Court File and Parties

COURT FILE NO.: FS-15-407024 DATE: 20180926 SUPERIOR COURT OF JUSTICE - ONTARIO

RE: Nora Mary Almeida, Applicant AND: Fariborz Malek-Gilani, Respondent

BEFORE: Madam Justice Kristjanson

COUNSEL: Paul D. Slan, for the Applicant Efua Cobbina, for the Respondent

HEARD: September 18, 2018

Endorsement

1The applicant mother has brought a motion to enforce a July, 2017 interim, without prejudice order that the respondent father continue to pay the section 7 post-secondary tuition and living expenses. The two adult daughters are pursuing second and third post-secondary degrees in the United Kingdom after completing their earlier degrees in Canada. The father has brought a cross-motion to vary, seeking to apportion responsibility equally between the parents pending the receipt of further information about the contribution to be made by the daughters. The father resides primarily in Iran; the mother resides primarily in the UK; the two adult daughters reside in the UK, but do not reside with the mother.

2I find that there has been a material change in the father’s income since July, 2017, and on an interim basis allocate 2018-2019 tuition and rent equally between the parents. However, there is simply no information upon which a court can make a proper allocation of section 7 expenses, given the lack of information about the means of the daughters and the contribution they are making or should make to their education. As a result, I order production of information which is necessary to establish the contribution by both parents and children in relation to the second and third post-secondary programs pursued by the two adult children.

Background Facts

Post-Secondary Expenses for 2018-2019

3N is 26 years old and has a Masters from U of T; she is enrolled in her third degree program at the Royal Veterinary College at the University of London (UK). N’s tuition fees for the year are £33,990, or approximately C$56,584. She has C$15,308.98 in a bank account. Of the $100,000 her father advanced to her last year for post-secondary expenses, she has failed to account for $28,106.61.

4T is 23 years old and has a BSc from McMaster; she is enrolled in her second degree program at the Royal Institute of British Architects in London (UK). T’s tuition fees are £34,062.73, or C$56,705. She has $12,742.47 in a bank account. Of the $100,000 her father advanced to her last year for post-secondary expenses, she has failed to account for $30, 552.05.

5The daughters have obtained an apartment they will share for the 2018-2019 school year, at a monthly cost of £797.44 (C$1,328) each or a total of C$2656 per month (with a deposit of £2200/C$3740). The evidence is that in London, flats are let for a 12 month period of time.

Father’s Contribution to Post-Secondary Expenses 2017-2018

6At a settlement conference in June, 2017 the father consented to an interim, without prejudice order that he would continue to pay tuition and living expenses for the daughters. The mother concedes that at the time the father agreed to the June, 2017 order, he had not been provided with information as to the cost of the proposed post-secondary education plans. The prior education of the daughters was in Canada.

7The first time the father was provided with a budget was July 2, 2017. N provided an e-mail on behalf of both daughters seeking annual post-secondary related expenses for N of C$107,200 and for T of C$82,200. In addition to tuition, N and T provided an estimate of rent of C$23,800 each; sought an “allowance” of $20,400 each, and school expenses of C$3000 each. They requested pre-payment for 4 years (N) and five years (T) of post-secondary costs, in the total amount of C$864,800. Parents are not required to “pre-pay” the entirety of a post-secondary degree.

8The e-mail from N on July 2, 2017 included a claim for rent of $23,800 each; in fact, in 2017-2018 N and T resided rent-free at a home (Floyer Close) jointly owned by the mother and father. However, the father was not advised of this at the time, and advanced funds which included the proposed rent.

9In August, 2017 the father provided each of the girls with C$100,000.00 for tuition and living expenses. The father and mother agreed to sell the matrimonial home in 2017, and each parent received C$903,972.06 from the sale of the matrimonial home in August, 2017. The father directed payment of $100,000.00 to each daughter for post-secondary expenses out of his portion of the proceeds of the sale of the matrimonial home. Thus, the father paid 2017-2018 post-secondary expenses out of his capital. The mother received the entire amount of C$903,972.06. The mother did not direct payment of any portion of the matrimonial home proceeds to the daughters.

10The mother takes the position that she only agreed to the sale of the matrimonial home on the understanding that the father would pay all of their daughters’ post-secondary expenses. The mother does not seek to enforce this as an agreement, however.

11The father takes the position that he understood that in exchange for paying post-secondary expenses the daughters would convey to him their interest in the Tehran apartment, worth approximately C$700,000.00 and they have failed or refuse to do so. The father lives in the Tehran apartment. The father does not seek to enforce this as an agreement, however.

Failure to Provide Information about Daughters’ Means and Contribution

12There is essentially no information about the income, means and contribution by the daughters, which for second and third post-secondary degrees of adult children is clearly required. The daughters co-own a Tehran apartment, so have assets of C$350,000 each. There has been no disclosure of employment income, loans, bursaries, scholarships or other assets of the daughters, despite a detailed request made by the father to the mother in April, 2018. Some bank account information has been provided, but not all (e.g., not the TD Bank information). Information about the reasonableness of the expenses, the contribution to be made by the adult daughters, and their income/means, is required if the mother wishes to obtain a contribution to post-secondary funding from the father. I make such orders below.

13The parents jointly own a home in the UK, Floyer Close, but neither party resides there. The parties have retained an agent to list the UK property for rent; if rented, the rental income would be £3,250/month, less fees of £195 per month. Each parent is presently entitled to 50% of the rental income, which would more than cover the rent for the daughters on a monthly basis. The mother had been collecting the rental income post-separation (the property was not leased in 2017-2018 since the daughters resided there).

Father’s Income, Means and Variation of Interim Order

14There is a significant dispute about the father’s income, which will have to be resolved at trial.

15The mother estimates the father’s 2017 income to be C$627,720, based on the official exchange rate for Iranian rials. She refers to a BDO Dunwoody valuation report, which the father disputes; that valuation is not in the record before me. The mother’s evidence is double hearsay; she purports to report on the contents of an expert report valuing the father’s interests and grossing up for tax, but has not disclosed the report.

16In addition to the double hearsay on issues upon which I would expect to receive expert evidence, there are two main concerns. The first is the use of the official exchange rate by the mother to calculate the father’s income. I accept the father’s evidence that given restrictions in Iran, rials generally cannot be exchanged at the official exchange rate but must be exchanged on the unofficial market, meaning that the income figure using the official exchange rate must be discounted by approximately 2/3. His evidence is that while the official exchange rate for C$1 is C$32,300 rials, the realizable rate on the free or unofficial market is 109,000 rials. I also accept his evidence that his income has plunged since the consent order due to currency devaluation.

17The second concern is the gross-up for tax. Since Federal Child Support Guidelines income is based on the payor's annual gross income, adjustments for income tax must be made when the payor is a non-resident of Canada and subject to a different tax regime. This is dealt with in ss. 19(1)(c) and 20 of the Guidelines, which read:

Imputing income 19.(1) The court may impute such amount of income to a spouse as it considers appropriate in the circumstances, which circumstances include the following:... (c) the spouse lives in a country that has effective rates of income tax that are significantly lower than those in Canada;

Non-resident 20.(1) Subject to subsection (2), where a spouse is a non-resident of Canada, the spouse's annual income is determined as though the spouse were a resident of Canada.

Non-resident taxed at higher rates (2) Where a spouse is a non-resident of Canada and resides in a country that has effective rates of income tax that are significantly higher than those applicable in the province in which the other spouse ordinarily resides, the spouse's annual income is the amount that the court determines to be appropriate taking those rates into consideration.

18Thus, while the starting point in determining the Guidelines income of a non-resident payor requires calculating his gross income in Canadian funds pursuant to s. 20(1), the court retains a discretion under ss. 19(1)(c) or 20(2) to adjust his Guidelines income if he pays income tax at a significantly lower or higher rate than Ontario, where the payee resides.

19The British Columbia Court of Appeal explained in Gonabady-Namadom v. Mohammadzadeh, 2009 BCCA 448 at para. 36:

36When a non-resident payor's tax rate is significantly different than Canadian tax rates, the usual practice under ss. 19(1)(c) and 20 of the Guidelines is to convert his or her gross foreign income to Canadian dollars at a fair exchange rate, then look to the evidence of the applicable foreign tax rate to calculate his net income, and then determine what gross income would be required to yield the same net income at Canadian tax rates. Finally, it may be necessary to examine the "bundle of services" that both governments provide in exchange for the tax dollars paid. These matters are often the subject of expert evidence: Patrick v. Patrick, [1999] B.C.J. No. 1245 (S.C.) at paras. 12-19, Ward v. Ward, 2001 BCSC 847, 19 R.F.L. (5th) 232 at paras. 34-40, Watson v. Watson, 2006 BCSC 256, [2006] B.C.J. No. 329 at paras. 22-29.

20The only evidence of the basis of the gross-up is unsworn e-mails between the mother’s counsel and the valuation expert which are attached to the mother’s affidavit. The mother’s counsel requested a gross-up of the father’s income prepared by the valuator on the grounds that the father did not pay income tax. The valuator wrote to the mother’s counsel on September 12, 2018:

With respect to his income, not sure if grossing up the amounts below makes sense, since these are estimate of the corporate distributions he received. However, if this needs to be done and you’re sure it’s okay, should I use a corporate or personal tax rate? If personal tax rate, should I use the highest tax rate or use a blended one, depending on which brackets the income amounts below represent?

In response, the mother’s counsel directed: “Personal. I don’t know what rate should be used.” This falls far short of the evidence required to support the gross-up, and demonstrates why expert evidence is generally required when dealing with income tax gross-ups from foreign corporate income streams.

21The father’s evidence in his affidavit updating his June, 2018 financial statement is that his anticipated income converted from rials to CAD is approximately C$70,000. The father has assets, the value of which is disputed. On the evidence before me, for the purposes of the motion, I find the father’s income to be approximately C$70,000; there must be some gross-up for income tax. In the absence of evidence I gross-up for the purposes of the motion only to C$90,000, approximately 30%.

22I also accept the father’s evidence that due to geo-political events relating to Iran which have led to the currency devaluation, his income has declined by 2/3 since the without prejudice order was made, and there are restrictions on the ability to remove money from Iran.

23Interim without prejudice orders are generally intended to take the parties to trial, although they are variable when better information as to the circumstances of the parties becomes available. I find the black market currency devaluation and its significant effect on the father’s income to be material changes. The test for a "material change" as set out by the Supreme Court of Canada in L.M.P. v. L.S., 2011 SCC 64, [2011] 3 S.C.R. 775, at para. 32, is a change that is substantial, continuing, and that "if known at the time, would likely have resulted in different terms." I accept the father’s evidence meets this standard.

24I must consider an interim section 7 order to take the parties through the fall, until such time as the mother produces evidence of the means and circumstances of the daughters. I find that in order to pay tuition and living expenses, the father will be required to deplete his capital. The father paid last year’s tuition and living expenses out of capital (house proceeds).

Mother’s Income and Means

25There is a significant dispute about the mother’s means, including assets. Her income is approximately C$157,051. She co-owns the Floyer Close property. She received C$903,972.06 from the sale of the matrimonial home in August 2017 but unlike her husband, did not pay a portion out to cover the section 7 expenses last year. There is a dispute about a Malaysian property disposed of after the separation. She is 100% owner of a different Malaysian property valued at C$1,975,906 at valuation date. She claims net annual rental losses on the property of C$93,811.92 in her September, 2018 financial statement (compared to net rental losses for the property of $32,425 in the July 2017 financial statement.) Whether the continued rental of the property makes sense financially is an issue for trial, but the property is an asset.

Section 7 Expenses

26Neither party addressed issues of the approach to child support under section 3(2) of the Child Support Guidelines, although the Court of Appeal has held that for adult children, an analysis under s. 3(2) of the Guidelines is required. Section 3(2)(b) of the Guidelines states:

Child the age of majority or over (2) Unless otherwise provided under these Guidelines, where a child to whom a child support order relates is the age of majority or over, the amount of the child support order is (a) the amount determined by applying these Guidelines as if the child were under the age of majority; or (b) if the court considers that approach to be inappropriate, the amount that it considers appropriate, having regard to the condition, means, needs and other circumstances of the child and the financial ability of each spouse to contribute to the support of the child.

27For the purposes of this motion, I note that the analysis under s. 3(2)(b) of the Guidelines and s. 7 of the Guidelines is likely similar for an adult child, as both require the court to take into account the means of the child and the spouses: Lewi v. Lewi, para. 117.

28Section 7(1)(e) of the Child Support Guidelines provides:

7. (1) In a child support order the court may, on either spouse’s request, provide for an amount to cover all or any portion of the following expenses, which expenses may be estimated, taking into account the necessity of the expense in relation to the child’s best interests and the reasonableness of the expense in relation to the means of the spouses and those of the child and to the family’s spending pattern prior to the separation: (e) expenses for post-secondary education.

29Subsection 7(2) sets out the “guiding principle” in apportioning Section 7 expenses between the spouses and, for adult children:

The guiding principle in determining the amount of an expense referred to in subsection (1) is that the expense is shared by the parents or spouses in proportion to their respective incomes after deducting from the expense, the contribution, if any, from the child. [Emphasis added]

30Section 7 mandates that the Court consider the necessity of the expense in relation to the child’s best interests as well as the reasonableness of the expenses in relation to the means of the spouses and those of the child, as well as the contribution, if any, from each child. I simply do not have enough information about the means and circumstances of the daughters to complete either a Guidelines section 3(2) or a section 7 analysis, and make orders with respect the missing information about the daughters.

31I question the reasonableness of the post-secondary expenses in the circumstances of this family. Tuition and rent (including deposit) for both daughters cost $148,901 annually. This is 60% of gross family income. Given the incomes of the parents, it is clear that each will have to pay for some of the expenses out of capital. Indeed, the father paid the first year expenses for both daughters out of capital. I am concerned that the post-secondary expenses sought may not be reasonable in the context of second and third degrees, the age of the father (61) and his lack of retirement income/pension, and the mother’s age (58). The father has requested, and I grant, an Order allocating costs on an interim basis 50/50 to the father and the mother, until such time as information is produced about the means of the daughters. This Order is without prejudice to the father to argue for a different allocation at trial or on further motion.

32The only expenses for which receipts or estimates have been provided are tuition and rent. Some allocation should probably be made for necessary living expenses; without evidence of food and appropriate living costs in London, and with no proper budget evidence provided to the court, I cannot set a figure for other reasonable and necessary living expenses. I expect the daughters to provide a reasonable and detailed budget for the parents to consider. At the start of term, N had C$15,308.98 in her bank account and T had $12,742.47, from the money advanced by the father for last year’s post-secondary expenses. I would expect them to use this money to fund food, transportation and other reasonable expenses in the interim.

33This interim allocation to each parent does not take into account what amount should be contributed by the adult children. N is pursuing her third degree, and T her second degree. The previous education for both daughters was in Canada, at a much lower cost.

34The daughters are not speaking to their father, and the mother seeks a contribution for section 7 expenses. Therefore, the mother must provide sufficient information about the means, needs and other circumstances of the adult daughters to allow the court to determine the contribution from the children, and the reasonableness of the expenses.

35I consider the factors set out by Justice Chappel in Menegaldo v. Menegaldo, 2012 ONSC 2915, at para. 157 as a useful guide to relevant factors in the context of adult children’s section 7 expense payments:

The courts have outlined a number of factors which should be considered in answering this question. The following is a collective list of some of the factors [internal citations omitted]…:

1. Whether the child is in fact enrolled in a course of studies and whether it is a full-time or part-time course of studies.
2. Whether the child has applied for or is eligible for student loans or other financial assistance, or has received any bursaries or scholarships, and if so, the amounts received.
3. The ability of the child to contribute to their own support through part time employment.
4. Whether the child has a reasonable and appropriate education and career plan, or whether they are simply attending an ongoing educational program because there is nothing better to do.
5. In reviewing the child’s education and career plan, important factors include the nature and quality of the plan, the duration of the proposed study period, the prospects of the child succeeding in the program, the potential benefit of the studies and the associated cost of the course of study.
6. The child’s academic performance, and whether the child is demonstrating success in the chosen course of studies.
7. The age, qualifications and experience of the child.
8. The aptitude and abilities of the child, their level of maturity and commitment and their sense of responsibility.
9. Whether the child is performing well in the chosen course of studies.
10. What plans the parents made for the education of their children, particularly where those plans were made during cohabitation. In considering this factor, the court should bear in mind that reasonable parents are ordinarily concerned about treating each of their children comparatively equally.
11. The means, needs and other circumstances of the parents and the child.
12. The willingness of the child to remain reasonably accountable to the parents with respect to their post-secondary education plans and progress. If a child is unwilling to remain accountable, or has unilaterally and without justification terminated their relationship with a parent, they may have difficulty establishing that they are unable to withdraw from parental charge based on a reasonable course of post-secondary education.

36In April, 2018, the father requested that the mother provide a significant amount of information relevant to the determination of the means of the adult children. The mother failed to provide the majority of the requested information. N and T each received C$100,000 from the father in August 2017. The budget presented to the father had included an estimate of rent for each of C$23,800; that expense was not incurred. The evidence provided by the mother is that N has $15,309 remaining after paying “food, transportation and sundries.” N has failed to account for $28,106.61 advanced by her father last year. The evidence is that T has C$12,742 after “food, transportation and sundries.” Thus, T. has failed to account for $30,552.05 advanced by her father last year.

37N is 26 and on her third degree; T is 23 on her second degree. Generally, as age and education increase, the onus of establishing dependence increases, and the greater the contribution expected from the adult child. In these circumstances, the reasonableness of the post-secondary plan, the cost of other alternatives (such as Canadian degrees), the contribution which can be made by the daughters, and the willingness of the daughters to be accountable for post-secondary funding becomes critical.

Order

38Interim order on section 7 expenses:

(1) If the mother continues to seek a contribution from the father for post-secondary expenses of the two daughters, then the mother to provide the father, within 60 days: (a) For each daughter, details of bursaries, grants, loans, and scholarships applied for or received from April 2017 to present, with a continuing obligation to disclose until trial; (b) For each daughter, description of all employment, work-study or internships from April 2017 to present, with a continuing obligation to disclose until trial; (c) For each daughter, proof of funds received from employment, work-study or internships, from April 2017 to present, with a continuing obligation to disclose until trial; (d) For each daughter, an accounting with supporting documentation indicating disbursement of the 2017 funds provided by Mr. Malek-Gilani; (e) Income tax returns filed by each daughter 2017 to the date of trial, with all schedules, and income tax assessments received; (f) Disclosure of money held in any of the daughter’s bank or investment accounts at present, with a continuing obligation to disclose until trial; (g) Disclosure of any other means of the daughters, including assets held by each daughter; (h) Details of the daughters’ current programs and cost of equivalent Canadian programs; (i) Monthly budget for other school-related expenses; (j) If any item is not produced within 60 days, then a sworn affidavit setting out all requests to obtain information and steps taken to obtain the information from the daughters.

(2) For 2019-2019 tuition and rent expenses sought on this motion, on an interim basis and without prejudice to the parties to argue for a different allocation at trial, mother and father to each pay 50% of these expenses as they become due;

(3) If the daughters seek contribution for 2018-2019 expenses other than the tuition and rent costs claimed on this motion, a monthly budget to be provided by each daughter each term with estimated expenses, and if requested, proof of expenses. The parents are to consider the budget requests and if both parents agree that the expenses are reasonable and eligible section 7 expenses, they are to contribute in the 50/50 ratio on a without prejudice basis;

(4) Mother to provide father: (a) Within 30 days, and updated within 15 days of any change, a summary of the academic plans of each child including details of the daughters’ current programs, their current course load (updated each term), and the projected completion date of programs; (b) Tuition invoices and receipts, within 7 days of receipt; (c) Proof of full-time enrollment in post-secondary education on a term basis, to be provided within 15 days of commencement of each term; (d) Proof of grades received on a term basis, within 30 days of release of grades;

(5) After receiving the information set out in paragraphs 1(a) through (i), the father has leave to bring a motion to vary this Order in respect of his required contribution to post-secondary education expenses;

(6) If the information in paragraph 1 (a) through (i) is not provided to the father within 60 days, the father has leave to bring a motion to dismiss the claim for him to contribute to post-secondary expenses;

(7) If the affidavit provided in accordance with paragraph 1(j) indicates that the daughters have refused or failed to cooperate in the provision of the financial information, then the father has leave to bring a motion to vary this Order to dispense with the requirement for any contribution by the father to further post-secondary education expenses.

(8) If the Floyer Close property is rented, order to go directing that the father's 50% of the rental funds be directed to cover the father’s allocation of interim tuition and rent of the daughters, together with any other post-secondary expenses to which both parents agree. Any such funds collected by mother on the father's behalf are to be so directed until the father's portion of tuition and rent are covered for the school year, at which point they are to be held in trust for the father and released to him at his request.

39If the parties are unable to agree on costs, then the father is to make written submissions by October 3, three pages plus costs outline and offers to settle; responding submissions by mother, three pages, together with offers to settle, by October 12. If the mother intends to take issue with the quantum of fees, then she must file her costs outline.