Superior Court of Justice – Ontario
NEWMARKET COURT FILE NO.: FC-18-56488-00
DATE: 20190726
RE: Mahsa Mizrahi, Applicant
AND:
Jan Mizrahi, Respondent
BEFORE: The Honourable Madam Justice H. McGee
COUNSEL: M. Lawson, Counsel for the Applicant
Respondent – Self-represented
HEARD: July 24, 2019
RULING ON MOTION
Motion Permitted to Proceed
[1] Mr. Mizrahi asks to vary Justice Nicholson’s February 27, 2019 temporary Order for child and spousal support which provides for monthly payments of $18,800 and $15,000 respectively, commencing March 1, 2019. The Order is based on a finding of 2016 income in the amount of $1,549,000. Justice Nicholson used 2016 income because it was the most recent, sufficiently evidenced income for support purposes.
[2] Since February 27, 2016 each party has obtained valuations of Mr. Mizrahi’s income for the years of 2017 and 2018. The respondent’s valuation was received April 11, 2019, and the applicant’s expert report is dated June 27, 2019. The valuations are as different from each other, as they are from the 2016 income of $1,549,000:
| Ms. Mizrahi’s Valuation | Mr. Mizrahi’s Valuation |
|---|---|
| 2017 $2,410,000 | $847,000 |
| 2018 $1,253,000 | $585,000 |
[3] Ms. Mizrahi opposes any change to this five month old temporary Order. Her counsel argues that the failure of Mr. Mizrahi to place current income information before the court last February should end the inquiry. She relies on Colivas v. Colivas[^1] in which Justice Charney concludes that “a party cannot rely on his own failure to provide adequate disclosure to argue that the decision based on inadequate disclosure should be given less deference. Mr. Colivas cannot ask for a “do-over” on a motion to vary because he has finally provided the relevant documents.
[4] I would distinguish Colivas from the facts on this case. Mr. Mizrahi is a fund manager who earns personal income, dividend income, investment income and capital gains. He is the sole shareholder of JM Fund Management Inc. and JM Catalyst Genpar Ltd. The calculation of his income is complicated and requires expert assistance – particularly with respect to capital dividends which are generally paid in March of the taxation year following the year in which they were earned. I accept his submission that it would not have been possible to deliver proof of his 2018 dividends by February 20, 2019.
[5] A motions judge must rely on the evidence before him or her. When that evidence changes significantly there is jurisdiction to change a temporary Order without the need to establish a material change in circumstances as contemplated by section 15.2(2) of the Divorce Act.
[6] The valuations demonstrate a substantial change in Mr. Mizrahi income since 2016. The Divorce Act requires that support be paid from current income. With 2018 income information now available, I am of the view that this more recent evidence ought to form the basis for an Order going forward. I decline to dismiss Mr. Mizrahi’s motion.
Initial Review of Valuations
[7] At this early stage, prior to cross-examinations and the verification of key facts, an income valuation must be approached with caution. What documents and information were made available to the valuator? What assumptions were employed? How much information was self-reported by the payor, and how much was independently verified?
[8] Mr. Mizrahi’s valuation made a number of key assumptions:
All representations from Mr. Mizrahi were accurate and comprehensive, as the valuator did not audit or seek external verification of the information provided.
The actual dividends received in 2017 and 2018 were not grossed up because the valuator did not believe the amounts to be significant (although the grossed up amounts were provided within the notes to the Schedule).
The actual capital gains received in 2017 and 2018 were not grossed up because the valuator did not consider them to be significant (and again, the grossed up amounts were provided within the notes to the Schedule).
The valuator excluded from Mr. Mizrahi’s income valuation any unrealized capital gains up to his stated date of separation: April 30, 2019[^2] (Ms. Mizrahi claims a July 7, 2017 date of separation).
No personal expenses were attributed to Mr. Mizrahi or a related party in either 2017 or 2018.
No pre-tax corporate income net of dividends from JM Fund was attributed to Mr. Mizrahi in either 2017 or 2018 (pre-tax corporate income was $146,792 in 2017, and $55,958 in 2018).
No pre-tax corporate income net of dividends earned from JM Catalyst before April 30, 2017 was attributed to Mr. Mizrahi (pre-tax corporate income of $405,446 in 2017 was reduced by the $255,599 earned prior to April 30, 2019).
JM Catalyst earned no pre-tax corporate income, net of dividends in 2018: dropping from $405,446 in 2017 to ($1,080) in 2018.
A capital dividend of $685,736 earned in 2016 but paid on March 21, 2017 was not included in 2017 income because it was assumed to have been included in Mr. Mizrahi’s net family property as an asset to be equalized.
A capital dividend of $392,892 paid to Mr. Mizrahi on March 22, 2018 was not included in his 2018 income because it was assumed to have been earned in the prior fiscal year. When read with the 2017 income report, this dividend effectively disappears – presumably into Mr. Mizrahi’s net family property, as does the $685,736.
[9] Ms. Mizrahi’s valuation of 2017 and 2018 income also relies on the information as provided as there was no opportunity to verify or fact check. Her valuation added in the tax gross-ups on the dividends, capital gains and capital dividends.
[10] Information that was specifically not made available to Ms. Mizrahi’s valuator, despite being requested were the adjusting journal entries, trial balances, leadsheets or other grouping summaries for JM Catalyst in 2017 and 2018; and the sources of other investment income, dividends, interest and business income, such as S. & Z. Mizrahi Investments Ltd.
[11] Ms. Mizrahi’s valuation noted a year over year increase in management fees earned by JM Fund from approximately $500,000 in 2014 to $870,000 in 2018 and an unexplained drop in performance fees earned by JM Catalyst from 2017 to 2018 ($405,446 to ($1,080).
[12] Her valuation added in the tax gross-ups on the dividends, capital gains and capital dividends.
[13] The primary difference in Ms. Mizrahi’s valuation is the inclusion of pre-tax corporate income from each of JM Fund and JM Catalyst.
[14] For extensive reasons set out in the report, they disagree with an approach that would exclude this form of income. The valuator points to an understatement of excess working capital in each company and Mr. Mizrahi’s absolute discretion in the determination of his salary. There is a view that his income may be assessed in a higher amount once the outstanding disclosure is received, particularly a listing of personal expenses.
Do the Reports Support a Finding of Income Different from $1,549,000?
[15] I find that they do. The 2016 valuation of income relied upon by Justice Nicholson was largely based on the inclusion of a capital dividend of $685,736 earned in that year but paid on March 21, 2017. Specifically, the amount of $685,736 was the attribution of 100% of the pre-tax corporate income of JM Catalyst in 2016 (which amount is now being proposed by Mr. Mizrahi’s valuator as being more property included in his net family property).
[16] Depending on the approach taken at trial, it is arguable that the 2017 pre-tax corporate income of $405,446 ought to be reduced by the $255,599 earned prior to April 30, 2019 (which also becomes date of separation property whether as of April 30, 2017 or July 7, 2017). In 2018, for reasons that are yet to be evidenced, JM Catalyst is shown as having had no pre-tax corporate income.
[17] This initial review of the valuations satisfies me that there is a triable issue as to the amounts of pre-tax corporate income that will be properly placed as an asset (i.e. a dividend – or savings traced from a dividend) on the date of separation and the amounts that will be included as income for support purposes. There will also be a triable issue as to how much of the pre-tax corporate income from JM Fund and JM Catalyst ought to be added back into income.
[18] There will be no issue that the actual dividends and capital gains received in 2017 and 2018 must be grossed up, or that personal expenses paid by the corporation must be included in income.
[19] There may be additional issues and corrections following receipt of the outstanding disclosure. There will need to be an understanding of the precipitous post-separation drop in JM Catalyst earnings and the treatment of unrealized capital gains.
[20] If I amalgamate Mr. Mizrahi’s self-determined salary – which has changed little in the past three years – include the gross-ups on dividends and capital gains, include some amount for personal expenses paid by the corporation, blend the opposite assessments of the valuators as to the inclusion of pre-tax corporate income from each of JM Fund and JM Catalyst and take a critical view of the outstanding disclosure,[^3] I arrive at a finding of 2018 income for support purposes in an approximate amount of $750,000.
Does an Income of $700,000 Change the Amounts of Child and Spousal Support?
Yes and No
[21] The table amount of monthly child support on income of $750,000 is $9,277. I was not asked to consider an amount other than the table amount. I am prepared to make this Order.
[22] I am not prepared to change Justice Nicholson’s Order for spousal support. He specifically rejected the applicant’s claim for $32,020 per month in spousal support, (the mid-range on income of $1,549,000) finding instead that the amount of $15,000 per month is the appropriate amount of support that best meets the objectives of the Divorce Act. I wholly adopt his reasoning.
[23] The mid-range for spousal support on a Spousal Support Advisory Guidelines calculation using payor income of $750,000 is $16,983 per month.[^4] I see no basis to reduce the amount of $15,000 per month in spousal support, particularly as Ms. Mazrahi is spending some of her support on the costs of maintaining the Theordore home, which is owned by Mr. Mazrahi.
Order
Justice Nicholson’s temporary Order of February 20, 2019 shall not be varied but for the amount of table child support set out in paragraph 1.
Commencing August 1, 2019, the respondent shall pay temporary child support in the amount of $9,277 per month for Yasmin Leah Mizrahi born September 27, 2009 and Ayla Sarah Mizrahi born May 11, 2012.
The amounts of child and spousal support paid pursuant to this Order, the February 20, 2019 Order and the October 30, 2017 consent shall be a credit to the final Order.
Support Deduction Order to issue.
Costs
[24] If the parties are unable to agree on costs, the respondent’s costs submissions shall be served and filed by August 9, 2019; the applicant’s costs submissions shall be served and filed by August 23, 2019; and the respondent’s Reply shall be served and filed by August 30, 2019. Costs submissions shall not exceed three typed pages plus copies of any Offers, or Bills of Costs to be filed in the Continuing Record. Once the parties have filed their costs submissions in the Continuing Record, please confirm that you have done so by emailing my assistant at nurit.suzana@ontario.ca. If no costs submissions are received by August 23, 2019 no costs shall be payable by either party. No case briefs required, only a full citation of any cases relied upon.
Justice H. McGee
Date: July 26, 2019
[^1]: 2016 ONSC 715 [^2]: Specifically, the valuator writes that “[t]o avoid double dipping, it may be appropriate to exclude the unrealized portion of the capital gains relating to these two stocks which has already been equalized from Mr. Mizrahi’s income for 2017” The valuator uses this approach throughout, seemingly unaware that the equalization payment has not been agreed. Nonetheless, it is helpful to see the interplay between property and income. In 2017 the excluded gain as of April 30 was $191,077. [^3]: Particularly as it relates to the proposed drop of performance fees earned by JM Catalyst from $405,446 to ($1,080). [^4]: $15,416 (low) - $16,983 - (mid) $18,618 (high) With no income earned by the recipient. If she were to earn fulltime minimum wage, the spousal support would drop to (rounded) $16,200.