Court File and Parties

Court File No.: FC-10-1946-2 Date: 2018/09/26 Superior Court of Justice - Ontario

Re: Julia Rathwell, Applicant (Moving Party) And: Joseph Rathwell, Respondent (Responding Party)

Before: Mr. Justice C. MacLeod

Appearing: Julia Rathwell, Self-Represented Joseph Rathwell, Self-Represented

Heard: September 24, 2018

Endorsement

[1] This was a motion to change the existing support order made by Justice Ray of this court on August 8th, 2014. The motion was converted to a trial of an issue and came on for a hearing on September 24th, 2018.

[2] The applicant seeks an order terminating child support and directing the respondent to pay spousal support. As I will discuss momentarily, this outcome was contemplated in the original order and in the minutes of settlement giving rise to that order. The questions for adjudication are the date on which spousal support should have started, the amount of that support owing to the date of trial, the amount of ongoing support, security for support, review of the support, life insurance and costs of the proceeding.

[3] As the parties are aware, I heard their evidence under oath on September 24th, 2018 and received various documents as evidence. I reserved to give a written decision. Costs of the proceeding remain to be decided.

Background

[4] The parties were married on August 19, 1989, separated on April 1, 2009 and were divorced on November 10, 2014. During the marriage they had two children. Both children are now adults. The applicant was born on December 23, 1967 and the respondent was born on October 25, 1965. At the time of separation the applicant was 41 years old and the respondent was 43. They are now 50 and 52 respectively.

[5] According to the evidence, the parties had a traditional marriage. Although the applicant worked in the travel industry, at one time, she ceased working outside the home after the birth of their second child. She currently runs a home daycare and supplements that with commissioned sales of cosmetic products. The respondent does not dispute the entitlement of the applicant to spousal support.

[6] I need not to delve deeply into the history of the marriage or the facts that were originally in dispute. The only issue I am asked to determine is the applicant’s entitlement to spousal support after January 1, 2016.

[7] The original divorce application was brought on August 7, 2010. During most of that process the applicant was represented by Christopher Deeble and the respondent either represented himself or was represented by Darrin Clayton.

[8] Ultimately, the matter was resolved when the parties entered into a separation agreement on November 5, 2013. The applicant subsequently had the terms of the agreement incorporated in a final court order which became the order of Justice Ray issued on August 8th, 2014. This is the order that the applicant now seeks to vary. Justice Beaudoin granted the divorce on November 10, 2014.

The agreement and the order of Justice Ray

[9] At the time of the agreement, the parties acknowledged the obligation of the respondent to pay spousal support. It was agreed however that child support for the youngest child who had just started university would take priority. Mr. Rathwell was to pay $182 per month based on the “summer formula” using a figure of $60,000 per year for his 2013 income and imputing an income of $27,000 to the applicant. He was also to pay 66% of Kyle’s extraordinary expenses and the respondent was to pay 34% of those expenses. The question of spousal support was made reviewable by the court commencing “the month following Kyle’s last day of post-secondary studies”. Pursuant to the agreement and the order, the cessation of the obligation to pay for Kyle’s education was to be treated as a material change.

[10] Other aspects of the consent order are worthy of note. Although the respondent was in arrears of child support under the existing temporary order, those arrears were extinguished as part of the equalization of net family property. Secondly, in consideration of the resolution of all of the issues and the commitment to fund post-secondary education for Kyle, the applicant abandoned her claim for retroactive spousal support up to the date of the agreement.

The current situation and the requests of the applicant

[11] It is common ground that Kyle finished his university education in August 2016. It is also common ground that the respondent never had to pay 66% of extraordinary expenses nor did the applicant have to pay 34%. This is partly because Kyle was in a co-op program and was able to cover his own expenses and partly because he incurred student debt.

[12] Although Kyle did not actually finish university until August 2016, the applicant seeks spousal support retroactive to January 1, 2016. She also proposes that the child support retroactively terminate on the same date. This is because Kyle was effectively supporting himself by that date and also because notwithstanding the assumption in the separation agreement and the subsequent court order, the respondent never contributed to Kyle’s education during any of the years 2013 to 2016.

[13] The applicant urges the court to regard the fact the respondent never paid his 66% as a material change. She argues that this justifies the imposition of spousal support from January 2016 and not just from September of that year as originally contemplated in the agreement. She has calculated that the respondent should have paid $16,275.68 over the four years when Kyle attended school.

[14] The applicant seeks support at the high end of the Spousal Support Advisory Guidelines (SSAG) which she has calculated at $2,179.00 per month. She also seeks an order for lump sum arrears, for security and for life insurance.

[15] In assessing the obligation of the respondent to pay support as well as the need for requiring both security and insurance, the applicant points to the history of the proceeding and to the respondent’s payment history. It is a history of failure to take his support obligations seriously and failure to recognize his obligation to accurately and regularly disclose his income.

[16] At the time of the agreement in 2013, the respondent had accumulated $5,488.92 in child support arrears. Although he had entered into a consent support order on November 30, 2011, no payments were made in 2012 or 2013. Those arrears were extinguished by setting them off against part of the equalization payment. Child support was also reduced to $182.00 per month.

[17] On February 13, 2017 after this motion to change was commenced, at a settlement conference (and with the benefit of legal representation from Mr. Duvadie) the respondent agreed to an interim order for spousal support of $1,000.00 per month starting January 1, 2017.

[18] According to the FRO printout, the respondent had arrears of child support and spousal support of $5,910.00 as of June of this year. Effectively, the only support payments he has ever made are payments extracted through FRO enforcement. The applicant states that in the years following separation, she was effectively the sole support for herself and the two children and had to struggle financially without any assistance from the respondent.

[19] In addition to the respondent’s payment history, the applicant points to the lack of co-operation and failure of the respondent to live up to disclosure obligations and other obligations of a litigant before this court. For example, the 2013 agreement was to have been turned into a court order but the respondent failed to co-operate. It was only in November of 2014 that the settlement was converted to a court order. This required the applicant to bring a motion on notice to which the respondent did not reply.

[20] The agreement and the order required annual disclosure of income. This has not been forthcoming. Even after this motion to change was commenced, it took court orders to obtain financial disclosure. Proof of income has only recently been provided.

[21] The respondent concedes that his track record of payment and disclosure has been haphazard. He blamed this partly on a chaotic time post separation, and partly on changes in his employment. He also claimed that he had been subject to abusive and demeaning treatment by the applicant’s former counsel and suggested that he had provided information to her lawyer that the lawyer may not have communicated to her. These vague assertions and excuses can be given little weight.

[22] Because the obligation to pay spousal support is conceded (and was conceded in 2013) the only questions are how much the support should be and when it should have started.

Respondent’s Income

[23] Although the respondent has not yet filed his income tax for 2017, with the benefit of T4 slips and a letter from his current employer, along with questioning at the trial, it was possible to establish the respondent’s income for each of the relevant years.

[24] In 2015, he earned $89,679.86 working for Matthews Equipment Ltd. (Hertz). In 2016, he earned $107,210.91 working for the same employer. In 2017, he earned $94,012.36 consisting of $45,789.36 from Matthews (including a severance payment) and $48,223.00 from Malmberg Truck Trailer Equipment.

[25] In 2018, the respondent worked for Malmberg until April at which point he resigned to accept employment with Epiroc Canada (Atlas Copco) at a base salary of $80,000.00 per year plus potential bonus and commission income. The position also came with health benefits and life insurance. In November, the respondent will become eligible to participate in the pension plan. It is reasonable to assume that his income for 2018 will approximate $90,000.00 which except for 2016 is more or less what he has earned each year since at least 2015.

Applicant’s Income

[26] As mentioned above, the applicant agreed that income could be imputed to her in the amount of $27,000.00 in 2013 and 2014. Her current income is derived from running a home daycare as well as a small income derived from acting as a sales representative for cosmetic products. She has filed tax returns including statements of business income and expenses.

[27] Her tax returns are attached to her financial statement in the trial record. They show the following. In 2015, she had employment income of $2,399.51. She also had gross business income for the daycare of $45,215.00 and commission income of $637.45. After expenses, her “line 150” total taxable income was $14,797.43. In 2016, there was no employment income. She earned $47,546.00 in gross income from the daycare and $1,983.45 in commission income. After deducting expenses, her line 150 total taxable income was $14,278.98. In 2017, the applicant earned $46,411.00 gross income from daycare and $5,675.92 in gross commission income. After deducting expenses, her net taxable income before spousal support was $12,965.30. She declared $12,000.00 in spousal support which produced a line 150 number of $24,965.30.

[28] For self-employed individuals, there is a difference between the income which may be recognized for income tax purposes and the amount that should be recognized for support purposes. Although this calculation is frequently subsumed under the description of “imputing income”, in reality the applicant’s income is known. The question is whether deductions that may be reasonable for income tax purposes (at least insofar as they have been accepted by CRA) may not be reasonable for support purposes. To answer this question requires examining the deductions claimed against the gross income to determine what income should be used for the purpose of the Spousal Support Advisory Guidelines (SSAG).

[29] In examining the Statement of Business or Professional Activities from the applicant’s tax returns, certain expenses claimed by her would not be available to her if she was earning an equivalent salary and other expenses are at least somewhat inflated. For example, the applicant is writing off 55% of her household expenses such as electricity, insurance, mortgage interest, internet, cable television and utilities. She is writing off motor vehicle expenses based on 20,000 Km per year for business use (largely as she testified use of the vehicle for groceries and shopping). She is deducting the cost of purchasing food and at trial she admitted that her own groceries may be included in the calculation. For tax purposes, she is able to claim depreciation on her computer, laptop, printer and other equipment. Finally, she deducted all of her legal fees against her business income. In 2017, her gross daycare income of $46,411.00 was by these means reduced to $10,855.90. In 2016, when she did not deduct legal fees, the daycare income of $47,546.00 was reduced to $15,688.51.

[30] It is not reasonable to permit all of these tax deductions for support purposes but I need not engage in a line by line analysis and make a precise calculation. The court must recognize legitimate business overhead without requiring the support payor to fund the tax advantages of being self-employed. It is not difficult to find $10,000 in expenses that should be added back in to the applicant’s income (plus the legal fees she claimed in 2017).

[31] The applicant recognized the possibility that income would be imputed to her and one of the DivorceMate calculations she had prepared used a figure of $25,000 for imputed income. This is not much different from the $27,000.00 which the parties had agreed was reasonable in 2013. I am of the view that it continues to be reasonable to impute $27,000 as the applicant’s real income.

The Spousal Support Advisory Guidelines

[32] As the name suggests, the SSAG are non-binding guidelines. Nevertheless, they carry significant weight and will normally be applied unless there are extraordinary factors justifying a court in departing from them. No such factors are present in this case. As both parties are aware, however, the guidelines do not generate numbers with the same precision as the child support tables. Rather the guidelines generate a range of recommended levels of support which the court will apply on a case by case basis.

[33] There is another significant distinction between child support and spousal support. Child support can be revised annually based on changes in the support payor’s income. A review of spousal support on the other hand will only be justified if there is a “material” change in the income of one or other of the parties. Moreover, though children are always entitled to share in the benefit of post-separation increases in their parents’ income, it is not always the case that ex-spouses have that right. Variation of spousal support orders for ex-spouses is governed by s. 17 (4.1) of the Divorce Act, R.S.C., 1985, c. 3 (2nd Supp.) and the jurisprudence developed thereunder.

[34] As can be seen from the discussion of income, there has been some fluctuation in the income of the respondent and it remains unclear what his income will be at the end of 2018 and into the future. He is of course optimistic that his new employment will enhance his future prospects but it remains to be seen whether he will be entitled to a bonus or significant commission income in future years.

[35] For each of the years 2015-2018 the respondent has earned approximately $90,000 per year with the exception of 2016 when he earned just over $100,000. By contrast, the applicant has continued to earn approximately the $27,000 per year imputed to her when the order was made in 2014. I would not consider the temporary increase in pay for 2016 to constitute a material change but I would consider the increase in income from $60,000 (which was the basis for the consent order) and $90,000 to be such a change. In addition, of course, the parties had agreed that when they ceased to be responsible for funding Kyle’s education a review of spousal support would be appropriate.

[36] If I apply the guidelines using $90,000 as the income for the respondent and $27,000 for the income of the applicant, the range that is generated is $1,536 at the low end, $1,792 at the mid-range and $2,048 at the high end. The applicant presented Divorce Mate calculations based on various scenarios. Even the most pessimistic of those (using $80,000 for the respondent’s income and $25,000 for her own) generates numbers significantly greater than the $1,000 per month currently paid under the interim order ($1,341, $1,564 and $1,788). By contrast using the 2016 income of $107,211 and imputing $25,000 she filed a printout showing $2,030, 2,368 and $2,706.

The amount of support and the question of retroactivity

[37] There is no dispute that spousal support should have started in 2016. Despite the protestations of inability to pay, it is eminently fair to the respondent to use the figures of $90,000 and $27,000 for each of the years in question. I will give him the benefit of this range for each of the years in question despite the anomalous bonus year in 2016. I adopt this approach firstly for simplicity because had the support order been made in 2015, I would not have regarded the 2016 one time bonus as a material change. Secondly, I propose to fix the support towards the upper end of the range.

[38] In requesting the upper end of the range, the applicant argues that the court should take into account the delay in starting spousal support, the fact that she did not even receive child support in the early years of the separation, her current age and the limited time she has to save for retirement. I agree that these are factors which justify a support order above the mid-point. Even at the top of the range, the SSAG would not have the effect of equalizing Net Disposable Income (NDI) between the former spouses.

[39] I am therefore fixing the amount of spousal support at $1,900.00 per month which is above the mid-point of the guidelines though not at the top end requested by the applicant.

[40] I accept the applicant’s argument that the spousal support should be retroactive to January 1, 2016. It is entirely clear from the minutes and the order that spousal support was waived on the expectation the respondent was going to pay 66% of a significant educational shortfall for Kyle. I reject the evidence of the respondent that neither party expected there to be a shortfall although I recognize that neither of the parties ultimately paid the share they had expected to contribute.

[41] I find that the ability of Kyle to become self-sufficient without recourse to his parents and the increase in the respondent’s income from $60,000 to $90,000 per year were each changes in circumstances justifying a review of spousal support earlier than the month after Kyle completed his education.

[42] The date of commencement of the spousal support order will be January 1st, 2016. It follows that the child support order of $182.00 per month should be terminated as of December 31, 2015.

[43] The applicant requested the arrears be quantified and ordered by way of a lump sum. There is no utility in this. The respondent has no ability to pay a lump sum. It should be possible for both parties to adjust their tax returns for 2016 and 2017 and the Director FRO is capable of recalculating the arrears in light of this order. The respondent will be entitled to a credit for child support that has accrued since January of 2016 and for spousal support paid under the interim order. He will be liable for the retroactive support.

Review of this order

[44] The applicant proposes that the support order be reviewable in 9 years. She chose this date because the SSAG print out suggests that support be paid for between 9 years and 19.5 years given the duration of the marriage and the ages of the parties.

[45] I am not in favour of a built in review date and in particular an arbitrary number such as 9 years. Spousal support is justified on both a needs based and a compensatory analysis given the facts of the marriage. There will certainly be future changes in circumstances that justify a review. Such considerations as retirement or significant changes in the income of either party are likely to require future support adjustments.

[46] Without limiting the right of either party to seek a further variation, I will provide that support is reviewable should either party experience an increase or decrease in their income of more than 15%.

Security

[47] The respondent has a locked in RRSP. The applicant requests that this account stand as security for this order. Given the history of arrears under previous orders, this is a reasonable request and an order will go accordingly.

Insurance

[48] The applicant proposes the respondent be required to provide life insurance for at least $200,000 naming her as irrevocable beneficiary. The respondent recognizes that such an order may be appropriate. The only insurance he has at present is the automatic insurance for twice his base salary (that is $160,000) available through his place of employment. The beneficiaries are currently the two children.

[49] Insurance orders are important components of support orders and benefit both parties by avoiding claims against the estate of the support payor but they are problematic. I have no evidence for example as to whether or not the respondent is insurable or what the cost would be to obtain a private policy of insurance. I have no evidence as to whether or not he can designate an irrevocable beneficiary for the insurance available through his workplace or what would happen to that insurance if his employment should end.

[50] It is frequently the case that an order for an insurance policy cannot be implemented for one reason or another and should that be the case, further direction may be required.

[51] In conclusion, there will be an order requiring the respondent to use his best efforts to obtain a policy of insurance acceptable to the applicant for at least $160,000 designating her as irrevocable beneficiary within the next 60 days. In the event this proves to be impossible or extravagantly expensive I may be spoken to for further direction.

Costs

[52] I was asked to defer the question of costs so that I might hear from the parties about offers to settle. I therefore reserve the question of costs to a future date. The parties may make arrangements to speak to this question or they may seek direction from my office to make submissions in writing.

Summary

[53] In summary an order will issue as follows:

a. The child support ordered pursuant to the order of Justice Ray dated August 8th, 2014 is terminated effective December 31st, 2015.

b. The respondent is liable to pay spousal support to the applicant in the amount of $1,900.00 per month commencing January 1, 2016 and continuing monthly until further order or written agreement.

c. The Director, Family Responsibility Office shall amend the calculation of arrears by giving credit to the respondent for any child support accrued after December 31, 2015 and for any spousal support paid under the interim order of Justice Roger. The respondent shall be liable for spousal support in accordance with this order from January 1, 2016.

d. Without limiting the right of either party to seek a variation for other reasons, either party may seek a variation of spousal support if his or her income changes by more than 15% from $90,000 (Respondent) or $27,000 (Applicant).

e. The Respondent’s locked in retirement account under policy P1826980-6 held with London Life shall stand as security for this support obligation. In the event the said policy may not be legally charged or stand as security, the parties may seek further direction.

f. The Respondent shall within 60 days obtain a policy of life insurance in the amount of no less than $160,000 payable to the Applicant as irrevocable beneficiary for so long as support is payable. If the Respondent is not able to obtain such a policy for any legitimate reason or if he otherwise fails to comply with this order, the parties may seek further direction.

g. The question of costs of this proceeding is reserved. The parties may arrange to speak to the matter or may request directions to make submissions in writing.

Mr. Justice C. MacLeod Date: September 26, 2018