Court File and Parties
COURT FILE NO.: FS-16-414146 DATE: 20180305
SUPERIOR COURT OF JUSTICE - ONTARIO
RE: Jennifer Montemarano, Applicant AND: Robert Montemarano, Respondent
BEFORE: Kiteley J.
COUNSEL: Jaret Neil Moldaver and Jesse Rosenberg, for the Applicant Elliot Birnboim and Katherine Long, for the Respondent
HEARD: February 13, 2018
ENDORSEMENT
BACKGROUND
[1] This is a motion by the Applicant that was originally returnable in May 2017. A long motion date was required and it appears there was an attempt to schedule it in August and it was adjourned to November 2, 2017. In the “Further Further Further Amended” Notice of Motion returnable February 13, 2018 the remaining issues were disclosure, temporary child support (table amount and s. 7), temporary spousal support, interim exclusive possession of the matrimonial home, interim disbursements and costs.
[2] The Respondent has brought a motion for an order fixing temporary child and spousal support effective December 1, 2016 in the amounts he has been paying and an order that he be responsible for 70% of the special and extraordinary expenses. He also requests an order that the parties “shall attend at a global mediation” before a specified mediator.
[3] According to the Applicant, the parties started cohabiting in June of 2001. They married on August 10, 2002. They have children who are now 11 and 8. The parents separated on January 13, 2016. They continued to reside in the matrimonial home until December 2016 when the Respondent left the home.
[4] On July 22, 2002, the parties executed a Marriage Contract that focused on property issues but does not deal with child and spousal support. In her application, the Applicant seeks to set aside that contract.
[5] In July 2017 Justice C. Gilmore was appointed as the Case Management Judge. She has made several endorsements including one dated January 18, 2018 in which she scheduled a Settlement Conference/Trial Management Conference before her on March 7, 2018. It was contemplated that the reasons for decision on these motions would be available in advance. For that reason, this endorsement addresses the two issues most relevant to settlement and trial scheduling, namely the temporary child and spousal support motion and the request for interim disbursements.
[6] I agree that counsel have made efforts to provide disclosure and conduct questioning. It may be that the case will be ready for trial in the fall of 2018. The factor that most affects the trial date is the order I make as indicated below that the Respondent is required to provide an expert valuation of the current fair market value of his business interests at least 90 days before trial.
INCOME OF THE RESPONDENT
[7] The Respondent takes the position that for purposes of establishing his obligation to pay child and spousal support, his income should be $200,000, although, in submissions, Mr. Birnboim used $260,000 when suggesting the ratio for s. 7 expenses.
[8] Mr. Moldaver relies on the reports of Mr. Ranot as well as his client’s description of the standard of living the family enjoyed prior to separation and the standard of living that the Respondent appears to continue to enjoy. The Applicant takes the position that the Respondent’s income should be $1,436,198.
[9] This analysis is framed by s. 3 of the Federal Child Support Guidelines (CSG). Pursuant to s. 3, the amount of child support is calculated according to the applicable table. Pursuant to s. 15, the spouse’s annual income is determined in accordance with sections 16 to 20.
[10] Pursuant to s. 16, and subject to sections 17 to 20, a spouse’s annual income is determined by reference to Line 150 of the income tax return.
[11] Pursuant to s. 17, if the court is of the opinion that Line 150 would not be “the fairest determination of that income”, then the court may have regard to the spouse’s income tax returns for the last three years and “determine an amount that is fair and reasonable in light of any pattern of income, fluctuation in income or receipt of a non-recurring amount during those years”.
[12] Pursuant to s. 18, where a spouse is a shareholder, and the court is of the opinion that the Line 150 income as determined under s. 16 does not fairly reflect all the money available to the spouse for the payment of child support, the court may consider the situations described in s. 17 and determine the spouse’s annual income to include all or part of the pre-tax income of the corporation. Pursuant to s. 18(2), in determining the pre-tax income of a corporation for the purposes of s. 18(1), all amounts paid by the corporation as salaries, wages or management fees, or other payments or benefits, to or on behalf of persons with whom the corporation does not deal at arm’s length must be added to the pre-tax income, unless the spouse establishes that the payments were reasonable in the circumstances.
[13] In his form 13.1 financial statements, the following appears:
| Date of 13.1 | last year gross income | current income | Part 2 expenses |
|---|---|---|---|
| March 23, 2016 Pre-application |
2014 tax year: $224,093 | $194,400 | $178,088 |
| December 23, 2016 | 2015 tax year: $176,133 | $176,133 | $153,077 |
| July 25, 2017 | 2015 tax year: $176,133 | $176,133 | $150,677 |
[14] Notwithstanding rule 13(12), the Respondent has not provided an up-to-date form 13.1. As a result I do not have his evidence as to income and expenses since he moved into Grey Rd in the fall of 2017.
[15] The Respondent retained Tom Strezos (Deloitte) to prepare a report. According to the affidavit of Mr. Strezos, he was retained to provide a valuation of the Respondent’s business income for child support and spousal support purposes pursuant to the Federal Child Support Guidelines. Mr. Strezos prepared reports dated October 26, 2016 and July 12, 2017 on the Valuation of Guideline Income. And he prepared a review and response to Mr. Ranot’s income report dated February 7, 2018.
[16] In his October 26, 2016 report Mr. Strezos summarized the Respondent’s interest in real estate corporations and partnerships including his minority shareholder status in some entities. At paragraph 1.2, Mr. Strezos noted his understanding that pursuant to s. 17(1), the Court has “considerable discretion in arriving at the “fairest determination” of Guideline Income. It was his opinion that the operating and investment companies had historically reinvested their retained earnings and/or assets into future developments in order to maintain future growth. As Mr. Birnboim submitted, Mr. Strezos acknowledges that the Respondent has drawn down on his shareholder loan balance but asserts that that is a return of capital and not income. The organization chart of the corporations in which the Respondent has some interest includes over 30 corporations.
[17] In the October 2016 report, Mr. Strezos included a schedule reflecting the Respondent’s line 150 income as follows:
| 2016 | 2015 | 2014 |
|---|---|---|
| N/A | $151,849 | $179,657 |
[18] In that October 2016 report, Mr. Strezos opined that the Respondent’s “pre-tax income” was as follows:
| 2016 | 2015 | 2014 |
|---|---|---|
| $208,000 | $198,000 | $217,000 |
[19] In his report dated July 12, 2017 Mr. Strezos opined that the Respondent’s pre-tax income was as follows:
| 2016 | 2015 | 2014 |
|---|---|---|
| $264,000 | $198,000 | $217,000 |
[20] Mr. Ranot (Marmer Penner) had prepared a report dated October 17, 2017 in which he provided his calculations of the Respondent’s 2013 to 2016 Guidelines Income but the report was subject to a limitation of scope in part because he had not been given the Respondent’s complete 2013 to 2016 personal income tax returns. He received the income tax returns and prepared a report dated January 31, 2018. In that report, he summarized the Respondent’s Line 150 income as follows:
| 2016 | 2015 | 2014 | 2013 |
|---|---|---|---|
| $189,982 | $176,133 | $224,094 | $340,232 |
[21] After receiving the returns and additional information from Mr. Strezos, Mr. Ranot prepared a report dated January 31, 2018 in which he provided his “Amended Calculation of Mr. Robert Montemarano’s 2013 to 2016 Income Pursuant to the Federal Child Support Guidelines” and noted at paragraphs 33-34 that the calculation included the gross-ups on the amounts of pre-tax benefits as follows:
| 2016 | 2015 | 2014 | 2013 |
|---|---|---|---|
| $1,440,000 | $520,000 | $420,000 | $450,000 |
[22] Mr. Ranot noted at paragraph 13 that the higher amount in 2016 was related to the purchase in April 2016 of the Grey Rd. property in which the Respondent intended to reside. At paragraph 17, Mr. Ranot indicated that during the corporate years ended August 15, 2013 to 2016 the Respondent caused the corporation to repay him $735,764 in loans excluding the $2,450,000 the company paid for his Grey Rd. residence.
[23] Mr. Strezos prepared a letter dated February 7, 2018 responding to the Marmer Penner January 2018 report. He included the following in his conclusion:
| 2016 | 2015 | 2014 | 2013 | |
|---|---|---|---|---|
| Adjusted Deloitte | $267,000 | $198,000 | $217,000 | N/A |
| Adjusted Marmer Penner | $289,000 | $249,000 | $297,000 | $419,000 |
[24] During submissions, I indicated that, on a motion for temporary support, I would not make findings of credibility based on dueling experts reports. Mr. Moldaver argues that I need not be concerned with credibility issues. He takes the position that the difference between the reports is fundamental: Mr. Ranot’s report is pursuant to the CSG and reflects the analysis required by s. 16 – 18 while Mr. Strezos’ report has been prepared without regard to the Guidelines. As a result of their different approaches, Mr. Ranot took into consideration pre-tax corporate income while Mr. Strezos did not. And Mr. Ranot was more generous in allocating personal use of properties and other expenses as income.
[25] The total of the yearly income amounts in the table provided by Mr. Ranot is $2,830,000. The average of those four years is $707,500.
[26] For purposes of this motion for temporary child and spousal support, I find that the Respondent’s income for 2017 and currently is $707,500.
[27] My reasons for coming to this conclusion are as follows. First, the Respondent’s line 150 income bears no relationship to their standard of living prior to separation. Nor does it reflect his standard of living since the separation. By advocating for $200,000 or $260,000, the Respondent implicitly agrees that his Line 150 income ought not to be relied on. I am satisfied that the Respondent’s Line 150 income is not the fairest determination of his income.
[28] Pursuant to s. 17, I consider the Respondent’s income over the last 3 years. Mr. Ranot and Mr. Strezos have given me four years and I will consider three instead of four which works to the Respondent’s advantage. I must look at the income in those years and “determine an amount that is fair and reasonable in light of any pattern of income, fluctuation in income, or receipt of a non-recurring amount”. And I must consider s. 18 because the Respondent is a shareholder.
[29] The significant increase in the income in 2016 could be said to be a “fluctuation” or a “non-recurring amount”. However, the significant increase was because the Respondent caused the corporation to finance the purchase of a personal residence. I am not satisfied, given the reason for the significant increase, it should be neutralized or discounted pursuant to s. 17. I will not exclude it from the average of the four years.
[30] Pursuant to s. 18(2) I am required to include all pre-tax benefits unless the Respondent establishes that the payments were reasonable under the circumstances. I accept the calculations made by Mr. Ranot. The Respondent has not met the burden of persuading me that the payments were otherwise reasonable and that the entire amount attributed to the purchase of Grey Rd. should not be included.
[31] Mr. Strezos indicated that he was retained to provide a valuation of the Respondent’s business income pursuant to the Federal Child Support Guidelines and he reports that he did that. As indicated above, in his report he noted his understanding that pursuant to s. 17(1), the Court has “considerable discretion in arriving at the “fairest determination” of Guideline Income. I agree that the Court has discretion but it is not as broad as Mr. Strezos suggests. In exercising that discretion, the court must follow the scheme of s. 3, 16, 17 and 18. The analysis prepared by Mr. Ranot more closely follows that scheme than does the analysis prepared by Mr. Strezos.
[32] Having said that, I am mindful that this is a motion for temporary support and the trial judge will have a comprehensive record on which to decide whether all of the payments on shareholder loans, or a portion of them, ought to be taken into consideration; what benefits ought to be included in establishing the Respondent’s income and whether the calculation ought to include the gross-ups on the amounts of pre-tax benefits. In an interim motion, where it is conceded that the Line 150 income is not the “fairest determination” of the payor’s income, the court must conduct sufficient analysis to justify the outcome without being expected to make detailed findings on all aspects of the differences between the experts. I am satisfied that the average of four years fairly reflects all the money available to the Respondent for temporary child (and spousal) support.
[33] Second, the burden is on the Respondent to provide a basis upon which the court can establish his income for purposes of determining temporary child and spousal support. It is unreasonable for him to put forward an income that is so inconsistent with the standard of living the family enjoyed before separation and inconsistent with his ongoing standard of living. In addition, he relied on the dueling experts and he did not provide his own form 13.1 that would have reflected his evidence of his income and of his expenses since he changed his residence. From that I draw an inference against him that his income for purposes of child and spousal support is much higher than he asserts.
TEMPORARY CHILD AND SPOUSAL SUPPORT
[34] At tab 26 of his exhibit book, Mr. Birnboim provided a list of expenses and support paid “from” (i.e. by or on behalf of) the Respondent. This was described as the “status quo”.
[35] In the period January to November 2016, the Respondent paid the Applicant’s credit card (that he reduced to a limit of $8000); the nanny at $2400 per month (the children were born May 2006 and October 2009); the Applicant’s car lease in the amount of $1733 per month and car insurance and repairs estimated at approximately $500 per month were paid by one of his corporations; utilities in the amount of approximately $1500 per month; insurance on the home at approximately $300 per month; repairs, landscaping and snow removal at approximately $500 per month; property taxes in the amount of approximately $1000 per month. In addition, he continued to pay the salary she had previously received in the amount of $36,666 per year.
[36] Starting in December 2016 when he left the matrimonial home, the Respondent paid child support of $2901 per month until the end of August 2017 when it was increased to $3312 per month; spousal support in the amount of $4230 per month until the end of August when it was increased to $4350 per months; 67% of the after tax s. 7 expenses until the end of August and then 70%; property taxes on the matrimonial home in the amount of approximately $1,000 per month; payment of the Applicant’s car lease in the amount of $1733 per month and car insurance in the amount of $250 per month (presumably by one of the corporations); insurance on the matrimonial home in the amount of $300 per month and water utility in the amount of $150.00 per month.
[37] All of those amounts, including the method of payment, were fixed unilaterally by the Respondent, apparently on the basis of his income as determined by his expert report delivered in October 2016 and updated in July 2017. There is no domestic agreement or court order and consequently the payments that might be characterized as spousal support are not taxable in the hands of the Applicant.
[38] The motion by the Applicant for temporary child and spousal support was originally returnable in the spring of 2017. The affidavits demonstrate considerable conflict between the parties as to who was delaying having the motion for temporary support heard. The last date was November 2, 2017 by which time the record had been developed. The supplementary reports of Mr. Ranot and Mr. Strezos were provided in January and February. Key to the hearing of the motion was the evidence required to establish the Respondent’s income. For purposes of starting the payments of retroactive child and spousal support, the possible dates could be December 6, 2016 (the date of the Application and the date referred to in the Applicant’s notice of motion); the date of the service of the notice of motion in the spring (which I cannot readily identify); November 2, 2017 when the long motion had been scheduled and adjourned; and February 13, 2018. I am satisfied that the payments should commence November 2, 2017 by which time the Respondent’s record establishing his income should have been firmly grounded in the evidence. The trial judge will be in a position to consider ordering the retroactive payment to an earlier date.
[39] Given the income I am attributing to the Respondent, counsel made submissions as to whether the Guidelines should apply and whether there are other circumstances that justify or demand a departure. While the Respondent resists a finding that his income is higher than $200,000 or $260,000, there is no evidence that he is unable to pay support based on the analysis provided by Mr. Moldaver. This is a motion for temporary support. In the circumstances, I see no basis to depart from the amounts calculated using the CSG and divorcemate.
[40] For purposes of this motion, the Respondent accepted the Applicant’s income of $35,474.
[41] I will not prepare the divorcemate calculation. I expect counsel to do so with the inputs referred to below.
[42] The Respondent will ask for credit for payments made since November 1, 2017. On this motion I will not do so. The payments have been made by him or by a corporation or entity on his direction. None have been income to the Applicant nor deductible by the Respondent. I leave that calculation to counsel to make; failing which by the trial judge.
INTERIM DISBURSEMENTS
[43] In her notice of motion, the Applicant asks for an order pursuant to rule 24(12) of the Family Law Rules and pursuant to s. 131 of the Courts of Justice Act that the Respondent pay an initial interim disbursement in the amount of $120,000 within 21 days to be applied to the fees and disbursements of Mr. Ranot. He was retained to value the Respondent’s total income from all sources for support purposes, including the valuation of the Respondent’s business interests to determine and to calculate the Applicant’s support entitlements. Counsel has provided a letter from Mr. Ranot explaining the estimated amount.
[44] As an alternative, the Applicant asked for an order that the Respondent provide a valuation of the companies listed on the organization chart attached to the notice of motion, to be updated as necessary to reflect his full current business interests, such valuation to be prepared within 60 days by a chartered business valuator and with the underlying real estate interests to be valued by a certified real estate appraiser, as at the date of separation and or as at the current time.
[45] As indicated above, the parties have retained experts who have prepared reports as to the Respondent’s income. In his March 23, 2016 form 13.1 financial statement, the Respondent has show the value of his corporate interests as $12,786,706 but “excluded” because they are “protected in marriage contract”. In his December 23. 2016 and July 25, 2017 form 13.1 he showed no value but indicated the assets were “excluded per marriage contract”. I understand that the first valuation is based on book value. His counsel takes the position that because of the exclusion of the value of his property the Respondent is not required to do more.
[46] Counsel for the Applicant takes the position that pursuant to s. 15.2(4) of the Divorce Act, in deciding the question of spousal support, the court is required to take into consideration the “condition, means, needs and other circumstances of each spouse” and for that reason the Respondent is required to prepare the fair market value.
[47] I agree that the marriage contract, which is challenged by the Applicant, is not an answer to the issue of valuation. Even if the marriage contract prevails and all of his corporate assets and related entities are excluded from the value of his property, the value of those assets and related entities are still relevant to the question of spousal support.
[48] To fulfill his obligation to disclose and his obligation to provide values of his assets, the Respondent must provide a fair market valuation. The organization chart includes over 30 corporations. Based on the evidence, the percentage of his interest in each of those corporations varies. Not only does he have the obligation to provide such a report, it will be more efficient if he is responsible to prepare the report since he has or has access to all of the information required to prepare a fair market value of his business interests.
[49] Furthermore, the Respondent is anxious to get to trial. He is in the driver’s seat with respect to access to documents and information with respect to those corporations and entities. It will take less time for him to have his experts prepare the report. Rather than impose the timetable of 60 days requested by the Applicant, I will apply the notice requirements in the Family Law Rules.
[50] In view of the marriage contract that remains valid and enforceable until a court orders otherwise, I will not now direct the Respondent to provide a valuation as at valuation date in January 2016.
[51] My understanding of the submissions was that the request for interim disbursements was related to the valuation of the Respondent’s corporates and business entities. I note that in her notice of motion the Applicant asked for interim disbursements in relation to the work done by Mr. Ranot on the Respondent’s income. I have not considered the request with respect to income.
[52] As indicated above, I am addressing only the two key issues. The Applicant’s request for an order for interim exclusive possession of the matrimonial home and the Respondent’s request for an order for “global mediation” as well as costs of the attendance before Kruzick J. on November 2, 2017, the costs of the settlement of the parenting issues and the costs of these motions all remain outstanding.
ORDER TO GO AS FOLLOWS:
[53] By March 12, 2018, counsel for the parties shall forward to my attention a divorcemate calculation that reflects the following assumptions: length of marriage 15 years; recipient age at separation 42; the Respondent’s income of $707,500; the Applicant’s income of $35,474; and two children. The Respondent shall pay the amount of child support in accordance with that calculation and the Respondent shall pay the low end of the range of spousal support in that calculation. If counsel are unable to agree as to the amount, they shall forward to my attention their respective divorcemate calculations and I will decide the amounts.
[54] The Respondent shall make the payments referred to in paragraph 53 effective November 1, 2017 without prejudice to the Applicant at trial seeking an order for retroactive increased child support and increased spousal support from January 1, 2016 to the date of trial; and without prejudice to the Respondent seeking an order for less.
[55] The Respondent shall pay all arrears within 7 days of the endorsement I make as to the amounts required pursuant to paragraph 53 and 54.
[56] Effective November 1, 2017, the Applicant and the Respondent shall pay their respective shares of the s. 7 expenses as indicated in the divorcemate calculation.
[57] Support Deduction Order to issue.
[58] The Respondent shall obtain, at his expense, a written report of a chartered business valuator, together with a form 20.1 Acknowledgement of Expert’s Duty that reflects the market value of his interest in all of the corporations and partnerships and other business entitles he has as of the date of this order which report shall be served at least 90 days before trial.
[59] By March 19, 2018 counsel shall send to my attention through the Trial Co-ordinator a letter in which they agree as to the remaining issues arising from these motions as well as a schedule for making submissions on the three costs issues.
Kiteley J.
Date: March 2018