of the income available to a payor parent from a closely held corporation. Such entries and, of course, any that are not acceptable even from an accounting perspective, can have the effect of altering the bottom line recorded by the business along with any analysis of personal income based upon that morphed income/loss. Something more nuanced is typically required. That is the case here.
[96] The Oakville practice had a $17,000 profit for the year ending in December, 2015 (the first full year following the Applicant’s purchase of this practice). The Applicant testified that he has not yet taken any compensation from this practice.
[97] The Burlington practice recorded a $55,000 loss for the year ending in December, 2014 and a $108,000 loss for the year ending in December, 2015.
[98] The amortization expense for the Burlington practice was $152,960 for 2014 and $141,980 for 2015. This is contrasted with the $48,589 for this expense for the year ending in December, 2013.
[99] The experts agree that the amortization applied by the Applicant to the significant equipment and other improvements for the new office was aggressively amortized from an accounting perspective. In other words, the Applicant was depreciating these values at a level that could not be justified by either expert, thereby artificially reducing the profitability of the business.
[100] I appreciate that what we are really debating is a non-cash accounting entry when discussing amortization rates to be deducted against the value of assets. Evidence focussed on the true useful life of the equipment along with instruction on how the funding for replacements would be created would have been useful. Knowing how much cash and when it would be required from the business would be instructive, especially if replacement was imminent.
[101] Dr. Nabeta will need to have funds remaining in the business to pay for equipment replacement. This is income that will not be available to him for support purposes. An amortization entry offers no meaningful information to me in that regard.
[102] The evidence was clear that significant monies were invested in the equipment and other improvements to relocate the Burlington practice to its current location in early 2014. There was no evidence before me to suggest that any monies would need to be set aside for the business immediately, or even over a longer term, for this equipment expense that would otherwise be available as income to Dr. Nabeta. In other words, the income for the business is being artificially reduced by the amortization deduction where there is no evidence that monies are in fact needed or being diverted for equipment replacement. As such, I agree with Mr. Hood that amortization and the related corporate losses for the 2014 and 2015 corporate year ends should not be included in the calculation of the Applicant’s personal income.
[103] The loss recorded by the business for the 2014 and 2015 corporate year-ends were also artificially impacted by what both experts agree were personal expenses of Dr. Nabeta paid for by the business.
[104] Again, Dr. Nabeta is the sole shareholder of the business and has at all times exercised unilateral discretion over the finances of his practice. Dr. Nabeta made expense decisions and related entries into the business ledgers. Generally speaking, I found the Applicant’s evidence less than clear on which expenses were truly business-related and which were personal. Dr. Nabeta received the benefit of these personal expenses being paid for by the company, which should be added to his income with appropriate tax gross-up.
[105] Based on the evidence before me, I am inclined to agree with the expense adjustments suggested by Mr. Hood with some limited exceptions noted below.
[106] I also note that Mr. Hood not only contacted both parties, but also reviewed the general ledgers of the corporations when determining expense adjustments. Mr. Carnegie did not review the corporate ledgers. In my view, Mr. Hood’s more thorough investigation bolstered his opinions.
[107] There is no doubt the Respondent’s prescriptions paid for by the business are personal expenses that must be added to the Applicant’s income. Although the monthly expenses are paid by the business, the Applicant testified that he receives the insurance reimbursement personally.
[108] I agree that the meals and entertainment expenses that the business claims are high. There is no formula to determine an appropriate amount for a business to spend on meals and entertainment. However, it was clear to me that the Applicant received significant personal benefits from these expenses. For example, the Applicant had weekly lunches with his father. He claimed these as expenses because business is discussed over lunch. It is difficult for me to believe that weekly lunches with his father are required strictly for business and not having any personal component. The Applicant was expensing his gym membership as meals and entertainment at 2014 (previously he assigned this expense under dues and subscriptions). Dr. Nabeta is very generous to his staff paying for annual ski weekends in New York state, overnight conventions, golf and other such events. I am not being critical of any of these choices. My point is that, cumulatively, they appear excessive and having some personal component necessitating an adjustment. The 50 per cent adjustment suggested by Mr. Hood is appropriate. As such, 50 per cent of these claimed expenses will be added back to Dr, Nabeta’s income.
[109] The adjustment made by Mr. Hood capping automobile expenses at $3,000.00 is also reasonable. Dr. Nabeta testified to very limited business-related vehicle use except for his commute to his offices. This commute is not a deductible expense for income tax purposes or the determination of his income in this case.
[110] The Applicant had an aquarium at the matrimonial home and another at the Burlington practice. The evidence was clear that the home aquarium was larger than the office unit. Dr. Nabeta acknowledged some of the home aquarium expenses were paid by the business. Again, the Applicant’s evidence was vague on these expense details. The 50 per cent adjustment suggested by Mr. Hood is appropriate for the aquarium expense.
[111] Dr. Nabeta testified that he did some online continuing education during vacations. He would then expense the entire vacation as professional development. The limited online continuing education undertaken cannot justify completely expensing these otherwise personal vacations through the business. The 50 per cent adjustment suggested by Mr. Hood is appropriate if not generous.
[112] The adjustments for payments made by the business for the Applicant’s legal fees in this case, for the Respondent’s cell phone, and for life insurance premiums for policies owned by Dr. Nabeta not required to support corporate loans are all self-evidently personal expenses. All of these are appropriately added back by Mr. Hood to Dr. Nabeta’s income for support purposes.
[113] All of the above adjustments were appropriately grossed up by Mr. Hood for the related tax benefit of having these expenses paid by the business.
[114] The final area of disagreement between Mr. Hood and Mr. Carnegie was respecting the salary paid to the Applicant’s mother. Mr. Hood added the salary paid to the Applicant’s mother to the income of Dr. Nabeta, arguing the salary does not accord with fair market value. Mr. Carnegie did not add any of this salary to the income available to the Applicant for support purposes on the basis that the salary represents a fair market value expense for the services provided by the Applicant’s mother.
[115] The Applicant’s mother, Sandra Nabeta testified during this trial. She described how she was involved in the practice with her spouse. She testified that she worked more or less full-time hours in her spouse’s practice earning $52,000.00 per year. Ms. Nabeta’s hours were reduced to approximately 20 per week with corresponding pay cut to $26,000.00 annually once the Applicant bought the practice.
[116] Ms. Nabeta’s testimony respecting the services she provides was somewhat contradictory. She described being at the Burlington office from approximately 9:00 a.m. and leaving at approximately 5:00 p.m. – but not every day. However, she also repeatedly described her role as being on-call and attending when the Applicant contacted her. The Applicant and Sandra Nabeta were consistent where each testified to the general services Ms. Nabeta provides and that her employment was modelled on a 20 hours per week target payable at $25.00 per hour.
[117] There was no meaningful challenge to the Applicant’s testimony or that of Sandra Nabeta respecting her ongoing work in the practice. The Respondent was not involved in the practice at all and last attended there on any regular basis in 2010 to operate her own business from that site. As such, there was no evidence to support the Respondent’s suggestion that Ms. Nabeta did not provide any services to the Applicant’s business during the year under review in this trial. I find that Ms. Nabeta provides approximately 20 hours of services per week to the Applicant’s business.
[118] There was no meaningful evidence to suggest that a salary of $25.00 per hour for the services provided by Ms. Nabeta did not represent fair market pay. I have no basis to challenge that amount.
[119] There was no evidence at all of any financial benefit to the Applicant from the salary paid to his mother. This could not be an income splitting scheme. I make this observation simply to note that there was no evidence of any suspicious conduct by the Applicant respecting the salary paid to his mother.
[120] Given the above, I am persuaded that the salary paid to Ms. Nabeta was reasonable in the circumstances and should not be added to the Applicant’s income.
[121] Based on all of the evidence before me, I calculate Dr. Nabeta’s Income for Support as follows:
| Calendar Years | 2015 | 2014 | 2013 | 2012 |
|---|---|---|---|---|
| Income for Support | $330,000 | $265,000 | $283,000 | $405,000 |
[122] I want to comment on Dr. Nabeta’s evidence that his finances were “dire”.
[123] In a sentence, I can state that I do not accept the Applicant’s suggestion that the finances of the business and by relation his own finances are dire. I say this for five reasons.
[124] The first reason why I reject this suggestion is based on Mr. Carnegie and Mr. Hood’s evidence. Both experts made it clear that Dr. Nabeta’s income is substantial with the only debate being as to the specific annual amount.
[125] The second reason is that the Applicant has not made any lifestyle choices that would support his suggestion of being in financial distress. He vacations with his new partner regularly. Since separation he has vacationed seven days in Nova Scotia in the summer of 2015, seven days in Calgary/B.C. for vacation in summer 2015, ten days on a cruise in February, 2015, a further seven days in Nova Scotia in summer 2016, another ten days on a cruise in February, 2016, and yet another seven days on a cruise in summer, 2016. He said he planned a 14-day trip to Hawaii for summer 2017. He has also made significant discretionary purchases for his new partner. For example, Dr. Nabeta purchased jewellery for his new partner in 2015, totalling $11,776.85, $4,079.30 in February, 2016 and $2,260 in September, 2016.
[126] The third reason is that there was no evidence before me that Dr. Nabeta was forced to deplete his personal assets, such as withdrawing monies from his R.R.S.P. account.
[127] The fourth reason for rejecting the suggestion of “dire” current finances is that Dr. Nabeta testified that his finances were strained when he was required to finance his residence and the costs associated with the former matrimonial home. That is no longer the situation given the matrimonial home was sold in September, 2016 with both parties receiving their share of the proceeds in November, 2016. Dr. Nabeta in fact testified that finances were improved for himself and his current partner arising from financial settlements in their respective family law disputes.
[128] Finally, the Applicant testified that business revenues were down due to distraction and time required away from the practice for this litigation. He also indicated that the Oakville practice needed time to become profitable following his purchase at the end of 2014. This litigation is now ended and Dr. Nabeta can focus his energies on the practices.
[129] I also appreciate that Dr. Nabeta financed his purchase of the two practices and the businesses must service this debt. I also appreciate that Dr. Nabeta has accessed other financing according to his testimony. However, the evidence from Mr. Hood and Mr. Carnegie did not suggest that their respective income opinions should be adjusted for any such financing. There was no evidence before me warranting any such adjustment. .
[130] The fact remains that Dr. Nabeta personally had liquid assets from corporate dividends and payments. The business was able to pay these monies to Dr. Nabeta or for his benefit without any interruption in its operations. In other words, these were funds available to Dr. Nabeta from the corporation, thereby providing him the income I have found he has available for support purposes.
The Marriage Contract
[131] The next step in this case is to consider the impact of the parties’ Marriage Contract now that I have determined their respective incomes.
[132] Simply stated, there was no meaningful evidence to find that the Marriage Contract should be set aside.
[133] Both parties had legal counsel to negotiate and draft the Contract. The evidence before me was that there was a reasonable lead up period of many weeks, if not months, wherein the parties through counsel negotiated the terms of the agreement. Adequate financial disclosure was made. There is no meaningful evidence that either party failed to understand the nature and consequences of the Contract. There was no evidence of fraud or misrepresentation. In these circumstances, I am not persuaded that the Respondent was operating under any duress when she executed the Contract, although I note it was signed only days before the wedding. There is nothing in the terms of the Contract or the context of the signing that would lead me to set the Contract aside on the basis of unconscionability or otherwise in accordance with contract law.
[134] None of the factors set forth in s. 56(4) of the Family Law Act for setting aside a domestic contract are engaged based on the evidence before me. Having failed to satisfy this threshold, the analysis respecting setting aside this Contract is ended (see: LeVan v. LeVan, 2008 ONCA 388, 90 O.R. (3d) at paragraph 51.).
[135] Given the above, the issue before me is to interpret the spousal support waiver term located at paragraph 12 of the Marriage Contract. Paragraph 12 is what I would describe as a fairly typical clause whereby each party releases the other from any claim for spousal support. However and much less typical, the release is subject to two exceptions.
[136] Paragraph 12(6) of the Contract provides that the release of spousal support is subject to review where one of the parties is incapable of working for a period greater than six months due to health issues. This clause was not engaged by the evidence before me. Neither party has a health issue disabling him/her from working.
[137] Paragraph 12(5) of the Contract provides that the release of spousal support is subject to review “upon the natural birth or legal adoption of the parties’ first child.”
[138] The parties have very different interpretations of paragraph 12(5).
[139] The Applicant acknowledges that paragraph 12(5) permits a review of the spousal support waiver upon the birth of the parties’ first child. However, he argues that the Respondent was required to initiate that review proximate to the birth of their first child, Mason Isao Nabeta, who was born October 12, 2011. The Applicant submits that the Respondent is effectively now estopped from seeking that review before me given she did not pursue any review at or about October 12, 2011. The Applicant argues that the Respondent did not ask for any review until she signed her Answer in this proceeding on May 19, 2015 and it was simply too late for her to then do so.
[140] The Respondent argues that there is no deadline in the Contract for when she could seek the review contemplated by paragraph 12(5). She argues that it would have made little sense for her to pursue a review of the spousal support issue when she was, at least in her mind, happily married, a new mother, and building a life with the Applicant. The Respondent argues that the relevant time to initiate that review is now, given that the parties have permanently separated.
[141] I need to go no further than the wording of paragraph 12(5) of the Contract to conclude that the Respondent was at liberty to seek a review of spousal support before me.
[142] This is not a classic Miglin case with an absolute spousal support release where no future adjustments were envisaged. The Respondent’s request for spousal support is not an “initial application for spousal support inconsistent with a pre‑existing agreement”, as was the narrative in Miglin v. Miglin, 2003 SCC 24, [2003] 1 S.C.R. 303.
[143] Here, the terms of the Marriage Contract specifically provide for a review of the spousal support release upon the happening of defined events. The Respondent’s request for spousal support is premised on one of the events defined in the Contract. She is thereby seeking to enforce her rights under the Contract, not set aside or override a term.
[144] The wording of paragraph 12 of the Marriage Contract is not ambiguous. As such, extrinsic evidence is unnecessary, inadmissible and rejected for the purpose of interpreting the Contract. Again, this is not a Miglin narrative. The Contract is plainly worded and the parties to the Contract are presumed to have intended the legal consequences of their words (see: Rateja v. Rateja, 2008 CanLII 40974 (ON SC), 2008 57 R.F.L. (6th) 408 (Ont. S.C.) and Eli Lilly and Co. v. Novopharm Ltd., 1998 CanLII 791 (SCC), [1998] 2 S.C.R. 129 at paras. 55-60).
[145] Paragraph 12(5) clearly permits either party to seek a review of the spousal support release following Mason’s birth. There is no language in the Contract that places any time restriction on when that review can be sought following the birth of the parties’ first child. The Applicant and his counsel could not direct me to any such limiting language.
[146] I find that the Respondent was at liberty to seek a review of the spousal support waiver set forth in paragraph 12 of the Marriage Contract. The triggering event in paragraph 12(5) permitting the review was Mason’s birth. The Respondent triggered that review pursuant to her Answer dated May 19, 2015, subsequently amended at August 25, 2016 (see paragraphs 7 and 8 of the Answer dated May 19, 2015).
[147] I accept the Respondent’s evidence that she ceased her employment at October, 2011 to give birth to Mason and start a family with the Applicant. Her testimony in that regard was not meaningfully challenged. She remained out of the workforce to be at home with Mason. The parties made a decision to have another child, Chase. The Respondent continued to be a stay-at-home parent to both children. The evidence of the parties was consistent that the plan was for the Respondent to remain a stay-at-home parent while the children were young. During this time, the Applicant built his dental practice. The Applicant testified that the household finances were premised solely on the Applicant’s income while the Respondent remained at home.
[148] The parties separated a little more than one year after Chase’s birth. The Respondent was not working at the date the parties separated and she last earned any significant income in 2008-2009 prior to commencing her short-lived private practice.
[149] I find that the parties did plan for the Respondent to return to remunerative employment. While fixing an exact date is impossible on the evidence before me, I find that the parties intended the Respondent to resume her dietician career by the time both children were attending school at the very latest. Their younger child, Chase, commences school full-time at September, 2017.
[150] It is in the above context that I must review the spousal support release.
[151] The wording of paragraph 12(5) of the Marriage Contract represents a clear statement by the parties that any release of spousal support could be revisited if parties had a child(ren). By doing so, in my view, the parties recognized and intended that starting a family and responsibilities related to that decision could impact on whether a party should thereafter be entitled to spousal support. That is exactly what happened here. The parties made the decision to start a family. By design of the parties, the Respondent abandoned her career to be a stay-at-home mother permitting the Applicant to advance his career.
[152] The Respondent was a stay-at-home mother at the date of separation and not working at the commencement of this trial. I must consider in this context whether the Respondent’s release of spousal support is appropriate. Clearly, it is not.
[153] It needs to be stated that a review is quite different from a variation application. A variation requires a material change to be established to permit any support adjustment. A review completely reopens the support issue permitting the court to make an order that accords with the spousal support objectives of the Divorce Act, R.S.C., 1985, c. 3 (2nd Supp.).
[154] Given that the release was agreed to by the Respondent before she abandoned her career in order to commence a family with the Applicant, it would be completely contrary to the spousal support objectives of the Divorce Act, to now maintain the release. Neither the Respondent nor any reasonable person would agree to no entitlement to spousal support in the circumstances she found herself at separation and following. It is not reasonable or appropriate that the Respondent receive no spousal support given the narrative of the parties after the Contract was signed.
[155] The outcome of the review provided for by paragraph 12(5) of the Marriage Contract is obvious. There is no doubt in my mind that the Respondent is entitled to spousal support on these facts on both a needs analysis and on a compensatory basis.
[156] As I have noted above, the Applicant has paid significant monies to the Respondent since separation. He paid the majority, if not all, expenses for the matrimonial home, the children and the Respondent from the date of separation until support was ordered by Justice Gray on June 30, 2016.
[157] The Applicant prepared a chart setting out the funds he paid to or on behalf of the Respondent from the November 15, 2014 date of separation to January 31, 2017. The chart was constructed based on numbers extracted from the Respondent’s Visa bills and other household bills that the Applicant was paying. The Respondent accepted the Applicant’s amounts set out in the chart, namely that he has paid $168,009.21 over the aforementioned period. As stated, this is a blended amount comprised of monies paid prior to and after the June 30, 2016 support order.
[158] The Respondent has asked for child and spousal support retroactive to the date of separation. This case presents the difficult scenario regularly faced by trial judges who are asked to somehow dissect and otherwise disentangle these historic payments and reengineer them, including appropriate grossing up and other potential taxation adjustments, to fit the standard support equation back to the date of separation. This is often impossible.
[159] I am not inclined to exercise my discretion to revisit the informal support arrangements that were adopted by the parties and continued for an extended period up to and after the Order of Justice Gray while both parties had experienced family counsel.
[160] These arrangements included funds paid to or for the Applicant’s benefit along with payment of expenses for the matrimonial home. The Applicant and the children continued to reside in the matrimonial home until it was sold in September, 2016 at the request of the Applicant and pursuant to the Order of Justice Gray.
[161] I have considered the magnitude of the payments made by the Applicant over this period.
[162] I have considered the lack of evidence suggesting that the needs of the children or the Respondent were not met.
[163] I have considered that the Respondent has received all of these payments on a tax-free basis. Obviously, some part of these monies represents payments for her support that would be taxable in her hands if made pursuant to a domestic contract or court order.
[164] I have considered that the Respondent did not seek a review of the spousal support waiver in the Marriage Contract until her Answer of May, 2015.
[165] I have considered that the Respondent did not initiate the request that the court change the informal arrangement. This request came in response to the Applicant’s motion seeking the sale of the matrimonial home. I infer from this that the Respondent considered the amounts being paid informally by the Applicant to be satisfactory until he demanded and obtained a court order for the matrimonial house to be sold.
[166] In all of the circumstances, these arrangements appear to be appropriate for the support of the children and the Applicant during this transition period leading up to Justice Gray’s Order. In my view and similar to the view of Justice Gray, the most appropriate point of demarcation is at the point the matrimonial home was sold. It is here where it makes the most sense to reset the informal arrangements that were in place to the standard support equation.
[167] Given all of the above, I find that there are no arrears of child or spousal support from the date of separation up to September 30, 2016. The Applicant suggested he overpaid support from the date of separation forward. However, he took the position that he was not seeking any repayment of this alleged overpayment. As such and for clarity, I find that no overpayment of support is owing from the date of separation to September 30, 2016. In other words, support is effectively started afresh with this judgment commencing October 1, 2016, as detailed below.
[168] Each party has a child support obligation to the other given the parties share the children equally. The child support amounts I have ordered below are the Guidelines table amounts for each party. I say this in particular with reference to Dr. Nabeta given his income is in excess of $150,000.00.
[169] I have ordered the child support table amounts recognizing the discretion I have to order otherwise and the various factors enumerated in s. 9 of the Guidelines and related cases that I must consider in making an order in the context of a shared parenting regime (see: Contino v. Leonelli-Contino, 2005 SCC 63, [2005] 3 S.C.R. 217 and Khairzad v. McFarlane, 2015 ONSC 7148, [2016] W.D.F.L. 116).
[170] I note that neither party presented a child care budget or any other evidence upon which I could make an assessment of whether the presumptive amounts were inappropriate. Regardless, ordering presumptive Guidelines amounts is appropriate here to allow the children to continue to benefit from the resources of both parents regardless of which home they are in.
[171] Commencing October 1, 2016 and each 1st of the month thereafter, I order the Applicant to pay the Respondent Guidelines child support of $4,064 based on an income of $330,000. This is the income I have found for the Applicant in 2015. Any determination of Dr. Nabeta’s income for 2016 and following must be done on the basis of the evidence relevant to his earnings for such years. I did not have that evidence and will not speculate.
[172] Commencing October 1, 2016 and each 1st of the month thereafter I order the Respondent shall pay the Applicant Guidelines child support of $540 based on an income of $37,500, which is the income I have imputed to her for 2016.
[173] The Applicant shall also pay spousal support to the Respondent of $4,800.00 monthly commencing October 1, 2016 and each 1st of the month thereafter. The $4,800.00 represents the low end of the SSAG, thereby providing both households with 50 per cent of the net disposable income of the parties. Again, this is appropriate given the equal sharing of the children.
[174] In making this spousal support order, I am aware that the Respondent has significant monthly Humera expenses. These expenses have been paid through Dr. Nabeta’s health benefits coverage. The Respondent will no longer be eligible for such coverage given the divorce that will issue as part of this Judgment. As such, I must consider how this expense shall be paid. In my view, this expense should be paid equally by the parties. My intention is that both parties cooperate to achieve the most cost efficient method to cover the Respondent’s medication expense, including consideration of any tax benefits/deductions. It may be that replacement coverage can be obtained at a cost less than simply paying the medication out of pocket. It may be that the Respondent can obtain funding from government or other sources. In either such case, the parties would share the costs of the coverage and any part of the medication not covered by available benefits. My point is that both parties shall take all reasonable steps to investigate and otherwise cooperate to find alternatives. Should there be no other option then the parties shall each pay one-half of the monthly expense. The calculation of this expense in whatever form shall take into consideration any tax benefits/deductions so that the parties share the net expense of the medication. This approach will serve to maintain the equal sharing of the parties’ net disposable income detailed above.
[175] At this point, I am not inclined to set a time limit on the spousal support paid by the Applicant. The parties had a relationship that I would place in the mid-range length. They came to Ontario to live together in 2003 and remained in a relationship until separating in November, 2014. They had two very young children at the date of separation. The Respondent is now attempting to renew her career. The Respondent’s Crohn’s disease is currently stable through medication but there was no evidence before me to assist in understanding whether this condition will impact the Respondent’s ability to earn income in the future. In summary, the storyline here has not come into sufficient focus for me to fix duration of support. My order is of course subject to variation at the request of either party upon material change.
[176] The Applicant shall receive credit for all payments he has made to or on behalf of the Respondent from October 1, 2016 forward, including her monthly Humera expense not reimbursed by insurance. If the parties are unable to resolve what those credits should be, then that discrete issue may be returned before me to resolve. I am hopeful that will not be necessary.
[177] A Support Deduction Order shall issue reflecting the above.
[178] There are no presently claimed section 7 expenses for the children. The parties shall be responsible for contributing to any future special or extraordinary expenses, including costs for post-secondary education, in ratio to their respective incomes at the time of such expenses. Both parents must consent in advance to any such expense in order to be obligated to contribute. However, neither parent shall withhold consent unreasonably.
[179] The Applicant now has significant ongoing child and spousal support obligations pursuant to this Judgment. There is no doubt that these support obligations need to be secured. As such, the Applicant shall designate the Respondent as the irrevocable beneficiary of his life insurance policy in the face amount of $1,000,000.00 for her own benefit and in trust for the children. This designation shall remain in place for so long as the Applicant has a support obligation to the Respondent and/or the children, subject only to variation in the face value of the policy to coincide with changes to the quantum of the Applicant’s support obligation from time to time. The Applicant shall provide the Respondent with authorization to contact his insurer directly to obtain written or such other confirmation as she prefers that this policy, beneficiary designation, and related face value remain in good standing and in keeping with this Judgment or any order subsequently varying this Judgment. The Applicant shall pay all premiums when due and otherwise keep this policy in good standing and in conformity with this Judgment. Should the policy not be in good standing or otherwise not be in conformity with this Judgment, then the support obligations then owing by the Applicant not secured by his insurance policy shall be a first charge against the Applicant’s estate.
[180] Finally, I also order a divorce issue terminating the marriage of these parties.
[181] If the parties cannot agree on costs then I will accept brief, written submissions respecting the costs of this trial. The Respondent shall file her written submissions not exceeding three pages exclusive of Bill of Costs and any relevant Offer(s) to Settle within 15 days of this decision. Dr. Nabeta shall file his written submissions not exceeding three pages exclusive of Bill of Costs and any relevant Offer(s) to Settle within 25 days of this decision. The Respondent shall file any Reply not to exceed two pages within 30 days of this decision.
Fitzpatrick J.
Released: October 3, 2017